Katy Estrada, CPA

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2018 Newsletter ~ Written by Katy Estrada, CPA (updated 01/10/2019)

Let me first introduce you to Tanya Guilliam. This will be her second tax season with me as she started in February last year. She’s dependable and always willing to learn new things. I’m looking forward to a smooth and efficient tax season.

Tax Organizer Checklist

The IRS isn’t clear exactly when tax season will officially start due to the government shutdown. Tentatively, it is January 28th. The 2019 tax season for the year 2018 will be the most interesting since I’ve started 20 years ago. The 1040 tax form is completely different. It is a shortened version with schedules attached depending on your circumstances. Even though the tax reform bill brought some big changes, it made a lot of things simpler. But the tax code is still complicated!

Below is a list of items I think pertain to most taxpayers. Click the post it to download my customized checklist/organizer to help you gather your documents when the time comes to prepare your 2018 tax returns. I recommend filling out this checklist and returning it to me with your documents. I do not need original documents. Feel free to scan and email, text or fax if this is more convenient for you. Google Drive is a free service for online document retention that you can share with me. Another program I use is DropBox. Email me for more information or links.

Tax Payer

Get Organized

As your tax documents roll in, make a tax pile or start a large envelope labeled 2018 TAXES.

Drivers Licenses Required to File in Most States

Please provide your Driver’s license number, issue date and expiration date. You will not receive a refund without “Provide Proof of Identity”. The state says they are reducing identity theft. I, personally, believe they are only delaying refunds of taxpayers.

To Itemize or Not, That Is the Question: Difference in the Standard Deduction

The standard deduction is an automatic reduction in what you owe in taxes. When you pay taxes, you have the option of taking the standard deduction or itemizing your deductions. If you itemize, you calculate your deductions one by one. Itemizing is more of a hassle, but it’s worth it if your itemized deductions exceed the amount of the standard deduction. Itemizing will not be worthwhile for millions of households. Itemized deductions include medical expenses, SALT (state and local taxes), mortgage interest and charitable donations.

Here’s a quick look at a comparison of the standard deduction last year to this year:

Changes to the Standard Deduction

Filing Status 2017 Standard Deduction 2018 Standard Deduction
Single $6,350 $12,000
Married Filing Jointly $12,700 $24,000
Married Filing Separately $6,350 $12,000
Head of Household $9,350 $18,000

Although this increase in the Standard Deduction is great, the tax reform bill removed the personal exemptions. That is the amount a taxpayer used to be able to deduct from their taxable income for themselves and any dependents claimed on their tax return.

Itemized Deductions That Are Disappearing

There are a few other deductions that didn’t make it past the chopping block in the new tax reform bill, like: Unreimbursed employee expenses, Tax preparation expenses Alimony payments, Moving expenses, Employer-subsidized parking and transportation reimbursement.

2018 Mileage Rates

54.5¢ per mile for business miles driven, 18¢ per mile driven for medical or moving purposes and 14¢ per mile driven in service of charitable organizations.

Note: you can deduct your mileage calculation OR your actual expenses, not both. Once you choose a deduction method, you must use that method for the life of that vehicle. Also, if you itemize personal deductions, please provide me with the miles you drove to donate to charity, volunteer, go to doctor visits or pick up prescriptions. This could add up to a great deduction.

2019 Mileage Rates

58¢ per mile for business miles driven, 20¢ per mile driven for medical purposes and 14¢ per mile driven in service of charitable organizations.

Retirement Contributions

Traditional and ROTH IRA contributions are the lesser of $5,500 or 100% of earned income. The annual ‘catch-up´ contributions if you are age 50 and over remain at an additional $1,000. IRA’s must be funded before April 15th. Business owners can contribute to a SEP (Self-employed Plan) which is an IRA with contribution limits of 25% of the owner’s salary or up to $54,000, whichever is smaller. You may set up and fund a SEP as late as your tax-return filing date, including extensions.

Energy Tax Credit

Most ended in 2016. The only credit available to non-business taxpayers is the 30% solar energy system which is becoming more and more common.

