Big Changes in Social Security and Retirement Plans for 2018

From 401(k) plans to individual retirement accounts to Social Security, the federal government has been busy in recent weeks adjusting numbers for 2018. Whether you’re an employee or business owner, senior management or nonexempt staff, these changes may affect how you approach retirement in the coming months and years.

Social Security: New ceilings

First, let’s start with what is not changing. The 7.65 percent Social Security deduction remains the same. And as before, it’s doubled to 15.30 percent for the self-employed.

However, the maximum earnings subject to Social Security rises from $127,200 to $128,700, a $1,500 increase. The Society for Human Resource Management estimates that this change means 12 million more workers will be paying more Social Security tax than before. The 1.45 percent Medicare portion, which has no ceiling, remains unchanged.

Those who are working while collecting Social Security catch a small break: The SSA is raising slightly the amount people can earn before losing a portion of Social Security benefits. The new amounts are $10 or $40 a month, depending on the recipient’s status.

Another significant change is to the maximum Social Security benefit for those retiring at full retirement age, which changes from $2,687/month to $2,788/month, a $101 increase. More details are available on the Social Security site.

Retirement plan limits rise

Workers who can afford to do so can put away a little more for retirement: The limit for 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan is increased from $18,000 to $18,500.

It’s a little more complicated for those contributing to IRAs:

  • For single taxpayers covered by a workplace retirement plan, the phase-out range is $63,000 to $73,000, up from $62,000 to $72,000.
  • For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $101,000 to $121,000, up from $99,000 to $119,000.
  • 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 $189,000 and $199,000, up from $186,000 and $196,000.
  • 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.

Roth IRA contributors also get a bump up: The income phase-out range is $120,000 to $135,000 for singles and heads of household, up from $118,000 to $133,000. For married couples filing jointly, the income phase-out range is $189,000 to $199,000, up from $186,000 to $196,000. 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.

Some IRA numbers are not changing, however:

  • The limit on annual contributions to an IRA remains $5,500. The additional catch-up contribution limit for individuals age 50 and over remains $1,000.
  • The catch-up contribution limit for employees age 50 and over who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan remains unchanged at $6,000.

These are just summaries of complex rules. Be sure to give us a call or email a WFY advisor at info@cpa-wfy.com so we can explain how these changes may affect your situation.

© Copyright 2017. All rights reserved.

Senate Tax Plan Outline Released

The Senate Republican’s tax reform plan was released last week. Several proposals changed from the House Tax bill. The key changes in the plan from the current law are as follows:

Individuals:

  • Current tax rates: Seven brackets from 10% to 39.6%.
  • Proposed tax rates: Seven brackets at 10%, 12%, 22.5%, 25%, 32.5%, 35% and 38.5%.
  • Current standard deduction: $6,350 individuals and $12,700 married filing joint.
  • Proposed standard deduction: $12,000 individuals and $24,000 married filing joint.
  • Elimination of personal exemptions, worth $4,050 per person.
  • Increase child tax credit from $1,000 to $1,650 and add a $500 credit for nonchild dependents.
  • Eliminate most itemized deductions, including property taxes and state and local tax deductions (will keep charitable contributions and medical expense deduction).
  • Continue to exclude from gross income up to $500,000 for joint filers ($250,000 for other filers) on the sale of a principal residence if the taxpayer owned and used the home for five out of the previous eight years (currently two out of five years). The exclusion would be available once every five years  (currently every two years).
  • Repeal of the alternative minimum tax.
  • Double the exemption for the estate tax amount to $10 million (no plan for repeal).

