Helpful IRS Resources for Tax Reform Changes

Below are some resources that you may find useful in navigating the new tax law changes during this filing season.

Information on Tax Cuts and Jobs Act

• Publication 5307 (Tax Reform: Basics for Individuals and Families)
• Publication 5318 (Tax Reform: What’s New for Your Business)
• Tax Reform page on IRS website
• Tax Reform Guidance page on IRS website
• Form 4562 Instructions (Depreciation and Amortization)
• Bonus Depreciation – Pages 5 – 6
• Section 179 Expensing – Page 2 and Pages 3 – 4
• New Auto Limits – Page 13
• Schedule A instructions for changes to itemized deductions
• Publication 17 (Your Federal Income Tax)

Child Tax Credit/Credit for Other Dependents

• What’s New with the Child Tax Credit after Tax Reform
• Form 1040 instructions
• What’s New – Page 6
• Child Tax Credit and Credit for Other Dependents Worksheet – Page 42 – 43

Qualified Business Income Deduction

• Form 1040 instructions
• Explanation – Page 34 & 36
• Simplified Worksheet – Page 37
• Qualified Business Income FAQs
• IRS Notice 2019-07 - Rental Safe Harbor Rule for Qualified Business Income Deduction
• Final Regulations for Qualified Business Income Deduction
• Publication 535 (Business Expenses), Chapter 12 (Qualified Business Income Deduction) Provides detail explanation of deduction and includes worksheets for taxpayers who exceed the $157,500 ($315,000) threshold. Includes explanation of what businesses are considered a specified service trade or business.

2018 Federal Return and Taxpayer Expectations

With the 2019 filing season it is important for preparers to be aware that, due to tax reform and the changes to the withholding tables, some of your clients may receive a surprise when they see the results on their 2018 federal return in the form of a lower refund – some may even show a balance due.

This is because of “Tax Cuts and Jobs Act” changes such as the elimination of exemptions, the increase in the standard deduction, the elimination and limiting of certain itemized deduction and elimination of certain other deductions. The taxpayers that are most likely to be affected are:

• Two wage earner households
• Taxpayers who itemize
• Individuals who have non-wage income as well as W-2 wages
• Individuals with more complex tax situations

Even though the 2018 federal withholding tables reflected the lower tax rates and the increased standard deduction, they could not fully take into account the other tax law changes such as the suspension of dependency exemptions and reduced itemized deductions. This means that for the taxpayers listed above they will have had less tax withheld from their wages than in the past which may result in a lower refund or in some instances switch them from a refund to a balance due.

The IRS encouraged individuals to review their tax situation and adjust their withholding throughout 2018; however, the vast majority of taxpayers did not do this which may result in surprised clients.

By being aware of the situation, preparers can explain to their clients what changed on their return for 2018 and what they can do to change the result of their federal return for 2019.

See the IRS news release of November 14 – For many, time is running out to avoid a tax-time surprise for more information.

Visit the CrossLink Tax Resource Center to learn more.

Reminder of 2018 Itemized Deduction Changes

As the 2019 filing season is almost upon us this is a reminder of the changes to the 2018 itemized deductions.

Here is a summary of the changes:

• Taxes - Total real estate and state and local income taxes/general sales taxes are limited to $10,000.
• Interest

• Home equity loan, home equity line of credit or second mortgage interest is only deductible if it was used to buy, build or substantially improve the home (main or second) that secures the loan.

• Home mortgage interest is limited to $750,000 for homes purchased on or after December 15, 2017. The limit remains at $1,000,000 for homes purchased before that date.

• Home mortgage interest remains deductible for interest paid on loan secured by the taxpayer’s main or second home.

