by The MDTAXES Network | Jan 31, 2018 | February 2018 Newsletter
I’m pleased to announce that my CPA firm Schwartz & Schwartz PC and First National Corp.?are teaming up to coach you and your family members on how to improve your financial well-being and knowledge.
Please register for the topics and sessions you’d like to attend online as a live webinar or in person at Schwartz & Schwartz’s office in Woburn, MA.
Sessions through April include:
We encourage you to attend as many of these sessions as you like – they’re free! Topics are offered online as a live webinar and also at the Schwartz & Schwartz offices (8 Cedar Street Suite 54 Woburn, MA).
by The MDTAXES Network | Jan 31, 2018 | February 2018 Newsletter
- For 2017, the standard deduction for a single individual is $6,350 and for a married couple is $12,700. A person will benefit by itemizing once allowable deductions exceed the applicable standard deduction. Itemized deductions include state and local income taxes (or sales taxes), real estate taxes, mortgage interest, charitable contributions, and unreimbursed employee business expenses. The Standard Deduction jumps to $12k for single individuals and $24k for married couples in 2018.
- For 2017, the personal exemption is $4,050. Individuals will claim a personal deduction for themselves, their spouse, and their dependents. Personal Exemptions are eliminated starting in 2018.
- The?maximum earnings subject to?social security taxes is $128,700 for 2018,?up from? $127,200 in 2017.
- The?standard mileage rate?is $.535 per business mile?as of January 1, 2017, down from $.54 for 2016 and $.575 for 2015.
- The?maximum annual salary deferral?into a?401(k) plan?or a?403(b) plan?is $18,500 in 2018, up from $18,000 in 2015, 2016 and 2017.? And if you’ll be 50 or older by December 31st, you can contribute an extra $6,000 into your 401(k) or 403(b) account this year.
The?maximum annual contribution?to your?IRA?is?$5,500 for 2015 through 2018.? And if you turn 50 by December 31st, you can contribute an extra $1,000 that year.? You have until April 15, 2018 to make your 2017 IRA contributions.
by The MDTAXES Network | Jan 31, 2018 | February 2018 Newsletter
The IRS announced that the standard mileage rate will increase to 54.5 cents per business mile driven in 2018.? That is an increase of one cent from the 53.5 cents allowed in 2017.? According to the IRS, “Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.”
When you use your car for business, driving between job sites (including your home office) is deductible.? So is driving between your home and a temporary job site (where you will work for a year or less), job interviews, and conferences.? Commuting between your home and a regular place of business generally isn’t tax deductible.
Standard Mileage Rates Versus Actual Expenses
There are two ways for you to calculate your automobile expenses.? You can either claim $.54.5 per business mile driven in 2018 (increased?from $.535 for 2017), or you can base your deduction on the percentage of miles your car was driven for business purposes multiplied by the actual costs incurred during the year.? Allowable costs include gas, insurance, repairs, parking at home, and either your lease payments, or if you own your car, a factor for depreciation.
Generally, unless you drive your car?relatively few miles each year?with most of those miles?being allowable business miles, you’re often times better off over time by basing your deduction on the standard mileage rate.
For Example:
Let’s say you lease a car for $400 a month that you drive only 3,000 total miles during the year.? And of those miles, 2,000 qualify as deductible business miles.? By calculating your deduction based on the standard mileage rate, you’ll end up with a deduction of just $1,090 (2,000 business miles * $.545 per mile).
What would your deduction be based on the actual expenses incurred, assuming you spend $1,200 on insurance, $.10 per mile driven for gas, and $1,200 on parking at home?? Based on $7,500 of total automobile expenses (including the lease payments), multiplied by two-thirds (2,000 business miles divided by 3,000 total miles), your allowable deduction for your automobile expenses jumps to $5,000 – almost five times the $1,090 allowed using the standard mileage rate.
Now let’s see what happens if you drive 20,000 total miles during the year.?? Assuming your allowable business miles remains at 2,000, you can either claim an automobile deduction of $1,090 based on the standard mileage rate, or $920 based on one-tenth (2,000 business miles divided by 20,000 total miles) of your actual automobile expenses incurred.
|
Expense
|
3,000?total miles?driven |
20,000?total miles?driven |
|
Lease payments
|
$4,800 |
$4,800 |
|
Insurance
|
$1,200 |
$1,200
|
|
Gas ($.10 per mile driven)
|
$300 |
$2,000
|
|
Parking at home
|
$1,200 |
$1,200
|
| |
|
|
|
Total costs
|
$7,500 |
$9,200
|
| |
|
|
|
Business use % on 2,000
business miles driven
|
66.67% |
10%
|
| |
|
|
Allowable deduction for
auto expenses based
on actual expenses |
$5,000 |
$920
|
How to Claim The Deduction
Taxpayers who are compensated as employees are no longer eligible to claim these expenses as a miscellaneous itemized deduction since that deduction was eliminated effective 1/1/2018 as part of the Tax Cuts and Jobs Act of 2017.? This deduction is slated to return in 2026. (2017 expenses are allowable under the old rules.)
Those taxpayers compensated as independent contractors will?generally claim their allowable automobile expenses directly against their self-employment?income. For these taxpayers, automobile expenses should be reported the Schedule C.
Moving, Medical and Charitable Miles
The use of an automobile in connection with a charitable activity is set by statute and is deductible at a rate of?14 cents per mile in 2018 and should be reported with other charitable contributions as an itemized deduction of the Schedule A.? Charitable donations are still deductible in 2018.
The IRS did reset the 2018 standard mileage rate for qualified moves at 18 cents per mile, but the new tax rules eliminated the deduction for moving expenses as of 1/1/2018 through 12/31/25.
And don’t forget that?medical related mileage is also deductible.? For 2018, medical mileage is allowable at 18 cents per mile,?and should be reported with all other medical expenses on the Schedule A.
Additional info and links about the standard mileage rates are available at ?https://www.irs.gov/newsroom/standard-mileage-rates-for-2018-up-from-rates-for-2017.
by The MDTAXES Network | Jan 31, 2018 | February 2018 Newsletter
As part of the new tax rules that took effect 1/1/18, the standard deduction jumped to $12k for single individuals and $24k for married couples.? Additionally, the combined deduction for state and local income taxes and real estate taxes is now capped at $10k.
Other allowable itemized deductions are now limited to medical expenses in excess of 10% (7.5% in 2018) of your income, charitable donations, and mortgage interest on up to $1 million of existing debt or $750k of post-enactment debt. Taxpayers can no longer deduct miscellaneous itemized deductions which include investment fees, employee business expenses, or tax prep fees not deducted elsewhere on your return.
Thanks to a standard deduction of $12k, single individuals who earn a good salary and own a home should most likely continue to itemize their deductions.? What will happen to married couples who usually itemize?
With a standard deduction of $24k and a maximum deduction for state, local and real estate taxes of just $10k, married couples would need to have more than $14k combined of deductible medical expenses, allowable mortgage interest and charitable donations in order to itemize.? This new dynamic gives many married couples an incentive to bunch their deductions as follows:
- If your total state, local and real estate taxes won’t exceed $10k per year, then time the payment of these taxes to hit $10k every other year.
- Plan your mortgage payments to make 13 payments during the calendar year every other year by timing when the January payment is made.
- Group your charitable donations together every few years.
- Group your medical expenses too in years that they will exceed 10% of your income (7.5% in 2018), especially if you plan to itemize.
By bunching allowable deductions in an effort to minimize federal income taxes, married couples might find that they end up alternating between itemizing one year and claiming the standard deduction the next until these new tax rules sunset after 2025.
