Student Login

The new tax reform was finally approved by Congress on December 22, 2017. On December 22, 2017, the Tax Cuts and Jobs Act was passed by Congress. This new tax act provided reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018”. This legislation, which the President signed into law on Dec. 22, 2017, is the most sweeping tax reform measure in over 30 years. The new legislation makes fundamental changes to the Internal Revenue Code that will completely change the way individuals and businesses calculate their federal income tax liability, so as to create numerous planning opportunities. The changes affecting individuals include new tax rates and brackets, an increased standard deduction, elimination of personal exemptions, new limits on itemized deductions (state taxes, mortgage interest), and the repeal of the individual mandate under the Affordable Care Act. The changes affecting businesses include a reduction in the corporate tax rate, increased expensing and bonus depreciation, limits on the deduction for business interest, and a new 20% deduction for pass-through business income. The foreign provisions include an exemption from U.S. tax for certain foreign income and the deemed repatriation of off-shore income.

This new tax reform is the new Tax Cuts and Jobs Act (TCJA). This new tax reform was passed to take effect on both individuals and businesses. This new legislature dictates how businesses compute business interest and what business interest limitations exist under the new legislation recently passed on December 22, 2017. This new tax law will also affect the withholding on the transfer of non-publicly traded partnership interests and tax withholding me need adjustment for certain key groups. Furthermore, the new legislation affects the computing of the "transition tax" on the untaxed foreign earnings of foreign subsidiaries of U.S. companies. S corporations are also subject to the extended three year holding period for applicable partnership interests. With the new tax law changes, will come different withholding demands. The interest on home equity loans will still be deductible under the new tax law.

Other items will be affected, such as the procedures for changing the accounting period of foreign corporations owned by U.S. shareholders that are subject to the transition tax under the new Tax Cuts and Jobs Act. Certain 2018 Pension Plan limitations will not be affected by the new tax law of 2017. The new law will not affect tax year 2018 dollar limitations for retirement plans.

Alaska Native Corporations and Alaska Native Settlement Trusts may be able to take advantage of certain benefits that are in place in the new tax law legislation. Certain tax advantages may exist is paying items early before enacting of certain items in the new tax code take effect. One of these items is prepaid real property taxes. Real property taxes may be deductible in 2017 if assessed and paid in 2017.

It took a lot of effort to finally approve the Tax Cuts and Jobs Act (TCJA) by Congress on December 22, 2017 just before the holidays. This new tax reform is the new Tax Cuts and Jobs Act (TCJA) will impact almost every taxpayer in the nation. This will take effect on both individuals and businesses. This new legislature dictates how businesses and individuals will calculate personal and business deductions and credits. Businesses which operate on foreign grounds will see a huge detriment if they don't convert soon. Some will see a huge impact on their tax returns either affecting them in a really good way or critically affecting their bottom line. The main idea behind the new Tax Cuts and Jobs Act tax reform is to fortify businesses and in turn these businesses will be able to hire employees and give these employees a better life by providing jobs. To prepare individuals taxpayers for what the new tax law really meant, there is much promotion going on as to what we are to expect in the coming years as far as credits and deductions. The new tax law is providing high individual credit and deduction amounts for now at first.

Furthermore, many of the rules this time around have been placed to prevent certain credits or deductions from being taken advantage of. It is as if the current credits and deductions are too generous and changes had to be made. However, there seems to be no explanation of the fact that some deductions and credits this time around seem extremely high. There seems to be some kind of plan for these tax items to be in the extremes at first in the beginning by offering highly generous deductions at first and which will expire and go to the extremes on the other side of the spectrum. The new tax law passed on December 20, 2017, the Tax Cuts and Jobs Act displays extreme measures on both sides of the coin.

Many items in the tax code will be affected by the new Tax Cuts and Jobs Act of 2017. For starters, the tax rates will be lower with about 2% less than with the previous tax brackets but still starting at 10%. If you have a capital loss, you usually still can deduct up to $3,000 of it and perhaps bring the rest of your loss forward (carryforward). Please note that this amount is $1,500 if you are married filing separately. You have this limit and once you reach the maximum you can deduct for the year, you usually can either carry the excess forward to other years.

Adjustments to income are expenses that are applied before any taxes. For almost forever, the rules have been that alimony is deductible by the payer's spouse, and the recipient spouse must include it in income. Now with the new tax legislation, alimony is treated differently. For one thing, usually the payer of alimony is usually the spouse who is working and the spouse who receives is the more often the one the stays home to take care of the children or the spouse with the lower income. This means that the lower income spouse is the one receiving the alimony and usually the one that is not making as much. Under the old law, the spouse who paid the alimony could deduct it and the one who received it would report it as income. The spouse paying the alimony was getting a tax break and the one who received the alimony usually had a lower tax rate and oftentimes did not have to pay tax on the alimony. Now with alimony not being deductible nor taxable, the tax benefit of the higher income earner has disappeared. It was not a wash before and it certainly is not a wash now.

This new tax law also affects how IRAs and other pensions are taxed. With the proper tools and knowledge, you make recharacterization of IRAs and pensions work to your advantage. A recharacterization allows you to treat a regular contribution made to a Roth IRA or to a traditional IRA as having been made to the other type of IRA.

With your business you can deduct basically any expenses that are involved and necessary in order for you to make your profit. There are certain tax that provide you with advantages or tax breaks, if you will, to give you incentives to operate your business or sometimes even to give you a jump at the start of your business. However, the new law has done away with business entertainment expenses for everyone - from small business owners to C corporations. No one is exempt from this and if you are Sole-proprietor, S-Corporation, LLC, independent contractor and business entrepreneur, this new law affects you. On the plus side, section 179 allows taxpayers to immediately expense the cost of qualifying property rather than taking depreciation deductions in yearly increments and the changes to section 179 deduction have taken a drastic turn for the better. The maximum amount that a taxpayer can deduct has been increase with the new Tax Reform. On December 22, 2017, the new tax bill went into effect increasing the deduction for bonus depreciation to 100 percent. This new tax bill will take immediately allow businesses to deduct 100% of eligible property placed in service after September 27, 2017, and before January 1, 2023. The new Tax Cuts and Job Act has also revised the depreciation limits on luxury autos. A new luxury auto placed in service in 2018 can receive up to $18,000 in first year depreciation. Other items taken into consideration by the new Tax Cuts and Jobs Act reform, besides luxury autos are real property and farming property.

Furthermore, the several changes made to the tax code as a result of the new Tax Cuts and Job Act are numerous and at all levels. For example, the state and local tax deduction has been eliminated which will affect many homeowners who own more expensive property. The new Tax Cut and Job Act has changed our SALT. The new tax law can have a major effect on you if you live in states like California and New York which have large state and local taxes. A few will be affected by the change.

However, the medical expense deduction has reverted to the 7 1/2%. Previously you could deduct only medical expenses which exceeded 10% of your income unless you were 65 or over by the end of the year, then you can deduct your medical expenses that exceeded 7.5 percent of your income. Now with the new tax reform, the lower 7.5 percent has been restored for two years.

Another big one on the list is home equity loan interest. As a result, you will not be able to deduct home equity loan interest regardless of when you acquired the home equity loan. Another important thing about home mortgage interest is that this applies for loans acquired after December 15, 2017, you remain unaffected by the new tax reform. You will be able to deduct your interest as you have been doing, all of it.

The new Tax Cuts and Job Act law has made the deduction for charitable contributions better for us. It has done this by raising the limit that can be contributed per year. The limit before was 50 percent and now it is up by 10 percent to 60 percent. You are allowed to contribute and deduct up to 60% of your Adjusted Gross Income (AGI) in charitable contributions. This means that if, for example, your Adjusted Gross Income is $35,000, you can contribute $21,000 of that money to your church or other favorite charitable organization and claim the entire $21,000 amount. On a more sour note, the Tax Cuts and Job Act has repealed the rule that allowed taxpayers to deduct 80 percent of a contribution made for the right to purchase tickets for college and university athletic events. Furthermore, a taxpayer would not be allowed to claim a tax deduction for any single item contribution of $250 or more unless the taxpayer obtains a contemporaneous written acknowledgement of the contribution from the recipient. The organization does not incur a penalty if it does provide a written acknowledgement.

Additionally, major changes have been made for casualties and theft loss deductions. More like it have been completely eliminated. Well, not exactly. The deduction is still in effect for individuals who are victims of a federally declared disaster area and with the same terms as before the change. The exception is that the limitation is the ability to be able to claim the deduction, you would have to be a victim of a federally disaster declared by the President under the section 401 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act.

The disallowance of unreimbursed employee business expenses, such as job travel, union dues, job education, et al, is a big item on the list since the option to take these as a deduction on your tax return have been suspended. The ability to deduct tax preparation fees which includes tax planning and consultation fees is also gone.

There are many drastic changes on both sides of the coin that affect taxpayers all over. Not everything is bad and in fact some changes are extremely good. For example, there are new phase-out amounts for the child tax credit. In addition, there are new higher amounts with the passing of the new Tax Cuts and Jobs Act (TCJA) tax reform law that allow for a child tax credit of $2,000 per child for tax year 2018.

The most promoted items of all in the tax code, the elimination of it, has not happen. It is not set to happen for a while. We will see because when you mess with people's lives and better put, when you threaten people's lives, then it all becomes personal. Taxpayers are not just going to sit around and allow for their health coverages to be taken away without having a property replacement. In the meanwhile, we will keep fighting this thing in court and make sure that this health care replacement is served and adequate before the Obamacare goes away. No one cares if the healthcare is called the Obamacare or the Trumpcare, but rather that the health care covers the basic items that individuals need healthwise. Repeal of the Affordable Care Act's individual mandate will start in 2019. Read it well. The "repeal of the Affordable Care Act's individual mandate" will start in 2019. The Tax Cuts and Jobs Act (TCJA) has repealed the Affordable Care Act's individual mandate that requires all Americans under the age of 65 to have health insurance or pay an annual penalty which was the higher of $695 per person or 2.5 percent of their income. Don't be confused, the Obamacare itself cannot be repealed until there is a suitable replacement. It will probably survive for a while longer because of all the court rulings issued by judges. Then we will see what happens.

What’s happening for 2018 tax returns?

The new administration campaign tax plan was that the number of tax brackets would reduce from seven to three. Similarly, the House of Representatives’ original tax reform bill contained four brackets. Ultimately, common sense interceded and we are still at the seven-bracket structure. There is just no way, we will ever have a postcard tax return with all these many tax brackets! The tax rates are lower with about 2 % less than with the previous tax brackets but starting at 10%.

 

The marriage penalty is almost gone. What is the marriage penalty? This penalty does not really exist as a specified penalty anywhere but it is widely talked about. Why? The marriage penalty is a concept that takes place with the change is the tax bill after a couple marries. The “marriage penalty” or the higher tax bill is due to the combined income of the couple and as a result of the combined income, the couple is changed to a new tax bracket and thus new tax rate which will usually result in paying more taxes than if the couple remained single.

In a few instances the opposite can be true. Instead of a marriage penalty, the couple could incur a bonus which means that the couple fairs better by filing their tax returns as married filing jointly than when they file their tax returns as single. Thus, the couple will have a gain resulting in a bonus instead of a penalty. Again, these are widely spoken about, but there is not per say a “marriage penalty” or “marriage bonus” and these are merely the result of calculations after applying the different tax brackets at the married rates and at the single rates. Other items also affect couples that would cause a “marriage penalty” such as the ability of the individual to file as head of household when the individual is single and thus would not qualify for this HOH filing status once the individual gets married. Additionally, the individual will no longer qualify for the Earned Income Credit because of the combined income as a married individual.

Remember this, the marriage penalty is not an actual penalty. It is something that happens as a result of the different tax bracket (7 tax brackets). The only thing a taxpayer can do to completely eliminate this penalty or the possibility of the marriage penalty is plan your taxes before marriage. It is a well-known fact that when couples plan to marry, the last thing on their mind is the marriage penalty.

If you earn more, your income tax bracket will be higher and that only makes sense. An individual who is not married is single for tax purposes. A couple who is married is considered one individual for tax purposes and thus their income is taken together as one individual. When the couple gets married, the income will usually increase tremendously unless one of the individuals in the marriage is not working. If the income increases, then the tax bracket and the tax rate also increases. The higher tax as a result of getting married is the marriage penalty. The marriage penalty would be the higher tax and the loss of credits and deductions as a result of the marriage.

What is a capital asset?

Almost everything you own or use for person or investment purposes is a capital asset such as your car, household furnishings and stocks. Stocks or bonds would be items that are considered capital assets which you hold for investments. When you sell these items, the difference is a capital loss or a capital gain. Then, after that, you must determine if your assets is a short-term or a long-term item and then you will apply the tax rate. The capital gains tax rates if you have a gain, of course. If you have a loss, you usually you can deduct up to $3,000 of it. Please note that this amount is $1,500 if you are married filing separately. You have this limit and once you reach the maximum you can deduct for the year, you usually can either carry the excess forward to other years. Anyways, if you held the item for less than a year, this property is considered short-term and thus you would have a short-term capital gain and you held your asset for more than a year, then you asset is considered long-term.

Capital losses are fully deductible against capital gains on Schedule D, and if losses exceed gains, you may deduct the excess from up to $3,000 of ordinary income on Form 1040. Net losses over $3,000 are carried over to future years. On a joint tax return, the $3,000 limit applies to the combined losses of both spouses. The $3,000 limit is reduced to $1,500 for married persons who choose to file separately.

On a joint tax return, the capital asset transaction of both spouses are combined and reported on one Schedule D. A carryover loss of one spouse may offset capital gains of the other spouse on a jointly filed Schedule D. Where you and your spouse separatly incur net capital losses, $3,000 is the maximum capital loss deduction that may be claimed for the combined losses on your joint tax return. This limitation may not be avoided by filing separate tax returns. If you file separately, the deduction  limit for each return is $1,500. Neither of you may deduct any of the other's losses on a separate tax return.

If you or your spouse has a capital loss carryover from a year in which separate tax returns were filed, and you are now filing a joint tax return, the carryovers from the separate tax returns may be combined on the joint tax return. If you previously filed jointly and are now filing separately, any loss carryover from the joint tax return may be claimed only on the separate tax return of the spouse who originally incurred the capital loss.

The tax rate on most of these capital gains is usually no more than 15% for most taxpayers. It can even be 0% if you're in the 10% or 15% ordinary income tax brackets. This is your tax bracket for your other income such as your W-2 wages. However, if you exceed certain thresholds, then your capital gains may be taxed at 20%. These threshold are the thresholds for ordinary income tax bracket that is 39.6%. For example, if you are single and your ordinary income is $418,400 then your tax rate could be 39.6% and thus your net capital gain would be taxed at 20%. Likewise if you are married filing jointly or qualifying widow (er) that threshold is $470,700 and $444,550 for head of household. For married filing separately, this amount is almost half at $235,350.

Other than being at a tax bracket of 39.6% and being taxed at the 20% capital gain rate, there are other situations. Your capital gains may be taxed at rates greater than 15% if

1. The taxable part of the capital gain from selling section 1202 qualified small business stock is taxed at a maximum 28% rate.

2. Net capital gains from selling collectible are taxed as a maximum 28% rate.

3. The portion of any unrecaptured section 1250 gain from selling section 1250 real property is taxed at a maximum 25% rate.

The items discussed above usually apply only to long-term capital gains, but short term capital gains are taxed differently. Notice that net short-term capital gains are taxed as ordinary income. These gains are from property you hold for less than a year.

Income is due as you earn it, so if you know you are going to have to pay capital gains tax, then you should plan accordingly and even make estimated payments.

The new tax provisions in the above mentioned is that the tax rate on most net capital gain is no longer higher than 15% for most taxpayers. That is, unless you go over the thresholds mentioned or you are selling section 1202 qualified small business stock. If you are selling section 1202 qualified small business stock then it is taxed at a maximum 28% rate. Also, if you are selling collectibles your maximum rate is 28%. The portion of any unrecapture section 1250 gain from selling this section 1250 real property is taxed at a maximum of 25% rate. Other than this, the capital gain is not higher than 15%.

There is an advantage in being able to claim deductions directly from gross income - the above-the-line deductions, in arriving at adjusted gross income. This is because these adjustments are allowed even if you claim the standard deduction rather than the itemized deductions on Schedule A of Form 1040. Another advantage of these over-the-line deductions is that they also reduce state income tax for taxpayers residing in state that compute tax based on federal adjusted gross income.

What are these adjustments to income that help you arrive at AGI? A few examples of over the line deduction that help you arrive at AGI are

• Repayment of supplemental unemployment benefits required because of receipt of trade readjustment allowances.
• Forfeiture-of-interest penalties because of premature withdrawals.
• Capital loss deductions up to $3,000.
• IRS contributions.
• Rent and royalty expenses.
• Educator expenses.
• 50% of self-employment tax liability.
• Health savings account (HSA) contributions.
• Health insurance premiums if self-employed.
• Jury duty pay turned over to your employer.
• Performing artist's qualifying expenses.
• Reforestation expenses.
• Reservists' travel costs.
• State and local official expenses.
• Student loan interest
• Self-employed retirement plan contributions for yourself.

These are only a few of the possible deductions that help you arrive at AGI. Adjustments to income are expenses that are applied before any taxes. These reduce your total income. These are the items you enter on your Form 1040 before you apply your standard deduction, itemized or your exemptions. After you calculate adjustments to income you are left with your adjusted gross income.

Adjustments to income are individual retirement arrangement (IRAs), alimony, bad debt deduction, moving expenses, student loan interest deduction, tuition and fees deduction, and the educator expense deduction.

Two things. The new tax law treatment of alimony payments will apply to payments that are required under divorce or separation instruments that are (1) executed after December 31, 2018 or (2) have been modified after that date and if the modification specifically states that the new tax law now applies. 

The requirements to deducting moving expenses are that your move closely relates to the start of work, you meet the distance test, and that you also meet the time test. If you are a member of the Armed Forces and your move was due to military order and a permanent changer of station, you don't have to satisfy the distance test. If you are in the military and have to move due to military order, you can still take a moving expense deduction on your tax return.

The moving expense deduction suspension is for December 31, 2017 through December 31, 2025. Starting Janauary 1, 2018 and beyond, you will no longer be able to deduct moving expenses on your tax return. Yes, this is another attempt at making your tax return as simple as sending in a postcard.

The Tax Cuts and Jobs Act was passed in December 2017 and has eliminated the moving expense deduction. This deduction elimination is not permanent and may revert after 2025 and may depend on who is in charge at that time. It may come back at that time and at that time it will up to Congress or the individual in charge to eliminate it permanently. This means that if you moved before 2018 you may be able to claim the moving expense deduction and if you move in 2026, you may be able to claim a moving expense deduction.

By the way, many of the tax law changes such as the suspension of the moving expense deduction are temporary and only for the periods of 2018 through 2025. At that time, we will know what will come back and what will stay eliminated.

Therefore, don't forget this deduction or how to claim it on your return still yet. Remember, you can only deduct expenses for your move that closely relates to the start of your work, you must meet the distance test, and you must meet the time test. This means you can only claim moving expenses that are incurred within one year from the date you first reported to work at the new location and this also relates to the distance work and the distance from the new home has to be more than the distance from your former home to the new job location. Then, your home must be at least 50 miles farther from your old home than your old job location was from your old home, generally speaking. If you are an employee, you must have worked full-time for at least 39 weeks during the first 12 months immediately following your arrival in the general area of your new job location. Different rules apply if you are self-employed. In this case, you must have worked full-time for at least 39 weeks during the first 12 months and for a total of at least 78 weeks during the first 24 months immediately following your arrival in the general area of your new work location.

How do recharacterization work and why it is useful?  A recharacterization allows you to treat a regular contribution made to a Roth IRA or to a traditional IRA as having been made to the other type of IRA. You are only allowed to make a contribution to an IRA to a certain limits and these limits are up $5,500 for 2018 or $6,500 if you are 50 or older. Different rules apply if you contribute to a traditional IRA and if you contribute to a Roth IRA or the tax treatments are different for each kind of IRA.

