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New Income Tax Rates and Brackets

05/01/18 10:08 am | Comments (0) | Posted By:

On December 20, the House approved H.R. 1, the Tax Cuts and Jobs Act, a sweeping tax reform measure. While much still needs to be determined for tax planning opportunities, we can look at the new income tax rates and how they compare to the pre-Act law.

 

                               2017                                                                                                      2018
                                                                                      Single
                 Up to        9,325.00 10.0%                                                     Up to        9,525.00 10.0%
                 Up to      37,950.00 15.0%                                                     Up to      38,700.00 12.0%
                 Up to      91,900.00 25.0%                                                    Up to      82,500.00 22.0%
                 Up to    191,650.00 28.0%                                                    Up to    157,500.00 24.0%
                 Up to    416,700.00 33.0%                                                    Up to    200,000.00 32.0%
                 Up to    418,400.00 35.0%                                                   Up to    500,000.00 35.0%
                 Over    418,400.00 39.6%                                                     Over    500,000.00 37.0%
                                                                                        MFJ
                 Up to      18,650.00 10.0%                                                    Up to      19,050.00 10.0%
                 Up to      75,900.00 15.0%                                                    Up to      77,400.00 12.0%
                 Up to    153,100.00 25.0%                                                    Up to    165,000.00 22.0%
                 Up to    233,350.00 28.0%                                                   Up to    315,000.00 24.0%
                 Up to    416,700.00 33.0%                                                   Up to    400,000.00 32.0%
                 Up to    470,700.00 35.0%                                                   Up to    600,000.00 35.0%
                 Over    470,700.00 39.6%                                                    Over    600,000.00 37.0%
As you can see, the majority of the tax rates are lower, where we start to see some discrepancies is when we get to Single filers making over $200,000. With the pre-tax law, an individual making in the range of $200,000 – $420,000, will be taxed at a 33% marginal rate. Under the “Tax Cuts and Jobs Act”, a single person making between $200,000-$420,000 will be taxed at a 35% marginal rate. It appears on its face that these individuals will be paying more in taxes. So let’s look at the real world numbers.
  • If Single Taxpayer A makes $250,000 of taxable income, the taxpayer will pay $65,899.25 in tax in 2017, and $63,189.50 in 2018.
  • If Single Taxpayer A makes $300,000 of taxable income, the taxpayer will pay $82,399.25 in tax in 2017, and $80,689.50 in 2018.
  • If Single Taxpayer A makes $350,000 of taxable income, the taxpayer will pay $98,899.25 in tax in 2017, and $98,189.50 in 2018, still a small tax reduction.

It isn’t until we get to $387,000 where we see the 2018 tax surpass that of the 2017 tax rates. From this point on there is a window of taxpayers (Single filers) who make between $387,000 and $417,000 who, with no other changes, will see their taxes go up for 2018. For the remaining filers, it appears that for the next 8 years you should see a tax rate decrease.

 

 

 

The Loss of a Loved One

30/11/17 12:13 pm | Comments (0) | Posted By:

Having just lost my mother this year, there were many lessons I learned.

My mother did not have much in assets when she passed away but she did get a will prepared several years ago. I would strongly encourage that you make sure your parents have a will or trust in place and that you are informed as to their intentions. This can sometimes be a difficult conversation. My mother was 95 years old when she passed away and I was still struggling to get her to even bring up the subject of the eventuality of her death. Not until she was under the care of Hospice did she start informing me of what she wanted done with some of her personal effects.

My mother was a hoarder and had lived in her home for 46 years. One of the things she told me a few weeks before her death was that she felt bad for my husband who would have to deal with all of her things. As it turns out I am the one dealing with all of her things. Note to self – Do not do this to your kids. After this experience I am determined not to leave a mess for my children. My sister shared a Facebook post with me – ‘Death Cleaning’ is the newest way to declutter. Many are decluttering to save their loved ones stress down the road. Highly recommended.

In connection with my going through her things, I have found there is much that I wished we had talked about. Photos found that look precious and old that I don’t know anything about. I always wanted to make time to go through memories with her but never did. This is one of my deepest regrets. Find the time to spend with your parents to document these memories.

And finally, make sure you don’t make any tough decisions until you have had time to get through the grieving process. I was surprised at how hard her death hit me, even though as I said she was 95, and I knew it was eventually going to happen. Make sure you have a support team to help you through any immediate decisions you have to make. I was fortunate to have my daughter and husband with me that first week when I was making arrangements. It was difficult to make even what you would think are easy decisions.