Businesses:

  • Small and family-owned business and flow through entities (Sole Proprietorships, Partnerships and S Corporations) will receive an additional 17.4% deduction of domestic qualified business income (limited to 50% of the W-2 wages of the taxpayer) effective in 2018. Certain professional service businesses are not eligible for the deduction, with a possible exemption if the qualified income is less than $150,000 (joint filers).
  • Proposed C Corporation tax rate 20% effective in 2019 (most other provisions begin in 2018).
  • Imposing a one-time 10% tax on accumulated foreign earnings, reduced to 5% for illiquid assets.
  • Nonresidential and residential rental property tax depreciation reduced to 25 years.
  • Increase Section 179 expensing limitation, deducting the cost of certain property, to $1 million and the phase out threshold to $2.5 million (currently $510,000 expense limitation with $2 million phaseout) and certain nonresidential property improvements would also qualify for Section 179 expense.
  • Limit the deduction for net interest expenses incurred by a business in excess of 30% of the business’s adjusted taxable income and any disallowed interest may be carried forward indefinitely.
  • Eliminate the deduction allowed for Section 199 domestic manufacturing activities after 2018.
  • Disallow deductions for entertainment, amusement or recreation but retain 50% deduction for business related meals.

WFY will update you as the plan progresses into a bill.

Contact us at info@cpa-wfy.com to discuss how to maximize your 2017 tax benefits through comprehensive year-end tax planning.

House Tax Bill Outline Released

By Richard A. Huffman, CPA MST

Wright Ford Young & Co.

On the heels of the recently passed 2018 budget resolution that allows for tax legislation to increase the federal deficit by $1.5 trillion over 10 years the House Republican leaders released details of its tax overhaul plan. The key changes in the plan from the current law are as follows:

Individuals:

  • Current tax rates: Seven brackets from 10% to 39.6%.
  • Proposed tax rates: Four brackets at 12%, 25%, 35% and 39.6%.
  • Current standard deduction: $6,350 individuals and $12,700 married filing joint.
  • Proposed standard deduction: $12,000 individuals and $24,000 married filing joint.
  • Elimination of personal exemptions, worth $4,050 per person.
  • Increase child tax credit from $1,000 to $1,600 and add a $300 credit for non-child dependents.
  • Eliminate most itemized deductions, including state and local tax deductions (will keep charitable contributions deduction).
  • Limit itemized property tax deduction to $10,000.
  • Limit home mortgage interest on new loans up to $500,000 debt.
  • Repeal of the alternative minimum tax.
  • Double the exemption for the estate tax and repeal it after six years.

Businesses:

  • Small and family-owned business and flow through entity tax rate reduction
    • Current maximum tax rate 39.6%.
    • Proposed maximum tax rate 25%.
  • (Sole Proprietorships, Partnerships and S Corporations).
  • Current C Corporation tax rate 35%
  • Proposed C Corporation tax rate 20%.
  • Global minimum tax of 10% applied to income that American companies earn anywhere in the world.
  • Imposing a one-time 12% tax on accumulated foreign earnings, reduced to 5% for illiquid assets.
  • Allowing businesses to expense the cost of certain new property placed in service after September 27, 2017, and before January 1, 2023.

WFY will update you as the bill progresses through the expected many changes before it is slated for a vote and potential law.

Contact us at info@cpa-wfy.com to discuss how to maximize your 2017 tax benefits through comprehensive year-end tax planning.

Estate and Gift Tax 2018 Inflation Adjustments

On October 19th, the IRS issued Revenue Procedure 2017-58, the annual inflation adjustments for 2018 for many tax provisions, including exemptions for estate, gift and generation-skipping transfer (GST) taxes as well as the annual exclusion amount for gifts as follows:

Estate, Gift and GST Tax Exemption Increases to $5,600,000. For estates of decedents who pass away during 2018, and for gifts made during 2018, the combined estate and gift tax exemption will increase to $5,600,000, up from a total of $5,490,000 for estates of decedents in 2017.  The generation-skipping transfer exemption increased as well to $5,600,000. In 2018 an individual can bequeath $5,600,000 (or $11,200,000 from a married couple’s estate) to heirs and pay no federal estate or gift tax.

