This year was big.

The complex barrage of tax changes and updates were so far-reaching, that every individual and business has been touched by it in some way. With the Tax Cuts and Jobs Act (TCJA) changing the playing field in the tax realm, you may want to consider making some strategic year-end moves to help minimize your tax burden.

Download 2018 Tax Rates and Tables

Download 2019 Tax Rates and Tables

The Tax Cuts and Jobs Act of 2017 (ACT) was signed into law on December 22, 2017, by President Donald Trump. The ACT was the biggest tax reform enacted in over thirty (30) years comprising of no fewer than 130 new tax provisions. Taxpayers and tax professionals will find it difficult to cope with the ACT, particularly the 20 percent (20%) deduction provision. The IRS stated it will set aside $291 million to implement the technology necessary to build their systems for the new ACT. The Joint Committee on Taxation predicts 18 million individuals will no longer itemize on their 2018 returns which is a 61.3% decrease. A second tax bill (2.0) is expected to hold a vote after mid-term elections although no hearings have been scheduled in the Ways and Means Committee.

In conclusion, we are all going to be under a huge shoot in the dark waiting for what our government has in store for us. I have listed some of the major changes in the tax reform. If you are a sole proprietor please see the business section resources for tax reform changes.

2018 Significant Tax Enactments

The new Form 1040 Postcard (replaces Forms 1040, 1040A and 1040EZ) is a drastic format change from 2017 forms. Tax software companies and the IRS will spend “millions” in converting to the new “Form 1040 Postcard.” The tax software companies will be able to populate the smaller boxes BUT taxpayers who file their returns by “paper” will find it very difficult to populate.

New Tax Provisions to Reduce Your Tax Bill in 2018

The Tax Cuts and Jobs Act (TCJA) created more than 130 new tax provisions, which may help to reduce your tax burden in the coming year. These new, along with some of the surviving, provisions create a wealth of year-end planning opportunities.

Choose the Right Approach to Deductions

Many taxpayers who’ve traditionally itemized their deductions might end up simply claiming the standard deduction for 2018. The TCJA roughly doubles the standard deduction to $12,000 for single filers and $24,000 for married couples. It also suspends personal exemptions and eliminates or limits many of the popular itemized deductions.

The deduction for state and local income and sales taxes, for example, is limited to $10,000 for the aggregate of state and local property taxes and income or sales taxes. This could make it difficult to claim enough in itemized deductions to surpass the standard deduction.

The choice between taking the standard deduction or itemizing will depend on your individual circumstances. Factors such as the amount of medical expenses could also play a role in the decision.

Time Medical Expenses

The TCJA gives taxpayers with substantial upcoming medical expenses strong incentive to incur them this year. The law lowered the threshold for deducting unreimbursed medical expenses from 10% of adjusted gross income (AGI) to 7.5% for all taxpayers in 2017 and 2018. Next year, though, the threshold returns to 10%, making it harder to qualify for the deduction.

Qualified medical expenses are broadly defined as the costs of diagnosis, cure, mitigation, treatment or prevention of disease and the costs for treatments affecting any part or function of the body. Examples include payments to physicians, dentists and other medical practitioners, as well as equipment (including glasses, contacts and hearing aids), supplies, diagnostic devices and prescription drugs. Travel expenses related to medical care are also deductible.

Offset Capital Gains

The strategy of “loss harvesting” to shield gains from the capital gains tax remains advisable for 2018, particularly for high-income taxpayers. It involves selling underperforming investments to realize losses that can offset taxable gains realized during the year. As a bonus, if the losses exceed gains, up to $3,000 of the excess losses generally can be used to offset ordinary income, which is taxed at a higher rate than capital gains. And any excess beyond that is carried forward.

You might also consider selling depreciated assets and contributing the proceeds to charity. The loss can be harvested (assuming the asset has been held for more than one year); plus, you’ll receive a charitable contribution deduction for the cash donation.

Defer Income

Employees have limited options for deferring wages and salaries, but if you’re self-employed you can push income into 2019 by, for example, delaying invoices until late December so payment doesn’t arrive until January.

Regardless of your employment situation, you can also defer income by taking capital gains next year. A caveat, though — deferring income is wise only if you expect to be in the same or a lower tax bracket in 2019. If not, the taxes will be greater next year than this year.

Bunch Charitable Contributions

You can claim deductions for charitable contributions only if you itemize the deductions. For that reason, it’s been estimated that the number of households claiming charitable deductions will decline under the new tax law. But those with philanthropic inclinations can reap tax benefits by donating strategically.

For example, if you contribute to a donor-advised fund (DAF), you can get an immediate tax deduction. By making multiple contributions to a DAF in a single year, you can get past the standard deduction threshold and take an itemized deduction. You can direct the fund administrator to distribute the funds annually in equal increments, so your favorite charities receive a steady stream of donations regardless of whether you itemize every year. And contributing appreciated assets to a DAF (or directly to a charity) can help avoid long-term capital gains taxes (subject to certain limitations) in addition to securing a deduction for the assets’ fair market value. Also donating an IRA Distribution directly to a qualified charity.

