Tax Cuts & Jobs Act
By Traci A. Malik, CPA/CFF CFE MAcc
This new bill certainly does not “simplify” the tax return preparation for taxpayers. There will be no postcard mailings in the near future. There are so many changes in this bill, that this article cannot cover in depth all of them. There is a wealth of information out there on the bill, so I will include some of the important highlights.
Brackets -- There are new tax brackets that will lower tax for everyone, 10%, 12%, 22%, 24%, 32%, 35%, 37%. The taxable income for each bracket has been expanded. For example, if you are a married couple with taxable earnings of $165,000 you will be in the 22% bracket instead of the 28%.
Married Filing Jointly
Up to $9,525
Up to $19,050
$9,526 to $38,700
$19,051 to $77,400
38,701 to $82,500
$77,401 to $165,000
$82,501 to $157,500
$165,001 to $315,000
$157,501 to $200,000
$315,001 to $400,000
$200,001 to $500,000
$400,001 to $600,000
Standard Deduction – Married Filing Jointly $24,000
Head of Household $18,000
All Others $12,000
These new standard deductions are increased significantly, but they took away all personal exemptions. For example a married couple that uses the standard deduction and has one child.
Pre New Law (2017 amounts) $12,700 + ($4,050 x 3) = $24,850
New Law $24,000
Loses out on $850 deduction
Another example for a single person no dependents that has itemized deductions.
Pre New Law $11,300 + $4,050 = $15,350
New Law $12,000
Loses out on $3,350 deduction
An example where it helps taxpayers is a married couple using the standard deduction and has no children.
Pre New Law $12,700 + ($4,050 x 2) = $20,800
New Law $24,000
Adds a $3,200 deduction for them.
This facet of the law will depend on the circumstances for each taxpayer if there are any savings.
Personal Casualty & Theft Losses – You will only be allowed casualty losses for Federally-declared disasters unless you have personal casualty gains on something then you can offset the gains with losses but cannot exceed the gain. So where before you could possibly get a deduction if you had a theft or a pipe broke and insurance didn’t cover it, now you don’t.
Child Tax Credit – They increased the credit which will make up for some of the loss on the exemptions for children. They increased the credit to $2,000 and increased the phase-outs. The new phase-outs are $400,000 for joint and $200,000 for all others.
You can also get a $500 credit for non-child dependents.
State & Local Tax Deduction – Capped at $10,000 for all except married filing separately and $5,000 for married filing separately.
Mortgage & Home Equity Indebtedness Interest Deduction – No deduction allowed for home equity indebtedness. New mortgages after 1/1/2018 indebtedness for deduction capped at $750,000 joint filers and $375,000 for married filing separately. If you purchase a home and have a mortgage for $1,000,000 in October of 2018, the interest on $250,000 of the mortgage is not deductible.
Medical Expense Deduction – The 7.5% of adjusted gross income limitation has been reinstated for all taxpayers, but only for years 2017 and 2018.
Alimony Deduction – For any divorce or separation agreement executed after 12/31/18, the alimony paid by the payor is no longer deductible and the amounts paid to the payee are no longer includible in income.
Miscellaneous Itemized Deductions – All suspended.
Overall Limitation on Itemized Deductions – Suspended.
Moving Expense Deduction – Suspended.
Healthcare Individual Mandate – Repealed beginning 1/1/2019
C Corporate Tax Rate – 21%
C Corporate Alternative Minimum Tax – Repealed.
Section 179 – 1 Million
Net Operating Loss – Limited to 80% of taxable income.
Domestic Production Activities – Repealed
Entertainment Expenses – Disallowed for any activities considered entertainment, amusement, or recreation.
Membership Dues – Disallowed for any club organized for business, pleasure, recreation, or other social purposes.
Qualified Transportation Fringe Benefits – Disallows deduction for this fringe benefit to employees.
20% Deduction for Qualified Business Income – The following is courtesy of Alan Gassman, Esq. of Gassman, Crotty & Denicolo, PA lawfirm in Clearwater, FL. Generally speaking, under 199A taxpayers will receive up to a 20% deduction on what is referred to as qualified business income.