• Personal casualty losses are only deductible if the loss was incurred in a federally declared disaster area.
• The FEMA disaster declaration number will now be required to be entered on Form 4684 (Casualties and Theft).
• Miscellaneous itemized deductions subject to the 2% AGI floor are no longer deductible. This includes the Employee Business Expenses that were reported on Form 2106.
• Medical expense AGI threshold is 7.5% for 2018 for all taxpayers.
• Itemized deductions are no longer limited for higher income taxpayers.
• Charitable Contributions
• The AGI limitation is now 60% of AGI.
• Payments made in exchange for college athletic seating rights are no longer deductible.

For more details see the final 2018 Schedule A and instructions on the IRS website.

Also, see IRS Publication 5307 (Tax Reform Basics: For Individuals and Families) for more information on the itemized deduction changes and other tax law changes that will affect individuals this filing season.

View the original article on the CrossLink Tax Resources Center.

Qualified Business Income Deduction (20% Deduction for Certain Pass-Through Income)

The Tax Cuts and Jobs Act included a provision that may allow an individual to deduct 20% of their domestic qualified business income from a partnership, S Corporation or sole proprietorship (Schedule C or F). This provision is in effect for tax years 2018 – 2025.

For the vast majority of taxpayers (90%) this deduction is calculated as the lesser of:

• 20% of their net business income or
• 20% of their taxable income excluding capital gains

This means that for most taxpayers, the deduction is calculated based on the Simplified Worksheet on page 37 of the 2018 Form 1040 instructions.

For the remaining 10% of taxpayers whose income exceeds $157,500 ($315,000 for joint filers) the deduction will be limited as follows:

• For “specified service businesses” the deduction begins to be phased out once the income limit is reached.
• Specified Service business is defined on page 34 of the 2018 Form 1040 instructions.
• For all other businesses the deduction is limited to:
• 50% of the W-2 wages paid by the business or
• 25% of the W-2 wages paid by the business plus 2.5% of the unadjusted basis of all qualified property

For these taxpayers the deduction is calculated based on worksheets in the newly revised draft 2018 IRS Publication 535 (Qualified Business Income Deduction).

See the Business owners can claim a qualified business income deduction page on the IRS website for more information.

More information can be found on the CrossLink Tax Resource Center.

IRS confirms tax filing season to begin January 28

Copy of IRS Press Release below:

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IRS confirms tax filing season to begin January 28

IR-2019-01

WASHINGTON ― Despite the government shutdown, the Internal Revenue Service today confirmed that it will process tax returns beginning January 28, 2019 and provide refunds to taxpayers as scheduled.

“We are committed to ensuring that taxpayers receive their refunds notwithstanding the government shutdown. I appreciate the hard work of the employees and their commitment to the taxpayers during this period,” said IRS Commissioner Chuck Rettig.

Congress directed the payment of all tax refunds through a permanent, indefinite appropriation (31 U.S.C. 1324), and the IRS has consistently been of the view that it has authority to pay refunds despite a lapse in annual appropriations. Although in 2011 the Office of Management and Budget (OMB) directed the IRS not to pay refunds during a lapse, OMB has reviewed the relevant law at Treasury’s request and concluded that IRS may pay tax refunds during a lapse.

The IRS will be recalling a significant portion of its workforce, currently furloughed as part of the government shutdown, to work. Additional details for the IRS filing season will be included in an updated FY2019 Lapsed Appropriations Contingency Plan to be released publicly in the coming days.

“IRS employees have been hard at work over the past year to implement the biggest tax law changes the nation has seen in more than 30 years,” said Rettig.

As in past years, the IRS will begin accepting and processing individual tax returns once the filing season begins. For taxpayers who usually file early in the year and have all of the needed documentation, there is no need to wait to file. They should file when they are ready to submit a complete and accurate tax return.

The filing deadline to submit 2018 tax returns is Monday, April 15, 2019 for most taxpayers.  Because of the Patriots’ Day holiday on April 15 in Maine and Massachusetts and the Emancipation Day holiday on April 16 in the District of Columbia, taxpayers who live in Maine or Massachusetts have until April 17, 2019 to file their returns.