You recharacterize by telling your trustee of the financial institution holding your IRA to transfer the amount of the contribution plus earnings to a different type of IRA which is either a Roth IRA or a traditional IRA. This is done either in a trustee-to-trustee transfer or to a different type of IRA with the same trustee. This works by making the transfer by the due date for filing your tax return (including extensions) and you treat the contribution as made to the second IRA for that year as if you made it to the second IRA for that year as if you never made it to the first IRA.

Starting January 1, 2018 for tax year 2018, you will not be allowed to do this any longer as dictated with the new Tax Cuts and Jobs Act legislation. Hence, a conversion from a traditional IRA, SEP or SIMPLE to a Roth IRA can no longer be characterized. In addition, the Tax Cuts and Jobs Act also prohibits recharacterizing amounts rolled over to a Roth IRA from other retirement plans such as 401(k) or 403(b) plans. 

However, you have until October 15, 2018 to recharacterize a Roth IRA conversion made in 2017 and this can recharacterized as a contribution to a traditional IRA. As already discussed a Roth IRA conversion made on or after January 1, 2018 cannot be recharacterized.

One thing to note is that you can still recharacterize by rolling out excess contributions to a Roth IRA. Do this if you contribute early in the year to a Roth IRA, but then earn to much over the phase-out limits, thereby disqualifying you from being able to contribute to a Roth IRA for the year. You can undo this contribution without being subject to an excess contribution penalty tax by recharacterizing the contribution to an IRA. You can still do this regardless of the new tax law changes (Hopkins 2018).

It is important to note that the reason people charaterizing from one IRA to another is the fact that these are two different products that are treated differently in the tax code. With a traditional IRA for example, you get a tax deduction up front and taxes are delayed until you withdraw your money when you retire and the idea is that at that time your tax rate will be a lot lower. With Roth IRA, the IRA is funded with post-tax money and with a Roth IRA your tax rate when you retire will be zero. Therefore, recharacterizing an IRA is changing how taxes will apply to the IRA.

But now, the new Tax Cuts and Jobs Act (TCJA) has removed this ability to recharacterize and this could have a major impact on financial planning for many.

With your business you can deduct basically any expenses that are involved and necessary in order for you to make your profit. There are certain tax that provide you with advantages or tax breaks, if you will, to give you incentives to operate your business or sometimes even to give you a jump at the start of your business. The new Tax Cuts and Jobs Act (TCJA) has removed or restricted your ability to claim some of the tax items that give you an incentive to embark on a journey of profit making. There are still many benefits for business owners left to use. However, Congress has felt a need to limit or completely eliminate a few items such as entertainment expense (except for meals), section 179 expense deductions, luxury auto limitations, and certain new regulations on listed property. However, not everything is bad. Congress has allowed 100% expending on depreciation or bonus depreciation deduction.

Yes, indeed, entertainment expenses are very necessary for your business to succeed. Good news, though. Remember that part of the entertainment expense that is for meals? Well, you can generally take 50% of your business-related meal expenses are allowed as a deduction. You can still entertain your customers, but you pick up the tab for the entertainment part and the IRS will pick up the tab for 50% of the meal part. To be able to deduct 50% of your meals as a business deduction though, the meal expense must be ordinary and necessary in carrying on your trade or business and this expense must still meet the directly related test or the associated test.

Remember though, that these limitations only apply to your relationships with customers and not with your employees. Don't get all confused and start setting your own limits that are not included in the new Tax Cuts and Jobs Act. The expenses that are still deductible, and we mention this only so that you get this ingrained in your head, are expenses for your employees that are for

1. Entertainment, amusement and recreation expenses which you treat as compensation to your employees and of course you must include these in their wages.

2. Entertainment expenses for recreation, social, or similar activities and facilities for employees.

Please note that you cannot call entertainment expenses those expenses that you incur for entertainment goods, services, and facilities which you have for sell to customers. Come on, these are called cost of goods sold.

Also, again, remember that with the entertainment expense elimination as with the other elimination of deductions, that they are only temporary. The elimination is from 2018 through 2025. At that time, in 2025, we will see, how all this works out. Who knows, someone with enough sense will re-establish these provisions that have for such a long time become a part of who we are. In America we can deduct business expenses for entertaining our clients, we can golf and transact business at the same time, we can... Don't worry our America will come back to us, after all this chaos is over, we will be great again!

Section 179 allows taxpayers to immediately expense the cost of qualifying property rather than taking depreciation deductions in yearly increments. The maximum amount that a taxpayer can deduct has been increased with the new Tax Reform. The maximum amount a taxpayer can deduct now in Section 179 deduction for property placed in service after December 31, 2017 has been increased from $520,000 to $1,000,000. Along with this increase there is also a phase-out threshold from $2,070,000 to $2,500,000 for property placed in service after 2017. Once the amount for the total Section 179 property placed in service during the year exceeds the threshold amount, then that is when the phase out occurs and at that point the deduction will be reduced dollar-for-dollar by the excess amount. As with other tax items, the deduction and the phase-out limit amounts will be increased for inflation starting in 2019 and in later years.

Under the new tax law, the qualifying property for Section 179 expensing now also includes certain depreciable tangible property used in connection with lodging and improvements to non-residential real property such as roofs, heating, ventilation, air conditioning, and fire and alarm protection systems.

For many businesses and corporations, this is an excellent tax savings brought about with the new Tax Cuts and Jobs Act.

However, on December 22, 2017, the new tax bill went into effect increasing the deduction for bonus depreciation to 100 percent. This new tax bill will take effect immediately allow businesses to deduct 100% of eligible property placed in service after September 27, 2017, and before January 1, 2023. Some eligible property with longer production periods, the 100 percent bonus depreciation is extended through December 31, 2023. Qualifying property is property that has a depreciable recovery period of 20 years or less. Now, eligible property is expanded to include used property, certain qualified film, television, and live theatrical production equipment. The new tax law excludes property from certain utility property and vehicle dealer property.

It is noteworthy that the rate of bonus depreciation will not always be 100% and it will decrease over the next four years:

80% for property placed in service in 2023

60% for property placed in service in 2024

40% for property placed in service in 2025

20% for property placed in service in 2026

0% for property placed in service after 2026

Bonus depreciation is retroactive beginning with assets purchased after September 27, 2017.

1. $10,000 for the first year a vehicle is placed in service

2. $16,000 for the second year,

3. $9,600 for the third year,

4. $5,760 for each succeeding year until the basis in the vehicle has been recovered.

The amount in 1 through 4 above will change slight to adjust for inflation. 

Farming equipment and machinery placed in service after December 31, 2017 and tax years that end after December 31, 2017, have a 5-year recovery period. Grain bins, cotton gins, fences and other land improvements are excluded from the 5-year useful life. With the new Act, there is no longer a requirement that property use in a farming business be depreciated using the 150% declining balance method. Farming property placed in service after December 31, 2017 and in a tax year ending after December 31, 2017, is depreciated using the 200% declining balance method. The 200% declining method excludes buildings, trees, vines bearing fruits or nuts, and property for which the taxpayer has elected to use either.

Certain assets that can be used for business and for personal use are considered listed property and are subject to limited depreciation deductions. For example, there are limits in place for depreciating passenger vehicles and again because it is considered a personal use item.

Under the new tax law, there is an increase in the annual depreciation limits on passenger autos and leading to annual limits (Section 280F limitation) of

• $10,000 for the 1st year,
• $16,000 for the 2nd year.
• $9,600 for the 3rd year.
• $5,760 for each remaining year in the recovery period.

After this the taxpayer is entitled to deduct $5,760 each year until the auto is fully depreciated.

Each year a passenger auto is depreciated, the deduction is limited to the lesser of

• the Section 280F limitation, or
• the depreciation that would have been computed under Section 168 which is the normal depreciation.

The medical expense deduction is one of the few deductions that will be left to itemized on Schedule A. The new Tax Cuts and Job Act will double the standard deduction to $12,000 for individuals and $24,000 for joint filers and with less it is anticipated that there will less taxpayers who itemize deductions on their tax returns.

After the 2017 and 2018 tax years in which the 7.5 percent medical deduction threshold will be in place, the threshold will revert to the 10 percent which means a lower medical deduction.

The type of eligible expenses remain unchanged. They continue to include

• Expenses for doctor, dentists, chiropractors, psychiatrists, psychologist, podiatrists, and other medical professionals.
• Health insurance premiums
• Premiums for long-term care insurance
• Inpatient alcohol and drug treatment programs
• Wheelchair ramps and other modifications to your home for medical reasons
• Transportation to doctor appoints and visits such as taxi, bus fares and other items such as parking
• Prescription drugs
• Payments for smoking-cessation programs and weight-loss programs that are related to a specific disease diagnosed by a doctor

The items you cannot deduct continue to be the same such as over-the-counter medicines, toothpaste, cosmetic surgery, gym memberships, nutritional supplements, nicotine patches or gum and teeth whitening.

Some taxpayers may be confused because maybe they think that this is only the state and local taxes withheld on their Form W-2. No, it is more than that. It is that plus the real estate property tax, property taxes such a the tax from the DMV taxes you pay for owning your car or cars, All these make up a huge chunk and the $10,000 cap may be way less than the actual amount spent. For some taxpayers, this deduction can mean it is $1,500 less but for other it could mean it is $18,000 or even $25,000 less.

There are two items you must consider in your ability to deduct home mortgage interest on your tax return. First, you will only be able to deduct the interest on the first $750,000 of your home mortgage debt. This may not matter in Bakersfield, California, for example, because homes there are way below this amount. However, in San Francisco, the median home price is $1.5 million. Second, the interest on home equity loans will no longer be deductible. Well, this only affects the loans taken out and used for purposes other than to improve the current home. Therefore, no more taking out a home equity loan to pay off your credit card and auto debt, it will no longer be deductible.

Another important thing about home mortgage interest is that this applies for loans acquired after December 15, 2017, you remain unaffected by the new tax reform. You will be able to deduct your interest as you have been doing, all of it. With home equity loans, though, this is a different story as the new tax law affects even loans that were acquired before December 15. 2017. You will not be able to deduct home equity loan interest regardless of when you acquired the home equity loan.

Okay, back to charitable contribution changes. This raise is the charitable contribution deduction can be used to be able to contribute more to your favorite charitable organization and make up for the loss of deductions elsewhere. However, even though this is a positive change in the tax law code, the other changes to the code will indirectly impact contributions to charitable organizations (Miller n.d.).

Less and less people will itemize. Let's face it, if there is no tax incentive some people will just not donate or will donate less than if they had the tax incentive. Also, it is noteworthy to say that charitable contribution donations are one of the strategies used in tax planning. At the end of the year, you can calculate your taxes, for example, and if you are short or points away from one tax bracket to the next, you can manipulate it a bit before the new year by donating more money to your favorite charity. You can still do that, but with the standard deduction amount being higher, many taxpayers will not even itemize and in that case, they will not have a need to donate to any charity for tax purposes.

Colleges and universities counted on the previous tax code that permitted the 80 percent deduction, but now they are out of luck with the new tax law reform. This means that these colleges and universities will lose millions in revenues. Many colleges and universities relied on the 80/20 rule for charitable donations to encourage athletic programs, scholarships, and other programs of the institution.

If you know the rules for deducting charitable contributions when you receive a benefit in exchange, you will probably better understand the new law's position on this issue. The rules for deducting contributions for which you get a benefit in return. If any part of your payment toward a charitable contribution is for tickets (rather than the right to buy tickets), 100% of that part is not deductible. You have to reduce the amount of your contribution by the value of any benefit you receive. However, you don't have to reduce your contribution amount if you received (1) only a small item or other benefit of token value, and (2) the qualified organization correctly determines that the value of the item or benefit you received isn't substantial and informs you that you can deduct your payment in full. The organization will be using Revenue Procedures 90-12 and 92-49 to determine this.

Basically, if you receive a benefit as a result of making a contribution to a qualified organization, you can deduct only the value of your contribution that is more than the value of the benefit you receive.

When you make a payment to the college or university for the right to buy tickets to an athletic event in the athletic stadium of the college or university, you are getting a benefit in return: the right to buy tickets and usually this gives you the right to buy tickets for a designated area of the stadium or some form of preference. After January 1, 2018, you longer are able to do this and get a charitable contribution deduction. However, if you pay $300 to the university for tickets for which you would normally pay $75, then you can possibly deduct the difference as a charitable contribution. As long as the organization you pay this to is a qualified organization and the event usually would have to be for charitable purposes.

Contemporaneous means that the donor receives the acknowledgment by the earlier of

• the date on which the donor actually files his or her individual tax return for the tax year that applies to the contribution, or
• the due date of the tax return, including extensions.

The taxpayer can provide another form of substantiation such a thank you letter from the organization as long as this other form of substantiation provides the same information of the donee organization.

Alternatively, the taxpayer could provide the Internal Revenue Code permitted the charitable organization to file a document with the IRS containing detailed information about the donor and hir or her donation.

However, with the new Tax Cuts and Job Act, this alternative process has been eliminated. Consequently, this does not seem to be a problem since most charitable organizations usually send thank you letters to their donors. It only makes sense that they do because they want the contributions to keep coming. The donor taxpayer can use this letter as substantiation that they have made the donation. That's it with the changes to charitable contributions in the new Tax Cuts and Job Act - the alternative gift substantiation for gifts of $250 or more has been eliminated.

Other items to consider though. The fact that Congress has doubled the standard deduction means that less individuals will donate because there will be no tax incentive to do so since many people will not itemize due to the larger standard deduction. So this in itself will affect charitable organizations, indirectly. No really, indirectly because the organization will lose billions annually and this is very direct. Don't you think?

Another change in the new law that will affect charitable organization is the fact that the new tax law increased the estate tax threshold and this means that fewer estates will be subject to taxation and again affecting indirectly the pockets of the charitable organization by having less bequests to charitable organizations.

On a good note, the new law has increased the Adjusted Gross Income limits for cash contributions from 50 percent to 60 percent. 10 percent increase means more money from donors to the charitable organizations.

The suspension of this deduction brings a greater grief than what it appears to be on the surface. One example of this is the deduction for hobby losses. With this elimination, the hobby losses will be eliminated 100%. Many figure that you can take hobby expenses up to the income earned, but this is not true, well, not anymore. With the new tax law, you will be able to deduct zero of your expenses that you had to acquire hobby income. You will see that there are many other items which are affected. Another one of these items that will be greatly affected by this change that seems to be harmless is the office in the home deduction which is no longer available to employees of a company who work from home. It is quite convenient to work from home. The office in the home deduction for employees which was a deduction that you can take about the 2% of AGI is no longer an option. This new tax law has affected items as the 2% of AGI deduction and has caused caos for many taxpayers on many different platforms.

Now with the new law, effective January 1, 2018 and before January 1, 2026, this limitation is suspended. This means that you will not be seeing this section on Schedule A for tax years 2018 through 2025.

You already know very much how it all works. As before, this tax credit will reduce your tax bill on a dollar-to-dollar basis by $2,000 now instead of the previous $1,000 per child. So now if your tax bill is $4,000, and you have two dependents, bingo, you will owe nothing. It is a refundable credit so it goes against tax. We call this credit "tax killer". What do you call it?

To top it off, there another credit that can be added on top of that for those who have other dependents who are over the age of 19 such as your parents. This one is $500 per each of these type of dependents.

One more thing. Your income in order to claim any of the Child Tax Credits must be only up to $200,000 if you are single. That is a huge hike from the current limit of $75,000. Likewise the amount for married folks is up $400,000 and that too is a hike from the current limit of $110,000. Now more taxpayers, ones that could not take the credit because of the set limits will now be able to take the Child Tax Credit. A married couple together earning up to $400,000 are not too rich, right?

A credit that reduces your tax liability is a nonrefundable credit. Taxpayers have many tax credits that are "tax killers" that will help them eliminate their tax liability. If the taxpayer has children, there are more options and more available credits to them than when there are credits which don't include children. The child tax credit was started to help families raise their children. Raising a child is not cheap and many struggle to make ends meet. A credit that allows for a refund after taxes have been paid such as the newly expanded child tax credit is a refundable credit.

For tax year ending in 2017, the child tax credit was for $1,000 per qualifying child. This credit was gradually phased out for single taxpayers with adjusted gross income of above $75,000 and married filing joint filers of above $110,000.

With the Tax Cuts and Jobs Act (TCJA) the child tax credit will change starting for tax year 2018. First of all, the credit amount is now going to be $2,000 per qualifying child and the requirement that the child be under 18 still remains a requirement. Besides the age requirement of being under 17, the other rules are basically the same as the rules for claiming a dependent child. If the taxpayer is owed a refund, the child tax credit has a refundable portion of up to $1,400 for 2018. Before this same portion of the credit was a nonrefundable credit. That is a possible extra $1,400 that families can get in addition to other credits such as the Earned Income Credit and their tax withheld amounts. This means larger much needed refund checks for working families with children. In order to claim the credit, the family must have earned at least $2,500 for the tax year.

The phase out for the child tax credit starts at $200,000 for a single taxpayer and $400,000 for joint filers. This means that the individual who earn over $200,000 if single or $400,000 if married will start seeing a decrease in the amount of the child tax credit to be claimed. Now with these higher phase-out limits will allow more taxpayers to claim the child tax credit. The child does not need to be a citizen to qualify the parent for the credit, but he or she does have to have a Social Security number issued by the Social Security Administration.

The new thing that is new now is the ability to get the credit if you don't have a child under the age of 17. The new tax reform allows taxpayers to claim a $500 credit for dependents such as parents and other members of the household. There is no age limit for this new part of the child tax credit. How odd is that? Now you can get a child tax credit for a parent. Not only parents but other dependents too. You can claim the child tax credit for a child who is disabled and dependent you support who is a full-time student.

There is still a possibility that all this good news will not last beyond 2025 as this new increase in the child tax credit and the qualification rules are set to expire by 2025 - by December 31, 2025 to be more exact. This legislation, the new Tax Cuts and Jobs Act (TCJA) has, at least for a temporary time, taking into account hard working family with a much needed refundable child tax credit which is going to make an incredible difference in the lives of kids all around the country. To top it off, the child credit has been expanded to include more children, not just the children under 17. Furthermore, the child tax credit has somehow morphed into a non-child dependent credit allowing a refund of $500 more for dependents who are not qualifying children under the age of 17.

This new Tax Cuts and Jobs Act (TCJA) reform cannot possibly only be for the rich if you look into the generosity behind the new revamped child tax credit. There has been a lot of talk on national T.V. as to the new tax law being for the rich. Maybe it is for the rich starting January 1, 2026 but for now the new child tax credits disproves the theory that the new tax reform of 2017 is for the rich

Furthermore, the child tax credit had modified adjusted gross income limitations such as the phase-out amounts that depend of the filing status.

If in 2017, your modified adjusted gross income (AGI) is more than the following amounts then the amount of the $1,000 child tax credit is either reduced or totally eliminated.

• Married filing jointly the phase-out amount is $110,000
• single, head of household, or qualifying widow(er) the phase-out amount is $75,000
• Married filing separately the phase-out amount is $55,000.

Compare this to the 2018 phaseout amounts. For 2018, if your modified adjusted gross income (AGI) is more than the following amounts then the new amount of the $2,000 child tax credit is either reduced or totally eliminated.

• Married filing jointly the phase-out amount is $400,000
• single, head of household, or qualifying widow(er) the phase-out amount is $200,000
• Married filing separately the phase-out amount is $200,000.

Now with the new tax law your income in order to claim any of the Child Tax Credit, which is up to $2,000 per child by the way, must be only up to $200,000 if you are single. That is a huge hike from the current limit of $75,000. Likewise the amount for married folks is up $400,000 and that too is a hike from the current limit of $110,000. Now more taxpayers, ones that could not take the credit because of the set limits, will now be able to take the Child Tax Credit. A married couple together earning up to $400,000 are not too rich, right? Well at least that is what they say when they talk about how poor they are.

