When you file your 2018 tax return a year from now, it may look a bit different, thanks to the biggest tax reform law in over 30 years. Although most changes won’t be realized until then, now is a good time to plan ahead and familiarize yourself with the changes. Following is a brief summary of the changes you may notice.

 

INDIVIDUALS

Standard Deduction and Exemptions

The standard deduction will jump from $13,000 for a couple filing jointly to $24,000. For single filers, it jumps from $6,500 to $12,000. The standard deduction for heads of household will jump from $9,300 to $18,000. People aged 65 and older, as well as blind people, will get $1,550 more per person ($1,250 more per person if married).

Unfortunately, the $4,150 personal exemption would be repealed.

Child Tax Credit

The child tax credit is currently $1,000 and starts to phase out at incomes of $110,000 for couples and $75,000 for individuals. The new law doubles the credit to $2,000, and $1,400 of that is a refundable tax credit. In addition, it doesn’t start to phase out until incomes of $400,000 for couples and $200,000 for individuals.

New Dependent Credit

Under the new plan, each non-child dependent can receive a credit of $500. However, there will be no exemption credit or reduction for yourself, your spouse or your dependents.

Cutback on Itemized Deductions

Not only are fewer people likely to itemize their deductions considering the increased standard deduction, they’ll also no longer be allowed to itemize the following deductions:

• Job-related moving expenses, except for military
• Miscellaneous write-offs subject to the 2% of adjusted gross income threshold, including employee business expenses, brokerage and IRA fees, hobby expenses and costs of tax return preparation
• Theft losses
• Personal casualty losses, with the exception of those in presidentially declared disaster areas
• A cap of $10,000 for state and local taxes

In addition, allowable mortgage interest deductions have decreased by $250,000 (from loans up to $1 million to loans up to $750,000).

New Benefits for Individuals

New benefits for individual taxpayers include the following:

• There will be an increase to the alternative minimum tax (AMT) threshold, so fewer middle-class taxpayers will be subject to AMT. The $70,300 for individuals and heads of household will start phasing out above $500,000. The $109,400 for joint filers will start phasing out above $1 million.
• The lifetime estate and gift tax exemption has been almost doubled and is now close to $11 million. The 40% rate stays the same, and the annual gift tax exclusion is $15,000 per person.
• The annual gift tax exclusion will be $15,000 with a maximum rate on gifts at 35%.
• There will no longer be a fine for individuals who have don’t have health insurance or fail to qualify for an exemption.

Tax Rate Changes for Individuals

The maximum individual tax rate has been reduced from 39.6% to 37%. No matter what bracket you fall into, more of your taxable income will be charged lower rates than before.

2018 Income Tax Brackets
Rate	Individuals	Married Filing Jointly
10%	Up to $9,525	Up to $19,050
12%	$9,526 to $38,700	$19,051 to $77,400
22%	$38,701 to $82,500	$77,401 to $165,000
24%	$82,501 to $157,500	$165,001 to $315,000
32%	$157,501 to $200,000	$315,001 to $400,000
35%	$200,001 to $500,000	$400,001 to $600,000
37%	Over $500,000	Over $600,000

It is important to note that tax brackets, standard deductions and other items will be adjusted annually via a chained consumer price index. The result should be lower inflation adjustments and smaller annual increases than with the current index. Eventually, however, individual filers will realize the impact of the slow and somewhat hidden tax hike.

Revised Income Tax Rates and Brackets for Trusts and Estates

If income of an estate or trust is:	Then the income tax is:
Not over $2,550	10% of taxable income
Over $2,550 but not more than $9,150	$255 plus 24% of excess over $2,550
Over $9,150 but not more than $12,500	$1,839 plus 35% of excess over $9,150
Over $12,500	$3,012 plus 37% of excess over $12,500

 

Kiddie Tax

Unearned income of children under 18 will be taxed as ordinary income and capital gains rates that are applicable to trusts and estates (instead of their parents’ marginal tax rate, which is the current practice).

529 college Savings Plans

Distributions of up to $10,000 per student will be allowed to pay tuition for elementary and secondary education.

Furthermore, the new law will allow limited tax-free rollovers from 529 plans to ABLE accounts and allow ABLE account beneficiaries to make contributions to their accounts over the $15,000 annual pay-in limit.

