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End of Year Tax 2018 Tax Tips Before December 31, 2018…

Taxpayers and Business Owners can take some steps today to maximize their tax benefits and minimize their taxable income:

  1. Year End Bonus: Earnings are taxable in the year received; therefore, if taxable income in the 2018 year will be abnormally high, it could prove beneficial for a business owner to defer a year-end bonus as part of 2019 income. With proper tax planning for 2019, the client may be in a lower tax bracket then 2018, resulting in lower taxes paid on income and bonuses.
  2. Maximize Gift Deductions: Making charitable or gift donations can reduce taxable income if made by December 31, 2018. For 2018, each taxpayer has an annual gift exclusion of $15,000 per donee. Gifts can also include stock in a business and does not deduct against the estate lifetime exclusion of $11.2 million. The taxpayer should keep receipts to back up any gift or charitable contribution.
  3. Maximize contribution to retirement accounts: Retirement accounts offer tax deferred investments. Maximizing the contribution can lower a client’s taxable income and can be made until April 15, 2019.
  4. Use flexible spending accounts: Flexible spending dollars avoid both income and Social Security taxes. Most plans have a “use it, or lose it” rule; therefore, make last minute doctor appointments or trips to the drug store.

After January 1, 2018…

Taxpayers and Business Owners experienced the following changes in the 2018 tax year:

  1. Reduction in the Corporate Tax Rate: The new federal corporate tax rate is 21%, a decrease from 35% in the prior tax years. Corporate taxpayers with fiscal years will take advantage of a blended rate. C corporations are still double taxed, once at corporate level, and again when the shareholders wish to distribute dividends.
  2. Reduction in Individual Tax Brackets: For 2018, the tax rates are 10%, 12%, 22%, 24%, 32%, 35% and 37%.
  3. Limitation of Deductions: Reduced deduction for mortgage interest and a capped deduction for state and local taxes (SALT) of $10,000.
  4. Disallowance of Deductions: Taxpayers are no longer allowed to deduct unreimbursed employee expenses, tax preparation fees, personal exemptions, dependency exemptions, and theft and personal casualty losses.
  5. Increase in Standard Deduction: Unmarried, Single, Married Filing Separately standard deduction increased from $6,350 to $12,000. Head of Household increased from $9,350 to $18,000. Married Filing Jointly increased from $12,700 to $24,000.
  6. Pass-Through Business Owners Deduction: Under Section 199A, a business owner of a sole proprietorship, partnership, LLC, and S corporations (pass-through income business entities) can qualify to deduct 20% of one’s business income.
  7. Personal Exemption Eliminated: The $4,050 personal exemption, which could be taken for yourself, your spouse, and dependents is eliminated, and offset with the increase of the standard deduction.

About Wendy Wade, J.D., LL.M

Wendy Wade received her Bachelor of Arts in Finance with an emphasis in Real Estate from The University of Northern Iowa. She subsequently attended John Marshall Law School in Chicago, Illinois where she received her Juris Doctorate. At John Marshall, Wendy continued her studies to receive an LL.M in Taxation with a certificate in Corporate Taxation. Her prior work experience includes legal tax defense, Internal Revenue Service in the Small Business division, State of Illinois income tax department.