If you’re not using a DAF, you can take a similar “bunching” approach to your donations to accumulate enough charitable itemized deductions to push them over the standard deduction for some years. For example, if you typically contribute to a nonprofit at the end of the year, you can instead bunch donations in alternate years (January and December of 2019 and January and December of 2021). Or you can make several years’ worth of donations in one year. You give the same aggregate amounts as in the past and preserve the charitable deduction.

Accelerate Deductions

Deduction acceleration has the same goal as charitable contribution bunching: boosting the amount of deductions over the standard deduction to make itemizing worthwhile and increase the total write-off. You could accelerate deductions by prepaying state income tax or property tax bills for 2019 before year end. (Of course, this could bring the total state and local tax deduction over the $10,000 limit, meaning the sacrifice of the excess portion for tax purposes.)

However, if you’re in danger of falling prey to the alternative minimum tax (AMT), think twice before pursuing this strategy. Certain deductions allowed for the regular income tax — including those for state and local taxes — aren’t allowed for AMT purposes.

Contribute to Retirement Accounts

As in previous years, you can shrink your taxes by adding to tax-deferred retirement accounts. Consider the benefit of making allowable contributions to your IRAs and 401(k) plans. Also, keep in mind that, because the deadline for certain retirement account contributions is after the end of the year, there may be an opportunity for tax planning into the new year.

Revamped Child Tax Credit under TCJA

The Child Tax Credit was introduced in 1997 under the Taxpayer Relief Act. The credit has gone through many changes over the past 20 years, starting out as a $400 nonrefundable credit and increasing all the way up to $1,000 per qualifying child under the age of 17. Now the tax credit under the Tax Cuts and Jobs Act (TCJA) has been revamped once again.

Starting in 2018, the TCJA has doubled the child tax credit to $2,000 per qualifying child under the age of 17. Any dependents who are not qualifying children under the age 17, will be eligible for a new $500 credit each.

To be eligible for the $2,000 child tax credit, the child must meet the following requirements:

• Must meet the definition of a “qualified child”
• Must be under 17 at the end of the tax year
• Must be claimed as a dependent
• Must have a Social Security Number

To be eligible for the $500 credit, the dependent must meet the following requirements:

• Must meet the tax test for dependency
• Must be claimed as a dependent

The income phase-out threshold amount for the 2018 child tax credit is $200,000 for a single taxpayer and $400,000 for joint filers (increasing from $75,000 for a single taxpayer and $110,000 for joint filers). This allows several taxpayers to take advantage of the child tax credit who might have not been so fortunate in the past.

The earned income threshold for the credit is $2,500 per family, down from $3,000 under the pre-Act law, which has the potential to result in a larger refund.

Of the $2,000 Child Tax Credit, only $1,400 can be refundable. The refundable portion only applies when the taxpayer is unable to take advantage of the full $2,000 credit. The refundable portion will equal 15% of the taxpayers earned income above $2,500, refunding up to a maximum of $1,400.

Year-End Tax Planning: Mutual funds

Now is the time to review your mutual fund holdings! Before the end of the year, it’s a common strategy to review the mutual fund holdings in your taxable accounts and take action to avoid unforeseen taxable income. Here are some planning tips.

Avoid Surprise Capital Gains

Unlike with stocks, you can’t avoid capital gains on mutual funds simply by holding on to the shares. Near the end of the year, funds typically distribute all or most of their net realized capital gains to investors. If you hold mutual funds in taxable accounts, these gains will be taxable to you regardless of whether you receive them in cash or reinvest them in the fund.

For each fund, find out how large these distributions will be and get a breakdown of long-term vs. short-term gains. If the tax impact will be significant, consider strategies to offset the gain. For example, you could sell other investments at a loss.

Buyer Beware

Avoid buying into a mutual fund shortly before it distributes capital gains and dividends for the year. There’s a common misconception that investing in a mutual fund just before the ex- dividend date (the date by which you must own shares to qualify for a distribution) is like getting free money.

In reality, the value of your shares is immediately reduced by the amount of the distribution. So, you’ll owe taxes on the gain without actually making a profit.

Seller Beware

If you plan to sell mutual fund shares that have appreciated in value, consider waiting until just after year end so you can defer the gain until 2019 — unless you expect to be subject to a higher rate next year. In that scenario, you’d likely be better off recognizing the gain and paying the tax this year.

When you do sell shares, keep in mind that, if you bought them over time, each block will have a different holding period and cost basis. To reduce your tax liability, it’s possible to select shares for sale that have higher cost bases and longer holding periods, thereby minimizing your gain (or maximizing your loss) and avoiding higher-taxed short-term gains.

Think Beyond Just Taxes

Investment decisions shouldn’t be driven by tax considerations alone. For example, you need to keep in mind your overall financial goals and your risk tolerance.

Alimony Payments Under Divorce Agreements Repealed

Under the TCJA of 2017, Alimony payments will no longer be deductible for NEW divorce agreements (or certain modifications to pre-existing agreements) entered after December 31, 2018. Alimony payments will no longer be taxable to recipients.