If the child did not have a Social Security number, an ITIN number could be used to claim the child tax credit for the $1,000 amount. Now, under the new tax bill, children with ITIN number will need to provide a Social Security number in order to claim the child tax credit for that child since now the child tax credit is refundable. In order to claim the refundable part and the non-refundable part of the credit a Social Security number must be provided. The idea behind this is that most children who have an ITIN, have an ITIN because they are undocumented. This is going to impact the entire family because as you may be well aware of families that immigrate to the United States have both foreign born and US born children.

Let's face it, we are a country that has allowed for this to happen and now in the process of trying to change things, we are hurting innocent people and United States citizens too! This new bill will directly affect those children born in the United States whose non-citizen siblings are no longer eligible for the credit and thus impacting the entire family. This situation is similar to the situation where the illegal parents are deported and it does not take a brain surgeon to know that we are also deporting American citizens in the process. What? Did you think that the American children stay behind in the United State in orphanages? Go back to the cave you peeped out of if you think that is the case and don't come out until you realize your illogical fallacy.

Also if you have not realized it by now that only the rich immigrate legally, then there is definitely something wrong and you probably should rethink things. Maybe not totally. We have yet to see a day laborer, for example, try to immigrate to the United States legally. Another thing to consider is the fact that not too many people who are well off in their country want to immigrate to the United States. There is always a catch. For example, students immigrate here because after they finish their studies they get used to our way of life, they make new friends and at the end they simply stay here and this group of well of individuals, the students, decide to stay in our country forever. Then, they force their parents to move here because the grandparents want to be with their grandchildren. You never thought of it like this, have you? Would someone remind us next time not to hire an individual to be boss who has married immigrants and who by the look of things is about to divorce another one - because this individuals start hating his ex-wives and then he wants to make all immigrants including children both American and immigrant suffer for his mistakes.

You don't want to offer tax credits to illegal immigrants that is probably fine, but what is not fine is that you charge them taxes just like U.S. Citizens. We keep hearing these senseless individuals saying that they want only people who play the rules to be rewarded - then you must allow the less fortunate to be able to play by the rules. Let's face it - immigration laws do not allow people who don't have money to play by the rules.

Let's do it - Let's not allow undocumented immigrants to receive any tax benefits but you cannot tax them either. Are we ever going to learn from our history? Let's go back to 1761 and recall the phrase "No taxation without representation!" Maybe someday, good sense and fairness will enter our vocabulary once again. Quit your excuses and self-serving righteousnessto steal other people's money. When you tax individuals and rob them of their right to receive tax benefits available to others who pay exactly the same, you are technically stealing their money.

Now amongst other things, the new TCJA tax reform will double the child tax credit from $1,000 to $2,000 per qualifying child under age 17. Furthermore, get a hold of this, the new TCJA tax reform allows for a new $500 credit per any of the dependents who are not qualifying children under 17. As long as they are your dependents and pass the dependent tests, there is no age limit for this $500 credit. It seems very much that we need to change the name of this credit from child tax credit to child and dependent tax credit. This new child tax credit, however, is nonrefundable.

To be able to claim the child tax credit for a qualifying child, you must have a SSN for the child. The previous law permitted taxpayers to use individual taxpayer identification numbers (ITIN) or adoption taxpayer identification numbers (ATIN). Now with the new ICJA tax reform, it specifically states that if the child does not have a Social Security Number (SSN), you will not be permitted to claim the $2,000 credit. However, you will still be allowed to claim the $500 credit for that child using an individual taxpayer identification number (ITIN) or an ATIN. Although the SSN requirements don't apply for a non-qualifying child dependent, you still must provide an ITIN or an ATIN for each dependent in order to claim the $500 child tax credit.

We all should know by now how the AMT works by now. We have two separate tax systems, one is the regular tax system and the other is the AMT tax system. The alternative minimum taxes certain types of income that have been used to claim certain credits and deductions under the regular tax system and ultimately disallows some tax breaks allowed in the other tax system. The good news is you have really good tax breaks. The bad news is that you owe ATM tax and those good tax breaks we mentioned before are no longer applicable. That is the common story behind the alternative minimum tax.

The purpose of the AMT is to effectively take back some of the tax breaks allowed for regular tax purposes. The AMT is an additional tax that you may owe if for regular tax purposes you claimed:

• Itemized deductions, such as taxes, interest on home equity loans used for nonresidential purposes, medical expenses, and miscellaneous job and investment expenses.
• Certain tax-exempt interest, accelerated depreciation, and incentive stock option benefits.

There are no specific tests to determine whether or not you are liable for the alternative minimum tax (AMT). You must first figure your regular income tax and then see whether tax benefit items must be added back to taxable income to figure alternative minimum taxable income, on which the AMT is figured. If after claiming the AMT exemption and applying the AMT rate and the tentative alternative minimum tax exceeds your regular income tax, the excess is your AMT liability, which is added to the regular tax on your return. In other words, your tax liability for the year will the greater of your regular tax or your alternative minimum tax (AMT).

With the new Tax Cuts and Jobs Act (TCJA) rules, the maximum AMT rate will only be 28 percent. That is huge improvement for the taxpayer from the previous 39.6 percent maximum rate that applied under the previous old law. Previously, the 28 percent AMT rate kicks in when AMT income exceeds $187,800 for married filing joint filers and $93,900 for the rest. However, for 2018 and beyond, the 28% AMT rate starts only when AMT income exceeds $191,500 for married filing joint filers and $95,750 for the others.

To make things better, you are allowed an AMT exemption and it is deducted when you are calculating the AMT income. This exemption amount is significantly increases for tax years 2018 through 2025. Once the AMT surpasses the applicable threshold, the exemption amount is phased out. However, those thresholds are also very generous and the TCJA has greatly increased them for tax years 2018 through 2025. The TCJA has increased the individual AMT exemption amounts for tax years 2018 through 2025 to $109,400 for married filing joint filers and surviving spouses, to $70,300 for single filers, and to $54,700 for married filing separate filers. Once the taxpayer's alternative taxable income is above $1 million and $500,000 for the other taxpayers, the increased exemption amounts are reduced by 25% of the amount of the taxpayer's AMT income above these amounts. Notably, the increased exemption amounts will not be reduced below zero.

It is important to plan your taxes and try to avoid being hit by the AMT. However, it may be a bit difficult to try to pinpoint what will trigger the alternative minimum tax since there are so many factors involved. First, high income can cause the AMT exemption to be partially or completely phased out and this would a factor that increases your chances of owing the alternative minimum tax. The TCJA has lowered some of its regular tax rates (5 of them) while leaving the AMT rates at 26 percent and 28 percent will definitely not help you in trying to avoid the AMT.

Other items that may cause you to own the AMT are large itemized deductions that include deductions for state and local taxes. This is specially true since these taxes are completely disallowed under the new AMT rules. The new tax law limits the regular tax deduction for state and local income taxes and property taxes combined to $10,000 ($5,000 if married filing separate).

Another item that may cause you to trigger the AMT is having too many personal and dependent exemptions because these are completely disallowed under the AMT rules. This is specially true since for 2018 through 2025, personal and dependent exemption deductions are completely eliminated under the new TCJA tax reform.

Incentive Stock options (ISOs) do not count as income under the regular tax rules but they do count as income under the alternative minimum tax rules. So if you have these (no change from the old rules), you may trigger the AMT.

You can no longer include investment expenses, fees for tax advice and tax preparation and unreimbursed employee business expenses for itemized deductions under the new tax rules. However, under the old tax law or under the new these items remain as disallowed for the alternative minimum tax, therefore, this would not be a trigger for the AMT, at least this time around.

Other items that would be of interest to look into for possible triggers of the AMT are interest income from privacy activity bonds, claiming the standard deduction since it is now almost doubled. The new tax law no longer allows a deduction for home equity loan interest, so therefore, this is not an item of threat or that would trigger the AMT.

The alternative minimum tax (AMT) liability is figured on Form 6251 and is attached to Form 1040. If you file Form 1040A, AMT liability, if any, is figured on a worksheet and the AMT is included on the line for "Tax" on Form 1040A. After you determine your regular income tax liability, you use Form 6251 to compute AMT liability, if any.

The new rules make it easier for a small business to claim at least a modest new QBI deduction and this deduction is available even if the small business is sole proprietorship which means that it is not actually necessary to have an actual business entity like a partnership, LLC or an S-corporation. This deduction is even greater for large scale businesses. On the other hand, a business who primarily relies on the efforts of its owners, whether they are Specified services businesses, or those that have a limited amount of employees or capital investments, may find taking QBI deduction a bit more complicated. Especially noticeable in this case would be individual who are over the new income threshold of $157,500 for individuals and $315,000 for married filing jointly.

The new deduction for pass-through businesses was created by the Tax Cuts and Jobs Act (TCJA) and this deduction can allow you to take a deduction for up to 20% on income from your sole proprietorship, partnership and other business such as S corporations that are pass-through businesses. The amount of the deduction that you can take will vary depending on

• The nature of the business activity.
• The total income of the owner.
• The total payroll amount paid to employees
• How much property the business owns.

There are two classes of businesses taken into consideration for the 20% deduction. First class of business is the business that provides certain personal services such as law firms, medical practices, consulting firms and professional athletes. Second class are all the other businesses that are not part of the previously mentioned.

After that, the business owners are divided into three groups such as

• Single owners making less than $157,500 or married filing joint filers making less than $315,000 total taxable income may take the full 20 percent deduction on their business. In this case the kind of business does not matter.
• Single owners making more than $207,500 or married filing joint filers making more than $415,000 will not be allowed any deduction if their business is a personal service firm such as attorney, doctor, consultant or professional athlete and other businesses considered a personal service business. However, other types of business may allow them the deduction.
• The owners who are single making between $157,500 and $207,500 will be allowed a partial deduction. Likewise, business owners who are married filing jointly making between $315,000 and $415,000 will only be eligible for a partial deduction. The kind of business will not matter for the partial deduction but it will phase-out for the personal service firms.

To claim the deduction and the limits on the deduction, the taxpayer must calculate the Qualified Busienss Income (QBI) which normally the business owners business net income. If the taxpayers QBI is less than $157,500 for single or less than $315,000 for married filing joint filers, then simply multiple that amount by 20 percent and that is the deduction.

The story gets a bit more complicated if the owner owns one of the specified service businesses and is above the $157,500 for single and the $315,000 threshold for married filers. In this case the amount of the QBI is phased-out until it disappears once their taxable income reaches $415,000.

Some businesses personal service firms or not, may have to calculate their deduction for limitations based on a two-part formula. The deduction will be partially limited by the greater of either 50 percent of the wages the business pays to its employees or 25 percent of wages plus 2.5 percent of the basis of the business' qualified property. The business owner the takes the smaller of this calculation and the 20% of their QBI calculation. As with many other deductions in the tax code that apply two calculations, you may only deduct the smaller of the two amounts.

The new pass-through 20 percent deduction is great for all business owners. If you think about it, this deduction is not really a pass-through business deduction but a deduction for all business owners since it also includes sole proprietorships. Maybe what happened was that the original idea was to only offer this deduction for pass-through entities such as corporations, but later at the end everyone decided to be generous and to also include sole proprietorships in the deal. After all, the TCJA of 2017 was a tax reform that was rushed at the end of the year around holidays when so many are compelled to be highly generous.

Large businesses are probably the ones who will benefits the most. A business which primarily relies on the efforts of its owners, whether they are a specified services businesses, or those that have a limited amount of employees or capital investments, may not have too many options for the QBI deduction. There are new income threshold of $157,500 for individuals and $315,000 for married filing jointly. This deduction can allow you to take a deduction for up to 20% on income from your sole proprietorship, partnership and other business such as S corporations that are pass-through businesses. The amount of the deduction that you can take will vary depending on the nature of the activity, total income of the owner, total payroll and property owned by the business. There are two types of businesses which can take 20% deduction. Businesses that provides certain personal services such as law firms, medical practices, consulting firms and professional athletes are in the first category. All others are in the second class category.

This law will be in effect for tax years 2018 through 2025. After that we don't really know what is going to happen. We kind of know that the law will revert, but that all depends on who is in charge at that time. For now we have to worry about the new tax rates that pertain to the kiddie tax and the changes that were made with the new TCJA revisions. The new tax rates can be as high as 37% for ordinary income or as high as 20% for long-term capital gains and qualified dividends.

The prior law for the kiddie tax, the portion of an affected child's unearned income were taxed at the parent's marginal tax rate if that rate was higher than the child's tax rate. This means that for 2017, the parent's rate could be as high as 39.6% for ordinary income or as high as 20% for long-term capital gains and dividends.

Remember that for kiddie tax purposes, we are mainly concerned with unearned income such as income from investments or income that is not income from wages, salaries, professional fees or any amounts otherwise received as compensation for any kind of services rendered.

The new kiddie rules have changed forcing taxpayers to use the trust and estate tax rates structure. These structure is less favorable because it overrides the lower tax rates that would apply to a child's unearned income. This trust and estate tax rate structure is compressed compared to the brackets for single individuals.

When you calculate the federal income tax for a child who's subject to the kiddie tax, the child is allowed to deduct his or her own standard deduction. Under the new law, the kiddie tax could affect children who don't provide over half of their own support in 2018 and who live with their parents for more than half of the year.

The kiddie tax will most likely apply until the year the child reaches age 24. These are the requirements for the kiddie tax:

• The child does not file a tax return for the year.
• One or both of the child's parents are alive at the end of the tax year.
• The child's net unearned income for the hear exceeds $2,100 income threshold for 2018. Only the income that is above the $2,100 will be liable for the kiddie tax.
• The child may be liable for the kiddie tax if the child is 17 or younger, if 18 with no earned income that exceeds half of his or her support, is 19 to 23 and a student or does not have earned income that exceeds half of his or her total support for the year.

The kiddie tax applies to unearned income for children under the age of 19 and college students under the age of 24. Unearned income is income from sources other than wages and salary, like dividends and interest. Taxable income attributable to net unearned income will be taxed according to the brackets applicable to trusts and estates. With respect to earned income, the rules are the same as before. The kiddie tax rules were in place to prevent parents and grandparents in high tax brackets from shifting income to children in lower tax brackets.

In case you don't know, 529 plans are tax-advantage investment accounts which were originally designed to help families pay for a college education for their child. It is based on tax free interest compounding. Any 529 withdrawals are tax-free so long as you use the funds toward qualified higher education expenses. These expenses include tuition, room and board, and even computer software and hardware.

Now the new tax law, allows parents to use these same benefits to pay for their child's education which means that the parent would be able to send their children to private grade schools and high schools. The 529 savings plans have not income limits, no contribution limits, no contribution deadlines, and no account time limits.

Here is the deal. The new tax bill will allow you to use 529 plans for up to $10,000 per year in K-12 grade tuition expenses. This is important for families who send their kids to private schools or to religious schools. Moreover, if the family is already saving in similar plans such as the Coverdell ESA, they can switch to a 529 plan and rollover the amounts with absolutely no tax consequences whatsoever.

There is one first question that comes to mind. How is this 529 savings plan which usually has to do with saving money by making any interest received tax-free income when your infant or young child is of college age? There does not seem to be too much benefit there, it there? One benefit to think about in the short term is the fact that your state may have a deduction or credit for contributions made to a 529 plan. The deduction would depend on your state with deductions limits ranging from $500 per year to the entire amount of the 529 plan contribution. Your state may even carry forward any excess contributions for later years. Some of the states that offer such credits or deductions include Arizona, Kansas, Minnesota, Missouri, Montana and Pennsylvania.

On another note, you many consider having two 529 savings plans - one for your child's college education and another to serve the purpose of the K-12 education.

Furthermore, you can rollover your existing 529 savings plans to a 529 ABLE account. 529 ABLE accounts are good for parents who have children with disabilities.

The annual contribution like is adjusted for inflation as are most other items in the tax code. For the 2018 tax year an adjustment to ABLE for inflation is set at $15,000. Previously the annual contribution for ABLE was $14,000.

The annual contribution limit for the ABLE is $15,000 in 2018. ABLE account owners can choose to contribute to their own accounts, have friends contribute or have family contribute to the account. The ABLE account owners who decide to contribute to their own account are now able to take advantage of the Retirement Savings Contributions Tax Credit which is also known as the Saver's Credit. However, you have to qualify for the Saver's Credit. The Saver's Credit is a non-refundable credit.

If you are the both the owner and the beneficiary on both accounts, you are now able to transfer funds in a 529 college savings account to an ABLE account without incurring any tax or penalty. However, the funds rolled over from the 529 college savings account to an ABLE account are still subject to the annual contribution limit of $15,000 for the tax year.

That is, unless the ABLE account owner is employed. If so, under the ABLE to Work Act, the ABLE account owner may be eligible to contribute above the $15,000 annual contribution limit and depending on the gross income this amount could be an additional $12,060. These contributions which are above the $15,000 annual contribution limit would be limited to contributions made specifically by the account owner into their ABLE account.

If you have current student loans or are paying back student loan debt you must know the tax consequences of not paying your student loans. Student loans are debts that not even forgiven in bankruptcy. However, there are still some deductions you can take. The student loan deduction remains the same and you are still allowed to claim a deduction of up to $2,500 for the interest you pay on student loans every year. Additionally, tuition waivers for graduate students remain tax-free. This means you could waive your tuition even if it is $50,000 per year. 

You can discharge your federal and private student loan debt and you will not have to pay any tax from 2018 through 2025. The student loan discharge will no longer be treated as taxable income by the Internal Revenue Service. After 2025, it is to be seen what will happen. But for now the new tax bill excludes student loan debt forgiveness from taxable income if you are permanently disabled. It also excludes student loan forgiveness in case of death. You may be thinking that nothing will matter after you are dead, although for many people this is not true specially if they have children who depend on them, this is quite important if your student loan was cosigned by someone. The cosigner will not be held accountable for your student loan because it will be a tax-free transaction.

The new Tax Cuts and Jobs Act has remained generous with student tax matters and has not suspended any of the credits that pertain to education. For example, there is a favorable change to the rules as to how money can be used for the 529 savings accounts to include K-12 and not only the previous only for college rule. The credits remain intact such as the Lifelong Learning Credit. This new rule to make discharge of certain student loan indebtedness completely tax free from 2018 through 2025 is another one of these benefits display concern for the well being of our students.

NOLs are business operating expenses on its tax return that exceeds its revenues. It is a net operating loss (NOL) that it creates and according to the tax code can probably be carried forward (or even carried back) to another time when the business has taxable income and thus it can be offset by the NOL. This makes very much sense because the success of the company in the future depend mostly on all the efforts of the company at first. This kind of makes sense also because income should always be matched with its expenses.

The Tax Cuts and Jobs Act (TCJA) provides major changes especially to corporate tax law. Why do people want to make the Tax Cuts and Jobs Act (TCJA) have the name the "Act" stick? It is not the "Act" as there too much in this act to be desired. So quit trying to make the name the "Act" stick. It will never stick because for it to stick, taxpayers have to believe first that it is the act of acts. Seriously want to call an act that was poorly written and rushed at the end of the year, the "Act", there must be some hidden agenda behind that. You advertising something is the hopes that it sticks, well that is not going to happen this time around. Should we say "Nice try"?

There has been a major change to the NOL carryforward and carryback rules and a new limitation on NOL utilization has been added. Before this new tax reform NOLs were allowed to carry a NOL back to two years and a carryforward for twenty years and the NOL was allowed to fully offset taxable income of the taxpayer unless specific limits were in place by the Internal Revenue Service. These specific limits were known as section 382 limitations. These are no long applicable and thus they have changed with the new Tax Cuts and Jobs Act (TCJA) reform.

Now there are amendments in section 172 that disallow any carryback of NOLs. However, these same amendments allow indefinite carryfowards of these NOLs. The new carryback and carryforward amendments apply to any NOL arising in a taxable year ending after December 31, 2017.

As to the carryback limitation, many can argue that it is unfair because little notice has been given as to what a taxpayer, who perhaps was planning a carryback and to his or her surprise woke up January 1, 2018 with the news that this is not possible. However, the law says that the new law is effective for NOLs arising in tax years ending after December 31, 2017 which means that the January 1, 2018 is when the new NOL rules start applying. Therefore, if you had an NOL for a tax year ending December 31, 2017, then, according to the law, you should be able to carry it back by using the old NOL rules.

