Highlights of Tax Cuts and Job Act

Jan 9, 2018 | Helpful Articles

(this Act will apply to the 2018 returns filed in 2019)

Income Taxes

The Act keeps the seven income tax brackets but lowers tax rates. Employees will see changes reflected in their withholding in February 2018 paychecks. These rates revert to the 2017 rates in 2026.

The Act creates the following chart. The income levels will rise each year with inflation. But they will rise more slowly than in the past because the Act uses the chained consumer price index. Over time, that will move more people into higher tax brackets.

Corporate Tax Rate

21 percent, beginning in 2018

Corporate Alternative Minimum Tax

Repealed

Individual Alternative Minimum Tax

Increase the exemption to $70,300 for singles and $109,400 for joint filers. Increase the phase-out threshold to $500,000 for singles and $1 million for joint filers. The higher limits would expire on Jan. 1, 2026.

Standard Deduction and Personal Exemptions

Current law: $6,350 standard deduction for single taxpayers and $12,700 for married couples, filing jointly. Personal exemptions of $4,050 allowed for each family member.

New law: $12,000 standard deduction for single taxpayer and $24,000 for married couples, filing jointly. Personal exemptions repealed.

Expensing Equipment

Businesses could fully and immediately deduct the cost of certain equipment purchased after Sept. 27, 2017 and before Jan. 1, 2023. After that, the percentage of cost that could be immediately deducted would gradually phase down. Increases the section 179 expensing cap from $500,000 to $1 million.

Repatriation

U.S. companies’ overseas income held as cash would be subject to a 15.5 percent rate, while non-cash holdings would face an 8 percent rate. Companies can make the payments in eight annual installments.

Pass-Through Deduction

Current law: Pass-through businesses, which include partnerships, limited liability companies, S corporations and sole proprietorships, pass their income to their owners, who pay tax at their individual rates.

New law: Owners of Pass-through entities (Non-Service Organizations) may be eligible to deduct 20 percent of their qualified business income. If the owner’s taxable income is below $315,000 for married filing joint or $157,500 for individuals the deduction is 20%. If the owner’s income exceeds the threshold the deduction is the lesser of 20% of its business income or 50% of the total wages paid by the business to its employees.

Owners of Pass-through service organizations are able to deduct 20% of qualified business income if the owner’s taxable income is below $315,000 for married filing joint or $157,000 for single individuals. The 20% deduction is completely phased out over the owners next $100,000 of income over the threshold for married filing joint and $50,000 for single individuals.

Affordable Care Act Individual Mandate

Current law: An individual who fails to buy health insurance must pay penalties of $695 (higher for families) or 2.5 percent of their household income—whichever is higher, but capped at the national average cost of the most basic, low-premium, high-deductible plan.

Repeal of the penalties for 2019.

Individual State and Local Tax Deductions

Current law: Individuals can deduct the state and local taxes they pay, but the value is subject to certain limits for high earners.

New law: Individuals can deduct no more than $10,000 worth of deductions, which could include a combination of property taxes and either sales or income taxes.

Mortgage Interest Deduction

Current law: Deductible mortgage interest is capped at loans of $1 million.

New law: Deductible mortgage interest for new purchases of first or second homes would be capped at loans of $750,000 starting Jan. 1, 2018.

Medical Expense Deduction

Current law: Qualified medical expenses that exceed 10 percent of the taxpayer’s adjusted gross income are deductible.

New law: Reduce the threshold to 7.5 percent of AGI for 2017 and 2018.

Child Tax Credit

Current law: A $1,000 credit for each child under 17. The credit begins phasing out for couples earning more than $110,000. The credit is at least partially refundable to qualified taxpayers who earned more than $3,000.

New law: Doubles the credit to $2,000 and provide it for each child under 17 through year 2025. Raise the phase-out amount to $400,000 married filing joint, and cap the refundable portion at $1,400 per qualified child in 2018.

Estate Tax

Current law: Applies a 40 percent levy on estates worth more than $5.49 million for individuals and $10.98 million for couples.

New law: Double the thresholds so the levy applies to fewer estates. The higher thresholds would sunset in 2026.

Information Returns – Forms 1099

Jul 11, 2014 | Helpful Articles

For every business tax return that we prepare, Forms 1120, 1120S, 1065 and Schedules C,E and F that are included with Form 1040, the following question is asked by the Internal Revenue Service.

• Did you make any payments that would require a form 1099 to be issued to any individual. If you answer Yes to that question, then you must answer the second question.
• If a form 1099 was required to be issued, did you issue that form 1099. We must answer these two questions on every return that we prepare.

In December, we send out a Year-End letter to all of our clients reminding them of this responsibility and if the clients want us to prepare those forms for them, we would be happy to do that, and to provide us with the information needed to prepare those forms. We need the name of the recipient, the address and social security number and the amount paid to the recipient. The requirements for filing these various 1099 forms are as follows:

• Form 1099 Dividends – for dividends paid in the amount of $10 or more
• Form 1099 Interest – for interest paid in the amount of $10 or more
• Form 1099 Miscellaneous – for rents or services rendered and paid in the amount of $600 or more

There are numerous other forms 1099, but these are the most common forms that we see in our practice. The forms 1099 are due to the recipients by January 31 and to the Internal Revenue Service by February 28 of the following year. The due date for filing forms 1099 and W-2s that are filed electronically is March 31. We do file these forms electronically if we prepare them. There is a three tiered penalty system in place for Information returns that are filed late or not filed.

• If the returns are not filed by the due date, the penalty is $30 per return if filed within 30 days after the due date.
• If the returns are filed 30 days after the due date but before August 1, the penalty is $60 per return.
• If the returns are not filed by August 1, the penalty is $100 per return.

We recently had a client’s tax return audited by the Internal Revenue Service in our office that makes the filing of these information returns a more serious matter. The taxpayer did not attempt to ascertain the social security number of the individual that they paid in excess of $600 annually for rent. As a consequence of this inaction, no form 1099 Miscellaneous was issued to this recipient by the taxpayer. The Internal Revenue Service attempted to bill the client for the tax that should have been paid by the taxpayer, because the client did not attempt to get the social security number of the recipient. On what grounds did the Internal Revenue Service have the right to ascertain the tax from our client? They exercised the Back-Up withholding rules and regulations for not issuing forms 1099 and for not attempting to get the social security number of this recipient. We were able to prove to the IRS that the recipient did indeed pay the tax on the rental income by having the taxpayer complete Form 4669. This form states to the Internal Revenue Service that the tax was paid on the income received. We prevailed on this issue, but the recipient was not required to complete this Form 4669, and we could have had a real problem in this case. Our advice to all of our clients that pay individuals, Limited Liability Companies, Partnerships or other non corporate entities for services or rents, is that they must have a completed Form W-9 in the file, before payment is made to any entity. The information contained on the Form W-9 is the information that is needed to complete the Form 1099.

If you have any questions or comments on this article, please call our office. Just remember that we will be asking you if you prepared the forms 1099 for every tax return that we prepare.

John M. Manning