Tax Cuts and Jobs Act (TCJA) Overview 1.5

“The new law increases the credit for qualifying children (i.e., children under 17) to $2000 from $1000, and increases to $1,400 the refundable portion of the credit. It also introduces a new (nonrefundable) $500 credit …”

An overview of the Tax Cuts and Jobs Act

The recently enacted Tax Cuts and Jobs Act (TCJA) represents major changes our nation’s tax code.

Here’s a look at some of the more important elements of the new law that have an impact on individuals. Unless otherwise noted, the changes are effective for tax years beginning in 2018 through 2025. That’s right. The next seven (7) years.

 

  • Tax Rates.  The new law imposes a new tax rate structure with seven tax brackets: 10%, 12%, 22%, 24%,  32%, 35%, and 37%. The top rate was reduced from 39.6% to 37% and applies to taxable income above $500,000 for single taxpayers, and $600,000 for married couples filing jointly. The rates applicable to net capital gains and qualified dividends were not changed. The ‘kiddie tax’ rules were simplified. The net unearned income of a child subject to the rules will be taxed at the capital gain and ordinary income rates that apply to trusts and estates. Thus, the child’s tax is unaffected by the parent’s tax situation or the unearned income of any siblings.
  • Standard Deduction.  The new law increases the standard deduction to $24,000 for joint filers, $18,000 for head of household, and $12,000 for single and married taxpayers filing separately. Given these increases, many taxpayers will no longer be itemizing deductions. These figures will be indexed for inflation after 2018.
  • Exemptions.  The new law suspends the deduction for personal exemptions. Thus, starting in 2018, taxpayers can no longer claim personal or dependency exemptions. The rules for withholding income tax on wages will be adjusted to reflect this change, but IRS was given the discretion to leave the withholding unchanged for 2018.
  • New deduction for “qualified business income.”  Starting in 2018, taxpayers are allowed a deduction equal to 20 percent of “qualified business income,” otherwise known as “pass-through” income, i.e., income from partnerships, S corporations, LLCs and sole proprietorships. The income must be from a trade or business within the U.S. Investment income does not qualify, nor do amounts received from an S Corporation as reasonable compensation or from a partnerships a guaranteed payment for services provided to the trade or business. The deduction is not used in computing adjusted gross income, just taxable income. For taxpayers with taxable income above $ 157,500 ($315,000 for joint filers), (1) a limitation based on W-2 wages paid by the business and depreciable tangible property used in the business is phased in, and (2) income from the following trades or businesses is phased out of qualified business income: health, law, consulting, athletics, financial or brokerage services, or where the principal asset is the reputation or skill of one or more employees or owners.
  • Child and family tax credit.  The new law increases the credit for qualifying children (i.e., children under 17) to $2000 from $1000, and increases to $1,400 the refundable portion of the credit. It also introduces a new (nonrefundable) $500 credit for a taxpayer’s dependents who are not qualifying children. The adjusted gross income level at which the credits begin to be phased out has been increased tp $200,000 ($400,000 for joint filers).
  • State and local taxes. The itemized deduction for state and local income and property taxes is limited to a total of $10,000 starting in 2018.
  • Mortgage interest. Under the new tax law, mortgage interest on loans used to acquire a principal residence, and a second home is only deductible on debt up to $750,000 (down from $1 million), starting with loans taken out in 2018. And there is no longer any deduction for interest on home equity loans, regardless of when the debt was incurred.
  • Miscellaneous itemized deductions. There is no longer a deduction for miscellaneous itemized deductions which were formerly deductible to the extent they exceeded 2 percent of adjusted gross income. This category included items such as tax preparation costs, investment expenses, union dues, and unreimbursed employee expenses. So, all of your auto expenses, for example, are no longer deductible.
  • Medical expenses. Under the new law, for 2017 and 2018, medical expenses are deductible to the extent they exceed 7.5 percent of adjusted gross income for all taxpayers. Previously, the AGI “floor” was 10% for most taxpayers.
  • Casualty and theft losses. The itemized deduction for casualty and theft losses has been suspended except for losses incurred in a federally declared disaster. So, if you are renter, or a coop or condo or dwelling owner who lacks comprehensive coverage for your personal property, now is the time to purchase coverage.
  • Overall limitation. The new law suspends the overall limitation on itemized deductions that formerly applied to taxpayers whose adjusted gross income exceeded specified thresholds. The itemized deductions of such taxpayers were reduced by 3% of the amount by which AGI exceeded the applicable threshold, but the reduction could not exceed 80% of the total itemized deductions, and certain items were exempt from the limitation.
  • Moving expenses. The deduction for job-related moving expenses has been eliminated, except for certain military personnel. The exclusion for moving expense reimbursements has also been suspended.
  • Alimony. There is some truth in the old song, “It’s Cheaper To Keep Her.” For post-2018 divorce decrees and separation agreements, alimony will not be deductible by the paying spouse and will not be taxable to the receiving spouse.
  • Health care “individual mandate.” Starting in 2019, there is no longer a penalty for individuals who fail to obtain minimum essential health coverage. (This will probably lead to fewer Americans purchasing health insurance, and more states reducing or eliminating Medicaid contributions for health care plans.)
  • Estate and gift tax exemption. Effective for decedents dying , and gifts made, in 2018, the estate and gift tax exemption has been increased to roughly $11.2 million ($22.4 million for married couples).
  • Alternative minimum tax (AMT) exemption. The AMT has been retained for individuals by the new law but the exemption has been increased to $109,400 for joint filers ($54,700 for married taxpayers filing separately), and $70,300 for unmarried taxpayers. The exemption is phased out for taxpayers with alternative minimum taxable income over $1 million for joint filers, and over $500,000 for all others.