Gift Tax Annual Exclusion Increases to $15,000. For gifts made in 2018, the gift tax annual exclusion will increase to $15,000 from $14,000, where it has been since 2013. An individual can give to another individual up to this amount without utilizing any of the gift tax exemption.  For example, a married couple can gift each donee up to $30,000 in 2018 without utilizing either spouse’s gift tax exemption amount.

We are available to answer your estate and gift tax questions at info@cpa-wfy.com.

What to Do After the Hurricane

Those pictures you see from Hurricanes Harvey and Irma – ordinary people out there in waist-high water, rescuing both their neighbors and strangers, coming from other states and other counties – demonstrate yet again not only the resilience of Americans but our decency in reaching out to others without a thought to personal safety.

It also makes us all think: What would I do if such a natural disaster were to strike my home or business? What follows are the resources available, especially if you are in Texas or Florida. Even if you’re not in this area, you may have friends and family who are, so be sure to share this with them.

Start with FEMA

  • Federal Emergency Management Agency (FEMA) contact info for assistance — DisasterAssistance.gov allows you to apply for assistance online. When you go to the website, you will see a link for transitional assistance, which lists hotels so you can find a safe place to stay.
  • You can also call 800-621-FEMA (3362). Contact your state’s emergency management agency to find out about other resources and to get your county’s contacts. The DisasterAssistance.gov site helps with a link to a US Hospital Finder and even temporary lodging, including Airbnb, through its Disaster Response Program.

Massive property damage translates into tens of thousands of insurance claims. Most homeowners’ and renters’ insurance policies cover wind damage but not groundwater flooding. The distinction between actual flooding and storm-driven water damage can be subtle but may have important insurance implications.

While FEMA offers grants to victims, it admits that the amount is often much less than what is needed to recover.

The region affected by Harvey is underinsured — only one-sixth of homes in Harris County, Texas, whose county seat is Houston, have active National Flood Insurance policies. There are about 1.8 million housing units altogether.

What about businesses? Small businesses may be eligible for a disaster loan program through the Small Business Administration.

Based on statistics like these, it’s expected that a large portion of overall economic damage caused by flooding won’t be covered by insurance.

The Next Steps

What to do:

  1. Contact your insurance company as soon as possible to report your claim. Insurers visit the most severely damaged areas first, so be prepared to provide an accurate description of any damages.
  2. Get a claim number and write it down — it’s the quickest and easiest way for insurance companies to locate your file.
  3. Ask when you can expect to see a claims adjuster. It can be anywhere from a week to five or six months, depending on the extent of the claim.
  4. Document losses with pictures and video. Include a list of damaged personal items. Try to include the date of purchase and approximate value of any damaged items, and collect receipts. Put all of this into the cloud so it can be accessed anywhere.
  5. Keep good records of anything you spend to make immediate repairs to secure your home — don’t forget receipts from hotels and meals if you couldn’t return to your home right away.
  6. Sign up for text alerts that notify you of the status of your claim.

Other important tips:

  • If you have flood insurance, notify your provider within 60 days of damage. The National Flood Insurance Program has a step-by-step guide on how to file your flood claim.
  • Only cover broken windows or holes to keep rain out and prevent theft — don’t make permanent repairs until instructed to by your insurance company. Save all receipts.

Expect a check within five business days after your insurance company agrees to pay your claim.

Also notify your mortgage company and auto loan lender — monthly payments may be deferred for a period of time and late fees typically are waived because you’re living in an area impacted by a natural disaster.

Your area may lack power not only for days but for weeks. You may have to purchase food, medical supplies and other necessities using cash instead of credit or debit cards. Areas without power revert to a cash-only economy. Many banks and credit unions will set up mobile branches open beyond typical banker’s hours so that affected consumers can access cash or easily apply for loans needed to repair damage.

Notify your utility and cable companies so bills will be halted. You may even want to notify the three credit bureaus and the Federal Trade Commission to have a fraud alert placed on your accounts to lower the chance of becoming a victim of identity theft. Creditors often are willing to negotiate a payment plan and review your budget.