Software companies and tax professionals will be accepting and preparing tax returns before Jan. 28 and then will submit the returns when the IRS systems open later this month. The IRS strongly encourages people to file their tax returns electronically to minimize errors and for faster refunds.


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View the original IRS Press Release: www.irs.gov/newsroom/irs-confirms-tax-filing-season-to-begin-january-28 

IRS and Partial Government Shutdown

The IRS is affected by the partial government shutdown as follows:

• Any paper return that is sent (this includes amended returns) to the IRS will not be processed

• IRS Help Desk is not operating

• Any refunds will not be issued

See the IRS Lapsed Appropriations Contingency Plan for more information on what is and is not operating at the IRS during the shutdown.

Form 1040 Redesign Reminder

The IRS has redesigned the 2018 Form 1040. The Form 1040 will only include the most commonly used income, deductions, credits and payments. All other line items that were on the previous Form 1040 will now be included on six new schedules.

With this redesign the Form 1040A and 1040EZ have been eliminated.

The 2018 Form 1040 has been streamlined to only include the five most common types of income, federal withholding, EITC, Additional Child Tax Credit and the Education Credit. All other types of income, adjustments to income, nonrefundable, refundable credits, other payments and other taxes that existed on the 2017 Form 1040 have been moved to one of six new schedules:

• Schedule 1 (Additional Income and Adjustments to Income)

• Schedule 2 (Tax)

• Schedule 3 (Non-refundable Credits)

• Schedule 4 (Other Taxes)

• Schedule 5 (Other Payments and Refundable Credits)

• Schedule 6 (Foreign Address and Third Party Designee)

The 2018 Form 1040 also has the following changes that are a result of the Tax Cuts and Jobs Act:

• Removal of exemption amount boxes and the total exemptions line.

• Addition of check box for the new credit for other dependents for each dependent.

• New line 9 for the new qualified business income deduction (20% deduction for pass-through business income – Sec 199A).

Visit the CrossLink Tax Resource Center today to learn more.

ACA Individual Penalty Still Applicable for 2018

The Tax Cuts and Jobs Act did remove the individual penalty provision; however, it does not go into effect until 2019. Therefore, if an individual did not have health insurance for all or part of 2018 and did not qualify for an exemption they will owe a penalty on their 2018 federal return.

If it is determined that an individual does owe a penalty for 2018, it is calculated as the greater of: 

·         2.5% of the individual’s income that exceeds their 2018 filing threshold (standard deduction for their filing status)

Or

·         A flat dollar amount that is assessed for the taxpayer, spouse, and dependents as follows:

o    $695 for taxpayer, spouse, and dependents over age 18

o   $347.50.50 for each dependent under age 18

The maximum family flat dollar amount for 2018 is $2,085

See pages 16 – 20 of the draft 2018 Form 8965 instructions for more information on how the penalty is calculated.

Health Care Coverage Exemptions

Most individuals who did not have health insurance for all or part of 2018 probably qualified for an exemption. Therefore, it is important that before any penalty is calculated that an individual determines whether they may qualify for a health care coverage exemption.

If an individual qualifies for a health care coverage exemption they must complete the applicable parts of the 2018 Form 8965 (Health Coverage Exemptions) and include it with their 2018 federal return.

If an individual needs help in determining whether they qualify for an exemption, a Find Exemptions tool is available on the Healthcare.gov website.

IRS Tax Professional Data Theft Attacks

Due to the increase in cybercriminal attacks on tax professionals during 2018 the IRS is urging practitioners to take steps to protect their computer networks.

This increase represents a significant trend in tax-related identity theft, and it is a sign that tax practitioners must take stronger measures to safeguard their clients and their business.

The IRS also reminds all professional tax preparers that they are required by federal law to create and maintain a written data security plan. Sole practitioners are just as vulnerable to data theft as practitioners in large firms.