The new Tax Cuts and Jobs Act (TCJA) has limitations on the amount of NOLs that a corporation may deduct in a single year under section 172(a) equal to the lesser of the available NOL carryover or 80 percent of a taxpayer's pre-NOL deduction taxable income. This is the 80 percent limitation rule. Again, this limitation applies only to losses arising in tax years that begin after December 31, 2017 as amended by section 172(e)(1). This is actually good new for taxpayers who have previous NOLs. We are working on 2018 now, so if you develop an NOL in 2018, you definitely will not be able to carryback any of it.

The new rules seem to be in sync with what a NOL should really be. It should be a deduction that has the income matching concept in mind. It really does make sense that if all your efforts at the beginning of your business will bring fruit for later years, that we match income to its expenses. If you are going to follow one of the basic underlying guidelines of accounting, you will agree that the new tax law is following the matching principle of accounting. This goes awry when you are applying expenses incurred now to earlier years. You know it takes money to make money. That should probably tell you everything. You are spending money to make money. It is not the other way around.

How is repealing the ACA without coming up with a replacement for it, still remains a mystery. All of us know that repealing the individual mandate in 2019 would increase the number of uninsured Americans. However, a penalty of at least $695 per person for not having the insurance is quite steep. Imagine a family of five with none any of them having insurance. That is a penalty of at least $2,085 for not having health insurance. There are many people out there who have a lot of money but don't have a dime to spend on insurance. These are the poor rich. There are people out who do not qualify for state benefits for instance because they are classified as having money. If they have a car or a house that is worth over a certain amount, the state will tell them to sell their property and that they don't qualify for state benefits. If these same people don't qualify for health care, then you can see it would be problematic to penalize them for not having minimum coverage. Minimum health insurance coverage does not come cheap, just like this penalty is quite steep. Maybe the ACA is not as perfect as many seem to want to make it appear to be.

One of the main provisions of the Obamacare is the guarantee that health insurers can no longer be able to deny coverage base on current or prior health conditions. This in turn would cause premiums to trend higher. Secondly, there are certain minimum coverage standards which are called essential health benefits (EHB). Furthermore, children can remain in their parents health coverage until they turn 26. Third, you are required by law to purchase health insurance or you must pay a non-compliance penalty. Another provision of the ACA is the health insurance exchanges. You can purchase the health insurance through your employer or the government, state's exchange, federal exchange, or other. Another provision of the ACA is that individual and families with an income less than 400% of the federal poverty level who purchase health insurance through the exchange can get government subsidies.

One of the major provisions of the Obamacare was an increase in the Medicaid income threshold used to determine if an individual or family qualifies for the program. Obamacare has been one of the most costly social programs in the history of the United States. We are trying to be like the other countries in Europe and everywhere else that provide total healthcare to their citizens. It seems that we have fallen behind and have failed to provide the proper healthcare to our citizens. We are still trying to figure it out and now with Obamacare repeal it may just as well be a step back. The problem is that one program is being repealed with no acceptable replacement. Come on! If you are going to repeal something, it is because you have something better to replace it. By the look of things, that does not seem to be the case.

One huge clue that there is a problem is the fact that these people who are in charge of trying to replace Obamacare think that Social Security benefits are entitlements. Although it is technically correct that people who work have an entitlement to Social Security Benefits, it is more correct that Social Secuirity Benefits are a results of an insurance that workers pay to in their lifetime and thus should really be referred to as insurance so that there will be less people likely to be confused and try to take money from this fund for other things for which the insurance payment the workers have been making does not get misapplied. It sounds very much like people in office want to steal from the Social Security insurance fund and use the money for other items and that is simply stealing. Social Security Benefits are a product of payments made through FICA which stands for Federal Insurance Contribution Act. If the word insurance in FICA does not give these people a clue of what Social Security Benefits really are, then probably nothing will.

The Affordable Care Act (ACA) forced individuals to have minimum essential insurance coverage or pay a penalty through their tax return if they did not get the coverage or qualify for an exemption from coverage. With about four millions individuals in 2016 and 5.6 million individuals in 2015 paying a penalty, it seems that the ACA minimum essential insurance coverage mandate caught many off guard. The meetings in December of 2017 were not enough to come to an agreement as to the Affordable Care Act and its elimination. Therefore, the Affordable Care Act continues as usual until the end of the 2019 tax year. We will be filing 2019 tax returns in 2020 that will still include the Affordable Care Act provisions and compliance obligations.

The healthcare insurance compliance penalty for 2016, 2017 and 2018 is the greater of $695 or 2.5 percent of household income, less the filing threshold amount. The maximum amount of penalty could only be $2,085. The taxpayer had the option to apply for a penalty exemption on Form 8965 with his or her tax return. The calculated amounts for not having the minimum essential coverage is the shared responsibility payment required to be made on your tax return when you fail to acquire coverage. The shared responsibility fee is the compliance penalty you have to pay if you fail to comply.

The premium tax credit continues and thus taxpayers who continue to pay for coverage will continue to be able to claim the credit. Even after 2019 when the Affordable Care Act has been done with, there is no intention in the code for discontinuing the premium tax credit.

This shared responsibility fee will be eliminated starting with the filing of your 2019 tax return in 2020. In the meanwhile, you are still responsible to have acquire minimum essential coverage or pay the penalty for not complying. The Tax Cuts and Jobs Act (TCJA) eliminates the Affordable Care Act share responsibility penalty beginning in tax year 2019. Therefore, for two years after the TCJA has been passed, we will still be calculating the Affordable Care Act penalty for taxpayers who have not acquired minimum essential health coverage. There are other changes that interact with this penalty therefore, you must be diligent in how your taxes may be affected by the Affordable Care Act provisions.

The Affordable Care Act 1094 and 1095 forms are still required for 2017 and the 2018 tax returns. The Affordable Care Act requires that large employers file informational returns and furnish statements to their full time employees as to the coverage, if any, that they offer to full-time employees by using Form 1094-C and Form 1095-C. Taxpayers use Form 1095 to show the IRS whether they qualify for the Affordable Care Credit premium tax credit and cost sharing reduction subsidy. The form is also used to show the IRS whether they are required to pay the Affordable Care Act individual mandate penalty or the shared responsibility payment. The time frame to issue these forms is usually by January 31 unless special circumstances push the date to a different date such as was the case for 2018 when the date was pushed to March 20, 2018. Again, these forms show whom was covered and also to let the Internal Revenue Service know if coverage lasted all year or part of the year. Taxpayers should continue to keep these forms with their tax returns because if the taxpayer purchased coverage through the Marketplace, he or she will continue to use information reported on Form 1095-A to calculate the premium tax credit. Also, if the taxpayer received an advance premium tax credit is required to reconcile the information from Form 1095-A on his or her tax return.

Many taxpayers are misinformed and believe that the Affordable Care Act is done with. On the contrary, we still have two more years to go with the Affordable Care Act compliance obligations. The ACA continues as if there is no Tax Cuts and Jobs Act (TCJA) in place. The intention was to eliminate it December 2017 but it turned out to be a more complicated task. One of the main reasons that the Affordable Care Act failed to be repealed was due to the fact that there was no replacement for it. It only makes sense that if you are going to try to repeal something as important to individuals health provision, that you will have a suitable replacement for it.

The Affordable Care Act continues to be the law of the land. You must comply because the Affordable Care Act continues for another two years. You must comply or be forced to pay a shared responsibility payment and the Affordable Care Act (ACA) will continue to force individuals to have minimum essential insurance coverage or to pay a penalty through their tax return if they did not get the coverage. The alternate is to qualify for an exemption from coverage. The healthcare insurance compliance penalty for 2016, 2017 and 2018 is the greater of $695 or 2.5 percent of household income, less the filing threshold amount. If you continue to pay for coverage, you can continue to claim the premium tax credit. The Affordable Care Act will continue to require the filing of Form 1094 and Form 1095. These forms are still required for tax years 2017 and 2018 tax returns. The Affordable CAre Act requires that large employers to file informational returns and furnish statements to their full time employees as to the coverage, if any, that they offer to full-time employees by using Form 1094-C and Form 1095-C. Many taxpayers are not going to informed about the rules correctly. The ACA continues until the end of 2019.

The Internal Revenue Service usually rejects tax returns that are sent incomplete. The IRS rejecting your tax return for being incomplete means that you have not filed a tax return. The IRS sends the entire tax return back to you to give you another chance to fix the problem. This is not really considered giving you a chance to fix it since they are basically rejecting what you have sent and you have to start over. This means that if you waited to the deadline to file your tax returns and it gets rejected, you have not filed on time. Therefore, if you send your tax return with any evidence of coverage or a penalty payment

Another thing to consider is that the repeal of the tax penalty is not a repeal of the individual mandate provision. There are restrictions placed on Congress as to what it can and what it cannot do and these restrictions apply to the repealing of the individual mandate to acquire basic essential health insurance coverage. What will happen is yet to be seen because you cannot repeal something as important as a healthcare mandate and not have an adequate replacement for it. By the sound of things, the proposed replacement is nothing in comparison with the Obamacare. The general rule is that a repeal of statutory language that is primarily regulatory such as Obamacare's individual mandate - is routinely off-limits in the budget reconciliation process (Moffit 2018).

How the mandate to acquire minimum essential coverage will be enforced is up for guessing. With the mandate for a penalty gone in after tax year 2019, the mandate to acquire minimum essential insurance health insurance coverage may as well go too. The mandate to acquire and maintain basic essential health insurance has survived for now. However, if you cannot enforce it in the form of penalties or else, then the mandate is useless and it is powerless as if it had not survived. This is the reason Congress has to reconvene and continue where they left off to try to repeal Obamacare.

Look, it is very simple - this Obamacare plan was supposed to come cheap. However, on the contrary it came with a huge price and many families are suffering because they now have to fork out money for something, that no one is debating is of extreme importance, but it is not a priority for many poor families. What is a priority is food and shelter and then after that come clothes, health insurance and education. If you don't eat you will not be healthy, go to school or even go to work. Seriously, healthcare insurance is important, but it is not a priority for poor families. Heck, it is not even a priority for middle class families. Especially when this health insurance coverage comes with a price tag of $2,085 or even more when you actually pay for the coverage. Do you think that paying $490 for health insurance per month is cheap? No, it is not! Obamacare has a good heart, but a very lousy thinking process.

It is great when you can qualify for the healthcare provided by government agencies. There is something a little off about this too, though. Like mentioned previously, healthcare is not cheap and these government agencies are getting the money from somewhere - from the taxpayers. Some taxpayers do mind paying for others. What can we say there are some very greedy people out there who don't want to help the needy. This has the been the center of ignorance and bigotry in the entire country where people are blaming the immigrants for all their troubles. So much so that they want to build a wall so that no more people will enter. What these people don't realize is that if they don't help the needy and since we are all connected, diseases can become airborn and affect them too.

There are many employee fringe benefits affected by the Tax Cuts and Jobs Act (TCJA). First, the employees can no longer deduct unreimbursed business expenses. Second, moving expenses are no longer deductible like they used to be. Third, the employer can no longer deduct qualified transportation benefits for providing tax-free transportation fringe benefits by the employer. Neither can the employer deduct any expense incurred for providing any transportation between the employee's residence and place of employment. Fourth, entertainment expenses are out as the TCJA does not allow an employer to claim a tax deduction for entertainment. In addition, the TCJA will continue to allow the value of meals to be tax-free provided certain conditions are met. Finally, the TCJA limits the conditions of tangible personal property for employers who make a tax-free award of tangible personal property for length of service or safety achievement.

Unreimbursed business expenses are no longer allowed. If an employer reimburses an employee for a business expense, the reimbursement is tax-free to the employee, but if the employer does not reimburse the employee, the employee is no longer allowed to claim a tax deduction for this expense.

Moving expenses are only allowed for member of the military. Before the new tax law reform, moving expenses were allowed as long as they had a connection with starting a job at new principal place of work. In addition, the employer could pay or reimburse an employer as a tax-free benefit. Now, an employee cannot do that. An employee can no longer deduct moving expenses nor can the employer pay or reimburse the employee for moving expenses and allow it as a tax-free fringe benefit. The employer could, however, treat the payment or reimbursement of an employee's business expenses as W-2 wages, the employer can deduct the payment as a compensation expense (Schwartz 2018).

With the new tax reform the employer can still provide tax-free qualified transportation fringe benefits to employees, except for qualified bicycle commuting reimbursements. The employer cannot deduct the expenses for providing tax-free transportation fringe benefits. The employer can be clever and treat the transportation fringe benefit as taxable W-2 wages to the employee and deduct the expense of providing the benefit.

The employer will not be allowed to deduct any commuting expense incurred for providing any transportation to travel between the employee's residence and place of employment unless it is for the employee's safety. The goal of the commuting benefits before was to encourage forms of commuting that reduce road congestion and pollution. The disallowance for this sounds very much like the Paris Agreement ordeal - someone does not believe in helping the environment.

The TCJA tax reform will also no longer allow a deduction to employers for entertainment and recreational expenses or deductions with respect to any facility used in connection with such activity. This disallowance includes any amount paid for membership in any club organized for business, pleasure, recreation or social purposes. Before all one had to do is prove that the expenses was directly related to or associated with the active conduct of one's business or trade. No, not anymore.

The rules for employer-operated eating facilities remain at only 50% deductible. Section 123(e)(2) provides the value of meals can be tax-free if

• The facility is located on or near the employer's business premises.
• The facility's annual revenue equals or exceeds its direct operating costs and
• For highly compensated employees, the facility is operated without discrimination in favor of such employees.

Section 119 provides the value of meals furnished to an employee can be tax-free if

• The meals are provided on the employer's business premises.
• The meals are provided "for the convenience of the employer".

However, the TCJA tax reform now imposes a 50% limit on deducting food or beverage expenses to employees at an employer-operated eating facility. Furthermore, these expenses will be fully nondeductible after December 31, 2025.

The tax code permits an employer to make a tax-free award of tangible personal property to an employee for length-of-service or safety achievement. The TCJA tax reform states that tangible property does not include

• Cash, cash equivalents, gift cards, gift coupons, or gift certificates; or
• Vacations, meals , lodging, tickets to theater or sporting events, stocks, bonds, other securities, and other similar items.

As you can see, there are many employee fringe benefits affected by the Tax Cuts and Jobs Act (TCJA). Unreimbursed business expenses are no longer allowed. Moving expenses are only allowed for member of the military. With the new tax reform the employer can still provide tax-free qualified transportation fringe benefits to employees, except for qualified bicycle commuting reimbursements. The employer will not be allowed to deduct any commuting expense incurred for providing any transportation to travel between the employee's residence and place of employment unless it is for the employee's safety. The TCJA tax reform will also no longer allow a deduction to employers for entertainment and recreational expenses or deductions with respect to any facility used in connection with such activity. The rules for employer-operated eating facilities remain at only 50% deductible. The new TCJA tax reform puts limitation son what tangible property includes or does not include. Very much effort has been placed on the deduction allowance or disallowance of employee fringe benefits.

Depreciation rules have been improved by the Tax Cuts and Jobs Act (TCJA). Qualifying property place in service after September 27, 2017 is eligible for 100 percent bonus depreciation. However, bonus depreciation drops by 20 percent per year beginning in 2023 until is it is eliminated in 2027. It has always been that only new property placed in service can be depreciated. The new Tax Cuts and Jobs Act (TCJA) has changed that. Now you can depreciate 100 percent of used property too! The eligible assets are those that are 20 years or less and personal property and qualified improvement property for work done to the interior of a commercial building. This excludes costs related to the enlargement of a building, an elevator or escalator, or the internal framework of a building.

This is a very generous improvement because under the old law, there was a 50 percent bonus depreciation for property placed in service in 2017, 40 percent depreciation for property placed in service in 2018 and 30 percent for property to be placed in service in 2019.

Section 179 depreciation also permits expensing of assets for commercial property. The Tax Cuts and Jobs Act (TCJA) expands the annual section 179 limitation from $500,000 to $1 million. The phase-out begins at $2.5 million for qualifying assets placed in service. Section 179 did not include roofs, HVACs, fire protection, fire alarm systems and security systems, but not the JCJA rules include these newly depreciable assets. The new tax bill expands the definition of qualified real property eligible for section 179 expensing to include any of these.

The new tax law also significantly increases the amount of first-year depreciation that may be claimed on passenger automobiles used in business to $10,000 for the year in which the vehicle was placed in service, to $16,000 for the second year, $9,600 for the third year, and $5,700 for the fourth and later years in the recovery period.

The Tax Cuts and Jobs Act of 2017 dramatically improved the ability to take depreciation for real estate property. For example, property is eligible for 100% bonus depreciation is what real estate owners want to hear. The annual section 179 deduction for commercial property has been increased from $500,000 to $1 million is also music to a real estate investor's ear.

Domain 2 - General Review

New tax law – new way to calculate inflation.  We can measure the consumer price index by looking at the average price of the most common household goods and services. The results compared to previous results give us information about our economy – inflation or deflation. This tells us if the economy is good or if it is not doing so well. By inflation we mean rising prices and by deflation we mean falling prices. However, for our purpose of tax law changes, the new tax law will disregard the CPI index as a measure of inflation. The new tax bill will switch the calculation of inflation.

The new tax law will now use the Chained CPI which grows slower than the traditional consumer price index. The Chained CPI use the same common household goods but if the particular goods or services get to expensive, it is assumed that consumers will select other cheaper products and thus use a cheaper alternative. The Chained CPI as a means to calculate inflation is supposed to be one of the positive items in the new tax law changes. What that means to individuals is that the income thresholds for each marginal tax bracket will rise more slowly than in previous years. Or is it? At first maybe, but this will not be so in later years. The new way will make a greater portion of each worker’s income subject to higher marginal tax rates in the long run. This could turn out to be disastrous for the middle class as it is expected to result in higher taxes.

The TCJA tax reform has replaced the existing tax rates with seven new rates. These rates are 10%, 12%, 24%, 32%, 35% and the highest one at 37%. The TCJA tax reform amended section 11(3) to provide a permanent cost-of-living adjustment based on the Chained Consumer Price Index for All Urban Consumers (C-CPI-U). The Cost of living index is modified by Rev. Proc. 2018-18 and it modifies certain 2018 cost-of-living adjustments set forth to reflect statutory amendments made by an Act to provide reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018.

The TCJA tax reform section 22021 amends section 63(c)(2) to provide a temporary increase in the basic standard deduction for taxable years after December 31, 2017 and before January 1, 2026. The following are the new basic standard deductions.

• $12,000 for single individuals and married individuals filing separate tax returns.

• $18,000 for head of households.

• $24,000 for married individuals filing a joint return and for surviving spouses.

The older or blind individuals will continue to receive an additional amount added to their standard deduction. For those age 65 or older the additional amount is $1,300 for 2018 or $1,600 if the individual is also unmarried and not a surviving spouse.

Deductions considerations are based, according to the IRS, on inflation. It may be better for now on to use the standard deduction amounts since they are really high and your itemized deductions, specially with some of the new limitations or straight out elimination of certain deduction will probably not be more than the standard deduction amount. These amounts will remain similar except for adjustments for inflation for taxable years after December 31, 2018.

The personal exemption which is normally adjusted for inflation every year has been changed by the TCJA to $0. Inflation works by taking a percentage of the inflation increase, but no matter how you put, anything percent of $0 will always be $0. This is to remain from January 1, 2018 through December 31, 2026.

So now we have a new way to inflation using the consumer price index. We measure the consumer price index by looking at the average price of the most common household goods and services. This new way is supposed to be a more exact manner in which we measure inflation and it will be used from now on or at least until December 31, 2026. The new way is the Chained CPI which grows slower than the traditional consumer price index. The TCJA tax reform has also replaced the existing tax rates with seven new rates. These rates are 10%, 12%, 24%, 32%, 35% and 37%. This is probably where everyone is getting the idea that this tax reform is for the rich - the lowest tax rate of 10% remained at 10% while all the others changed at least a little. The lower tax rates will compensate for the fact that we no longer can use the exemption credits for having dependents, but not for the ones at the lower 10% bracket. No more effort needs to be made in adjusting the personal exemptions for inflation as done every year since there is none.