 

Moving Forward With Insurance

Once you get your immediate issues taken care of, you will probably have a lot of back-and-forth with the insurance company over the coming weeks and months. Here is what you can expect:

Unfortunately, even with the combination of FEMA, homeowners and flood coverage, not all repair costs will be paid — there will be gaps when trying to make your home the way it was before the hurricane hit. Damage caused by even a few inches of water in a 1,000-square-foot home can easily cost more than $10,000 to repair.

Insurance companies typically provide additional living expenses for hotels and meals if you can’t live in your house or conduct business while repairs are being made. You should expect to shell out your own money first, but you’ll be reimbursed for expenses within 30 days. Companies will reimburse for sump pumps, generators or supplies like wood for do-it-yourself repairs. Filing claims as soon as you can is smart just to get your name on the list. It will help you get the most from your benefits. Find out what your policy provides beyond the immediate benefits.

With some companies, you may have to do some negotiating with your adjuster about the extent of damage to some possessions. Realize, too, that the insurance company’s estimate of how much it will cost to repair your home and your own contractor’s figures may not be anywhere near comparable. Either a compromise can be hammered out or you can get a mediator to break the impasse, but that process can lengthen and complicate the rebuilding process.

Advice? Start by trusting the company, but do so warily and professionally. Keep notes of conversations and copies of correspondence and receipts. If you run into trouble with the claims department, see if there is a complaint resolution department.

Details on Tax Help

The IRS has announced that it’s providing help to victims of Hurricanes Harvey and Irma. Here are some specifics:

  • The agency is waiving the diesel fuel penalty for all of Texas in the aftermath of the hurricane. Penalty relief is provided for partnerships that filed late returns. The IRS has even offered extension filers until January 31 to file.
  • If you have a business in one of the counties that were hit hard, you may qualify for tax relief, including abatements. Quarterly estimated tax payments, as well as quarterly payroll and excise tax deposits, will be abated as long as the deposits were made by September 7. If you receive a late filing or late payment penalty notice anyway, call the IRS to have the penalty abated.
  • Know that the IRS is automatically identifying taxpayers in covered disaster areas and applying automatic filing and payment relief. But if you have a business outside the covered disaster area that was nevertheless affected, you may still be eligible for relief. Call the IRS disaster hotline at 866-562-5227 to request tax relief.
  • And what about claiming disaster-related casualty losses on your federal income tax return? You may deduct personal property losses not covered by insurance or other reimbursements. Put the disaster designation ”Texas, Hurricane Harvey” or ”Florida, Hurricane Irma” on top of your form so the IRS can expedite the processing of your refund.

Other Helpful Resources

Assistance for your business is available through a link, Other Recovery Help, accessed from DisasterAssistance.gov. Here you will find a heading that says Catalog of Federal Domestic Assistance, and if you click on it, it will allow you to search programs by state, local and even tribal entities, as well as profits and nonprofits that offer assistance.

There is a link to a National Resource Network that is composed of a diverse group of private and public sector organizations to help distressed cities and counties find and apply solutions to aid economic recovery and growth:

  • Support for implementing solutions.
  • Access to peer network and new ideas.
  • Online, on-demand access to expertise.

FEMA offers a Community Recovery Management Toolkit that can be used to find local officials and community leaders who will help manage long-term and post-disaster recovery. The toolkit offers guidance, case studies, tools and training. The information is in four sections:

  • Organization.
  • Recovery Planning.
  • Managing Recovery.
  • Core Capability-Specific Resources.

The online help offers are many and heartening. They remind us that when overwhelming disaster strikes, we’re all in it together, working alongside each other and crossing all regional boundaries. When the worst hits us, ironically, it brings out the best in us.

© Copyright 2017. All rights reserved.