Capital Gains and Dividends

Instead of depending on one’s individual tax bracket, rates for capital gains and dividends will rely on income thresholds.

Tax Rate for 2018 Long-term Capital Gains and Dividends
Rate	Individuals	Married Filing Jointly
0%	Under $38,600	Under $77,200
15%	$38,601 to $425,799	$77,201 to $478,999
20%	$425,800 and up	$479,000 and up

BUSINESSES

Corporate Tax Rate

The corporate tax rate for C-corps will reduce from the 35% top rate to a flat 21% rate. There will be no more AMT for corporations.

Small Business Benefit

There will be up to a 20% deduction from net business income for sole proprietorships, LLCs, partnerships, S-corps and rental activity. It is important to note that there are many complex limits and restrictions, and the break phases out for high earners in professional service fields with taxable incomes in excess of $157,500 for individuals and $315,000 for filers of joint returns.

Business Losses on Individual Returns

The deduction for business losses on individual returns that exceed a $250,000 threshold for individuals and $500,000 for joint filers is nondeductible. However, any excess can be carried forward.

Enhanced Write-offs for Business Asset Purchases

There will be a 100% bonus depreciation for many assets put into use after Sept. 27, 2017. The break is temporary and will be phased out by 20% each year after 2022.

New Credit for Businesses that Provide Paid Family or Medical Leave

There will be a temporary 12.5% credit (only for 2018 and 2019) for firms that pay paid family or medical care leave. The credit will increase for employers that pay workers more than half of their normal wages during leave.

Limited Deduction for Interest on Business Debt

Interest write-offs will be capped at 30% of adjusted taxable income. Disallowed interest will be carried forward. Firms that have gross receipts of $25 million or less, real estate companies and certain regulated public utilities will be exempt.

Other Disappearing Business Deductions

There are many business deductions and breaks that will either be eliminated or cut back, including the following:

• Business entertainment
• Country club dues
• Sexual harassment settlement payments subject to nondisclosure agreements
• Local lobbying expenses
• Employer write-offs for fringe benefits related to the cost of transportation (e.g., parking, mass transit passes and bicycle commuting)

Exempt Groups

Private colleges with large endowments will pay a 1.4% excise tax on net investment income. The tax will apply to schools with at least 500 students and assets unrelated to education valued at $500,000 or more per full-time student.

Conclusion

Most of the new individual tax provisions expire after 2025 unless they’re extended by another Congress. However, all of the corporate tax changes are permanent.

The First State is often the first that comes to mind when entrepreneurs are thinking about where to domicile their company.

While Delaware is a popular state for incorporation, due to its very friendly business laws, it's not entirely a cakewalk when it comes to paying state taxes.

First off, Delaware offers appealing tax rates, but it is not tax-free. Either a domestic stock or a non-stock, for-profit corporation that is incorporated in Delaware must pay an annual franchise tax. It's required even if you have no physical presence in Delaware, and even if you do no business in Delaware (but no filing requirements with the Dept. of Revenue).

The minimum tax for corporations that use the Authorized Shares method is $175. For corporations using the Assumed Par Value Capital Method, the minimum is $350. A yearly tax cap of $180,000 applies to all corporations, regardless of the method used.

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Accounting and taxes get more complicated when you are self-employed, especially when S-Corp business expenses get intermingled with personal expenses. If you do not declare these expenses properly, which are typically mixed-use expenses, you might lose these deductions and your tax liability will increase. If done in the right way, it is possible to reduce your total tax bill. S-Corporations need to use an “Accountable Plan” to ensure that the shareholder's tax consequences are minimized.

The Accountable Plan

It is essential for an S-Corp to create and follow an Accountable Plan. An Accountable Plan allows tracking of all the business expenses linked to personal expenses (such as home office, cell phone usage, internet use etc.), which are to be reimbursed by the business. The expenses are typically mixed-used in nature.  Expenses that are 100% business use can also be reimbursed but ideally these should be paid directly by the business.

With an accountable plan, it is possible to bring down the company profits, by providing for reimbursements to be paid out for expenses by shareholders. Doing this can also bring down the total amount to be paid for Social Security as well as for Medicare taxes (depending on how the company is allocating between w-2 wages and shareholder distributions).