The following table shows your where you stand with the new tax brackets with the tax rates that are based on your taxable income. Before this new tax law reform, there were still seven brackets, but they were 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent and 37 percent. As you can see from these figures and the figures in the following table, the brackets have changed a bit, but not only that the income ranges is what really matters in these percentages. What is more important is at what income levels the brackets apply.

For example, the top bracket for married individuals apply at over $480,050 in the previous tax law. In the new tax law, the highest bracket for married individuals apply at over $600,001. Previously a higher tax rate with more income taxable at the 39.60% tax rate and now less income is being tax at that 37% rate because the 37% applies only if you earn $600,001 or more. You can see the old tax law brackets in the following for comparison of the two just so you can get an idea. AS you can see, more income is being taxed at a higher tax rate.

Interestingly enough, though, the amounts seem to remain the same for lower income taxpayers. Both the tax rate and the amouts at which these tax rates apply are exactly the same in the 10 percent tax rate row. However, if you look at the last tax rate 37% you notice that there is difference of about $120,000 for married filing jointly filers at a lower rate. Maybe the reason this is this way could be because more people qualify for credits and deductions at the lower income. However, why make a tax law bracket system that seems very much to favor the rich?

The new tax law reform was intending to only have a few tax brackets and less than the seven brackets we have currently. However, it was inedible and at the end we ended up with the same amount of tax brackets. Say goodbye to the idea that taxes are going to be so easy "We will file our tax return on a postcard". Filing your taxes on a postcard is not going to happen. Building a 2,000 mile wall is not going to happen either, not even a 200 mile one.

If in 2017 you had a financial interest in or signature authority over a financial account in a foreign country, you must file Schedule B even if you aren otherwise required to file one. In Part III of Schedule B, you must disclose your interest in the foreign account and are directed to the instructions for FinCEN Form 114 (FBAR) to if you must file that form (if yes, it must be filed electronically), and to indicate in Part III of Schedule B if the FBAR is required. There are penalties for not filing a required FBAR. Regardless of whether you must file a FBAR, you may have to file Form 8938 to disclose your ownership of specified foreign financial assets. Penalties also apply for failure to file a required Form 8938.

If you have financial interests in  foreign bank accounts or other foreign financial accounts or assets, you may be required to file a FBAR, Form 8938, or both. Depending on your holdings, you may be required to file both forms, so check the filing requirements for both. Failure to file a required form may result in substantial penalties.

FBAR. A report o Foreign Bank and Financial Accounts, generally referred to as the "FBAR", must be filed if you have a financial interest in or a signature authority over foreign bank or other financial accounts and the aggregate value of the accounts at any time during the year exceeds $10,000. The annual report is FinCEN Report 114, which is filed electronically with the Treasury Department. FinCEN is the Treasury's Financial Crimes Enforcement Network.

The FBAR, if required, is not filed with your income tax return. Form 2018 foreign holdings, the FBAR report is due April 17, 2019. The report is filed with the Treasury Department separately frome the income tax return. You can obtain a filing extension for FinCEN Report 114 for up to 6 months.

In Part III of Schedule B of Form 1040 or 1040A, you must tell the IRS if you had a financial interest in or a signature interest over a financial account located in a foreign country. If you answer yes, you are directed to the FBAR instructions to determine if you must file the form, and if you are required to file the FBAR, you are asked to enter the name of the foreign country where the financial account is located.

What are the penalties? If you are required to file an FBAR and fail to do so, a civil penalty of up to $10,000 may be imposed if the violation was not willful. The penalty may be waived if there was reasonable cause for the failure and a FBAR is property filed. For a willful failure to file, the civil penalty can be up the greater of $100,000 or 50% of the account balance; criminal penalties may also apply. If you have not been reporting foreign accounts as you should, you can come into compliance with reduced penalties if you qualify for the Offshore Voluntary Disclosure Program (OVDP). It will behoove you to look more into this.

You may be required to file Form 8938 which is a statement of Specified Foreign Financial Assets and you may have to file it with your tax return. If you don't file Form 8938, you may incur penalties and extensions of the statute of limitations.

You are required to report information about assets of Form 8938 if you are a U.S. taxpayer holding specified foreign financial assets with an aggregate value exceeding $50,000.

On Schedule B Part III is where you report a financial interest or signature authority over a financial account located in a foreign country. A financial account includes

• A securities
• A brokerage
• A savings account
• Demand account
• A checking account
• A Deposit account
• A time deposit account
• A commodity futures or options account.
• An insurance policy with a cash value
• An annuity policy with a cash value
• Shares in a mutual fund or similar pooled fund

You must report on Part III any financial account that is physically located outside of the United States. This would include a branch that is physically located outside the U.S.

Part III may require you to fill out and file Form 8939 or FinCen Form 114 depending on your situation. Not filing FinCen Form 114 when required to do so may cause you to owe a penalty of $10,000. Willful violations and refusals to comply may subject the taxpayer to criminal prosecution. There are other forms which may be required such as Form 3520 for certain distributions.

Form 8938 must be filed with Form 1040 if you have specified foreign financial assets (SFFAs) at the end of the year in excess of the applicable threshold. SFFAs include, in addition to financial accounts maintained by foreign financial institutions, foreign stocks and securities, financial instruments or contracts issued by a foreign party, and interests in certain foreign estates, trusts, and partnerships.

An accuracy-related penalty may be imposed if you do not disclose an SFFA and income related to the undisclosed SFFA is not reported on your tax return. The penalty is 40% of the tax underpayment resulting from the omission of income. The penalty can be avoided if you cn show reasonable cause for the underpayment. An underpayment due to fraud is subject to a 75% penalty. 

If you claim a loss on Schedule C, be prepared to show that you regularly and substantially participate in the business. Otherwise, your loss may be considered a passive loss deductible only from passive income or not deductible at all. Furthermore, if your business loss exceeds your other income, you may be able to carryforward the loss and claim a refund. You may be able to file Schedule C-EZ instead of Schedule C if you have no employees and your business expenses are $5,000 or less.

If you are going into business alone, your choices are

• Operating as a sole proprietor
• Incorporating
• Forming a limited liability company (LLC)

However, if you are going into business with an associate, you may choose to operate as a(n)

• Partnership
• Corporation
• LLC

If you are concerned with limiting your personal liability, your choice should be between a corporation or an Limited Liability Company (LLC). An LLC gives you the advantage of limited liability without having to incorporate.

If you operate through an LLC with no co-owners, you report income and loss as a sole proprietor. If you operate an LLC with associates, the LLC reports as a partnership and you report your share of income and loss. However, under the check-the-box rules, the LLC may elect on Form 8832 to report as an association taxable as a corporation.

The new Tax Cuts and Jobs Act will be using the same seven tax brackets as before but the tax rates are lowered for the for the most about 2 percent. Besides this, the income thresholds have been expanded. This will not only benefit the regular company worker but it will also tremendously benefit the self-employed or the taxpayers who are considered self-employed by the Internal Revenue Service.

First off, there is a 20 percent deduction for pass-through entities which is not really just for pass-though businesses but for all businesses or individuals considered self-employed. It seems that the original idea was to only offer this 20 percent deduction to pass-through businesses such as limited liability company (LLCs), partnerships and S corporations. However, it may well be that this new TCJA tax reform was arranged and settled around the holidays that the individuals involved in making the decisions felt generous enough to offer it also to sole proprietors. Therefore, sole proprietors or self-employed individuals are also included. This tax deduction should help alleviate the high self-employment tax of 15.3 percent. This deduction is simply calculated by multiplying your net income by 20 percent. The business income has to be qualified business income (QBI is the term you will get familiar with when calculating this deduction). Certain rules must be followed to claim this deduction and one of these rules besides have QBI, is that there is a phase-out amount of $157,500 for single filers and $315,000 for joint filers.

Secondly, the business owner will get very generous depreciation benefits to expenses their business property and even includes used business property (counting used business property as qualifying depreciable property is a first in the tax code). The business owner can deduct and fully write-off the entire cost of a new purchase (this is 100 percent bonus depreciation). The equipment which qualifies for this bonus depreciation are computers, furniture, and equipment. This is a great deduction specially that previously you could only deduct up to 50 percent of the cost in the first year. To top this off, the IRS has doubled the section 179 tax deduction from $500,000 to $1 million. The business property that qualify for the section 179 deduction now also includes fire protection, fire alarm and security alarm systems. The maximum allowed depreciation expenses for passenger vehicles placed in service for business will get an increased depreciation deduction from the $13,000 for the first four years to over $40,000 in the first four years. This is not counting if you choose bonus depreciation which will make this amount even greater. However, if your auto is a sports utility vehicle there is a $25,000 limitation.

Other deductions are available for business owners such as the home office deductions and the business trip expense deduction. For the office in the home deduction business is as usual except that now you are allowed to fully write off your equipment such as computers, furniture and business equipment and you can deduct the entire amount instead of waiting years to deduct it. If you travel primarily for business, you can deduct 100 percent of the flight costs. This includes your hotel or lodging and 50 percent of your meals. It is probably superfluous to mention that the meals can only be deducted for the days your are spending on business.

Now if you are self employed (and before too), you must calculate your expenses and income (you can hire a bookkeeper) and keep good business records. Keeping good records for your business is imperative for success. Remember, you are on your own. You don't have an employer to be doing this for you. You must also remember that no one is deducting money from your income therefor, you must send it in by yourself. You must send in estimated payments periodically usually every three months depending on your business income, it could even be every month. If you don't voluntarily apply the pay-as-you-go tax concept, you will be charged a penalty by the Internal Revenue Service.

The 20 percent deduction for pass-through entities which includes sole proprietor businesses is an excellent incentive for individuals to become self employed and a great way to try to boost our economy. That and the very generous business depreciation benefits deductions to expense business property should be incentives enough for the business owner to put all his or her efforts into the business. To top this off, the IRS has doubled the section 179 tax deduction from $500,000 to $1 million. Moreover, the types of property that can be depreciated have been expanded and now it even includes used property. Don't get carried away, thought. The property can be used property, but it has to be new property to you.

Business income is any income received from the sale of your products or services. Business income may also include rents received by a real estate business. If you receive income in the form of property, then you must include the fair market value of it as business income. You also must be careful not to includes money received that is not really income such as security deposits and loans.

It costs you money to conduct business and this money that you spend in order to make money is considered a business expense. Business expenses are those charges that you incur in carrying on your trade or business. If your business operates to make a profit, these expenses are usually 100 percent deductible. If your business operates as a hobby, then none of these expenses are deductible, any longer. It used to be that you could deduct hobby expenses on Schedule A as 2% of adjusted gross income deduction, but the new Tax Cuts and Jobs Act has eliminated that deduction. Therefore, you cannot even get a partial deduction for your hobby expenses any more.

You must also consider the time when you make certain expenses in order to determine if they are fully deductible or not. If you make most of your expenses at the start of your business, you may have to amortize the expenses over a period of time into the future to match the expenses with the income received for the business.

Taxpayers in this situation need to start setting up and run their hobby sideline as a true business in business to make a profit to be able to deduct any expenses of running the business. In order to deduct expenses for your business, your business be set up with the purposes of making a profit. When you hobby develops from something you love such as your hobby to a thriving business, then you don't really have to worry too much about being able to deduct your expenses, since you are making money. However, what happens when you hobby is not making money and you instead have a loss? That is when you need to even look into the fact that your business is really a hobby and not a business.

Who is going to know? You may be asking. Well, there are certain businesses that naturally are well known for being hobbies. Now, looking at it another way, say you have a loss from a business (and perhaps continue to have a loss for a long time), the IRS wants to challenge you on the type of business this is. The Internal Revenue Service may disallow your expenses beyond your loss because they may suspect you are running a hobby. This may also be so because you may not be running your business as a business but as a hobby. How does this happen? If you don't keep records or are not diligently seeking to make a profit, could be a reason to disallow your expenses as a business. They may allow your expenses as hobby for which the amount of expenses you can claim is limited.

These rules have not improved with the new Tax Cuts and Jobs Act (TCJA) for tax year 2018 through 2025. Under the new TCJA tax reform, you may have a harder time trying to show a profit motive for your activity. The hobby activity expenses fall under hobby-related deductions. As mentioned before, you only worry about this rule is you are involved in an activity that yields a loss at the end of the year. If your business is making money and it does not have a loss at the end of the year, you don't even need to read this.

Hobby activities cannot offset the losses like regular businesses can. In a regular profit motivated business, all losses not only can be offset against income but they can even be carried forward to future years (no more carrybacks after 2018 for a while at least). Before the Tax Cuts and Jobs Act, you could deduct hobby-related expenses up to the amount of income from that particular hobby. Again, you could deduct the losses not as a regular business would do. A regular business can get a full deduction for these expenses or losses. A hobby activity could only get a partial deduction and only if you itemized. Then to top it off, this entire amount could be totally disallowed under the alternative minimum tax (AMT) rules.

Now the Tax Cuts and Jobs Act (TCJA) completed eliminates the ability to deduct any items as itemized deduction subject to the 2 percent of adjusted gross income threshold. That means that you can deduct zero expenses for your hobby related business. However, you must pay the tax on the entire amount of income your received from your hobby.

You can try to figure out what to do about making sure the IRS does not treat your business as a hobby and this includes diligently running your business as a business and not as a hobby. Another thing to look into is the IRS safe-harbor rules. These rules state that

• An if an activity makes money (has a positive taxable income) for at least three out of every five years it can be presumed to be a for-profit endeavor.
• If a horse racings, breeding, training, or showing activity has a positive taxable income in two out of every seven years, it is presumed to be a profit business.

You must prove or be ready to prove that you have an intent to make profit. There are certain factors that demonstrate intent to make a profit.

• Conduct the activity in a business-like manner by keeping good records.
• Being an expert at what you do or having staff that is.
• Spend sufficient time at work to show that this is your work. Not having another full-time job will probably help.
• Owning assets that will appreciate such as real estate.
• Showing that you are successful at what you do.
• Financial status - no poor folk will easily undergo expenses for a hobby and are usually in it to make a profit.
• Elements of pleasure - no one will consider digging holes for a living a hobby.

Look, the new Tax Cuts and Jobs Act has tremendously affected hobby business income without even thinking about hobby businesses (not that they didn't think about it). If you have business revenue of $10,000 and you have business expenses for that revenue of $10,000, nothing has happened here, we claim zero income and we all go about our business. If we have $10,000 hobby income and $10,000 hobby expenses, then we will probably really feel the pain because we have to pay taxes on $10,000. Since there is nowhere we can deduct those expenses in since the new TCJA has eliminated this ability on Schedule A, then we simply cannot deduct it. It was bad enough as it was with only a partial deduction and sometimes no deduction if we did not have enough items to itemize our deductions, but now that deduction is totally eliminated. We can always try to convince the IRS that our business is not a hobby, because as you can see, this makes all the difference.

Starting in 2018 and because of the changes placed by the Tax Cuts and Jobs Act, less taxpayers will be eligible for a home office deduction - more like most taxpayers that were eligible before. Employees are no longer eligible to deduct unreimbursed job expenses, which includes the cost of a office in the home. The total of your businesses portion of the home expenses would go on Schedule and be subject to the over 2 percent of adjusted gross income criteria. Whatever added more than the 2 percent of adjusted gross income figure, you could deduct. We can tell you what these expenses were that you could deduct, but it is not necessary since you can no longer deduct them if you were an employee. Basically they were any expenses which were "ordinary and necessary" to do your job or to improve you job skills. If you maintain a home office for the convenience of your employer, ask him or her to pay your or reimburse you for it.

Now if you are self employed or considered self employed (which means you would file Schedule C as a sole proprietorship or similar form), the tax reform is on your side and you can still deduct your home office expenses against your business income and a plethora of other deductions. The requirements for claiming office in the home and its expenses have not change. The only change is that employees are excluded.

Now that all that is said and done, there are two types of calculation methods for claiming office in the home.

• The standard method.
• The Simplified method.

The standard method has been around forever. This method requires that you determine the percentage of the part of your home used for business. You usually measure the entire square footage of your home and then take the total square footage of your work area and get a percentage by dividing the business area by the size of the entire house. Then on IRS Form 8829 along with Schedule you will enter a percentage of all your home expenses that apply by multiplying that expense by the percentage for business use.

Now there is a simplified methods at arriving at your deductible home expenses. Using this method, you can deduct a flat rate and it is much easier to calculate. You are allowed $5 per square foot of your home office area. If you use this method you are limited to 300 square feet, so your maximum deduction is $1,500. The simplified methods requires less records. It is like a standard deduction method that just requires you to measure the spaces in your home that are used for business and include this calculation on Schedule C.

When claiming office in the home you can deduct practically every expenses that you can deduct in a normal office that you have for business in a commercial area. All direct expenses include office supplies, repairs such as carpet, paint and stuff like that. Indirect expenses include those expenses that would normally not be deductible as a business expense such as home property taxes, rent, mortgage interest, home insurance, maintenance, utilities, garbage disposal and security and fire alarm systems. You would deduct a percentage of these expenses - the percentage that applies to the office in the home part based on the square footage. Additionally, these expenses can only be deducted if you use the standard method, not the simplified $5 per square footage method.

Expenses that you should probably stay clear from are expenses that are completely unrelated to your home office. Such items as the pool or yard area will not be deductible even if you use these to see your clients. Expenses that would normally have nothing to do with your office in the home such as business insurance, your computer, and office supplies are ordinary business expenses which are 100 percent deductible regardless of where you run your business.

One important thing to note, though, is that you cannot you cannot deduct more expenses than the amount of your business gross income. Your deduction will be limited. However, you may be able to carryover the excess to the next year. These are the rules for claiming an office in the home.

To maximize tax-savings opportunities, you must keep good records through the year. Good recordkeeping makes it easier to prepare your tax return, reduces errors, and provides a defense to any challenge from the Internal Revenue Service. There are many things you can do to keep good records or to make your recordkeeping easier to handle such as:

• Jot down your deductible items as occur.
• Keep a calendar or diary of expenses to record deductible items.
• Keep a file of bills and receipts. This extremely important because this is your supporting evidence to present to the IRS if audited.
• Use your credit card receipts, your online account statements, and checkbook stubs as a record.
• Keep up your bookkeeping for you business.

There are certain record keeping requirements you must meet in case the IRS needs to review your tax records later on. There are certain obligations to keep records and this depends on your tax situation. Claiming certain deductions and credits require you to keep records. Sometimes you can opt for standard deductions on certain items such as the standard deduction, standard mileage deduction, and even if you claim office in the home, there is a standard amount you claim and that way you don't have to worry about the record keeping requirements as much. You just select a standard amount of $5 per square footage in that case, just to provide you an example.

There are so many brilliant ways to cut your taxes, to legally avoid paying taxes. Although the Tax Cuts and Jobs Act has come up with many tax incentives and many ways to disallow certain tax items, it has either allowed or neglected to disallow others. You can look really closely at almost every item in the new tax law and you will find ways to legally save money on your taxes. Whatever tax saving skill you manage to come up with requires that you show proof. To show proof or to prove your deductions, you must keep excellent business records.

The IRS and new Tax Cuts and Jobs Act (TCJA) know exactly how difficult it is for some people to keep good records and that is why there are option for taking the standard - the standard deduction instead of itemizing, for example. Another one of these is using the cash method of accounting to avoid inventory recordkeeping obligations. If you are cash method of accounting business, you can be excused from the chore of doing inventory accounting for your business.

If you are claiming the office in the home deduction, you can claim it by using the standard method which requires that you keep detailed records of all your expense or you can use the simplified method which gives you a flat rate to deduct that is much easier to calculate than the standard method. You are allowed to deduct $5 per square foot of your home office area. However, you are limited to only $1,500. Therefore, it is probably more beneficial to you to use the other methods which requires that you keep more detailed records. Sometimes the methods that require more effort are more beneficial.