When you lose a loved one, reach out to your Trusted Advisor when you are looking to make any financial decisions. This could be your attorney, financial advisor, or your CPA. I am now a firm believer that you should also have a family or friend support member of your team. Decisions are hard when you are grieving. Take the time to heal. And reach for support.

 

Taxes on the Mind

16/11/17 10:40 am | Comments (0) | Posted By:

It may not be the first thing on everyone’s mind as we head in to the holiday season but for your local CPA, taxes are certainly on the mind. Year end tax planning is always a good idea for a proactive business owner or individual but this year it may be even more important than ever with tax reform coming down the pipeline.

You can’t open a newspaper lately without seeing talks about tax reform. The back and forth and uncertainties surrounding tax legislation is making for an entertaining situation for your local tax nerd. Both the House and Senate have their own plans that are changing by the second; odds are the analysis you read one day will completely change a week later and many details we are hearing about now may be totally different by the time legislation comes across the President’s desk (if that even happens). As your average everyday business owner and taxpayer, you care about the financial well being of you and your company, but chances are you don’t have the time or patience to keep up on the constant changes happening on Capitol Hill. While you may not think any legislation will affect you in the short term, you may be wrong and there may be moves you need to make by the end of 2017.

With uncertainty in the air and the year quickly coming to an end, right now is a great time to get in touch with your accountant. We can educate you about tax reform and its specific effects on you, and help you make sure you make the right moves by year end. Having a good CPA as part of your advisory team is an invaluable resource during times like this.

 

Getting a Head Start on 2017 (taxes that is!)

01/11/17 3:13 pm | Comments (0) | Posted By:

It’s only November but there’s still time to make the filing of your 2017 tax return less taxing in 2018.

Withholding and Estimated Taxes. Make sure enough taxes are withheld to avoid surprises at tax time. Generally taxes are withheld from wages and other income such as pensions, bonuses, commissions and gambling winnings. Taxpayers with interest, dividends, capital gains, rents and royalties will usually make additional tax payments by making estimated tax payments. Self-employed individuals who do not pay tax through withholding will also pay estimated taxes.

  1. Employees starting a new job must fill out a Form W-4, Employee’s Withholding Allowance Certificate. Use the IRS Withholding Calculator to figure out how much tax to withhold.
  2. Taxpayers expecting to owe $1,000, or more than taxes that are withheld, will need to make estimated tax payments to avoid penalties.
  3. Martial status changes, birth of a child or the purchase of a home may change the amount of taxes a taxpayer owes. Employees should submit a new Form W-4 to their employer when necessary.

Name changes. Taxpayers with name changes due to a marital status change should notify the Social Security Administration. SSA should also be notified if there’s a name change for a dependent. Notifying the SSA with name changes will ensure that the new name on the tax return matches the SSA records to avoid any delay in the processing.

Individual Taxpayer Identification Numbers. Taxpayers who use Individual Taxpayer Identification Numbers which have expired or are due to expire should apply to renew their ITIN to avoid processing delays next year. A Form W-7 must be completed as well as submission of original or certified copies of identity documents to renew an ITIN.

What happens if I don’t file my taxes on time?

19/10/17 3:51 pm | Comments (0) | Posted By:

With the passing of another tax deadline, I thought it would be helpful to go over the consequences of not filing your tax return on time. If you have not filed your 2016 tax return, file it as soon as possible to minimize the penalties that you may owe.

There are three types of payments that could be assessed if you do not pay the tax owed on time. These are late filing penalties, late payment penalties, and interest.

If you owe taxes and don’t file your tax return or extension by the original due date, or if you filed an extension but fail to file your return by the extension due date you will be subject to late filing penalties.

The late filing penalty is 5% of the tax owed for every month your return is late, up to a maximum of 25%. If you fail to file your return for over 60 days after the due date or extended due date, the minimum penalty is the lesser of $205 (for 2016) or 100% of the unpaid tax due.

Late payment penalties could be assessed if you do not pay all of the taxes you owe. These apply if you do not pay all of the taxes owed by the original due date, regardless of whether or not you filed an extension. The late filing penalty is 0.5% of the tax owed for each month the tax remains unpaid, up to a maximum of 25%.

If both penalties apply to you the monthly penalty would be 5%, up to maximum penalty of 25%.

You will also be charged interest on any unpaid taxes starting the day after the return’s due date.

If you correctly expect to get a refund there is no penalty. You have three years to file from the due date or you will no longer be eligible for your refund.

 

 

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