Here are some common clues that data theft has occurred:

• Client e-filed returns begin to reject because returns with their Social Security numbers were already filed;
• Clients who haven’t filed tax returns begin to receive authentication letters (5071C, 4883C, 5747C) from the IRS;
• Clients who haven’t filed tax returns receive refunds; 
• Clients receive tax transcripts that they did not request;
• The number of returns filed with tax practitioner’s Electronic Filing Identification Number (EFIN) exceeds number of clients;
• Network computers running slower than normal;
• Computer cursors moving or changing numbers without touching the keyboard

See IRS News Release of December 7 - IRS, Security Summit Partners warn tax professionals of high risk of data theft attacks for more information on the increase of these attacks and on what basic security steps tax preparers should take to protect themselves.

Security Summit Partners Highlight New Password Guidance

As part of National Security Awareness Week the IRS, state tax agencies and the nation’s tax industry is urging people to review new, stronger standards to protect the passwords of their online accounts.

These new standards are a reflection of the new thinking on what a strong password is. The latest guidance suggests using a passphrase such as a favorite line from a movie or a series of associated words for their password. The idea is to create a passphrase that can be remembered easily.

The National Institute of Standards and Technology or NIST last year rethought its guidance on passwords and suggested three steps to build a better password:

Step 1 – Leverage your powers of association. Identify associated items that have meaning to you. 

Step 2 – Make the associations unique to you. Passphrases should be words that can go together in your head, but no one else would ever suspect. Good example: Items in your living room such as BlueCouchFlowerBamboo. Bad example: Names of your children.

Step 3 – Picture this. Create a passphrase that you can picture in your head. In our example, picture items in your living room. The key is to create a passphrase that is hard for a cybercriminal to guess but easy for you to remember

For more information see the IRS News Release of Dec 4 - Security Summit Partners highlight new password guidance, urge taxpayers and practitioners to protect all accounts

Tax Update: Important Reminders for the Upcoming 2019 Filing Season

Important Reminders for the Upcoming 2019 Filing Season

• Delay in Federal Refunds for Returns that claim EITC or Additional Child Tax Credit

• Affordable Care Act Penalty for 2018 returns

• Expiration of ITINs

Visit the CrossLink Tax Resource Center for detailed information: www.crosslinktax.com/tax-updates/Important-Reminders-for-the-Upcoming-2019-Filing-Season.asp 

TAX UPDATE: 2018 Child Tax Credit

Remember the federal Child Tax Credit has the following changes:

• Child must have a valid Social Security Number
  
• Credit was increased to $2,000 per child of which $1,400 is eligible to be refundable
  
• New $500 nonrefundable credit for other dependents has been added for:
• Children that are 17, 18, or students
• Other qualifying dependents
• Qualified children under 17 that have an ITIN
  
• Income phase out has been increased to $400,000 for joint filers ($200,000 for all others)

For more information see IRS news release – Get Ready for Taxes: Here’s how the new tax law revised family tax credits

New IRS Publication 5307 (Tax Reform Basics)

The IRS has released a new publication that is designed to help taxpayers learn how Tax Reform may affect their taxes for tax year 2018 and beyond. Publication 5307 (Tax Reform Basics for Individuals and Families) gives an overview of the Tax Cuts and Jobs Act and how it will affect individuals when they file their 2018 federal return during the upcoming filing season.

Expiring ITINs

The IRS is reminding taxpayers with expiring ITINs (if they have not done so already) to submit their renewal applications as soon as possible.

The IRS mailed more than 13 million letters to taxpayer households that included an ITIN holder with middle digits 73, 74, 75, 76, 77, 81 or 82 informing them that their ITINs were expiring at the end of 2018. Affected taxpayers who expect to file a tax return in 2019 should submit a renewal application now.

See IRS news release IR-2018-24 (Renew Expiring ITINs now to file a return next year) for further information on who needs to renew and how to renew an ITIN.

IRS Press Release: "401(k) contribution limit increases to $19,000 for 2019; IRA limit increases to $6,000"

IRS PRESS RELEASE

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IR-2018-211, Nov. 1, 2018

WASHINGTON — The Internal Revenue Service today announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2019.  The IRS today issued technical guidance detailing these items in Notice 2018-83.

