Get Ready for Taxes: Here’s how the new tax law revised family tax credits

Experienced Tax Accountant – More families will be able to get more money under the newly-revised Child Tax Credit, according to the Internal Revenue Service.

The Tax Cuts and Jobs Act (TCJA), the tax reform legislation passed in December 2017, doubled the maximum Child Tax Credit, boosted income limits to be able to claim the credit, and revised the identification number requirement for 2018 and subsequent years. The new law also created a second smaller credit of up to $500 per dependent aimed at taxpayers supporting older children and other relatives who do not qualify for the Child Tax Credit.

Here are some important things taxpayers need to know as they plan for the tax-filing season in early 2019:

Child Tax Credit increased

Higher income limits mean more families are now eligible for the Child Tax Credit. The credit begins to phase out at $200,000 of modified adjusted gross income, or $400,000 for married couples filing jointly, which is up from the 2017 levels of $75,000 for single filers or $110,000 for married couples filing jointly.

Increased from $1,000 to $2,000 per qualifying child, the credit applies if the child is younger than 17 at the end of the tax year, the taxpayer claims the child as a dependent, and the child lives with the taxpayer for more than six months of the year. The qualifying child must also have a valid Social Security Number issued before the due date of the tax return, including extensions.

Up to $1,400 of the credit can be refundable for each qualifying child. This means an eligible taxpayer may get a refund even if they don’t owe any tax.

New Credit for Other Dependents

A new tax credit – Credit for Other Dependents — is available for dependents for whom taxpayers cannot claim the Child Tax Credit. These dependents may include dependent children who are age 17 or older at the end of 2018 or parents or other qualifying relatives supported by the taxpayer.

If you would like to discuss how these changes affect your particular situation, and any planning moves you should consider in light of them, please give me a call.

Very truly yours,

Amare Berhie, Senior Accountant     

CEO, ABA Tax Accounting

CFO Services http://youtu.be/EYJdQtbPZAI

http://abataxaccounting.com/salestaxproblem.php

amare@abataxaccounting.com        

(651) 300-4777

Tax Cuts and Jobs Act on Deductions: A comparison for businesses

The Tax Cuts and Jobs Act ("TCJA") changed deductions that affect businesses. This side-by-side comparison can help businesses understand the changes and plan accordingly.

Changes to Deductions

Deductions	2017 Law	What changed under TCJA
New deduction for qualified business income of pass-through entities	No previous law for comparison. This is a new provision.	This new provision, also known as Section 199A, allows a deduction of up to 20% of qualified business income for owners of some businesses. Limits apply based on income and type of business.
Limits on deduction for meals and entertainment expenses	A business can deduct up to 50% of entertainment expenses directly related to the active conduct of a trade or business or incurred immediately before or after a substantial and bona fide business discussion.	The TCJA generally eliminated the deduction for any expenses related to activities considered entertainment, amusement or recreation. However, under the new law, taxpayers can continue to deduct 50% of the cost of business meals if the taxpayer (or an employee of the taxpayer) is present and the food or beverages are not considered lavish or extravagant. The meals may be provided to a current or potential business customer, client, consultant or similar business contact.  If provided during or at an entertainment activity, the food and beverages must be purchased separately from the entertainment, or the cost of the food or beverages must be stated separately from the cost of the entertainment on one or more bills, invoices, or receipts.
New limits on deduction for business interest expenses	The deduction for net interest is limited to 50% of adjusted taxable income for firms with a debt-equity ratio above 1.5. Interest above the limit can be carried forward indefinitely.	The change limits deductions for business interest incurred by certain businesses. Generally, for businesses with 25 million or less in average annual gross receipts, business interest expense is limited to business interest income plus 30% of the business’s adjusted taxable income and floor-plan financing interest There are some exceptions to the limit, and some businesses can elect out of this limit. Disallowed interest above the limit may be carried forward indefinitely, with special rules for partnerships.
Changes to rules for like-kind exchanges	Like-kind exchange treatment applies to certain exchanges of real, personal or intangible property.	Like-kind exchange treatment now applies only to certain exchanges of real property.
Payments made in sexual harassment or sexual abuse cases	No previous law for comparison. This is a new provision.	No deduction is allowed for certain payments made in sexual harassment or sexual abuse cases.
Changes to deductions for local lobbying expenses	Although lobbying and political expenditures are generally not deductible, a taxpayer can deduct payments related to lobbying local councils or similar governing bodies.	TCJA repealed the exception for local lobbying expenses. The general disallowance rules for lobbying and political expenses now apply to payments related to local legislation as well.

If you would like to discuss how these changes affect your particular situation, and any planning moves you should consider in light of them, please give me a call.

Very truly yours,

Amare Berhie, Senior Accountant     

CEO, ABA Tax Accounting

CFO Services http://youtu.be/EYJdQtbPZAI

http://abataxaccounting.com/salestaxproblem.php

amare@abataxaccounting.com        

(651) 300-4777

IRS issue proposed regulations on charitable contributions and state and local tax credits

Experienced Tax Accountant – Under the proposed regulations, a taxpayer who makes payments or transfers property to an entity eligible to receive tax deductible contributions must reduce their charitable deduction by the amount of any state or local tax credit the taxpayer receives or expects to receive.

For example, if a state grants a 70 percent state tax credit and the taxpayer pays $1,000 to an eligible entity, the taxpayer receives a $700 state tax credit. The taxpayer must reduce the $1,000 contribution by the $700 state tax credit, leaving an allowable contribution deduction of $300 on the taxpayer’s federal income tax return. The proposed regulations also apply to payments made by trusts or decedents’ estates in determining the amount of their contribution deduction.

The proposed regulations provide exceptions for dollar-for-dollar state tax deductions and for tax credits of no more than 15 percent of the payment amount or of the fair market value of the property transferred. A taxpayer who makes a $1,000 contribution to an eligible entity is not required to reduce the $1,000 deduction on the taxpayer’s federal income tax return if the state or local tax credit received or expected to be received is no more than $150.

If you would like to discuss how these changes affect your particular situation, and any planning moves you should consider in light of them, please give me a call.

Very truly yours,

Amare Berhie, Senior Accountant       

CEO, ABA Tax Accounting

CFO Services http://youtu.be/EYJdQtbPZAI

http://abataxaccounting.com/salestaxproblem.php

amare@abataxaccounting.com

(651) 300-4777