How long to keep records? It depends.

• Keep records for 3 years.
• If you file a claim for credit or refund after you file your tax return, then you should keep your records for 3 years from the date you filed your original tax return or 2 years from the date you paid the tax. Use the one that comes later.
• You keep your copies for 7 years if you file a claim for a loss from worthless securities or if you claim a bad debt deduction.
• Keep records for 6 years if you did not report income that you should have reported and the income you did not report is at least 25% of the gross income shown on your tax return.
• If you do not file a tax return, then be prepared to file at any time and keep your tax records indefinitely.
• If you file a fraudulent, the statute of limitations don't apply to you and therefore you should keep your tax records forever.
• If you have employees, you need to keep your tax records for at least 4 years after the date your tax is paid or becomes due, whichever one is later.

If you own property, you may want to keep your tax records to show proof of depreciation deductions if you property is used for business. Also, when you sell your property, you must be able to show how you came up with the adjusted basis. Once you dispose of your property, then you must keep your tax records for at least 3 years, unless other conditions apply. There are other reasons you may want to keep your tax records for longer periods of time than required by the Internal Revenue Service. For example, you insurance company may need to ask you for these tax records a longer period than the Internal Revenue Service does.

You probably should not be in too much of a hurry to get rid of your tax records. Nowadays it is easy to keep tons of paperwork stored in the cloud since you don't need any physical space to keep these records. Maybe the only that should be wanted to get rid of tax records are tax professionals. In that case, you as a tax professional should keep tax records readily available to be copied for as long as your client is legally required to keep them.

There are certain record keeping requirements you must meet in case the IRS needs to review your tax records to prove your deductions, but also you must keep a copy of your tax returns for a certain period of time as dictated by the Internal Revenue Service. The time to keep these tax return records varies depending on your filing situation but it normally is a minimum of 3 years or more time if you own property. If you own property, you are not necessarily obligated to keep the tax records forever, but you do need to be able to provide records for the basis of the property when you sell it. Maybe, if you never sell your property you don't have to worry about, but no one really knows what is to come. There are many reasons why you may have to sell your property in the future.

If you have made nondeductible contributions to a traditional IRA, keep a record of both your nondeductible and deductible contributions. This will help you when withdraw IRA money to figure the tax-free and taxed parts of the withdrawal. Also keep records of contributions and conversions to Roth IRA's and myRAs. You should also keep copies of Form 8606 and Form 5498 for these purposes.

If you received or repaid Social Security benefits in 2018, you will receive Form SSA-1099 from the Social Security Administration, showing the total benefits paid to your and any benefits you repaid to the government in 2018. Box 3 of Form SSA-1099 shows the total benefits paid to you in 2018. This may include, in addition to Social Security retirement benefits, survivor and disability benefits, which are subject to the same tax rules as retirement benefits, but not Supplemental Social Security (SSI), which is not taxable. Also, included in the Box 3 total are amounts withheld from your benefits for Medicare premiums, worker's compensation offset, or attorneys' fees for handling your Social Security claim; these and other withholdings are itemized in the "description" section below Box 3. The newt benefit shown in Box 5 of Form SSA-1099 (benefits paid less benefits repaid) is the benefit amount used to determine the taxable portion of your benefits (if any). People receiving Social Security benefits are usually not working and if they are they are probably just working to keep busy and it is not expected that they earn more than the thresholds for taxable Social Security, but some do have taxable income even if they are not working.

The new Tax Cuts and Jobs Act (TCJA) brought changes to IRAs in the form of recharacterization of IRA contributions. When the taxpayer makes a contribution to a regular IRA or Roth IRA, he or she can recharaterize it as if made to another type of IRA via a trustee-to-trustee transfer before the due the date of the tax return for the contribution year. The new Tax Cuts and Jobs Act has made it a rule that once a contribution to a regular IRA has been converted into a Roth IRA, it can no longer be converted back to a regular IRA. Recharacterization cannot be used to unwind Roth IRA conversions. There is uncertainty as to the effective dates of conversion in the new tax law for Roth conversions made in 2017. The new rules are not specific if the effective date of the provision for tax years after 2017 refers to the tax year of the recharacterization or the tax year of the unwinding. If the effective date is the tax year of the recharacterization, then those taxpayers would have until October 15, 2018 to unwind the 2017 recharacterization. If the effective date is the year of the unwinding, these those taxpayers would have had only until December 31, 2017 to do the unwinding. There seems to be a need for correction in the tax law to make things more clear.

The new Tax Cuts and Jobs Act extends the rollover period for plan loan offset amounts. If the employee takes a loan from his qualified retirement plan, Code Sec. 403(b) plan, or Code Sec. 457(b) plan is treated as distributed from the plan due to the plan's termination or the employee's failure to meet the repayment terms due to his separation of service, the employee may rollover the deemed distribution to an eligible retirement plan. Under the new tax law allows you to rollover the amount any time up to the due date (including extensions) of the employee's tax return for the year of the deemed distribution. The new law is allowing more time compared to the old law's 60 days from the date of distribution.

The new tax law increases the limit on the aggregate amount of length of service awards that can accrue in a year of service for a bona fide volunteer from $3,000 to $6,000. For a defined benefit plan, the limit applies to the actuarial present value of the aggregate amount of awards accruing for any tax year of service. The old tax law, a plan that only provides length of service awards to bona fide volunteers or their beneficiaries for qualified services performed, was not treated as as deferred compensation  plan for Code Sec. 457 purposes.

Under the new Tax Cuts and Jobs Act, a "qualified 2016 disaster distribution" will be included in a taxpayer's gross income ratably over a three year period starting with the year it is received, unless the taxpayer elects to have the distribution fully taxed in the year it is received.

Under the new Tax Cuts and Jobs Act, a "qualified 2016 disaster distribution" will not be subject to the 10% penalty for early withdrawals from qualified plans and IRAs as it would be under the old law.

For employees, coverage in a qualified employer retirement plan is a valuable fringe benefit, as employer contributions are tax free within specified limits. Certain salary-reduction plans allow you to make elective deferrals of salary that are not subject to income tax. An advantage of all qualified retirement plans is that earnings accumulate tax free until withdrawn. However, along with tax savings opportunities come technical restrictions and pitfalls. For example, retirement plan distributions eligible for rollover are subject to a mandatory 20% withholding tax if you receive the distribution instead of asking your employer to make a direct trustee-to-trustee transfer of the distribution to an IRA or another qualified employer retirement plan.

Under the new Tax Cuts and Jobs Act, a qualified 2016 disaster distributions, can be recontributed to a qualified plan or IRA in which the taxpayer is a beneficiary up to three years beginning the day after the date of distribution to avoid taxation. This recontribution will be treated as a direct trustee-to-trustee rollover.

Under the new Tax Cuts and Jobs Act, a qualified plan or IRA can be amended for new tax law changes retroactively any time up to the last day of the first plan year beginning after 2017 without losing its qualified status for actions taken om compliance with the new tax law changes.

On Form 1099-R, payments from pensions, annuities, IRAs, Roth IRAs, SIMPLE IRAs, insurance contracts, profit-sharing, and other qualified corporate and self-employed plans are reported to you and the IRS. Social Security benefits are reported on Form SSA-1099. If you are paid a distribution that qualifes for lump-sum averaging, Code A will be entered in Box 7 of Form 1099-R.

If you are entitled to a lump-sum distribution from a qualified company or self-employed retirement plan, you may avoid current tax by asking your employer to make a direct rollover of your account to an IRA or another qualified employer plan. If the distribution is made to you, 20% will be withheld, but it is still possible to make a tax-free rollover within the 60 day period.

On the other hand, if you receive a lump sum and do not make a rollover, the taxable part of the distribution (shown in Box 2a of Form 1099-R) must be reported as ordinary pension income on your tax return unless you were born before January 2, 1038, and qualify for special averaging. Your after-tax contributions and any net unrealized appreciation (NUA) in employer securities that are included in the lump sum  are recovered tax free; they are not part of the taxable distribution.

By the way, a taxable distribution made before age 59 1/2 is subject to a 10 percent penalty in addition to the regular income tax, unless you qualify for an exception.

Although capital gain distributions from mutual funds and REITs are generally reported as long-term capital gains on line 13 of Schedule D, investors who receive such distributions but have no other capital gains or losses to report may generally report the distributions directly on Form 1040 or Form 1040A without having to file Schedule D.

The favorable maximum capital gain rates apply to net capital gain (net long-term capital gain in excess of net short-term capital loss) from Schedule D, and also to qualified dividends. Although qualified dividends are subject to the same favorable maximum rates as net capital gain, they are not entered as long-term gains in Part II of Schedule D.

Long term capital gain taxes are taxes on gains made on the selling of assets that are held for over a year. The counterpart of that is short-term capital gains which is for assets that are held for less than a year. Short term capital gains are considered ordinary income taxed at whatever tax rate you fall under. It it is a long-term capital gain it is taxed at 0%, 15% and 20%. Under the new Tax Cuts and Jobs Act, the three capital gains income thresholds don't match up perfectly with the tax brackets. On the contrary, they are applied to maximum taxable income levels.

Form 8949 is used for information about transactions that you receive on Form 1099-B. Form 1099-B is the form you receive for proceed from Broker and Barter transactions. Form 8949 is for reporting both short-term on part I and long-term capital gains on part II. Schedule calls for Form 8949 and then you transfer items from Form 8949 to Schedule D. Capital gains and deductible capital losses are reported on Form 1040, Schedule D, Capital Gains and Losses, and on Form 8949, Sales and Other Dispositions of Capital Assets. If you have a net capital gain, that gain may be taxed at a lower tax rate than your ordinary income tax rates. The term "net capital gain" means the amount by which your net long-term capital gain for the year is more than your net short-term capital loss for the year. The term "net long-term capital gain" means long-term capital gains reduced by long-term capital losses including any unused long-term capital loss carried over from previous years. Generally, for most taxpayers, net capital gain is taxed at rates no higher than 15%. Some or all net capital gain may be taxed at 0% if you are in the 10% or 15% ordinary income tax brackets.

Almost everything you own and use for personal or investment purposes is a capital asset. Examples include a home, personal-use items like household furnishings, and stocks or bonds held as investments. When a capital asset is sold, the difference between the basis in the asset and the amount it is sold for is a capital gain or a capital loss. You have a capital gain if you sell the asset for more than your basis. You have a capital loss if you sell the asset for less than your basis. Losses from the sale of personal-use property, such as your home or car, are not deductible. Capital gains and losses are classified as long-term or short-term. If you hold the asset for more than one year before you dispose of it, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term. To determine how long you held the asset, count from the day after the day you acquired the asset up to and including the day you disposed of the asset.

If you sold stocks, bonds, commodities, regulated futures contracts or other financial instruments through a broker in 2017, or you exchanged property or services through a barter exchange, the sale is reported to the IRS on Form 1099-B. You are sent a copy of Form 1099-B or a substitute statement. In Box 1e of Form 1099-B, the broker must report your basis for "covered" securities, which includes stock acquired after 2010, mutual fund shares acquired after 2011, and certain bonds acquired after 2013 (or after 2015 in some cases). Box 3 should be checked to indicate that the basis shown in Box 1e has been reported to the IRS. For a "noncovered" security, such as stock acquired before 2011, the broker may omit basis from Box 1e if Box 5 is checked, indicating that a "noncovered" security was sold. Alternatively, the broker may report basis for a noncovered security in Box 1e even though Box 5 is checked, and in this case Box 3 (basis reported to IRS) will alse be checked.

You report basis for the asset in column(e) or Form 8949 and Schedule D. The IRS can use the basis information from Box 1e of Form 1099-B to check your computation of gain or loss on Form 8949 and Schedule D.

The CDCTC or child care dependent tax credit allows you to deduct $2,100 from your tax bill to help you with the high cost of child care. That is $175 per month to help you a little bit with this cost. Yes, a little bit because if you have kids and you have to pay for child care, you know that most of your paycheck goes to pay for child care. On top of that, It is is a non-refundable credit, which means it only cancels tax. Therefore if there is no tax to cancel, there is no credit. To qualify for this CDCTC credit the taxpayer must be employed and the spouse too if married must be employed. If he or she is not employed, then he or she can be a full time student. You must have paid up to $3,000 is child care for one child or up to $6,000 for two or more children.

You may be able to claim the child and dependent care credit if you paid work-related expenses for the care of a qualifying individual. The credit is generally a percentage of the amount of work-related expenses you paid to a care provider for the care of a qualifying individual. The percentage depends on your adjusted gross income. Work-related expenses qualifying for the credit are those paid for the care of a qualifying individual to enable you to work or actively look for work.

Expenses are paid for the care of a qualifying individual if the primary function is to assure the individual's well-being and protection. In general, amounts paid for services outside your household qualify for the credit if the care is provided for (i) a qualifying individual who is your qualifying child under age 13 or (ii) a qualifying individual who regularly spends at least 8 hours each day in your household.

The total expenses that may be used to calculate the credit are capped at $3,000 (for one qualifying individual) or at $6,000 (for two or more qualifying individuals). The dollar limits may differ depending on the tax year in question. The expenses qualifying for the computation of the credit must be reduced by the amount of any dependent care benefits provided by your employer that you exclude from gross income.

One more thing, you must identify the care provider on your tax return. On Form 2441, you must list the name, address, and taxpayer identification number of the person you paid to care for your dependent. If the care provider is an individual, his or her Social Security number is required. If the provider is a business, enter the business' employer identification number (EIN), but you do need to enter a taxpayer identification number if the care provider is a tax-exempt organization such as a church. Failure to list the correct name, address, and identifying number many result in a disallowance of the credit. To avoid this possibility, ask the provider to fill our Form W-10 or get the identifying information from a Social Security card, driver's license, or business letterhead or invoice. If a household employee has filled out Form W-4 for you, this may act as a backup record.

There is another tax savings benefit for dependent care for those who have children. The dependent care flexible spending accounts. This will be eliminated after five years under the new tax law. This credit flexible account allows families to set aside up to $5,000 in pre-tax income to pay for child care expenses. These child care expenses can be for in-child care center care or for nanny care. Things may change as five years is a long time from now and depending on the people in charge at that time, this tax benefit may continue pass the five year proposed plan.

You may contribute to a dependent care FSA if you expect to have expenses qualifying for the dependent care tax credit. If you contribute to the account, any tax-free reimbursement from the account reduces the expenses eligible for the credit. If you are married, both you and your spouse must work in order for you to receive tax-free reimbursements from an FSA, unless your spouse is disabled or a full-time student.

The maximum tax-free reimbursement under the FSA is $5,000, but if you or your spouse earn less than $5,000, the tax-free limit is the lesser earning of the two. You must use Part III of Form 2441 to figure how much of your reimbursement is tax free and how much must be included in your income. Unlike the health FSAs, an employer may limit reimbursements from a dependent care FSA to your account balance. For example, if you contribute $400 a month to the FSA and in January you pay $1,500 to a day-care center for your child, your employer may choose to reimburse you $400 a month as contributions are made to your account. 

The Lifetime Learning Credit and the Student Loan Interest deduction survived the passing of the new tax law. Colleges an universities may be affect by the new Tax Cuts and Jobs Act because of the doubling of the standard deduction which means fewer individuals will itemize their deductions and thus have no incentive to donate to universities or charitable organizations. This is one of the indirect ways in which the new tax law reform will affect colleges and universities. Another one like this one is that you will no longer be able to exclude 80% of the amount that you have paid for the right to purchase tickets to athletic events which will greatly affect school athletic teams contributions by donors.

You may claim on Form 8863 a Lifetime Learning credit of up to $2,000 for the total qualified expenses paid for yourself, your spouse, or your dependents enrolled in eligible educational institutions during the year, subject to the income phase-out. The credit is nonrefundable, meaning that it cannot exceed your regular tax plus AMT liability. In addition to tuition, the only qualified expenses are student activity fees and course-related books, supplies, and equipment that must be paid to the educational institution as a condition of enrollment or attendance. In contrast to the American Opportunity credit, the Lifetime Learning credit does not have a degree requirement.

Some of the benefits for saving for college either got modified or eliminated but some of the most popular benefits for education like the credits and the student loan interest deduction remain unchanged. There was no change to the American opportunity credit. With the AOC you can get up to $2,500 per eligible student and up to $1,000 of this credit a refundable credit. The requirements are that you only take this credit for four years and only take it if you have not completed the first four years of postsecondary education (college) before the tax year. To eligible the student must be enrolled at least half-time for at least one academic period and must be trying to acquire a degree. Furthermore, this credit is generally claimed by the parents of undergraduate students.

The Lifetime learning credit stays the same and the new tax reform has not affected it. You can get up to $2,000 for qualified education expenses paid for all eligible students include in the taxpayer's tax return. There is no limitation as to how many years you can take the Lifelong learning credit and your student does not have to be enrolled in a minimum number of hours to claim the credit. This credit is usually claimed by the graduate student him or herself. If you qualify for the lifelong learning credit and the AOC credits and since you cannot take both, you would usually choose the one that gives you the greater tax benefit which is usually the AOC.

The Nontaxable scholarship and grant rules stay the same and the new Tax Cuts and Jobs Act does not change or affect the rules. Scholarships that are used for tuition and fees remain untaxable. Scholarships can be used to pay any expense such as room and board and can either taxable or nontaxable depending on what you spend it on. Nontaxable qualified expenses include tuition and fees, course-related expenses such as books, supplies and equipment required for your learning and these items must usually be required for all students that are taking the course. Nonqualified and therefore taxable expenses would include room and board, travel, research, clerical help, or equipment or other expenses that are not required for enrollment or attendance in the eligible educational institution.

The tuition and fees deduction is eliminated by the new Tax Cuts and Jobs Act and the deduction was not extended. This deduction had already expired in 2016 but it was provisionally extended. This tuition and fees allowed taxpayers to reduce their taxable income by up to $4,000. It was usually claimed by people who claimed the Lifetime learning credit.

The Tax Cuts and Jobs Act did not make any changes to the IRA penalty exception for education. The 10% early distribution penalty is waved, if for the year of the distribution of an IRA before reaching age 59 1/2 if it is to pay for

• Qualified education expenses for the taxpayer
•  Qualified education expenses for the taxpayer's wife.
• Qualified education expenses for the taxpayer's or spouse's child, foster child, adopted child, or descendent of any of these.

You should claim the penalty exception on Form 5329.

Other items for education remain the same such as

• Education savings bond exclusion.
• Student loan interest.
• Student loan repayment assistance.
• Coverdell Education savings accounts.
• Student loan repayment assistance remain tax-free in some circumstances.

However, the business deduction for work-related education has been eliminated for employees. Many expenses that have to do with employees deductions at work have been eliminated and business education for business work-related is one of these. All types of employee business expenses have been disallowed under the Tax Cuts and Jobs Act. We no longer can deduct uniforms, memberships in professional organizations, and any other neccessary and ordinary employee business expenses. No deduction for the employee, all deductions for the business owner. You can deduct all  these items which are disallowed as an employee such as business related education on Schedule C if you are self-employed or a self-contractor or otherwise you own a business.

The Tax Cuts and Jobs Act has modified the exclusion for student loan cancellation. The TCJA has allowed rules that permit certain qualifying students to exclude cancellation of student loan debt from income. To qualify the loan must have a provision that states that part of the debt will be cancelled if the student works:

• For a certain period of time.
• In certain profession, and
• For any of a broad class of employers.

Now the Tax Cuts and Jobs Act has includes a new provision that student loan debt forgiveness due to death or permanent and total disability is excludable from income. You may think who cares if you are already dead, but think about it. Your surviving spouse would not be liable for your debt or your cosigner for that matter. After all, if you spouse dies, the amount would immediately forgiven and thus taxable, but with this new exclusion in the new TCJA reform, the spouse does not have to include income that he or she has not received in the first place.