Highlights of Changes for 2019

The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $18,500 to $19,000.

The limit on annual contributions to an IRA, which last increased in 2013, is increased from $5,500 to $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.

The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs and to claim the saver’s credit all increased for 2019.

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or their spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor their spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.) Here are the phase-out ranges for 2019:

• For single taxpayers covered by a workplace retirement plan, the phase-out range is $64,000 to $74,000, up from $63,000 to $73,000.
   
• For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $103,000 to $123,000, up from $101,000 to $121,000.
   
• For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $193,000 and $203,000, up from $189,000 and $199,000.
   
• For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

The income phase-out range for taxpayers making contributions to a Roth IRA is $122,000 to $137,000 for singles and heads of household, up from $120,000 to $135,000. For married couples filing jointly, the income phase-out range is $193,000 to $203,000, up from $189,000 to $199,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $64,000 for married couples filing jointly, up from $63,000; $48,000 for heads of household, up from $47,250; and $32,000 for singles and married individuals filing separately, up from $31,500.

Highlights of Limitations that Remain Unchanged from 2018

The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan remains unchanged at $6,000.

Detailed Description of Adjusted and Unchanged Limitations

Section 415 of the Internal Revenue Code (Code) provides for dollar limitations on benefits and contributions under qualified retirement plans. Section 415(d) requires that the Secretary of the Treasury annually adjust these limits for cost of living increases. Other limitations applicable to deferred compensation plans are also affected by these adjustments under Section 415. Under Section 415(d), the adjustments are to be made following adjustment procedures similar to those used to adjust benefit amounts under Section 215(i)(2)(A) of the Social Security Act.

Effective Jan. 1, 2019, the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) is increased from $220,000 to $225,000. For a participant who separated from service before Jan. 1, 2019, the limitation for defined benefit plans under Section 415(b)(1)(B) is computed by multiplying the participant's compensation limitation, as adjusted through 2018, by 1.0264.

The limitation for defined contribution plans under Section 415(c)(1)(A) is increased in 2019 from $55,000 to $56,000.

The Code provides that various other dollar amounts are to be adjusted at the same time and in the same manner as the dollar limitation of Section 415(b)(1)(A). After taking into account the applicable rounding rules, the amounts for 2019 are as follows:

• The limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) is increased from $18,500 to $19,000.
   
• The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $275,000 to $280,000.
   
• The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan is increased from $175,000 to $180,000.
   
• The dollar amount under Section 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a five year distribution period is increased from $1,105,000 to $1,130,000, while the dollar amount used to determine the lengthening of the five year distribution period is increased from $220,000 to $225,000.

The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) is increased from $120,000 to $125,000.

The dollar limitation under Section 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $6,000. The dollar limitation under Section 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $3,000.

The annual compensation limitation under Section 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost of living adjustments to the compensation limitation under the plan under Section 401(a)(17) to be taken into account, is increased from $405,000 to $415,000.

The compensation amount under Section 408(k)(2)(C) regarding simplified employee pensions (SEPs) remains unchanged at $600.
The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts is increased from $12,500 to $13,000.
The limitation on deferrals under Section 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations is increased from $18,500 to $19,000.

The limitation under Section 664(g)(7) concerning the qualified gratuitous transfer of qualified employer securities to an employee stock ownership plan remains unchanged at $50,000.

The compensation amount under Section 1.61 21(f)(5)(i) of the Income Tax Regulations concerning the definition of “control employee” for fringe benefit valuation remains unchanged at $110,000. The compensation amount under Section 1.61 21(f)(5)(iii) is increased from $220,000 to $225,000.

The dollar limitation on premiums paid with respect to a qualifying longevity annuity contract under Section 1.401(a)(9)-6, A-17(b)(2)(i) of the Income Tax Regulations remains unchanged at $130,000.