Amerian Opportunity Credit

Currently extended through 2018 and beyond, it is a tax credit of up to $2,500 of the cost of tuition, fees and course materials paid during the taxable year for you or your dependent. Also, 40% of the credit (up to $1,000) is refundable. This means you can get it even if you owe no tax. If you have higher than $80,000 of Adjusted Gross Income ($160,000 for joint filers), the credit is reduced. If your AGI is greater than $90,000 ($180,000 for joint filers) you cannot claim the credit.

Child Tax Credit Changes with Tax Reform

The Child Tax Credit is worth up to $2,000 per qualifying child. The age cut-off remains at 17 (the child must be under 17 at the end of the year for taxpayers to claim the credit). The beginning credit phaseout for the child tax credit increases in 2018 to $200,000 ($400,000 for joint filers). If your children are 17 or older or you take care of elderly relatives, you can claim a nonrefundable $500 credit, subject to the same income thresholds. The phaseout also applies to the new $500 credit for other dependents.

Brenda's Flowers

Health Insurance

Beginning in 2014 and forward, you have to reconcile your health care coverage and credits on your tax return. For most taxpayers, I will simply check a box to indicate that each member of your family had qualifying health coverage for the whole year through your employer.

If you obtained a coverage exemption from the Marketplace or you qualify for an exemption that you can claim on your return, please provide me with the tax form 1095A provided to you at year end.

No health insurance or went more than three months without health insurance, the penalty is the greater of 2.5% of your income above the filing limit, with a maximum for families of $2,085. This is in effect until the end of 2019.

Employer Providing Health Insurance

A small business does not have to provide health insurance for its employees if you have fewer than 50 employees. This is a common issue for small business. If you are an Scorporation, and paying your health insurance premiums and adding them to your W2, there are special rules under the Affordable Health Care act if you are using the Health care exchange and any subsidies.

Note: Have you considered creating an HSA for you or your employees? A Health Savings Account allows a business to reimburse the owner and/or employees for medical expenses. This creates a 100% business deduction instead of the personal itemized deduction which is often not met.

Pass-Through Deduction

Under the new law, taxpayers with pass-through businesses like these will be able to deduct 20% of their pass-through income. In other words, if you own a small business and it generates $100,000 in profit in 2018, you'll be able to deduct $20,000 of it before the ordinary income tax rates are applied.

There are phaseout income limits that apply to "professional services" business owners such as lawyers, doctors, and consultants, which are set at $157,500 for single filers and $315,000 for pass-through business owners who file a joint return.

IRS Correspondence

The IRS "does not initiate contact with taxpayers by e-mail to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels." I have seen an increase in Spam in recent years. Do not open such emails and block the sender for safety. Also keep in mind they will not call. You will only receive letters via United States Postal services to the address last filed on your return.

Note: Congress has enacted new legislation that more than doubles most penalties for late or incorrect information returns. This includes the Form W-2s and Form 1099s that a business must provide to any contractor it pays at least $600 for services. These returns are due to recipients by January 31, 2019 and the IRS soon after.

Visit Tax Scams – How to Report Them for more information.

In order to guarantee your return is filed on time, PLEASE HAVE YOUR TAX DOCUMENTS TO ME BY MARCH 31, 2019. If your documents are received after this date, I will file an extension on your behalf. I will also help estimate if you owe and we can file an estimated tax due to avoid late payment penalties as taxes are due on the 18th, whether you file your return or not.

Thank you again for selecting me as your Certified Public Accountant. It is my privilege to provide you with professional services. I wish each of you a healthy and prosperous new year.

Yours Truly,

Katy Estrada, CPA

Katy Estrada, CPA

Download your Tax Organizer Checklist here.

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Content copyright © 2010-2019 Katy Estrada, CPA - katy@katyestradacpa.com
*excerpt from http://www.feedthepig.org

Pursuant to requirements for practicing before the Internal Revenue Service, any tax advice contained in this communication is not intended to be used, and cannot be used, for purposes of (a) avoiding penalties imposed under the United States Internal Revenue Code or (b) promoting, marketing or recommending to another person for any tax-related matter. Each taxpayer has unique facts and circumstances in relation to the applicability of the above laws. You are strongly advised to consult with a tax professional to determine the applicability of the law to your circumstances.

Katy Estrada, CPA is certified by the New Mexico Public Accountancy Board by meeting all qualification requirements, a member of the
New Mexico Society of Certified Public Accountants, a licensed tax preparer before the Internal Revenue Service and an Authorized IRS e-file Provider.

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