The 529 plans have been expanded under the new Tax Cuts and Jobs Act tax reform. The TCJA has expanded the types of of expenses that can be paid with a 529 savings plan. This has been known under the name 529 college savings plan, but now it also includes education from K-12. Amounts deposited in the plan will be able to grow tax free until distributed. If the 529 plan distribution during the year are less than the benefiary's qualified education expenses, distributions are also tax free. To top it off, taxpayers will also be able to rollover amounts from a 529 plan into an ABLE account. In additional, most states, like 30 of them, provide a state tax benefit for contributing to the state 529 plan. After all education is mostly run by the state.

This is probably one of the most important part of the Tax Cuts and Jobs Act. Education is now a critical item in our country and we have fallen behind. This new tax law will give us incentives to get back on.

The Earned Income Tax Credit remains unchanged under the new Tax Cuts and Jobs Act. The same requirements as to who can take the credit, and the income phase-out amounts. There will be adjustments every year to take into account adjustments for inflation.

You and your spouse if married, must have a valid Social Security number (SSN) by the due date for your 2018 tax return plus extensions. The due date for your 2018 tax return is April 17, 2019. If you do not have a Social Security number by the due date of your tax return (with extensions), you cannot claim the credit on your original tax return and you cannot claim it on an amended tax return if you later obtain a Social Security number. Similarly, you cannot treat a child as a qualifying child on either your original tax return or on an amended tax return if that child did not have a Social Security number by the due date of the tax return (with extensions), even if the child later obtains a Social Security number.

If you are claiming an earned income credit on your tax return and file your tax return in the beginning of the tax season, say January 1, 2019, you will have to wait until February 15th to get your refund. Under the 2015 PATH Act, the IRS cannot issue a refund before February 15th if the return includes the earned income credit. The same goes for tax returns claiming the refundable child tax credit. The entire refund must be withheld until February 15th and not just the portion of the refund attributable to the earned income credit or the refundable child tax credit. The delay in issuing these very early refund claims is intended to give the IRS some extra time to review the returns and reduce improper refund payments.

You may increase or decrease withholding on your wages by submitting a new Form W-4 to your employer. Withholding may be reduced by claiming allowances based on tax deductions and credits.

Make sure that tax withholding meet or help you meet the estimated tax rules that require withholding plus estimated tax payments to equal 90% of your current year liability or the required percentage of the prior year's liability.

A mandatory 20% withholding rate applies to eligible rollover distributions that are paid to your from an employer retirement plan. You may avoid the withholding by instructing your employer to directly transfer the funds to an IRA or the plan or a new employer.

Withholding should cover your estimated tax. In fixing the rate of withholding on your wages, pay attention to the tests for determining whether sufficient income taxes have been withheld from your pay. A penalty will apply if your wage withholdings plus estimated tax payments (which include prior year overpayments credit to your current estimated tax) do no equal the lesser of 90% of your current tax liability or the required percentage of the prior year's tax.

Taxes are withheld from payments made to you for services that you perform as an employee, subject to certain exceptions. On Form W-4, you can claim allowances on Line 5 for yourself, your spouse and dependents, as well as withholding allowances for itemized deductions and tax credits such as the child tax credit and the child and dependent care credit. The number of allowances claimed will either decrease or increase the amount of withholding.

The new Tax Cuts and Jobs Act started January 1, 2018. It will cover an entire year from January 1, 2018 through December 31, 2018. If taxpayers will use the tax code's golden rule to pay as you go - we are in a tax system of pay as you go. This means that you make the money and you send in the tax. This is the reason get taxes deducted from every paycheck. If the taxpayer is self-employed, then he or she has to send in the taxes every so often which is usually every three months depending on how much money the individual is making. Many taxpayers start making estimated tax payments every three months and then the Internal Revenue Service may adjust their estimated tax schedule and require them to make payment every month, for example. Estimated tax payments are made by taxpayers who have income that isn't subject to withholding such as self-employment income.

The Tax Cuts and Jobs Act (TCJA) has changed the way estimated tax is calculated. This mainly has to do with the new tax rates and tax brackets. Many other factors, credits, deductions and the lack of deductions change the how much a taxpayer has to send in in estimated tax payments. The taxpayer has to calculate their taxes based on the what he or she estimates that he or she may owe and try to come as close to it as possible. The fact that personal exemptions are being eliminated, the standard deduction has been given a raise, and the fact that certain deductions are no longer available has a great significance on how much the taxpayer must send in in advance as estimated tax payments. Estimated payments will be due on the same dates they are normally due which are April 15, June 15, September 15 and January 15 of the next year. These payment dates cover a three month period each. Don't ignore these dates because if you do, it can really cost you as you will be liable for failure to make estimated tax payments if you don't make them in a timely manner. It is not like it is only you who will fail to pay their estimated tax payments on time or that there are only a few individual failing to do so, there are many. The IRS is used to the stories and no story will probably will change their mind to cut you some slack. And, no, they are not just going after the big shots, they will enforce the tax law with the little guys, like you.

When you hear the IRS announcing that an increased number of taxpayers are subject to estimated tax penalties and that an increasing number of taxpayers have underpaid his or her taxes, then you know what is up. For example, the number of people who paid penalty jumped from 7.2 million in 2010 to 10 million in 2015 and that is an increase of 40 percent (Bell 2018).

Income taxes are collected on a pay-as-you-go basis through withholding on wages and pensions, as well as quarterly estimated tax payments on other income. Where all or most of your income is from wages, pensions, and annuities, you will generally not have to pay estimated tax, because your estimated tax liability has been satisfied by withholding. But do not assume you are not required to pay simply because taxes have been withheld from your wages. Always check your estimated tax liability. Withholding may not cover your tax; the withholding tax rate may be below your actual tax rate when considering other income such as interest, dividends, business income, and capital gains.

Be careful. If you are an employee and have failed to adjust your withholding at work, then you run the risk of owing a penalty for not having enough money withheld from your paycheck. Remember, you were supposed to adjust your withholding since the first week of January 2018 when the new tax law the Tax Cuts and Jobs Act started applying. Don't make the mistake of thinking that that everything starts in 2019. That is when you file your tax return, not when you start getting income and applying your withholding rates, deductions and exemption amounts. You hear everywhere that you will file tax returns in 2019 and it makes it sound like everything will start in 2019, but no, that is not true. News to you, the new tax law started already and it started January 1, 2018.

Your withholding and estimated tax payments must also cover any liability for self-employment tax, alternative minimum tax (AMT), the additional 0.9% Medicare tax on earnings, the 3.8% tax on net investment income, and FICA withholding tax for household employees. Failure to pay a required estimated tax installment will subject you to a penalty based on the prevailing IRS interest rate applied to tax deficiencies, unless the IRS waives the penalty.

If you expect your 2018 tax liability to be $1,000 or more after taking into account withheld taxes and refundable credits, you should make quarterly estimated payments unless you expect the withholdings and credits to be at least 90% of your 2018 total tax, or, if less, 100% or 110% of your tatal tax for 2017. The 100% test applies if your 2017 adjusted gross income (AGI) was $150,000 or less, $75,000 or less if for 2018 you will file as married filing separately. The 110% test applies if your 2017 AGI exceeded the $150,000 or $75,000 threshold.

If your employer is not taking enough withholding from your check, then you need to tell your employer to take an additional amount just to be on the safe side. It would not hurt to do some tax planning and visit a tax professional to make sure that your employer is not making an error and underwitholding from your paycheck. If you are self employed or a self-contractor, then you need to look into sending estimated tax payments using Form 1040-ES. Remember that estimated tax payments are sent in every three months if you are self-employed or it could be that you get income on the side or any other taxable income that will make your adjusted gross income higher, you need to send in the estimated tax. As long as you are not too off from the actual tax you have to pay, you will be fine.

Many taxpayers opt for direct deposit because it makes it faster and easier to get your refund. In this day and age, we are getting very used to everything being electronically. So much that going to the bank to cash a check or even make a deposit at an ATM is considered too much work. Why would we want to open an envelope, split the check at the perforated lines and then endorse the check in the back when all we have to do is input in our computer two sets of numbers and we are done. Yes, it is true, for people who work in the strawberry fields or in construction, of course even sitting at a desk is not considered work for them, but with our hectic schedule and the fact that we have to use our brains, all of this takes a lot of energy and when you go hope and you feel really tired and all you want to do is rest. It is a lot of effort physically go to the bank and endorse your checks when all you have to do is make everything automatic on your screen. The taxpayer may even split refunds between up to three qualified accounts. Why would anyone want to do this? Who knows, but the option is available if you want to use it.

The option to direct deposit has become very popular because people are in great need of money at the beginning of the year so they seek to receive their tax refunds faster or at least what they receive looks very much like a refund. It is against the IRS rules to state that a loan against your refund is a refund but many tax preparers either don't correct the client when they state they want their refund faster or for the best interest of not having to make long explanations, simply state it is a refund.

If you have a balance due on your tax return, you need to pay it.  When taxpayers have a balance due, they usually wait to the last day to file their tax return. Remember, an extension to file a tax return in not an extension to pay. If you file an extension to prepare your tax return, you must estimate the amount of tax and send it in with you extension. Much of the time, taxpayers just send in their request for an automatic extension of time to file but not the money. You can do that too, but you will be charged penalties and interest the same way. There are other penalties too such as a late payment penalty. So there is a late filing penalty if you don't file on time and neglect to file an extension and there is also a late payment penalty if you don't pay on time. In addition, if the IRS sends you a letter and you fail to reply they can charge you a failure to comply penalty.

We all know or should know that there is a penalty for not paying enough to cover our tax with the Internal Revenue Service. We would not ask you if you know, because we don't want to offend you. However, did you know that there is also a penalty for overpaying? There is a 20% penalty for receiving an excessive claim for refund or credit on an original or on an amended tax return. The penalty is 20% of the "excessive" amount, the excess of the refund or credit claimed over the amount allowed, unless there is a reasonable basis for the amount claimed. Good news though. The penalty does not apply to claims relating to the earned income credit. It also does not apply to any portion of the excess that is subject to the accuracy-related penalties which include the penalty for understatements due to reportable or listed transactions or even the fraud penalty.

You can file your tax return as early as January 1st of the start of the year. However, most people are not ready to file by this time and besides January 1st is a legal holiday. The point is, no one is ready to file on that date anyways. The IRS gets its software ready to start receiving electronic tax return all the way into the end of January. In 2018 this end of January date was January 29, 2018. In 2018 the deadline to file tax returns was April 17, 2018 because the 15ths fell on a Sunday and Monday was a federal legal holiday which hardly anyone knows about - Emancipation Day. This day sounds very meaningful thought but how come not all of us are aware of it?

If you cannot file your tax return on time, you can request an automatic extension of time to file. Please know that an extension of time to file a tax return does not grant your an extension of time to pay the tax liability. You may be able to get an automatic 6-month extension of time to file your tax return. In order to ask for your extension, you must use Form 4868, Application for Automatic Extension of Time to File U.S. Individual Tax Return. You must file this form by the due date of your tax return for filing your calendar year report or your fiscal year return. This time is usually April 15 or if the 15th falls on a Saturday, Sunday or legal holiday, then the following business day.

The Internal Revenue Services for some reason or other decides to start issuing refunds not until February. Any refunds that contain the Earned Income Credit or the Additional Child Tax Credit, legally, cannot be issued until mid-February. There is actually a law that prevents the IRS from issuing these types of refunds until a certain date. In 2018, many taxpayers did not see refunds into their accounts until February 28,2018. This was the fastest way to get these refunds too! For a taxpayer to be able to get the refunds on this date, which is the earliest, the taxpayer would have to electronically file their tax returns and choose direct deposit. Of courses, if there are issue with the return, the refunds would be delayed regardless if the tax return was filed by e-file or by paper. Maybe the IRS needs to change tax season to a later time in the year when it can be ready to service its customers. If you cannot issue refunds until February 28th, then maybe tax season should start February 28th and not January 1st. This was not an issue 15 years ago, for example. Taxpayers would file their tax returns in the first week of January and taxpayers would have their refund within about a week. It seems that the entire idea behind delaying refunds is due to the possibilities of fraud.

You have special privileges is you are living outside the United States or out of the country when your 6 month extension expires. You also receive special privileges if you are serving in a combat zone or a qualified hazardous duty area. You can request an automatic extension of time to file a U.S. individual income tax return by electronically filing Form 4868. You can also request an automatic extension of time to file a U.S. income tax return by paying all or part of your estimated income tax due using a credit or debit card or by using EFTPS. Additionally, you can request an automatic extension of time to file a U.S. individual tax return by mailing out Form 4868 to the IRS. Businesses need to fill out Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns. Corporations would file Form 1138, Extensions of Time for Payment of Taxes by a Corporation Expecting a Net Operating Loss Carryback. Therefore, if you are not able to file your tax return on time, whether you are an individual, a business or a corporation, you always have the option to ask for more time. At the time your extension expires, you can always ask for additional time by contacting the IRS and requesting an additional extension of time to file.

April 15 of each year is the due date for filing your federal individual income tax return if your tax year ends on December 31. Also, your return is considered filed timely if the envelope is properly addressed and postmarked no later than April 15. If you cannot file by the due date of your return, then you can request an extension of time to file. It is extremely important that you know that an extension of time to file will not extend the time to pay. You must also realize that an extension of time to file will not save you money on interest and late payment penalties. Finally, an extension of time to file is not an extension of time to pay.

Most of the western part of the country files their tax return either to Fresno, California or to San Francisco, California. Other the other hand, most of the eastern part of the country files their tax returns to either Kansas City, MO or to Hartford, Connecticut.

Why not file electronically? Filing electronically allows you to receive your refund much faster, usually within 3 weeks after the IRS receives your tax return. If you are getting a refund, you money will be a lot more safer and faster if you have it directly deposited into your checking or savings account. Many tax professionals are obligated to offer electronic filing to their clients and there isn't much leeway for them as to the manner of filing their clients' tax returns. So now filing a paper tax return for their clients is no longer an option for many tax professionals.

Domain 3 - Practices, Procedures and Professional Responsibility

You will safeguard your client's taxpayer data as if you were safeguarding your own. Just like you would not like someone else to get a hold of your personal information, you should not give any opportunity for anyone to get a hold of your client's information. The worst enemy for your taxpayer data nowadays are identity thieves. These people will have their tax returns prepared by you in order to try to get information on your clients that you inadvertently place on your desk. These people will come up with fake W-2's and pretend they are your client and prepare their taxes with you in order to get copies of your client's tax return and other personal information such a social security numbers, dates of birth, address and other personal information. Think about, your client walks in, do you know all of your clients personally? Do you make sure that the client is the client or do you just vaguely try to remember them? Safeguarding your client's taxpayer information should include you asking for ID.

Computer data breaches are a whole different world, and that as well, you must make sure everything that has to do with the internet and your computer is well in order and that protections are in place for you to safeguard your client's taxpayer data information. It is your legal responsibility as a tax professional, together with other agencies to put safeguards in place to protect taxpayer information to proven fraud and identity theft. This will in turn enhance customer confidence and trust.

A few things to consider, even the most basic one that is mentioned above about asking for identification from all your clients can help you safeguard your client's most personal information.

• Restrict access and disclosure - don't disclose information over the telephone to anyone without properly identifying the individual or to be on the safe side don't disclose anything at all - no matter what.
• Proven improper or unauthorized modifications or destruction. Please, please don't just throw taxpayer information in the trash.
• Maintain the availability of taxpayer date by providing timely and reliable access and data recovery.

You may be subject to the Gram-m-Leach Bliley Act (GLB Act) and the Federal Trade Commission (FTC) Financial Privacy and Safeguards rules. Even if you are not subject to the rules under these laws, you should consider implementing their procedures and best practices to safeguard your client's taxpayer information. You as a tax professional as defined under the FTC as a financial institution mainly because when you deal with taxpayer information, you are also indirectly dealing with their financial information which is used by many financial institutions. At least you should follow best practices in handling taxpayer information.

• Take responsibility or assign an individual or individuals to information safeguards.
• Access the risks of taxpayer information in your office such as your operations, your physical space, computer systems and your employees. List all the locations where you keep taxpayer information.
• Write a plan that includes how you will safeguard taxpayer information.
• Make sure the providers you use also have safeguard provisions in place.
• Monitor and adjust as necessary your security safeguards as your business and circumstances change.

Very basic items like asking for ID from every client in order to prevent anyone from posing as a client and taking that client's personal information should be in place. You should always make sure door are locked so no physical breaches will occur. Always require passwords to computer programs and make sure that whomever has access should have access. Make sure all electronically stored data is encrypted and always keep backups for recovery purposes. Always, always shred into tiny pieces paper that contain taxpayer information before throwing that paper in the trash. Lastly, you should probably never email taxpayer sensitive personal information.

You knew when you got into this business that you will be dealing with very personal taxpayer information. You must take every measure to ensure that your taxpayer data is safe. Make sure your building is not easily breachable. You should always ask for your clients identification to make sure your client is who he or she is claiming to be. You can make this a blanket request of everyone and this way this will become second nature for your entire operation. You can pretend that to get access to the taxpayer data now or later when they come back another time, you must input their ID number in the system. You can even do this from family and friends. This may sound absurd at first, but your company will acquire a reputation for taking identity theft seriously. When people talk about your business and the services you provide, they will for sure talk about the fact that you ask for ID and this way criminals will stay away.

The PATH Act has made changes to the ITIN program. Most taxpayers must submit their Form W-7 with the tax return for which the ITIN is needed. The application Form W-7 is submitted by both domestic and foreign applicants. Original documents or certified copies of documents are the only acceptable documentation, except for a few limited reasons.

Under the PATH Act, any ITIN that is not used on a federal tax return for three consecutive tax years, be a dependent or an individual filing a tax return, will expire on December 31st of the third consecutive year of nonuse. For example, if the individual does not file or is not claimed as a dependent on a tax return in 2016, 2017, and 2018, the ITIN will expire on December 31, 2018. This rules applies to all ITINs regardless on when it was issued.

The PATH Act has a schedule of when ITINs will expire unless they have already expired for the three year nonuse. For example,

• ITINs issued before 2008 will remain in effect until January 1, 2017.
• ITINs issued in 2008 will remain in effect until January 1, 2018.
• ITINs issued in 2009 or 2010 will remain in effect until January 1, 2019.
• ITINs issued in 2011 or 2012 will remain in effect until January 1, 2020.

If you ITIN expires be it for the three year nonuse or because one of the above timeframes apply, you will need to reapply by submitting a new Form W-7 and supply the required documentation to prove your identity. Taxpayers should make sure to check "renewal" to make the process flow easier. The new things this time around is that these individual will not have to attach a tax return to their Form W-7 to renew their ITIN.

You should probably modify your interview packets to include the questions that should ask taxpayers in order to show that they qualify for the head of household filing status. This by itself will not show due diligence but the fact that you are asking everyone the same questions will.

The same applies to the Child tax credit and the additional child tax credit. Back in 2016, Form 8867 was modified to include due diligence questions that take into account exercising due diligence for issuing the child tax credit and the additional child tax credit. At the same time, the same Form 8867 was modified to include due diligence questions that take into account due diligence for helping taxpayers claim the American Opportunity credit. Don't wait until the tax laws tell you that must exercise due diligence - Due diligence should be exercised with ever tax credit and deduction you help your clients take.

Paid preparers must meet four due diligence requirements on returns when considering EITC. The Preparer's toolkit on our EITC Central has information on the law and related regulations. Read more about your responsibilities and learn how to protect yourself from potential penalties in the Due Diligence section of the Tax Preparer Toolkit. It is focused and tiered with a goal of increasing the accuracy of EITC claims filed. Walk your clients through the EITC qualification requirements with this interactive tool and show them if they qualify or not.

If your client's claims about self-employment income seem inconsistent, incorrect or incomplete, you need to ask them more questions. Find out how to meet your due diligence requirements and help your self employed clients reconstruct their business records by taking EITC Schedule C and Record Reconstruction Training. More than 86 percent of professional preparers use tax return preparation software. IRS partnered with software companies to form the IRS/Software Developers Working Group. This group works to improve software and help preparers meet their due diligence requirements.