Unified Framework for Tax Reform

Republican lawmakers released on Wednesday a “unified framework” for tax reform designed to cut tax rates, simplify the Internal Revenue Code, and provide a more competitive environment for business. The key changes are as follows:

Individuals:

  • Current tax rates: Seven brackets from 10% to 39.6%.
  • Proposed tax rates: Three brackets at 12%, 25% and 35%.
  • Current standard deduction: $6,350 individuals and $12,700 married filing joint.
  • Proposed standard deduction: $12,000 individuals and $24,000 married filing joint.
  • Elimination of personal exemptions, worth $4,050 per person.
  • Repeal of the alternative minimum tax.
  • Repeal of the estate and generation-skipping transfer tax.
  • Eliminate most itemized deductions, including state and local tax deductions (will keep mortgage interest and charitable contributions deduction).

Businesses:

  • Small and family-owned business and flow through entity tax rate reduction (Sole Proprietorships, Partnerships and S Corporations).
    • Current maximum tax rate 39.6%.
    • Proposed maximum tax rate 25%.
  • Current C Corporation tax rate 35%
  • Proposed C Corporation tax rate 20%.
  • Tax U.S. companies only on U.S. income instead of worldwide income.

There is tremendous opportunity this year to plan ahead and create permanent tax saving benefits by structuring a year-end tax plan that fits your situation.

Contact us at info@cpa-wfy.com to discuss how to maximize your 2017 tax benefits from the proposed upcoming changes to the tax law.

How to Protect Yourself From the Equifax Data Breach

If you have not already done so you should immediately check your potential impact from the massive cyber security incident at Equifax which may have affected 143 million people by following the recommended steps from the Federal Trade Commission located at the following link:

https://www.consumer.ftc.gov/blog/2017/09/equifax-data-breach-what-do

Your security is important to us, please contact us at info@cpa-wfy.com if you have any additional questions or concerns.

 

Wondering About a 1031 Exchange

Perhaps you’ve heard of 1031 exchanges or like-kind exchanges, but you’re unsure of the benefits or whether you even qualify. The Internal Revenue Code 1031 is available to those who hold a property that qualifies as productive use in business or investments. If you have a piece of investment property, a 1031 exchange allows you to swap it for a similar property.

What is a 1031 exchange?

This type of exchange happens when an investor trades his or her real property for a similar or “like-kind” property. Investment properties such as shopping malls, residential buildings, stadiums and more can all be traded among themselves — like-kind merely refers to the type of investment and not the physical form. However, certain types of properties, such as those considered stock in trade, are excluded from 1031 exchanges.

Benefits of a 1031 exchange

The primary benefit of a 1031 exchange is that the investor can trade in their property and defer any capital gains or losses due at the time of sale, as well as any capital gains taxes. There is also no limit on how many times you can exchange property. From an investor’s standpoint, this means that you can continue to make a profit on each additional swap, but you won’t pay any tax on it until you finally sell it off down the road.

What does like-kind exchange mean?

Investors can exchange a single-family home for a beauty salon, a recreation center for an apartment building, and so forth — the physicality of the property is not associated with the term like-kind. Although the guidelines for like-kind may seem open-ended, there are some restrictions that you don’t want to fall prey to, so make sure to hire a professional to assist you with the process.

What are the deadlines?

Once the sale closes on your first property, your facilitator will receive the cash from the sale and you must submit, in writing, the property you are exchanging it for to your facilitator within 45 days. You have 180 days, starting on the day of sale of your first property, to close on the second.

How to choose a facilitator

There are many restrictions when choosing a facilitator, mainly because the facilitator cannot also function as an agent. Attorneys, Realtors or CPAs are all unsuitable as a facilitator; however, you can ask them for recommendations for a facilitator.

These are just the basics; there are a lot of details and exceptions in the fine print of the tax code. Give us a call or email a WFY advisor at info@cpa-wfy.com so we can help you decide when and how a 1031 exchange might be right for you.

© Copyright 2017. All rights reserved.