As you can see from this overview, the new law affects many areas of taxation. I plan to hold at least one (1) public seminars in Brooklyn, to ‘drill down’ into just how the new law will affect you. There will be a fee charged for attendance at these seminars to offset the cost of the venue, and painkillers.

Eustace L. Greaves, Jr., LUTCF is a frequent presenter in the areas of personal insurance, personal income taxation,  and budget and credit strategies for many organizations, including, Neighborhood Housing Services of NYC, Inc., HCCI, Impacct Brooklyn, and Bridge Street Development Corporation. He is a New York State licensed insurance agent and broker, and  NYS Defensive Driving Delivery Agent and Instructor.

You can reach Eustace at Eustace@insuremeeg.com, or 718-783-2722.

 

Tax Tips for Rental Property Owners , Part 1

Certain rental property expenses can be deducted from your rental property income to determine your profit or loss for a given tax year.

Time for Rental Property Owners to prepare for next year’s income tax return

With the end of the 2016 income tax filing season, it seems a good time to review two tax tips for rental property owners where there is partial personal use or not personal use of an owned dwelling.

This post will address which expenses are deductible. The next post will address the difference between repairs and improvements and how the different ways each can affect your income tax return.

What are deductible rental property expenses?

Certain rental property expenses can be deducted from your rental property income to determine your profit or loss for a given tax year. Some of the expenses you can deduct in the tax year you pay them are:

  • Mortgage interest
  • Real estate taxes
  • Property insurance
  • Utilities
  • Cleaning and maintenance costs
  • Supplies  (For example, garbage bags, brooms and mops used only to maintain the rental property. No fair bringing your broom from home to take care of the rental property)
  • Pest control
  • Lawn care and landscaping
  • Trash
  • Repairs, including the cost of labor
  • Credit and employment checks for tenants
  • Management fees if you use the services of an outside property manager
  • Legal or professional fees
  • Travel expenses (Keep records of automobile mileage, and taxi, train, and bus fees for all of those trips to Home Depot or to your local hardware or plumbing supply stores)
  • Advertising (The cost of placing ads for rental apartments in local papers)
  • Utilities (National Grid, Consolidated Edison, New York City Water and Sewer, and payments made to your oil company.

Why you need a separate checking account for your rental property

Owning a rental property is completely different from owning a one-family home. To make sure your experience as a rental property owner is a profitable one, get a separate checking account which you will use only for all of your rental property income and expenses. This account will accomplish two important tasks:

  1. All income and expenses for the rental property will flow into and from this separate account, making it easier for you to track what you spend to maintain the property and the income you’re receiving. This is easier than trying to remember if a certain Home Depot entry was for the book-case in your living room, or a new ladder for your rental property.
  2. Once all the income and expense information for your rental property is in one place, gathering the information necessary to prepare your income taxes is much simpler.   Since the 75 days of income tax preparation season are not the time to finally try to make sense of your financial life for the past year, I give a small discount to those clients who come in with all of their expenses on one or two pieces of paper.. If I must do client recordkeeping, the client will pay a premium for the extra time and energy I must expend to complete their return.

The costs of maintaining your one-family personal home are not deductible.