The Code provides that the $1,000,000,000 threshold used to determine whether a multiemployer plan is a systemically important plan under Section 432(e)(9)(H)(v)(III)(aa) is adjusted using the cost-of-living adjustment provided under Section 432(e)(9)(H)(v)(III)(bb). After taking the applicable rounding rule into account, the threshold used to determine whether a multiemployer plan is a systemically important plan under Section 432(e)(9)(H)(v)(III)(aa) is increased for 2019 from $1,087,000,000 to $1,097,000,000.

The Code also provides that several retirement-related amounts are to be adjusted using the cost-of-living adjustment under Section 1(f)(3). After taking the applicable rounding rules into account, the amounts for 2019 are as follows:

• The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for married taxpayers filing a joint return is increased from $38,000 to $38,500; the limitation under Section 25B(b)(1)(B) is increased from $41,000 to $41,500; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $63,000 to $64,000.
   
• The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the Retirement Savings Contribution Credit for taxpayers filing as head of household is increased from $28,500 to $28,875; the limitation under Section 25B(b)(1)(B) is increased from $30,750 to $31,125; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $47,250 to $48,000.
   
• The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the Retirement Savings Contribution Credit for all other taxpayers is increased from $19,000 to $19,250; the limitation under Section 25B(b)(1)(B) is increased from $20,500 to $20,750; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $31,500 to $32,000.
   
• The deductible amount under Section 219(b)(5)(A) for an individual making qualified retirement contributions is increased from $5,500 to $6,000.

The applicable dollar amount under Section 219(g)(3)(B)(i) for determining the deductible amount of an IRA contribution for taxpayers who are active participants filing a joint return or as a qualifying widow(er) increased from $101,000 to $103,000. The applicable dollar amount under Section 219(g)(3)(B)(ii) for all other taxpayers who are active participants (other than married taxpayers filing separate returns) increased from $63,000 to $64,000. If an individual or the individual’s spouse is an active participant, the applicable dollar amount under Section 219(g)(3)(B)(iii) for a married individual filing a separate return is not subject to an annual cost-of-living adjustment and remains $0. The applicable dollar amount under Section 219(g)(7)(A) for a taxpayer who is not an active participant but whose spouse is an active participant is increased from $189,000 to $193,000.

The adjusted gross income limitation under Section 408A(c)(3)(B)(ii)(I) for determining the maximum Roth IRA contribution for married taxpayers filing a joint return or for taxpayers filing as a qualifying widow(er) is increased from $189,000 to $193,000. The adjusted gross income limitation under Section 408A(c)(3)(B)(ii)(II) for all other taxpayers (other than married taxpayers filing separate returns) is increased from $120,000 to $122,000. The applicable dollar amount under Section 408A(c)(3)(B)(ii)(III) for a married individual filing a separate return is not subject to an annual cost-of-living adjustment and remains $0.

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Link to original IRS press release:  www.irs.gov/newsroom/401k-contribution-limit-increases-to-19000-for-2019-ira-limit-increases-to-6000

2018 Depreciation Changes

Here is a reminder of what changes the Tax Cuts and Jobs Act has made to depreciating assets for 2018 federal returns:

100% Bonus Depreciation
100% bonus depreciation may be taken for qualifying new or used property acquired September 28, 2017 – December 31, 2022.

For more information see the following on the IRS website:

• Additional First Year Depreciation Deduction (Bonus) FAQs
• IRS Tax Reform Tip 2018 -57 - New 100-percent depreciation deduction benefits business taxpayers

Depreciation Limits for Autos and Personal Use Property
The yearly limitations for passenger autos placed in service during 2018 are:

• $10,000 for year placed in service
• If bonus depreciation is claimed the first year limit is $18,000
• $16,000 for year 2
• $9,600 for year 3
• $5,760 for year 4 and later

Section 179 Expense
For 2018 the maximum amount that can be taken as a Section 179 expense is $1,000,000 which begins to phase out when total asset purchases reaches $2,500,000 for the year.

