Credit to Accounting Today, at their slideshow: Tax Reforms and 2019 Returns, where you can find more detail. If you need further information, please talk to your friendly accounting professional. The purpose of this post is to get you started and to provide a quick resource for 2018 planning.
|1. Individual Rates||7 new brackets – 10% to 37%|
|2. Standard Deduction||$24K MFJ – $18K HOH – $12K S|
|3. SALT – State & Local Taxes||Capped at $10K deduction|
|4. Alimony||NON-deductible to payer/tax-free to the recipient (N/A in Indiana)|
|5. Moving Expenses||ENDED – except for active-duty military|
|6. Individual AMT||$109,400 MFJ – $70,300 S – $54,700 MFS – PO/$1M|
|7. Child Tax Credit||$2,000 each qualifying child|
|8. Kiddie Tax||Taxed at Trust and Estate rates|
|9. Affordable Care Act||Mandate repealed effective 2019|
|10. Roth Conversions||Prohibited if previously from Roth|
|11. Pass-Through Income||Section 199A – OWNER can deduct 20% (restrictions apply)|
|12. Itemized Deduction PO||ENDED|
|13. Medical Expenses||Floor lowered to 7.5% (from 10%)|
|14. Charitable Contributions||Max at 60% of AGI – acknowledgements required|
|15. COLA (Cost of Living Adjust)||Reduced – converting indexing to CPI indexing|
|16. Like-Kind Exchanges||Real Estate ONLY|
|17. Employee Awards||LIMITED tax free|
|18. Student Loans||Discharges excluded from income @ death or disability|
|19. Mortgage Interest Deduction||MAX $750K – Acquisition financing + improvements only|
|20. Theft & Casualty Losses||Eliminated, except for Presidential disaster areas|
|21. Misc. Sched A Deductions||ENDED|
|22. Gambling Losses||Limited to extent of winnings|
|23. Self-created Works||Removed from definition of Capital Assets|
Key to abbreviations: PO = Phase-out, MFJ = Married filing jointly, MFS = Married filing separately, S = Single
NOTE – Most tax law changes are set to expire in 2025. As usual, Congress can or extend these provisions at any time.
It’s tax time, and whether you prepare your own taxes or have a professional prepare the taxes for you, don’t overlook deductions and avoid these common mistakes which will cause a delay in your refund or generate a letter from the IRS:
- Watch for Data-Entry or Math Errors. Proofread essential information including W2 and 1099 information. It’s very easy to transpose numbers.
- Avoid Misspelled or changed names. Don’t forget to spell your children’s names correctly – the IRS matches names with SS# in their database, and they don’t recognize nicknames or misspellings.
- Confirm SS#s. Make sure that the SS#s for everyone on your return is correct. See “Data Entry Errors,” above. This is another common error.
- Verify Direct Deposit Information. If you are expecting a refund, double-check your bank account and routing information. If you use a professional preparer, provide your preparer with a check image.
- Note Changes in filing status. If you are divorced and have alternating custody, if you get married, have children or your children leave the nest, make sure you catch that change on your tax return.
- Verify deductions. Schedule A deductions include mortgage interest (match that 1099), charitable deductions (check the donor acknowledgment letters) and medical expenses (keep your receipts from doctor visits and prescriptions).
- Verify your Health Insurance Status. Be sure you run the calculations to prove that you had health insurance coverage for the previous year and that your adjusted gross income matches your health insurance for the Affordable Care Act.
- Look for Credits. Child Care Credit, Education Credits, IRA contribution credits, Child and dependent care expenses and other credits may be available – don’t miss out on this opportunity to reduct your taxes.
- Sign and date the return – or make sure that the e-file requirements have been met.
- File early – file timely. The earlier you file your return, the sooner you will receive your refund. More importantly, don’t miss this year’s April 18 due date! [Trivia – April 15 falls on a weekend, Monday, Apri 17 is Emancipation Day for Washington DC, which means that the Tax Due Date is April 18]
My farm clients have started calling for tax appointments, even though they don’t have all their financial information collected.
As you gather information for your tax preparer, keep these tips in mind:
1. Separate your major farm activities into separate businesses (Enterprises). If you have multiple farm entities, each should have its own bank account and cash flow statement. If you have multiple activities under one entity, keep separate records so you can track profitability. Livestock enterprises should be a different cash flow statement from grain, for example.
2. Use accounting software to keep your farm financial records organized. Very few people (these days) are careful and detail-oriented enough to keep accurate paper ledger records. If you use a computer for anything, use a computer to keep track of your financial records. Your lender will thank you and your tax preparer will thank you.
3. Keep farm and personal income and expenses separate. Even if you think you can deduct some personal expenses as farm expenses, keep separate records and ask your tax preparer what is deductible.
4. If you own farm ground for rent, or if you rent farm ground to farm, keep seperate records of each “farm” and “tenant” (or landlord). This will both help you track profitability for each farm and allow your tax preparer to record rental information correctly on the tax return.
5. Consider a “pre-tax” meeting (or phone call) with your tax preparer before the end of the year. Check to see whether there are any changes in tax law that will affect your bottom line. Some of my clients ask for a “dry run” tax return before the end of the year to check that they are on track with cash flow as the year draws to a close.
Bonus Tip: Ask questions throughout the year. As you think of questions, or as you consider a major purchase or payoff of debt, call your tax preparer to see what she might suggest. After the fact is too late for spending money if you don’t need to (or missing an opportunity for a timely deduction). Your tax preparer can keep notes about the conversation and make sure that it gets into the conversation at tax time.
If you don’t use these methods for organizing your financial records, now is the time to start. Your tax preparer can help you get set up to be more organized for 2017. It will save you both time and money. If it takes me a long time to organize your records when I prepare your taxes, I charge you for it. My organized clients have a much lower tax prep bill.
Christmas and the holidays are the most festive and romantic time of year. 43% of engagements happen between November and January, with the top proposal dates as Christmas Eve, Christmas Day, New Year’s Eve, and Valentine’s Day. (These believable but unsourced statistics were found on Wedding Wire and Elite Daily).
For farm families, the addition of a “non-blood” member of the family causes mixed feelings. Of course, you want to be happy that your loved one found a loved one, but because of the high divorce rate (3.2 divorces per 1,000 people in the US, according to the CDC) this new member of the family is also a new and scary risk to the farm operation.
Prenuptial Agreements (Prenups) are a good idea for any marriage, but are especially important for farm families. If you read the farm planning material I post on this website, you know that my mantra is “discussion, discussion, discussion” when it comes to farm planning. Full disclosure applies to the incoming spouse, too. While you might not want the newest “outlaw” in the family to know the finer details of your business, you also don’t want him (or her) to learn of the extent of your farm operation during the middle of divorce, when compassion and understanding is not usually part of the process.
Prenups offer an “eyes wide open” approach to asset management in a marriage. Where a farm kid may own or inherit substantial farm assets, what happens to those assets in the event of a divorce can discussed and agreed before the marriage occurs. In Indiana, once you are married, it is considered to be against public policy to make those decisions after the rings are exchanged.
Attorney Polly Dobbs, my colleague in Peru, Indiana, and frequent contributor to Farm Journal, has a terrific no-nonsense approach to prenups and farmers.
Do Farm Kids Need a Prenup?
Infographic from Signix, a provider of e-signature services, about the basics of e-signatures as pertains to IRS tax returns. Yes, this infographic is partially advertising for their services, but it’s interesting, and coming soon to your tax return process.