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Planning for your retirement is essential, and it is entirely possible that you have amassed savings in your bank account and investments, in addition to your retirement funds. Your retirement funds include the traditional IRAs, SEP IRAs, SIMPLE IRAs, 401 (k), 403 (b) and 457 (b) plans, as well as plans for profit sharing and other defined contributions. Often, people do not want to touch their retirement funds until it is absolutely necessary. However, your retirement funds cannot be left dormant within your account. By the time you have reached 70 ½ years of age, you are obligated to begin taking withdrawals.

Every year, there is an amount that you need to withdraw from your account, and that is referred to as your required minimum distribution. This is a mandatory requirement from the IRS, and is an essential part of planning for your retirement.

Your First Withdrawal

As you plan to take your first withdrawal, you should understand how to calculate your age and determine when you turn 70 ½. This will affect the year in which you take your first withdrawal. If your 70^th birthday falls before the 30^th of June then you will receive your first required minimum distribution (RMD) by the 30^th of December in the same year. However, if you are born from the 1^st of July onwards, your RMD will be available the following year by the first of April. The distribution is calculated based on your age as at the 31^st day of December.

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Every year, you likely pay hundreds, if not thousands of dollars in taxes. Armed with the right information, you can reduce the amount that you pay out and make some considerable savings. Determine who your dependents may be, as you will find that you can claim them on your tax return and lower your tax bill.

Dependent Exemptions

For every single one of your dependents, you are able to take an exemption on your taxes. There are two categories of dependents that can qualify, these being your 1. children and 2. your “qualifying” relatives (which might not have to be a blood relative at all). By 2015, each dependent that qualifies allows you to cut down your taxable income by $4000.

In addition, your dependents can earn you some tax credits, and also enable you to write off a number of your expenses. In order to qualify for the exemptions, each dependent has to pass through several tests.

Qualifying Tests for a Child

For a child to qualify as a dependent, there are five tests that must be receive positive results. There are as follows: –

Your Relationship – The child may be your son, daughter, step or foster child or direct descendant. Other children would include your brother, sister, half siblings, step siblings or their descendants. Adopted children and foster children can also count as dependents.

Correct Age – The child should be below the age of 19 by years end, and also younger than you. If the child is a student, they should be below the age of 24 and younger than you. If they have a permanent disability, they qualify at any age.

Living Arrangements – The child needs to have lived with you for 50% or more of the year.

Financial Support – The child should not have availed in excess of half their own support during the year.

Joint Return – The child should not file a joint return for that year.

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Tax Treatment for Resident Alien

If you are a U.S. resident alien, you use the same filing status a U.S. citizens. If you are a resident alien for the entire tax year you can claim the same deductions as U.S. citizens as well. You get to take a personal exemptions and exemptions for dependents according the dependency rules for U.S. citizens. You have the option of itemized your deductions or using the standard deduction (based on filing status). Resident alien get the same tax credits, use the same forms and use the same mailing addresses as U.S. citizens.

Tax Treatment for Non-Resident Returns

As a foreigner in the United States, you need to know what your tax obligations are, especially if you are pursuing residency. You should not make the mistake of assuming you are exempt from taxes by virtue of not being a citizen yet.

Foreign filers are referred to as non-resident aliens by the Internal Revenue Service (IRS). Any non-resident alien who is waiting to pass the green card test, or the substantial presence test is required to file taxes. They are taxed on all the income that they earn in the U.S, though are not liable to pay taxes on income that they earn outside of the U.S.

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Tax returns are becoming more and more complex on an annual basis. There are more forms to fill, more information to give and it always seems that there is not enough time to get it all done. It is therefore not surprising that you may make a mistake on your tax returns, particurly when there is a change in your financial status.

As this is such a common occurrence, the IRS has come up with a way to amend your tax returns. You can choose to either pay any extra money you owe as tax or get a refund for the extra money that you paid as tax. The IRS, however, does not allow you to file your amended tax return online; you have to do so through email.

To change your tax return, fill form 1040X and send it to IRS. This is the form that reveals the changes that you are making, which amend the tax return that you filed. You are also required to attach any forms, schedules and documents that are being changed as per the amendment.

 

How far back can you amend tax returns?

The IRS is strict on how far back one can amend their tax returns, whether you are seeking a refund, or you owe tax. The timeframe is usually 3 years after the due date of the original return or 2 years since you paid tax.

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