Divorce and separation agreements prior to 2019, are not affected by the ACT. Alimony payments will remain deductible for payers and taxable for recipients. Miscellaneous Itemized Deductions Eliminated

All but one miscellaneous itemized deduction was eliminated under the ACT. Schedule A itemized deductions disallows professional fees, unreimbursed employee expenses, moving mileage and expenses, non-independent over-the-road truck driver meals, union dues, investment expenses, K-1 excess deductions on estates, etc.

The single Form 2106 expense that remains deductible is members of the Armed Forces on active duty who move related to a permanent change in station.

The employee greatly impacted by this ACT is the non-independent over-the-road truck driver and the employee/salesman who travels extensively and is not reimbursed by their employer. College Savings Plans Tax-Free Distributions Allowed

The ACT allows tax-free distributions from 529 Plans of up to $10,000 per student per year to pay tuition for elementary and secondary private and parochial schools.

The $10,000 cap does not apply to 529 plan withdrawals to pay for college. Home Mortgage Interest Deductibility

In the Release, the ACT suspends from 2018 until 2026 the deduction for interest paid on home equity loans and lines of credit (qualified residence loans), unless they are used to buy, build, or substantially improve the taxpayer’s home that secures the loan, for which such interest remains deductible.

For interest on a line of credit or home equity loan to be deductible, the taxpayer MUST have used all (old or new) proceeds to buy, build, or substantially improve the home securing the loan, regardless of the amount.

AMT Assessed Against Taxpayers in 2018 Lowered

The IRS estimates that due to the new ACT, approximately 200,000 taxpayers will owe AMT when they file 2018 tax returns compared to 5 million taxpayers if the new ACT had not been enacted.

There are basically three (3) reasons for the decrease in the number of taxpayers who will not fall into the AMT tax. They are:

– Fewer taxpayers will itemize – State and local taxes are limited to $10,000 AND – The AMT exemption amounts were increased.

Employee Business Expenses

The TCJA’s Impact

Before the TCJA, unreimbursed business travel expenses generally were deductible on an employee’s individual tax return (subject to a 50% limit for meals and entertainment) as a miscellaneous itemized deduction. This allowed many employees with substantial unreimbursed expenses to recoup some of this cost on their personal income tax returns.

For 2018 through 2025, the TCJA suspends miscellaneous itemized deductions subject to the 2% of AGI floor. That means even employees who itemize deductions, and have enough expenses that they would exceed the 2% of adjusted gross income (AGI) floor, won’t be able to enjoy a tax deduction for business travel. Therefore, business travel expense reimbursements are now more important to employees than ever before.

Company Accountable Plans

Employees need to now be reimbursed through an Accountable Company Plan for their out of pocket business expenses.

Reimbursing Actual Expenses

An accountable plan is a formal arrangement to advance, reimburse or provide allowances for business expenses. To qualify as “accountable,” your plan must meet the following criteria:

• Payments must be for “ordinary and necessary” business expenses.
• Employees must substantiate these expenses — including amounts, times and places — ideally at least monthly.
• Employees must return any advances or allowances they can’t substantiate within a reasonable time, typically 120 days.

The IRS will treat plans that fail to meet these conditions as nonaccountable, transforming all reimbursements into wages taxable to the employee, subject to income taxes (employee) and employment taxes (employer and employee).

Keeping it Simple

With the per diem method, instead of tracking actual expenses, you use IRS tables to determine reimbursements for lodging, meals and incidental expenses, or just for meals and incidental expenses, based on location. (If you don’t go with the per diem method for lodging, you’ll need receipts to substantiate those expenses.)

Be sure you don’t pay employees more than the appropriate per diem amount. The IRS imposes heavy penalties on businesses that routinely overpay per diems. Donor Gift Receipts: IRS Substantiation Requirements

With the end of the year approaching, many not-for-profits see an increase in giving. Therefore, we thought it would be helpful to provide a brief summary of donors’ documentation requirements for tax-deductible gifts and what not-for-profits can provide to donors to assist in fulfilling these requirements.

The Internal Revenue Service has provided documentation requirements for charitable contributions. According to IRS Publication 1771, Charitable Contributions – Substantiation and Disclosure Requirements, a not-for-profit is required to provide a written disclosure to a donor who receives goods or services in exchange for a single payment in excess of $75. Additionally, while a not-for-profit that does not acknowledge a contribution incurs no penalty, a donor cannot claim the tax deduction for any single contribution of $250 or more without such acknowledgment. Although it is the donor’s responsibility to obtain the acknowledgment, the not-for-profit can assist the donor by providing a written statement containing the following:

• The name of the not-for-profit
• The amount of cash contribution
• A description (but not the value) of a non-cash contribution
• A statement that no goods or services were provided by the not-for-profit in return for the contribution, in such cases
• A description and good faith estimate of the value of goods or services, if any, that a not- for-profit provided in return for the contribution
• A statement that goods or services, if any, that a not-for-profit provided in return for the contribution consisted entirely of intangible religious benefits, if that was the case

A separate acknowledgment may be provided for each single contribution of $250 or more, or one acknowledgment, such as an annual summary, may be used to substantiate several single contributions of $250 or more. The acknowledgment can either be provided in paper or via email.