It’s important to know how the owners of a one-family dwelling they personally occupy are limited about how certain expenses affect their personal income tax return. With a one-family home, you can only itemize your mortgage interest, and real estate taxes. It is imperative to keep records of any improvements made to the house as this will increase the basis when the house is sold, resulting in a lower possible tax bill.

You can find more about this subject in Publication 527 on the Internal Revenue Services website, https://www.irs.gov/pub/irs-pdf/p527.pdf .

Income Tax Returns Aren’t Toilet Paper

“When did the preparation of income taxes become a commodity item carrying the same importance as a roll of toilet paper? What’s next, buy computer time and prepare your return yourself? The business of preparing income taxes is an important calling, and your choice of an income tax preparer should neither be based solely on how big a refund they promise to get you, (which is illegal, by the way), nor by how little they charge. Instead, ask your preparer the following questions:”

Income tax returns are not toilet paper.

Today, while driving through my home city of Brooklyn, NY, I passed the office of a national income tax preparation franchise. They had a sign outside their office that read, “$50.00 off your income tax return today!!”

Get Your Toilet Paper Here!

When did the preparation of income taxes become a commodity item carrying the same importance as a roll of toilet paper? What’s next, buy computer time and prepare your return yourself? The business of preparing income taxes is an important calling, and your choice of an income tax preparer should neither be based solely on how big a refund they promise to get you, (which is illegal, by the way), nor by how little they charge. Instead, ask your preparer the following questions:
  • How many CPE classes did you attend last year?
  • Which, if any, professional organizations do they belong to?
  • What percentage of the returns you prepare are audited each year?
  • Do they have a Federal PTIN?
  • Do they have a New York State Tax Preparer Certificate of Registration?
  • If they must relocate their office, how will they inform you of their new address?
  • For how many years have they prepared income taxes?
  • Are they aware of the EITC Due Diligence rules?
  • Will you sign my income tax return?
  • What is their Privacy Policy regarding the protection of your personal information?
  • Do they make up their own itemized deductions so you will receive a larger refund?
  • How many times have they been cited for filing fraudulent income tax returns?

Bottom line, stop worrying about today’s sale on income tax preparation. I’d be more concerned about the skills and professional manner of who is preparing my return.

In addition to providing his clients and seminar attendees (many of whom become his clients), with insurance and income tax strategies and solutions, Eustace L. Greaves Jr.,  also prepares income tax returns for over 150 of his clients annually. To contact Eustace L. Greaves Jr., about his insurance and income tax services, feel free to call him at 718-783-2722, or by email to Eustace@insuremeeg.com.

10 Top Reasons You Need A New Tax Preparer |

“Some of you though really don’t know whether or not you are in any danger of an audit which will make your hard-earned money leave your wallet. You aren’t aware of the many subtle ways you can find yourself in hot water with taxing authorities, but you have this nagging ache in the pit of your stomach every time you sign your return. And the thought of taking a group picture while doing 2-5 for tax fraud really doesn’t appeal to you.”

10 Top Reasons Why It’s Time For You To Get A New Income Tax Preparer

Well, soon another new and exciting (Another Federal government shutdown, anyone?) income tax filing season will begin. And as visions of income tax refunds dance in your heads, it is a good time to think about who you will hire to prepare your income tax return next year.

From some of you, it’s a no-brainer: Your last preparer’s actions placed you on the IRS watch list which is akin to being on the world’s worst financial no-fly list.

Some of you though really don’t know whether you are in any danger of an audit which will make your hard-earned money leave your wallet. You aren’t aware of the many subtle ways you can find yourself in hot water with the taxing authorities, but you have this nagging ache in the pit of your stomach every time you sign your return.  And the thought of taking a group picture in stir while doing 2-5 for tax fraud really doesn’t appeal to you.

So here at the Afternoon Show Before My Nap with your host, Eustace L. Greaves Jr., I thought this was a great time to check  the 10 Top Reasons Why It’s Time For You To Get A New Income Tax Preparer!

Reason number 10:

You own and live in a two-family home. Your tenant pays you $12,000.00 in rent, and you have use of 75% of the house. Your tax preparer, knowing you need a big refund, depreciated the house at 100% and shows only $6,000.00 in rental income on your return.

Reason number 9:

You haven’t been to church, any church, in the last 20 years. Yet each year, your preparer says you can claim $10,000. For going to a Church named Church.

Reason number 8:

You receive certified, return receipted correspondence from the IRS. When you show it to your preparer, she smiles and tells you don’t worry, they just want to make sure you receive your thank you note.

