Get a handle on tax forms and due dates

► Gather your tax forms. The list includes W-2s for yourself (and your spouse, if married), 1099s reflecting capital gains and losses, dividends, retirement plan and IRA distributions, and business and other investment firms such as K-1s for partnerships.

► Protect yourself against scams. Were you or your spouse or dependents issued an Identity Protection Personal Identification Number (IP PIN) for use with a prior year return? If so, you should have received a new number from the IRS via postal mail in December 2018. Keep your notification because you must include that number on your return. You’ll also need to list the IP PINs of your spouse and any dependents whose social security numbers are on your return.

► Review documentation to secure tax deductions, credits, or other tax benefits. Examples of tax breaks that require enhanced recordkeeping include charitable donations, travel and entertainment expenses, vehicle mileage, and business use of your home. For example, you have to get written acknowledgments from charities for monetary gifts of $250 or more. You may also want to retain bank statements to substantiate estimated tax payments and expenses that you can claim as itemized deductions.

► Mark your calendar to keep track of due dates. Thanks to a federal holiday (Emancipation Day), the first date to circle is April 18, 2018. If you live in a state other than Maine or Massachusetts, that’s the due date for making a deductible contribution to a traditional IRA for 2018, filing your federal individual income tax return, or requesting an extension of time for filing until October 17, 2018. That’s also the last day for making your first estimated federal income tax payment for 2018.

► If you live in Maine or Massachusetts, also mark Tuesday, April 19, 2018, on your calendar. Due to a special rule for another holiday (Patriot’s Day), you get an extra day to file your federal income tax return, apply for an extension, or make a deductible IRA contribution for 2015. However, the extra day does not apply to your first estimated federal income tax payment — that is due April 18.         Remember: Extensions are available only for filing your return, not for paying taxes.

What’s new in 2018

PROVISION	2018	2018
Personal exemption	$4,050	$4,000
Standard deduction
Single	$6,300	$6,300
Joint returns and surviving spouses	$12,600	$12,600
Married filing separately	$6,300	$6,300
Head of household	$9,300	$9,250
Additional for elderly or blind (married)	$1,250	$1,250
Additional for elderly or blind (single)	$1,550	$1,550
Income at which itemized deductions and personal exemptions start to phase out
Single	$259,400	$258,250
Joint returns and surviving spouses	$311,300	$309,900
Married filing separately	$155,650	$154,950
Head of household	$285,350	$284,050
Alternative minimum tax exemption
Single	$53,900	$53,600
Married, joint	$83,800	$83,400
Married, separate	$41,900	$41,700
Maximum wages subject to social security tax	$118,500	$118,500
Social security earnings limit
Under full retirement age	$15,720	$15,720
Year full retirement age reached	$41,880	$41,880
Full retirement age	No limit	No limit
Estate tax top rate	40%	40%
Estate tax exclusion	$5,450,000	$5,430,000
Annual gift tax exclusion (per donee)	$14,000	$14,000
Maximum retirement plan contributions
IRA — under age 50	$5,500	$5,500
IRA — 50 and over	$6,500	$6,500
SIMPLE plan — under age 50	$12,500	$12,500
SIMPLE plan — 50 and over	$15,500	$15,500
401(k) plan — under age 50	$18,000	$18,000
401(k) plan — 50 and over	$24,000	$24,000
HSA contribution limit
Self only	$3,350	$3,350
Family	$6,750	$6,650
Additional for 55 or older	$1,000	$1,000
“Kiddie tax” threshold	$2,100	$2,100
“Nanny tax” threshold	$2,000	$1,900

 

As you do your planning for 2016, be aware that Congress may make changes to the tax code. See us prior to making business and financial decisions so that current rules and pending changes can be considered.

NEW YEAR 2016 NOTE: This newsletter is issued annually to provide you with information  about minimizing your taxes. Do not apply this general information to your specific situation without additional details. Be aware that the tax laws contain varying effective dates and numerous limitations and exceptions that cannot be summarized easily. For details and guidance in applying the tax rules to your individual circumstances, please contact us.

Deductions, credits, income deferral — from whatever direction you approach your tax planning, the choices you make have a bearing on many aspects of your financial life. In addition, the rules governing your planning choices change or are updated with regularity. Those facts mean that early planning, combined with the willingness to adapt to changing conditions, will help you reap the most savings. Here are ways to get your 2018 planning off to a good start.

Address this year’s portion of your multi-year analysis.

Your end-of-year planning may have included “bunching” expenses or income by pulling items into one taxable period or deferring them to the next. Itemized deductions and alternative minimum tax planning are two areas that lend themselves to this strategy. Now that a fresh tax year is underway, review and update your analysis and begin to incorporate next year into your plan.

Stay on top of Affordable Care Act requirements..

If you decided not to purchase required health insurance coverage for 2018, be aware the penalties are increasing and plan accordingly. For 2018, you’ll pay a per-person or an income-based fine, whichever is greater, for any month you don’t have coverage or don’t qualify for an exception. The per-person fine is $695 per adult ($347.50 per child under age 18), up to a maximum of $2,085. The income-based penalty is 2.5% of your household income. This penalty maxes out at the total yearly premium for the national average price of a Bronze plan that you purchase on the health insurance website.

Investigate your retirement saving options.

