2018 Year End Planning

Greetings!
Updates for Individuals
Limited Itemized Deductions
With the passing of the Tax Cuts and Jobs Act (TCJA) in 2017, several limitations and eliminations were implemented for itemized deductions:

The first big change is the elimination of miscellaneous deductions. This means you can no longer deduct the following popular deductions:

  • Investment fees - This is a big hit to clients with large portfolios. If you can, in at least your IRA, have the investment fees deducted directly from the IRA account.
  • Tax prep fees
  • Home office for employees

The second change is an overall limit of $10,000 for ALL state and local taxes per tax return. This rule includes real estate, excise and income taxes.

More individuals will be forced to use the standard deduction.
Other Highlights

Health Savings Accounts (HSAs) continue to be one of the best tax deductions as well as a great way to save for retirement. When contributions are made to HSAs, the contribution is considered pre-tax and as long as the money is used for medical expenses it remains tax free. A single person may contribute up to $3,450, while families can contribute up to $6,900, for 2018.
Tax Planning with the Standard Deduction
In addition to the aforementioned limitations, the Tax Cuts and Jobs Act (TCJA) has made changes to both the standard deduction and personal exemption. The changes are as follows:

Personal exemptions have been eliminated.

Also a sizable increase in the standard deduction. This will help many that do not pay state income taxes or have not been able to itemize deductions in the past.

The amounts have increased for each filing status:
  • Single/Married, filing separately: $12,000;
  • Head of Household: $18,000; and
  • Married, Filing Jointly/Qualified Widow(er): $24,000. 
Planning Opportunities

If you have medical and/or charitable contributions, one strategy to employ will be to bunch these expenses in alternating years.

Thereby qualifying for the itemized deductions in alternating years.
Tax Tip
If you have not already done so, be sure to max out your contributions to your 401(k) plans and/or your IRA. The contribution limits are as follows:
401(k):
  • Under age 50 at year end: $18,500
  • Age 50 or older at year end: $24,500
IRA:
  • Under age 50 at year end: $5,500
  • Age 50 or older at year end: $6,500
SIMPLE IRA
  • Under age 50 at year end: $12,500
  • Age 50 or older at year end: $15,500
Updates for Businesses
New Massachusetts Law for Equal Pay
The new law, An Act to Establish Pay Equity, became effective as of July 1, 2018 updating the previously passed Massachusetts Equal Pay Act (MEPA). The law provides additional clarification on unlawful wage discrimination as well as adding new protections to ensure workplaces are more fair and equal. One new key provision for employees and job applicants is that employers may not prohibit employees from disclosing or discussing their wages. Additionally, employers may not seek the salary or wage history of any prospective employee before making an offer that includes compensation and may not require that a prospective employee’s wage or salary history meet certain criteria.

To learn more about An Act to Establish Pay Equity and the Massachusetts Equal Pay Act (MEPA), click here
Crowdfunding
Need access to extra cash to grow your business? Try crowdfunding! Crowdfunding utilizes the power of people to help finance a new or existing business venture. Entrepreneurs are no longer limited to venture capitalists or asking relatives for start-up funds-now they have the access to investors and individuals alike and the potential to raise thousands-even millions-of dollars to fund their new company or idea.

Find more information regarding crowdfunding, click here.

Also, look at some of the projects on Kickstarter and Indiegogo as one of the projects may pique your interest. 
20% Business Deduction
One of the most exciting deductions to arrive for business owners is the new Section 199A deduction. This new provision provides business owners the ability to deduct up to 20% of the income from a domestic business operated as a sole proprietorship, partnership, S Corporation, including some trusts and estates. Wage income and domestic business income from a C Corporation are not deductible.

To be eligible for the entire 20% business income deduction, taxpayers will need their taxable income, prior to the deduction, below the following thresholds:

  • For taxpayers filing as Married, filing jointly: $315,000
  • For all other filers: $157,000

Special rules apply for some industries, which include, but is not limited to, the following:
  • Health
  • Law
  • Accounting
  • Financial services
  • Brokerage services, including investing and investment management, trading, or dealing in securities, partnership interests, or commodities.

If your taxable income is above these thresholds, you may still be eligible for a limited (phased-out) deduction however this calculation is not straightforward.

If you would like more information regarding this deduction, please do not hesitate to contact us
Paid Family and Medical Leave for MA Employees
As of July 1, 2019, both MA employees and employers will be required to pay (equally) an additional payroll tax that is equivalent to 0.63 percent of the employee’s wages. This new payroll tax will entitle those who require the use of Family and Medical Leave payment of 80 percent of their wages up to 50 percent of the state average weekly wage as well as 50% of their wages above that amount, up to an $850 weekly, indexed cap. Proposed regulations will be published on March 31, 2019 and employers will be required to begin to pay leave benefits on January 1, 2021.

Tax Tips
  • Reminder: Massachusetts Minimum Wage increases to $12 per hour and tipped employees wage increases to $5.05 per hour on January 1, 2019.
  • The Section 1031 exchange for equipment or motor vehicles is no longer available.
  • Entertainment expenses are no longer deductible.
  • Bonus depreciation has been increased to 100% for both used and new equipment.
  • If you are able to hire your children, you may pay them up to $12,000 federal income tax free. Please note, however, that you must have documentation of their hours and the tasks they performed.
If you have any questions regarding these topics or would like personalized assistance with tax planning or other matters, please do not hesitate to contact us!
Sincerely,
General Information and Reminders
Q4 estimated payments are due on 1/15/2019
Use the below links to pay your Quarter 4 estimated tax payments.
Gannon CPA, LLC Quick Links
Tax Cuts and Jobs Act (TCJA)

Click the following link to review the highligh ts of the Tax Cuts and Jobs Act (TCJA)
529 Plans are Deductible in Massachusetts
Don’t forget that contributions to 529 plans are now deductible in Massachusetts up to $2,000 for those who are married, filing jointly and $1,000 for all other individuals. To be eligible for this deduction, the taxpayer must be contributing to a Massachusetts plan.
Interesting Applications and Resources
TAX SEASON IS HERE

As soon as you have all your documents ready, please upload them to the portal and send Hannah an email to let us know we can begin preparation.
SCANNING

If you regularly scan documents to the portal, we have found that the following settings make the scan most legible:

DPI of 300
Black & White print
PDF
Gannon CPA Portal Access
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