The following property now is eligible for Section 179 expensing:

• Qualified improvement property made to a building’s interior with the exception if it is for the enlargement of the building, any elevator or escalator or the internal framework of the building
• Roofs, HVAC, fire protection systems, alarm systems and security systems

Depreciation of Improvements on business property
A new qualified improvement property category has been created which replaces the old qualified leasehold improvement, qualified restaurant and qualified retail improvement property categories.

The new qualified improvement property has a general 15 recovery period. However unless Congress makes a technical correction, qualified improvement property must be depreciated over 39 years and does not qualify for 100% bonus depreciation.

Farm Property Depreciation
Beginning in 2018 the recovery period for machinery and equipment used on a farm is 5 years (it was 7 years).  This does not apply to grain bins, cotton ginning assets, fence or other land improvements.

The Tax Cuts and Jobs Act repealed the requirement to use the 150 percent declining balance method for property used in a framing business (i.e. for 3, 5, 7 or 10 year property).

For more details on the above depreciation changes see IRS Fact Sheet FS-2018-9 - New rules and limitations for depreciation and expensing under the Tax Cuts and Jobs Act on the IRS Tax Reform page of their website.

Visit the CrossLink Tax Resource Center to learn more.

2018 Tax Law Changes that are Directly Reported on Form 1040

October 3, 2018

As a reminder, the Tax Cuts and Jobs Act made a number of changes to provisions that are reported directly on Form 1040 or the new 1040 Schedules 1 - 6. Here are the provisions that will affect most taxpayers:

ACA Penalty for not having Health Insurance
Although not a change want to remind you that the shared responsibility payment (penalty) for not having health insurance still applies for 2018 federal returns.  Therefore if an individual did not have health insurance for all or part of 2018 they will either need to qualify for an exemption and complete Form 8965 or include a penalty amount on Form 1040, Schedule 4, line 61.

The penalty goes away beginning in 2019.

Standard Deduction was increased beginning in 2018 to:

• $12,000 – Single
• $24,000 – Married Filing Joint
• $18,000 – Head of Household

The additional standard deduction for the Aged and Blind still applies.

Exemptions were eliminated. Therefore the exemption boxes for the taxpayer, spouse and dependents were eliminated and the line for totaling the exemptions were removed from 1040.

Child Tax Credit had the following changes:

• Increased the credit to $2,000 per child of which $1,400 is eligible to be refundable. The age limit to qualify for the child tax credit remains at children under the age of 17.
• Child must have a Social Security Number to be eligible for the child tax credit.
• The earned income threshold for the refundable portion of the child tax credit has been lowered to $2,500.

Other Dependent Credit

• Created new $500 nonrefundable other dependent credit for:
• Children that are 17, 18, or students
• Other qualifying dependents
• Qualified children under 17 with an ITIN

Moving Expenses

• The moving expense adjustment to income (Form 1040, Schedule 1, 26) is only allowed for members of the armed forces.
• Moving expense reimbursements may no longer be excluded from income.

Tax Rates 
The tax rates and brackets for 2018 for Single and Married Filing Joint filing status’ are:

Rate	Unmarried Individuals	Married Filing Joint
10%	Up to $9,525	Up to $19,050
12%	$9,526 - $38,700	$19,501 - $77,400
22%	$38,701 - $82,500	$77,401 - $165,000
24%	$82,501 - $157,500	$165,001 - $315,000
32%	$157,501 - $200,000	$315,001 - $400,000
35%	$201,001 - $500,000	$400,001 - $600,000
37%	Over $500,000	Over $600,000

For more information on the above provisions and other provisions in the Tax Cuts and Jobs Act see the following:

• Crosslink Tax Resource Center – Federal Tax Law Changes Included in the Tax Cuts and Jobs Act
• IRS Tax Reform page on IRS website – Latest information on the implementation of the Tax Cuts and Jobs Act