The standard advice of making sure you’re taking full advantage of allowable contributions and any amounts your employer matches holds true for 2018. You can contribute up to $18,000 to your 401(k) in 2018, plus another $6,000 if you’re age 50 or older. Those are the same numbers as 2018, so if you’re already having the full amount deducted from your paycheck, you may want to direct all or part of your 2018 raise into an IRA. Why? You can diversify your retirement holdings, save additional tax-deferred or tax-free money, and possibly enjoy a saver’s credit as well as a tax deduction.

Whether you choose a Roth or a traditional IRA, the maximum amount you can contribute during 2018 is $5,500 (plus $1,000 when you’re age 50 or older). Just remember that your traditional IRA contribution may not be fully deductible if you’re eligible to participate in your employer’s plan.

Here’s another option for retirement savings: A myRA (“my Retirement Account”). These accounts are essentially a Roth IRA invested in a government security. You get no current deduction, but your investment earns interest and is guaranteed by the Treasury Department. You can fund a myRA with an automatic payroll deposit through your employer, withdrawals from your savings or checking account, or part or all of your 2018 federal income tax refund.

Educate yourself on education savings accounts.

Do you have kids in college? As you begin your income tax planning, schedule the timing and amount of distributions from your education savings accounts during 2018. Your goal: to make sure the withdrawals to pay qualified tuition expenses remain tax-free. To begin, total the amount you’ll receive from student aid, grants, tuition discounts, and education reimbursement accounts from your employer. Costs for expenses already covered by these programs and others reduce the amount that can come tax-free from your 529 account. You’ll also want to learn about a recent change to rules, affecting a federal financial aid form. Starting with the 2017-2018 school year, the form will use income data from an earlier tax year than is used under the present rules. This shift means some financial gifts — such as distributions from grandparent-owned 529 plans — may be made earlier.

Invest in planning for the 3.8% net investment income tax.

This surtax applies to the lower of your net investment income or the amount by which your modified adjusted gross income exceeds $200,000 when you’re single or $250,000 when you file jointly. Net investment income includes capital gains, interest, royalties, dividends, and passive income. Other items, such as distributions from IRAs and qualified plans and active business income, are excluded. The excluded items may still increase your modified adjusted gross income and bring the net investment income tax into play, which is why planning is important. Start the year by determining if you can turn a passive activity into an active business by increasing the hours you spend participating in the activity. You might also calculate whether directing this year’s investments to tax-free municipal bonds or municipal bond funds makes sense. Income from those sources won’t increase your net investment income or your modified adjusted gross income.

Prepare for the effect of retirement on your income tax return.

Is this the year you’re going to retire? What changes will retirement entail? Will you be selling a business? A home? Will you move to a new state? As you contemplate these major decisions, take time for discussions about withdrawal strategies from IRAs and pensions, the allocation of assets within your retirement accounts, the taxation of social security benefits, and the impact of one spouse continuing to work.

Analyzing and understanding the investments in your IRA can keep you from being surprised by this tax.

Avoid unexpected tax bills on assets in your IRA.

The general rule is that assets in your IRA grow tax-deferred, meaning you typically pay tax on the earnings when you withdraw the funds. However, some investments can generate income subject to a current tax that is paid by your IRA. The tax, known as the unrelated business income tax, can be triggered by income from a business or certain real estate investments. Analyzing and understanding the investments in your IRA can keep you from being surprised by this tax. This type of analysis can also prevent investments in “prohibited transactions” that can make your entire IRA taxable.

Give us a call to schedule an appointment for beginning-of-the-year tax planning. We’re ready to help you minimize your 2016 tax bill.

Medical deductions are one example of tax breaks you may be eligible for if you or a family member has disability-related income or expenses. Here are others:

ABLE accounts. Achieving a Better Life Experience (ABLE) accounts can help you save and pay for disability-related expenses without losing Medicaid eligibility or Supplemental Security Income (SSI). The account holder and designated beneficiary must have been disabled before age 26.

Maximum annual contributions to ABLE accounts may not exceed the gift tax exclusion ($14,000 for 2018), Funds in the accounts accumulate tax-free and distributions are exempt as long as they are applied to qualifying disability expenses.

Business benefits. If your business incurs expenses to provide access for disabled persons pursuant to the Americans with Disabilities Act, you may qualify for the disabled access credit. Are you an employer? You may qualify for the work opportunity tax credit when you hire SSI recipients, vocational rehabilitation referrals, or veterans with disabilities. If you pay to remove physical, structural, or transportation barriers to accommodate people with disabilities, you may be able to deduct these expenses.

Credit for the elderly or disabled. You can claim this tax credit even if you’re under age 65, provided you’re retired due to permanent and total disability.

Dependency benefits. As a parent, you can generally claim permanently and totally disabled children as dependents regardless of your child’s age. If you pay someone to provide home care for a dependent or spouse who is unable to care for themselves, you may be able to claim the dependent care credit, regardless of the disabled person’s age.

Earned income credit. If you work and are disabled and between ages 25 and 65, you may qualify for the earned income credit whether or not you have children. This credit can result in a refund even if you owe no taxes Earnings that qualify for the credit include taxable benefits received from your employer’s disability retirement plan.

Gross income. Certain disability-related income is nontaxable, such as SSI and allowances paid by the Department of Veterans Affairs.

Impairment-related work expenses. If you’re an employee with a physical or mental disability that functionally limits your employment, you may be able to claim business deductions for attendant care and other workplace expenses that help keep you employed.

Standard deduction. Are you legally blind? A higher standard deduction is available.

Call us for an appointment to discuss these and other tax breaks that can help reduce your tax bill.