Complete and submit Form 8867 for all paper and electronic tax returns and for all other EITC claims for claims with qualifying children and also for claims with no qualifying children. Any person who is a tax return preparer with respect to any return or claim for refund who fails to comply with due diligence requirements imposed by the Secretary by regulations with respect to determining eligibility for, or the amount of, the allowable EITC credit. There is the diligence requirement to ask all the questions required on Form 8867 and to keep a copy of form and EITC calculation worksheets. You also must ask additional questions when the information your client gives you seems incorrect, inconsistent or incomplete. Remember, you must complete and submit the Form 8867 for all paper and electronic tax returns and for all other EITC claims regardless if with children or claims with no children.

The tax return preparer must keep a copy of the Form 8867 and the EIC calculation worksheet. You may feel that this is not you job but you must verify the identity of the person giving you the return information and keep a record of who provided the information and when information was provided. It is your duty to keep copies of any documents your client provided that you relied on to determine eligibility for the amount of the EITC.

To meet your earned income credit due diligence requirements, you must complete the form with information you get from your client. And, you must document, at the time of the interview, any Additional questions you asked and your client’s replies. I cannot iterate enough, complete all required parts! You must complete Parts I, IV and V for every client, and, either Part II or Part III as required. Always, submit the completed Form 8867 with each EITC electronic return you send or attach the completed Form 8867 to any EITC return or claim for refund you prepare and present to your client to send. Remind your client that Form 8867 must be send in order for their Earned Income Credit be processed correctly. If too many of your clients leave Form 8867 out, the IRS for sure will come knocking on your door.

You need to answer the questions covering EITC eligibility on the Form 8867 using information from your client. But, we don't recommend you ask your clients the questions listed on the form. Use words and terms your client knows and won't misunderstand. For example: Don't ask: What's your marital status? Ask: Are you single or married? Don't ask: Are you head of household? Find out if they qualify by asking all the right questions. Don't ask if they have a qualifying child or a dependent, find out who they lived with during the tax year and for how long. The manner in which you ask the interview questions will determine the accuracy of the responses. Also, you want to avoid any possibility of fraud, so gear your questions in such a way as to be clear of fraud.

If you give your client an EITC return or electronic version to sign and send in, you must attach the completed Form 8867 to it. Be sure to stress the importance of sending in all the forms to the IRS. Form 8867 is extremely important. Follow and make sure the questions are answered on it correctly. If you suspect any wrongdoing or anything wrong with the responses, ask more questions. Ultimately, you are given the responsibility of the accuracy of information that goes on this form. There are high penalties at stake for you and you must do everything is your power to avoid these due diligence penalties.

If the Form 8867 is not included with EITC returns you prepared, you may get a warning letter from the IRS during the filing season. You may also start getting alerts with your acknowledgements that Form 8867 is not being included. You can use all the help you can get, and the IRS is there to help you after all. Furthermore, if Form 8867 is not included with EITC returns you prepared, you may get letter 5364 which is sent to those who prepare paper EITC returns without a Form 8867. Receiving acknowledgement Alerts which are sent electronically to those preparers who e-file EITC returns without Form 8867, is a good thing. You may inadvertently be excluding this extremely important document from your filings and these notifications could be a blessing.

If you have been leaving this form out of your filings, you don't want to submit Form 8867 separately without a tax return because the IRS cannot associate a Form 8867 with a tax return that has already been processed. Therefore, doing so will have no effect on the tax preparer's penalty assessments. You should never send Form 8867 separately. If the IRS continues to receive EITC claims prepared by you missing the Form 8867, they will continue to send warning letters. The IRS can only take so much abuse and may start sending Letter 1125 with the Form 5816, assessing the EITC Due Diligence penalty of $520 for each missing form.

As a provider of e-file services, you must never advertise that individual tax returns may be electronically filed prior to receiving a Form W-2, W-2G and 1099R. You as a provider are generally prohibited from electronically filing tax returns without the proper Form W-2, W-2 or Form 1099-R. Your advertising must never state or even imply that you can use the taxpayer's check stubs or other documentation of earnings to e-file an individual income tax return.

Addresses on Forms W-2, W-2G or 1099-R; Schedule C or C-EZ; or on other tax forms supplied by the taxpayer that differ from the taxpayer’s current address must be input into the electronic record of the return. Providers must input addresses that differ from the taxpayer’s current address even if the addresses are old or if the taxpayer has moved. EROs should inform taxpayers that when the return is processed, the IRS uses the address on the first page of the return to update the taxpayer’s address of record. The IRS uses a taxpayer’s address of record for various notices that it is required to send to a taxpayer’s "last known address" under the Internal Revenue Code and for refunds of overpayments of tax (unless otherwise specifically directed by taxpayers, such as by Direct Deposit). Providers must never put their address in fields reserved for taxpayers' addresses in the electronic return record or on Form 8453, U.S. Individual Income Tax Transmittal for an IRS e-file Return. The only exceptions are if the Provider is the taxpayer or the power of attorney for the taxpayer for the tax return.

EROs should advise taxpayers that they can avoid refund delays by having all of their taxes and obligations paid, providing current and correct information to the ERO, ensuring that all bank account information is up-to-date, ensuring that their Social Security Administration records are current and carefully checking their tax return information before signing the return. EROs can do a number of things for clients and customers to avoid rejects and refund delays. First, they can insist on identification and documentation of social security and other identification numbers for all taxpayers and dependents. Second, EROs can exercise care in the entry of tax return data into tax return preparation software and carefully check the tax return information before signing the tax return. Third, don't submit returns claiming dubious items on tax returns or present altered or suspicious documents. Also, ask taxpayers if there were problems with last year's refund; if so, see if the conditions that caused the problems have been corrected or can be avoided this year. Lastly, keep track of client issues that result in refund delays and analyze for common problems; counsel taxpayers on ways to address these problems. One of the most common reasons a return rejects is due to a mismatch between the taxpayer's TIN and Name Control involves newly married taxpayers so make sure you ask if their social security number has changed due to marriage.

As a participant in the Annual Filing Season Program, you have limited representation rights and can only represent clients for whom you prepare and signed tax returns. This program is getting to be more and more like the enrolled agent program where you are now getting representation rights that were not available to you before. This program allows you to be in the searchable, public directory which includes your name, city, state, zip code along with the information of EAs, ERPAs, Enrolled actuaries. This a voluntary program but it behooves you to take the extra effort to be a part of it.

If you are in California, Oregon or Maryland, you are required to complete continuing tax education for your state in order to legally prepare tax returns in that state. The good news is, to be part of the Annual Filing Season Program and you comply with the tax preparer education requirements in these state, you are done and are automatically in the Annual Filing Season Program with the Internal Revenue Service. How cool is that? You don't have to do double the work, the education requirements are met for both your state and for the Internal Revenue Service.

So now you can represent taxpayers if you are an attorney, a CPA, an Enrolled Agent, an Enrolled Retirement plan Agent and if you are an enrolled IRS participant in the Annual Filing Season Program. This program is getting to be more and more like the enrolled agent program where you are now are able to represent taxpayers. This is something that was not available to you before.

To be part of the Annual Filing Season Program and you comply with the tax preparer education requirements in these states, you are done and are automatically in the Annual Filing Season Program with the Internal Revenue Service.

Let's face it, every little bit helps. You and your company can be part of a larger system - the Internal Revenue Service. The IRS does a lot of the promotion for you and all you have to do is complete a few short courses to be part of the program and as long as you complete these courses within the allotted timeframe, you are in. You can also advertise that you are part of the IRS registered tax preparer program and that you are listed in the Annual Filing Season Program and people can verify that you are indeed part of the IRS system listed along with enrolled agents, enrolled retirement plan agents, Certified public accountants and attorneys. This indeed gives you a competitive edge over your competitions. This program is voluntary so you know that not everyone is part of it, so you win.

Any practitioner who has principal authority and responsibility for overseeing a firm's practice of providing advice concerning federal tax issues must take reasonable steps to ensure that the firm has adequate procedures in effect for all members, associates, and employees. Any such practitioner will be subject to discipline for failing to comply with the requirements if the practitioner knows or should know that one or more individuals that don't comply with the code and the practitioner fails to take prompt action to correct the noncompliance.

Please remember to go into your PTIN account and sign the Circular 230 Consent statement in order to participate in the Annual Filing Season Program. The program is voluntary and therefore you must acknowledge that the you know that the program is voluntary and you must consent to the Circular 230 rules that you will abide by them. To abide the rules, you must know them. As a participant, one of the requirements is that you complete at least 18 hours of continuing tax education which includes the six hours of the federal tax law refresher course. In addition to this, you must also renew your PTIN and when you do, you will consent to adhere to the obligations in Circular 230 found in Subpart B and section 10.51. These are the obligations of owning a PTIN and being part of the Annual Filing Season Program (AFSP). This privilege comes with many perks. One of these is the listing of your information in the public database of tax return preparers on the IRS website which is also knows as The Directory of Federal Tax Return Preparers.

The practitioner has an obligation for the facts in the tax return. Many tax practitioners feel or erroneously believe that as long as they have a client sign swearing that they reviewed the information in the tax return and that it is true to the best of their knowledge, that they are off the hook. There could be an exchange of conversations in the realms of "I'll do it as you want as long as you sign here that this is the information you have given me". Guess again, you as the tax preparer must use reasonable effort to identify and ascertain the facts, which may relate to future events if a transaction is prospective, and to determine which facts are relevant. The practitioner must take information and use care that the information supplied is correct and true. Tax preparers who interview clients in a dishonest manner will eventually pay the price. Too many clients with the same issues can trigger a problematic preparer. Ultimately, the taxpayer will spill the beans and tell the auditor exactly how his or her preparers does business. Too many of these will eventually get the tax preparer restricted from preparing tax returns. That little statement the tax preparer has all his or her clients sign will do nothing to help him or her in this situation. Remember that you must sign that you abide the rules in your PTIN account and you must sign the Circular 230 Consent statement in order to participate in the Annual Filing Season Program. You must agree to abide the rules and you must know the rules.

As a participant in the Annual Filing Season Program, you have limited representation rights and can only represent clients for whom you prepare and signed tax returns. The IRS Annual Filing Season Program participants have limited representation rights that include initial audit  returns, customer service matters and before the Taxpayer advocate Service. The Annual Filing Season Program participant must be the preparer for both the year the tax return was prepared and for the year of representation. Therefore, if you prepared a tax return two years ago when you were part of the program and now you are not part of the AFSP program, you will be excluded from being able to represent your client. Therefore, you must be part of the AFSP program at every stage of the tax returns you prepare to be able to fully serve your clients.

You have limited representation rights and can only represent clients for whom you prepare and signed tax returns. The IRS Annual Filing Season Program participants have limited representation rights that include helping your clients only in their initial audit. You can help your client customer service matters. furthermore, you can help your client with matters with the Taxpayer advocate Service. The Annual Filing Season Program participant must be in the program at all times which involves the tax return of his or her client. You simply must be an AFSP tax preparer in  both the year the tax return was prepared and for the year of representation. This is key because you can only represent individuals for whom you prepare taxes for. If you are no longer part of the programs then you cannot represent anyone, not even your own clients. Being part of the program only allows to represent your own clients and that representation is limited. Consequently, you must be part of the AFSP program at every stage of the tax returns preparation task. This is no different that when a lawyer wants to represent a client or continue to represent a client in court - if the lawyer has lost his or her license to practice, he or she can no longer represent anyone.

The new Tax Cuts and Jobs Act tax reform will benefits self employed individuals more than employees. One of these is the office in the home benefit which is only available to self employed individuals and no longer to employees who want to have an office in the home or who want to work from home. Some people are simply not going to be happy with this. 

Now more than ever, it is important to keep better records. Whether you prepare your return yourself or retain a professional tax preparer, you must collect and organize your tax records. You cannot prepare your tax return unless you get your personal tax data in order. Good records will help you figure your income and deductions and will serve as a written record to present to the IRS in the even that you are audited.

Many changes have transpired over the years. If you notice that it is quite interesting that every year we undergo tax changes to account for inflation. It is a very interesting how Social Security benefits base amounts always remain at  $25,000 for singles or $32,000 for married filers which means that more and more of the Social Security benefits are taxable every year.

One thing is clear, the new tax law has placed education on the top of the list. We still have some of the education benefits such as for saving for college. Some of the most popular benefits for education like the credits and the student loan interest deduction remain unchanged. There was no change to the American opportunity credit. With the AOC you can get up to $2,500 per eligible student and up to $1,000 of this credit a refundable credit. The requirements are that you only take this credit for four years and only take it if you have not completed the first four years of postsecondary education (college) before the tax year. To eligible the student must be enrolled at least half-time for at least one academic period and must be trying to acquire a degree. Furthermore, this credit is generally claimed by the parents of undergraduate students.

Another example of this is that the Lifetime learning credit stays the same and the new tax reform has not affected it. You can get up to $2,000 for qualified education expenses paid for all eligible students include in the taxpayer's tax return. There is no limitation as to how many years you can take the Lifelong learning credit and your student does not have to be enrolled in a minimum number of hours to claim the credit. This credit is usually claimed by the graduate student him or herself. If you qualify for the lifelong learning credit and the AOC credits and since you cannot take both, you would usually choose the one that gives you the greater tax benefit which is usually the AOC.

Additionally, this is a year of planning and you have to plan even if you normally don't plan. If you are a self-employed  taxpayer, then you have to send in tax payments every so often which is usually every three months depending on how much money you are making. Many taxpayers start making estimated tax payments every three months and then the Internal Revenue Service may adjust their estimated tax schedule and require them to make payment every month, for example. Estimated tax payments are made by taxpayers who have income that isn't subject to withholding such as self-employment income. You have to plan and take into consideration all the new tax changes because all the tax changes, even the ones that look harmless, will affect every taxpayer. For starters, the Tax Cuts and Jobs Act (TCJA) has changed the way estimated tax is calculated. This mainly has to do with the new tax rates and tax brackets. Many other factors, credits, deductions and the lack of deductions change the how much a taxpayer has to send in in estimated tax payments. The taxpayer has to calculate their taxes based on the what he or she estimates his or her taxable income will be.

If we don't properly plan for the new ways, we may end up paying IRS penalties. We all have to keep an open eye, even regular employees who depend on their employers to be doing the correct thing. Your employer may not be withholding enough tax from your paycheck and you through no fault of your own may have to pay an underpayment penalty. We all know or should know that there is a penalty for not paying enough to cover our tax with the Internal Revenue Service. Furthermore, there is also the possibility that your employer may be deducting too much and this also may cause you an IRS 20% penalty for receiving an excessive claim for refund or credit on an original or on an amended tax return.

One of the big ticket items right now is identity theft. Identity theft occurs when someone uses your personal information, such as your name, Social Security number (SSN), or other identifying information, without your permission, to commit fraud or other crimes such as getting a job or filing a tax return to receive a refund. More than ever before, you must do you part to reduce your risk, protect your SSN, ensure your employer is protecting your SSN. You must always make your clients comfortable with your trust and always make sure your clients know that you safeguard their information and more importantly that they can trust you with their information.

Please prepare the questions below before clicking on submit review questions (to submit one by one):

1. One of these is the increase of the Child Tax Credit signed into law by President Trump. It is quite simple really. The new amount goes from $1,000 per child to

A. $5,000

B. $2,000

C. $500

D. None of the above.  

A. Itemized deductions, such as taxes, interest on home equity loans used for nonresidential purposes, medical expenses, and miscellaneous job and investment expenses.

B. Certain tax-exempt interest, accelerated depreciation, and incentive stock option benefits.

C. Both A and B above.

3. The new deduction for pass-through businesses was created by the Tax Cuts and Jobs Act (TCJA) and this deduction can allow you to take a deduction for up to 20% on income from your sole proprietorship, partnership and other business such as S corporations that are pass-through businesses. The amount of the deduction that you can take will vary depending on

A. The nature of the business activity and the total income of the owner.

B. The total payroll amount paid to employees.

C. How much property the business owns.

D. All of the above.

4. The kiddie tax will most likely apply until the year the child reaches age 24. The following is a requirement for the kiddie tax.

A. The child must file a tax return for the tax year.

B. The child's net unearned income for the hear exceeds $2,100 income threshold for 2018.

C. Only the income that is below $2,100 will be liable for the kiddie tax.

D. The child may be liable for the kiddie tax only if the child is over 17 years or older.

5. The new Tax Cuts and Jobs Act also brought change to Section 529 plans. This change actually expands the benefits of 529 savings plans. Furthermore,

A. It allows 529 plans now to be used for kinder garden through 12th grade tuition.

B. 529 plans are tax-advantage investment accounts which were originally designed to help families pay for a college education for their child.

C. The new tax law, allows parents to use these same benefits to pay for their child's education which means that the parent would be able to send their children to private grade schools and high schools.

D. All of the above.

6. There has been a major change to the NOL carryforward and carryback rules and a new limitation on NOL utilization has been added. The following is this change.

A. Now there are amendments in section 172 that allow any carryback of NOLs.

B. In the new tax reform, NOLs are allowed to carry a NOL back to two years and a carryforward for twenty years.

C. The NOL is allowed to fully offset taxable income of the taxpayer to carryback to as many years as you like.

D. The new Tax Cuts and Jobs Act (TCJA) reform amendments allow indefinite carryfowards of these NOLs.

10. The results compared to previous results give us information about our economy – inflation or deflation. This tells us if the economy is good or if it is not doing so well. By inflation we mean

A. Rising prices.

B. Falling prices.

C. CPI index.

D. Chained CPI.

11. Practically everything you received for your work or services is taxable. Additionally,

A. There are a few exceptions and these exceptions are usually specific treatments of income in the tax code.

B. Everything that you received in exchange for work, be it cash, property, or services in exchange are taxed as if paid in cash.

C. Your employer will generally report your taxable compensation on Form W-2 and other information returns, such as Form 1099-R for certain retirement payments.

D. All of the above.

12.  There are penalties for not filing a required FBAR. Regardless of whether you must file a FBAR, you may have to

A. File Form 8938 to disclose your ownership of specified foreign financial assets.

B. Pay a penalty for failure to file a required Form 8938.

C. Both A or B above.

D. Postpone the filing your tax return if you have an interest in foreign accounts.

13. On Schedule B Part III is where you report a financial interest or signature authority over a financial account located in a foreign country. A financial account includes

A. A commodity futures or options account.

B. Shares in a mutual fund or similar pooled fund.

C. An insurance policy with a cash value.

D. Any of the above.

14. You can try to figure out what to do about making sure the IRS does not treat your business as a hobby and this includes diligently running your business as a business and not as a hobby. Another thing to look into is the IRS safe-harbor rules. These rules state that

A. An if an activity makes money (has a positive taxable income) for at least three out of every five years it can be presumed to be a for-profit endeavor.

B. If a horse racings, breeding, training, or showing activity has a positive taxable income in two out of every seven years, it is presumed to be a profit business.

C. Both A and B above.

D. You must conduct the activity in a business-like manner by keeping good records.

15. What are the types of calculation methods for claiming office in the home?

A. The standard method.

B. The simplified method.

C. Either A or B above.

D. The accrual method.

16. To reduce your risk of identity theft,  you need to

A. Protect your SSN.

B. Ensure your employer is protecting your SSN.

C. Be careful when choosing a tax preparer.

D. All of the above.

17. You should probably modify your interview packets to include the questions that should ask taxpayers in order to show that they qualify for the head of household filing status. This by itself

A.  Will not show due diligence but the fact that you are asking everyone the same questions will.

B.  Will show due diligence.

C.  Will enough for the IRS to show due diligence.

D. Will cause the IRS to fine preparers with high penalties.

18. Anytime an ERO enters the taxpayer's PIN on the electronic return, the ERO must, prior to submission of the return, complete an IRS e-file Signature Authorization form which

A. Must be signed by the taxpayer.

B. Must be kept in the preparer’s files in case the IRS requests it.

C. Both A and B above.

D. Must be faxed to the Internal Revenue Service.

References:

Back to Tax School Homepage