The following businesses or professions will not have the benefit of this deduction, unless the individual taxpayer receiving flow through income has taxable income below $415,000 for taxpayers married filing jointly or $207,500 for single filers:
4. Actuarial science
5. Performing arts
8. Financial services
9. Brokerage services
10. Any trade or business where the principal asset is the reputation or skill of one or more employees
11. Any trade or business which involves the performance of services that consist of investing and investment management, trading, or dealing in securities, partnership interests, or commodities.
For non-service businesses and joint taxable income of $315,000 or less or $157,500 or less for single filers, then the deduction will most often be calculated by multiplying the taxpayer’s qualified business income by 20%.
If the taxpayer’s taxable income before such deduction exceeds $415,000 for married taxpayers filing jointly or $207,500 for single filers then the Combined Qualified Business Income Amount is limited to the lesser of:
(1) 20% of the taxpayer’s qualified business income with respect to the qualified trade or business
(2) The greater of:
A. 50% of the W-2 wages with respect to the qualified trade or business
B. the sum of 25% of the W-2 wages with respect to the qualified trade or business plus 2.5% of the unadjusted basis immediately after the acquisition of all qualified property.
Alan Gassman, Esq’s firm is providing a flow chart they prepared to guide people through this code section. Please click here to access.
If you have any questions, please contact our team of CPAs at (727) 845-4166 to help you. Happy Holidays!
The House and Senate recently released their proposals for the Tax Cuts and Jobs Act to overhaul the American tax system with hopes to pass legislation before 2017 year end. In both proposals the standard deduction is doubled, individual tax rates are lowered across the board, and corporate tax rates are cut to 20%. Outline below are some of the differences between the proposals:
Individual Tax Rates 12%, 25%, 35% 39.6%
State and Local tax capped at $10,000
Mortgage interest limited to $500,000 mortgage- one principal home only
Medical expense deductions repealed
Child tax credit $1,600
Corporate tax rate 20% effective 2018
Estate tax: Increase to $10 Million 2018 with repeal after six years (2024)
Individual Tax Rates 10%, 12%, 22.5%, 25%, 32.5%, 35%, 38.5%
Eliminates State and Local tax
Mortgage interest for acquisition debt up to $1 Million, eliminates deduction for home equity debt
Medical preserves the existing medical expense deduction
Child tax credit $1,650
Corporate tax rate 20% delayed until 2019
Estate tax: Doubles the estate tax exemption with no repeal
It is apparent that legislators are looking for tax overhaul before year end. At Jones & Company CPAs P.A., we will be closely following the legislation. Please contact our office if there are any questions on these proposals at 727.845.4166.
According to Forbes, Americans are living longer due to technology, medicine and public health. In 1950, the average American lived to be about 68. Nowadays, the average age is about 78.
In 2010, one fifth of Americans over age 65 reported that they had been the victim of a financial fraud or abuse. Cindy Hounsell of the Women’s Institute for a Secure Retirement states that “[older women] feel badly they have nothing to leave [their relatives], then someone calls up and says, ‘You just won!’ They all say the same thing – that’s why they fall for it”.
Older adults in general believe that people can be trusted according to an MIT study. This changes the brain. In a UCLA study, participants were shown faces that had cues as to their trustworthiness or untrustworthiness. Older participants perceived the untrustworthy faces as significantly more trustworthy and approachable than younger participants did. Decreased activity in the anterior insula portion of the brain in older adults may suggest that their awareness or assessment of risk is not as strong as that of their younger counterparts, which in turn may contribute to a greater vulnerability to fraud and scams. Warning signs to watch out for are aggressiveness or insistence of a telemarketer.
Another study by Michael Finke, John Howe and Sandra Huston found that although financial capacity seemed to decline with age, financial confidence did not; essentially, individuals still had faith in their own financial abilities even while they were eroding. This lack of awareness of their changing financial capacities could also put older adults at higher risk for financial fraud or abuse.
For more information on financial fraud, call 727-845-4166 to schedule your appointment at our offices in Trinity, Tampa, Land O Lakes or Springhill.
