Month: February 2018

Recent tax reform legislation affected many provisions in the tax code. Many were modified, either permanently or temporarily, while some were repealed entirely. Here are five that survived.

1. Mortgage Interest Deduction

While the House bill repealed the mortgage interest deduction, the final version of the act retained it, albeit with modifications. First is that the allowed interest deduction is limited to mortgage principal of $750,000 on new homes (i.e., new ownership). For prior tax years, the limit on acquisition indebtedness was $1 million. Existing mortgages are grandfathered in, however, and taxpayers who enter into binding contracts before December 15, 2017, to close on the purchase of a principal residence before January 1, 2018, and who purchase such residence before April 1, 2018, are able to use the prior limit of $1 million.

2. Personal Taxes: State and Local Income Tax, Sales Tax and Property Tax

In prior years, taxpayers who itemize were allowed to deduct the amount they pay in state and local taxes (SALT) from their federal tax returns. Slated for repeal (with the sole exception of exception of a state and local property tax deduction capped at $10,000) under both the House and Senate versions of the tax bill, SALT remained in the final tax reform bill in modified form. As such, for taxable years 2018 through 2025, the aggregate deduction for property taxes, state, local, and foreign income taxes, or sales taxes is limited to $10,000 a year ($5,000 married filing separately).

3. Educator Expense Deduction

Primary and secondary school teachers buying school supplies out-of-pocket are still able to take an above-the-line deduction of up to $250 for unreimbursed expenses. Expenses incurred for professional development are also eligible. This deduction was made permanent with the passage of PATH Act of 2015 and survived tax reform legislation that passed in 2017 as well.

4. Plug-In Electric Drive Vehicle Tax Credit

Also slated for elimination in the House bill (but retained in the final tax reform bill) was the tax credit for the purchase of qualified plug-in electric drive motor vehicles including passenger vehicles and light trucks. For vehicles acquired after December 31, 2009, the minimum credit is $2,500. The maximum credit allowed is limited to $7,500. The credit begins to phase out for a manufacturer’s vehicles when at least 200,000 qualifying vehicles have been sold for use in the United States (determined on a cumulative basis for sales after December 31, 2009).

5. Medical Expense Threshold Amounts

The House version proposed a repeal of the itemized deduction related to medical expenses but it was retained (and temporarily lowered) in the final tax reform legislation. For tax years 2017 and 2018, the threshold amount for medical expense deductions is reduced to 7.5 percent of AGI. Under the PATH Act of 2015, the medical expense deduction increased to 10% of AGI (effective for tax years 2013 to 2016).

Don’t miss out!

If you’re wondering whether you should be taking advantage of these and other tax credits and deductions, don’t hesitate to call.

• By Leon Clinton
• February 15, 2018

U.S. citizens and resident aliens use one of three different forms for filing individual federal income tax returns: 1040EZ, 1040A, or 1040. If you’re wondering which form you should use, keep reading.

Form 1040EZ

Form 1040EZ, Income Tax Return for Single and Joint Filers With No Dependents, is the least complicated federal tax form. however, if you file Form 1040EZ, you should be aware that you can’t itemize deductions or claim any adjustments to income or tax credits other than the earned income credit. Use Form 1040EZ if:

• Your filing status is single or married filing jointly, you claim no dependents, and were under age 65 on January 1, 2018, and not blind at the end of 2017
• Your taxable income is less than $100,000 and is derived only from wages, salaries, tips, taxable scholarship and fellowship grants, unemployment compensation, or Alaska Permanent Fund dividends
• Your taxable interest is not over $1,500
• You don’t owe any household employment taxes on wages you paid to a household employee

Note: You can’t use Form 1040EZ to claim the Premium Tax Credit. You also can’t use this form if you received advance payments of this credit in 2017.

Form 1040A

If you cannot use Form 1040EZ, you may be able to use Form 1040A, U.S. Individual Income Tax Return. Keep in mind, however, that you cannot itemize and you can only claim certain tax deductions such as the IRA deduction, the student loan interest deduction, and the educator expenses deduction. You can also use Form 1040A if:

• Your taxable income is below $100,000 and that income is derived only from the following:
  • wages, salaries, tips,
  • Interest or ordinary dividends,
  • capital gain distributions,
  • taxable scholarships and fellowship grants,
  • pensions, annuities, IRAs,
  • unemployment compensation,
  • Alaska Permanent Fund dividends, and
  • taxable social security or railroad retirement benefits
• The only tax credits you can claim are:
  • the credit for child and dependent care expenses,
  • the credit for the elderly or the disabled,
  • education credits,
  • the retirement savings contributions credit,
  • the child tax credit,
  • the additional child tax credit,
  • the earned income credit, and/or the premium tax credit
• You do not have an alternative minimum tax adjustment on stock you acquired from the exercise of an incentive stock option.
• You have distributions from capital gains

Form 1040

You must use Form 1040, U.S. Individual Income Tax Return, if:

• Your taxable income is $100,000 or more.
• You have certain types of income, such as:
  • business or farm self-employment income;
  • unreported tips;
  • dividends on insurance policies that exceed the total of all net premiums you paid for the contract;
  • income received as a partner, a shareholder in an S corporation, or
  • a beneficiary of an estate or trust
• You itemize deductions or claim certain tax credits or adjustments to income.
• You report self-employment income.
• You report income from sale of a property.
• You owe household employment taxes.

Nonresident Aliens

Nonresident aliens married to a U.S. citizen or resident alien may use any one of these three forms, based on your circumstances, but only if you elect to be treated as a resident alien when you file a joint return with your spouse. Nonresident aliens may have to file Form 1040NR-EZ or Form 1040NR.

Questions about federal tax forms?

Call or make an appointment today and get the answers you need right now.

• By Leon Clinton
• February 13, 2018

If you donated a car to a qualified charitable organization in 2017 and intend to claim a deduction, you should be aware of the special rules that apply to vehicle donations.

Note: You can deduct contributions to a charity only if you itemize deductions using Schedule A of Form 1040.

Charities typically sell donated vehicles. If the vehicle is sold by the charitable organization you donated it to, the deduction claimed by the donor (you) and usually may not exceed the gross proceeds from the sale.

If the donated vehicle sells for less than $500, you can claim the fair market value of your vehicle up to $500 or the amount it is sold for if less than fair market value.

The taxpayer can generally deduct the vehicle’s Fair Market Value (FMV), if:

• The charitable organization makes a significant intervening use of the vehicle, such as using it to deliver meals on wheels.
• The charitable organization donates or sells the vehicle to a needy individual at a significantly below-market price, if the transfer furthers the charitable purpose of helping a poor person in need of a means of transportation.
• The charitable organization makes a material improvement to the vehicle, i.e., major repairs that significantly increase its value and not mere painting or cleaning.

If the donated vehicle sells for more than $500 and your deduction is $500 or more you must obtain written, contemporaneous (timely), acknowledgment of the donation from the charitable organization. You must also attach Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, to your tax return.

The written acknowledgment generally must include your name and taxpayer identification number, the vehicle identification number, the date of the contribution, and one of the following:

• a statement that no goods or services were provided by the charity in return for the donation, if that was the case,
• a description and good faith estimate of the value of goods or services, if any, that the charity provided in return for the donation, or,
• a statement that goods or services provided by the charity consisted entirely of intangible religious benefits, if that was the case.

Note: If the written acknowledgment does not contain all of the required information, the deduction may not exceed $500.

For more information about donating a car to charity please contact the office.

• By Leon Clinton
• February 10, 2018