Changes to Itemized Deductions, Schedule A
Medical and Dental expenses. The haircut for medical expenses is 7.5% of AGI. The 2018 medical mileage rate is 18¢ per mile.
Taxes You Paid. On the 2018 form, Line 5 is a through e. These other lines are for state and local real and personal property taxes and for limiting all state and local income, sales and property taxes to $10,000. There is a line 6 for other taxes. The IRS instructions for this line are : a.) Do not include any taxes paid to a US Possession on this line, include them above on the state and local tax line. b.) Do not include federal estate tax on IRD. Use line 16 for estate tax on IRD. c.) Foreign taxes paid on real estate are not deductible.
Interest You Paid. There is a new checkbox to Line 8, and it should be used if the taxpayer didn’t use all of the home mortgage proceeds from those loans to buy, build, or substantially improve their home. The Mortgage interest deduction is limited as follows: a) Mortgage interest is deducted only on the first $750,000 ($375,000 if married filing separately) of indebtedness on idebtedness incurred after Dec 15, 2017. The old higher limits ($1,000,000) apply for taxpayers that are deducting mortgage interest from indebtedness incurred on or before Dec. 15, 2017. b) No matter when the indebtedness was incurred, taxpayers can only deduct the interest from a loan secured by their home to the extent the loan proceeds were used to buy, build, or improve their home. The other interest is non-deductible. PreThe deduction for premiums for mortgage insurance paid to buy a residence is currently gone. Investment interest deduction remains intact.
Gifts to Charity. The limit for the total amount of deductible charitable contributions, in most cases, is now limited to 60% of the taxpayer’s contribution base, instead of the 50% limit that applied in prior years. Charitable contributions of money for relief efforts in the 2017 California Wildfire area, that were made during the period beginning on Oct. 8, 2017, and ending on Dec. 31, 2018, are not subject to the 60%, 30% or 20% of AGI limitations that otherwise apply to charitable contributions. The charitable mileage rate is 14¢ per mile.
Casualty or theft losses. Only caualty and theft losses that are a result of a federally declared disaster area are deductible. Personal casualty or theft loss are not deductible. Net qualified disaster losses are entered on line 16, in the section Other Itemized Deductions.
Other Itemized Deductions. The federally declared disaster that occurred in 2016, as well as those sustained from Hurricane Harvey or Tropical Storm Harvey, Hurricane Irma, Hurricane Maria, or the California wildfires are qualified losses. Net qualified disaster losses are the net of qualified disaster losses and gains from qualified disasters. Form 4864 must be used and there is guidance for use of that form for Net Qualified Disaster Losses. “‘Job Expenses and Certain Miscellaneous deductions’’ has been eliminated. Other Itemized deductions are no longer limited based to 2% of AGI.
Changes to Schedule B, Interest and Ordinary Dividends
Interest earned on Series EE US Savings Bonds, issued before 1989 is now taxable and if you are lucky enough to have pre-1989 EE bonds, you need to add the income to line 1 and list it there. The exclusion of interest used for education is limited based on your modified AGI. The rest of the form appears to be intact.
Changes to form 1040, Schedule C
The standard mileage rate is 54.5¢ per mile.
Small business taxpayers (taxpayer that has average annual gross receipts of $25 million or less for the three prior tax years and is not a registered tax shelter) can use the cash method of accounting.
Net interest expense is limited to 30% of the business’s adjusted taxable income and must file Form 8990 to deduct any interest expenses, unless you are defined as a small business (see above)
New instructions for Form 4562 used to take depreciation or expensing
The title for line 24 was “Travel, Meals, and Entertainment” with line 24a for Travel and 24b for ‘‘Deductible meals and entertainment.’’ The word “Entertainment” has been removed since those expenses are no longer deductible. Meals are still deductible as long as they are not entertainment expenses.
Line for Wages, #26–The empowerment zone employment credit and the Indian employment credit have expired.
The deduction for costs of certain qualified film, television and live theatrical productions is currently scheduled to terminate with respect to productions that began after Dec. 31, 2017. It may be reinstated, who knows. This was formerly claimed on Other Deductions line.
If you report a loss on Line 31, you may be subject to a new business loss limitation. You must use new Form 461 to determine the amount of your excess business loss, which will be included as income on Schedule 1 (Form 1040), Line 21. Any disallowed loss resulting from this limitation will be treated as a net operating loss that may be carried forward and deducted in a subsequent year. No more carrybacks of NOL.
Changes to form 4562, Depreciation and Expensing
For tax years beginning after 12/31/2017, the maximum sec 179 expensing is $1 million. Be cautious. If you place more than $2.5 million worth of 179 qualifying equipment in service during the year, the $1 million expensing allowance is reduced by the amount over $2.5 million.
The new tax law, TCJA, provides that 100% bonus depreciation applies to depreciable property bought and placed in service during 2018. I also allows bonus depreciation for used property and includes some film, TV, and live theatre productions released during 2018.
Fist year luxury auto limit for vehicles placed in service in 2018 is $18,000 for autos and light trucks and vans.
401(k) contribution limit increases to $19,000 for 2019; IRA limit increases to $6,000
WASHINGTON — The Internal Revenue Service issued Notice 2018-83 today and announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2019.
Highlights of Changes for 2019
The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $18,500 to $19,000.
The limit on annual contributions to an IRA, which last increased in 2013, is increased from $5,500 to $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.
The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs and to claim the saver’s credit all increased for 2019.
Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or their spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor their spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.) Here are the phase-out ranges for 2019:
- For single taxpayers covered by a workplace retirement plan, the phase-out range is $64,000 to $74,000, up from $63,000 to $73,000.
- For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $103,000 to $123,000, up from $101,000 to $121,000.
- For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $193,000 and $203,000, up from $189,000 and $199,000.
- For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
The income phase-out range for taxpayers making contributions to a Roth IRA is $122,000 to $137,000 for singles and heads of household, up from $120,000 to $135,000. For married couples filing jointly, the income phase-out range is $193,000 to $203,000, up from $189,000 to $199,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $64,000 for married couples filing jointly, up from $63,000; $48,000 for heads of household, up from $47,250; and $32,000 for singles and married individuals filing separately, up from $31,500.
10/2/2018 Washington Alert
… IRS has alerted taxpayers to keep in mind that, with the Oct. 15 tax-filing extension deadline coming soon, criminals are likely to “continue using devious tactics” to acquire personal information and steal money. () “The agency warns that scammers continue to pose as the IRS, making threatening phone calls and using email phishing schemes to lure taxpayers,” IRS said. The agency also warned about scammers posing as charitable organizations, a tactic which tends to peak during hurricane season or following a natural disaster. In addition, the alert explained how telephone scams, phishing emails and false charity donation requests work and provided information regarding how taxpayers should respond.
… The takeaway from a Sept. 26 congressional hearing on IRS’s taxpayer online authentication efforts was a mixed bag—while the agency has made notable progress in dealing with verifying authentication there remains a long road ahead in successfully dealing with the issue. “Recent statistics show a continuing and substantial decline in several indicators of tax-related identity theft,” Edward Killen, IRS chief privacy officer, and Silvana Gina Garza, IRS chief information officer, told the House Ways and Means Oversight Subcommittee. “From 2015 to 2017, the number of taxpayers reporting to the IRS that they were victims of identity theft dropped by 65 percent, and the number of tax returns with confirmed identity theft fell by 57 percent with more than $20 billion in taxpayer refunds being protected,” they testified.