In a survey conducted by the ACFE last year, Certified Fraud Examiners (CFEs) said increased financial pressure was the leading reason fraud increases an estimated 20 percent during the holiday season. Many of these experts believe that employee embezzlement is the most likely type of fraud to increase.
Those surveyed believe the single biggest contributing factor to be increased financial pressure on perpetrators (61 percent), followed by an increased opportunity to commit fraud (24 percent) and increased rationalization for fraud (10 percent). These three factors are represented in criminologist Donald R. Cressey’s “Fraud Triangle” and their presence is considered to be necessary in order for fraud to occur.
Fewer than 7 percent of respondents said their organization increases their level of resources committed to fraud prevention or detection during the holidays. Most said that the level remains the same (56.7 percent), while more than 9 percent said that the level actually decreases.
The ACFE recommends organizations take the following measures to help lessen vulnerability:
1. Be proactive.
Fewer than 7 percent of survey respondents said their organization, or their clients’ organizations, increase their level of resources committed to fraud prevention or detection during the holidays. Be vigilant and put increased emphasis on monitoring internal controls. Maintain a clear segregation of duties, such that one employee is not in charge of multiple levels of cash-handling or inventory control. Emphasize the employee code-of-conduct during the holidays, and/or make clear that the company will not tolerate any unethical behavior.
2. Follow established hiring procedures for seasonal employees.
While many retailers respond to an urgent need in hiring seasonal employees, the same formal employment guidelines should be followed as during other times of the year. These should include conducting thorough background investigations: check educational, employment and credit history (as permitted by law), as well as references.
3. Train employees in fraud prevention.
Full-time, part-time and seasonal employees should be trained in fraud prevention. Are employees aware of procedures for reporting suspicious activity by customers or co-workers? Do workers know the warning signs of fraud? Ensure that staff know at least some basic fraud prevention techniques.
For more information on fraud in the workplace, download our free ebook here or call us at 727-845-4166. Or, if you are in the Trinity, New Port Richey, Land O Lakes or surrounding areas, make an appointment to come visit us.
We hear about fraud and think this could never happen to us. In the 2014 Report to the Nations on Occupational Fraud and Abuse published by the Association of Certified Fraud Examiners, Asset Misappropriation accounts for about 85.4% of fraud causing a median loss of $130,000. On average the amount of time from when fraud commenced until it is detected in the study was 18 months.
Fraudulent asset misappropriation occurs many different ways by theft of cash, fraudulent disbursements, skimming, cash larceny, payroll schemes, check tampering and expense reimbursements schemes.
Most small business owners are busy with scheduling, customers, employees, ordering, sales and marketing that they don't have time for bookkeeping. They will hire a bookkeeper, trusted friend, family member or company to help with the task.
Just a few tips that may help a business owner protect against fraud:
Background check. A pre-employment background check will usually provide criminal record information.
Review bank statements. In today's digital world, most bank statements are sent electronically. If a bank statement is mailed, the owner should always open statement first. Look for unusual items such as transfers to other bank accounts, large transactions and debit transactions to unknown vendors.
Bank reconciliations monthly. Request bookkeeper provide a copy of reconciliation. Look for unusual items such as old outstanding deposits in transits and outstanding checks.
Online banking. The owner should go online to review the bank account. Most banks will provide online copies of cancelled checks. Review cancelled checks for the payee and endorsement.
Online banking access. Limit access capabilities for online banking. Owners should have full access, while other users should be set up with controls and limited access. Controls can limit access to specific bank accounts if the company has more than one account, dollar limits for daily amounts or transactions, ability to transfer between accounts, and online bill paying.
Check registers. Many small business owners use accounting programs, such as Quickbooks. Compare the payee/vendor on checks written to the actual cancelled check with online banking. As an example, fraudster may issue check payable to "CASH" for $x,xxx and then cash the check. However, in the accounting program, the fraudster would change the check payee from "CASH" to "ABC Supply Company" so it is not noticed by owner or manager.
If your company becomes of victim of fraud it is advisable to notify the appropriate authorities. All too often when fraud is discovered no criminal charges are made. Owners terminate the fraudster's employment and will agree not to press charges in return for restitution. Unfortunately, if there is no public criminal record the fraudster's next employer may be the next victim.