Reason number 7:

You’re a receptionist at a medical center. You earn $30,000 each year. Your preparer, preparing Schedule A, gives you itemized deductions of $9,000.00 for uniforms, $3,000.00 for educational seminars, and  $2,000.00 for business-related travel.

Reason number 6:

Lost your 1099 Int and 1099 Div forms? “No worries”, says your preparer. “The IRS doesn’t worry about interest or dividends under $75.”

Reason number 5:

Your return shows three (3) brand-new dependents you’ve never met.

Reason number 4:

Your preparer guarantees you everyone qualifies for the Earned Income Tax Credit. “You earned an income last year, didn’t you?”

Reason number 3:

You ask your preparer if they have a PTIN and they tell you they’ve never liked certain foreign sports cars.

Reason number 2:

Your preparer relocates each year. Luckily you find them. Again.

And now the number one reason Why It’s Time For You To Get A New Income Tax Preparer is:

Your preparer tells you, “Don’t worry, my system never fails. I know how to get you the best refund you’ve ever gotten.”

Thanks for reading. And just in case you don’t understand why these are bad things, you can watch this blog for more information,  give me a call at 718-783-2722 or send me an email at Eustace@insuremeeg.com.

Eustace L. Greaves Jr., is a business owner who provides integrated insurance and income tax strategies and solutions for his clients. He does, however, hate telling you your last tax preparer’s errors have you owing the IRS really big money.

10 Top Reasons It’s Time For You To Get A New Income Tax Preparer

So I thought this an opportune time to review my “10 Top Reasons It’s Time For You To Get A New Income Tax Preparer,” list. Then, in my next post, we’ll review why any of these reasons could definitely be a reason for a great deal less holiday joy for years to come.

Ah, the holidays, the holidays…

The leftover Thanksgiving turkey still rumbles in your gut and Black Friday is, for the merchants at least, just a happy memory. We’ve trimmed the Christmas tree, hung the lights, and kept spiking the eggnog.  Then, we took the tree apart and stored the decorations until next years. And now, one special thought begins to fill the minds of people everywhere…

…Income tax filing season is here!

So I thought this an opportune time to review my “10 Top Reasons It’s Time For You To Get A New Income Tax Preparer,” list. Then, in the next three (3) or four (4) posts, we’ll learn why any of these reasons could definitely cause a great deal less holiday joy for years to come.

Let’s just hope there aren’t too many of you already on a first-name basis with an IRA auditor because of your current tax advisor.

Reason number 10:

You own and live in a two-family home. Your tenant pays you $12,000.00 in annual rent, and you have use of 75% of the house. Your preparer, knowing you need a big refund, depreciates the house at 100% and shows only $6,000.00 in rental income for the entire year on your return.

Reason number 9:

You haven’t been to church, any church, in the last 20 years. Yet each and every year, your preparer says you can claim $10,000. For worshiping at a Church named Church.

Reason number 8:

You receive certified, return receipted correspondence from the IRS. When you show it to your preparer, she smiles and tells you not to worry, they just want to make sure you received your thank you note.

Reason number 7:

You’re a receptionist at a medical center. You earn $30,000 each year. Even though you never leave your desk, wear everyday clothes to work, and haven’t seen the inside of a classroom for 20 years, your preparer gives you generous itemized deductions of $9,000.00 for uniforms, $3,000.00 for educational seminars, and $2,000.00 for business-related travel on a Schedule A. Oh, and he reminds you your twice-monthly hair and nail appointments are deductible too.

Reason number 6:

Lost your 1099 Int’s and Div’s? “No worries”, says your preparer. “The IRS doesn’t worry about interest or dividends under $75.”

Reason number 5:

Your return shows three (3) brand-new dependents you’ve never met.

Reason number 4:

Your preparer guarantees you everyone qualifies for the Earned Income Tax Credit. “You earned an income last year, didn’t you?”

Reason number 3:

You ask your preparer if they have a PTIN and an NYPTRIN. He tells you he prefers to drive domestic vehicles.

Reason number 2:

Your preparer relocates each year. Luckily you find them. Again. (See Reason number 8, above)

And now the number one reason “Why It’s Time For You To Get A New Income Tax Preparer,” is:

Your preparer assures you he or she, “Knows how to get you the biggest refund you’ve ever received.”

 The next post will deal with reasons one (1) , two (2) and three (3).

Hey, who said we were going in order.

Until next time, start gathering and itemizing those receipts.

Peace and Blessings,

BrooklynCovered