“Paycheck Checkup” Tool Available on IRS.gov

In response to the myriad changes in tax laws effective in 2018, the IRS has released a Paycheck Checkup tool to assist taxpayers in ensuring their tax withholding levels are appropriate under the new laws. Using this tool now could help you avoid an unexpected tax bill next April.
The tool can be accessed here.

2018 Withholding Tables Now Available

The IRS released the revised 2018 withholding tables today via Notice 1036. They can be found here.
Employers should begin using the 2018 withholding tables as soon as possible, but not later than Feb. 15, 2018. They should continue to use the 2017 withholding tables until implementing the 2018 withholding tables.

Tax Season Start Date Announced

This week, the IRS announced that it will begin accepting e-filed 2017 tax returns on January 29, 2018.
More information about preparing to file 2017 income tax returns can be found here.

The initial deadline for 2017 individual tax returns is April 17, 2018.

Tax Cuts and Jobs Act Enacted December 22, 2017 – You May Need To Act Quickly

Dear Client,

 

As you may be aware, the Tax Cuts and Jobs Act (TCJA) was enacted into law on December 22, 2017.

This is the most comprehensive tax reform bill in over 30 years and it will impact many facets of your tax burden for the foreseeable future.

Unfortunately, the timing of the bill’s passage leaves little time to take advantage of the existing rules in 2017 that will change in a few days.

 

As there isn’t enough time to review each client’s situation in detail and provide tailored, accurate recommendations before 2017 ends, I am posting this information to explain one of the key provisions that may affect you.

 

In 2017 and prior years, you were able to deduct all real estate taxes and state and local income taxes paid as an itemized deduction. Limitations applied, but that was the basic concept.

In 2018, under the TCJA, these deductions will be capped at $10,000 per year.

However, the standard deduction is being increased substantially.

Therefore, if you meet the following criteria, you may benefit from paying your real estate taxes that are normally paid in 2018 in 2017:

  • You historically itemized deductions and one of your deductions are real estate taxes on your primary residence, and/or
  • Your historic itemized deductions total less than the new 2018 standard deduction, and
  • You are not subject to Alternative Minimum Tax, and
  • You may live in a county that assesses their real estate tax before January 1, 2018 (Franklin county, Ohio assesses tax in December 2017, thus Franklin County taxes are available for this ‘prepayment’).

The benefit to this strategy is that you will obtain a deduction in 2017 for an expense that you will not be able to deduct in 2018 when it would normally be paid.

The tax savings can vary substantially from taxpayer to taxpayer depending on your circumstances.

If you make the real estate tax prepayment, you may benefit from it, but I wouldn’t necessarily expect it to radically change your 2017 tax picture.

If your real estate taxes are paid from an escrow account with your lender, you should contact your bank at your earliest convenience after making your payment to discuss how to handle the excess cash that will be in your escrow account.

Franklin County, Ohio real estate taxes can be paid here:

https://www.paydici.com/franklin-county-oh/search/new

As long as payments are made in 2017, they are a 2017 deduction.

If you would like to take advantage of these potential savings, I recommend paying as soon as possible but no later than 12/31/17.

 

If you reside in a county other than Franklin, Ohio, I recommend checking the county treasurer’s website in your resident county to determine if their taxes are assessed in 2017 or in 2018.

If taxes are assessed in 2017, prepayment of the 2018 bills will provide the 2017 tax deduction described above.

If tax is assessed in 2018, then prepaying will not provide a tax deduction.

The IRS recently issued this “special edition” of a newsletter regarding the issue of real estate tax assessment:

IRS Advisory: Prepaid Real Property Taxes May Be Deductible in 2017 if Assessed and Paid in 2017

The Internal Revenue Service advised tax professionals and taxpayers today that pre-paying 2018 state and local real property taxes in 2017 may be tax deductible under certain circumstances. 

The IRS has received a number of questions from the tax community concerning the deductibility of prepaid real property taxes. In general, whether a taxpayer is allowed a deduction for the prepayment of state or local real property taxes in 2017 depends on whether the taxpayer makes the payment in 2017 and the real property taxes are assessed prior to 2018.  A prepayment of anticipated real property taxes that have not been assessed prior to 2018 are not deductible in 2017.  State or local law determines whether and when a property tax is assessed, which is generally when the taxpayer becomes liable for the property tax imposed. 

The following examples illustrate these points.

Example 1:  Assume County A assesses property tax on July 1, 2017 for the period July 1, 2017 – June 30, 2018.  On July 31, 2017, County A sends notices to residents notifying them of the assessment and billing the property tax in two installments with the first installment due Sept. 30, 2017 and the second installment due Jan. 31, 2018.   Assuming taxpayer has paid the first installment in 2017, the taxpayer may choose to pay the second installment on Dec. 31, 2017, and may claim a deduction for this prepayment on the taxpayer’s 2017 return.  

Example 2:  County B also assesses and bills its residents for property taxes on July 1, 2017, for the period July 1, 2017 – June 30, 2018.  County B intends to make the usual assessment in July 2018 for the period July 1, 2018 – June 30, 2019.  However, because county residents wish to prepay their 2018-2019 property taxes in 2017, County B has revised its computer systems to accept prepayment of property taxes for the 2018-2019 property tax year.  Taxpayers who prepay their 2018-2019 property taxes in 2017 will not be allowed to deduct the prepayment on their federal tax returns because the county will not assess the property tax for the 2018-2019 tax year until July 1, 2018.

Charitable contributions may be of more benefit to you in 2017 than in 2018 as well.
A good resource regarding the required documentation for charitable contributions can be found here.

2018 Mileage Rates Announced

The IRS recently released the standard mileage rates for 2018. These increased slightly from last year’s amounts:

  • 54.5 cents for every mile of business travel driven, up 1 cent from the rate for 2017.
  • 18 cents per mile driven for medical or moving purposes, up 1 cent from the rate for 2017.
  • 14 cents per mile driven in service of charitable organizations.

Details can be found here.

2018 IRA and 401k Contribution Limits Announced

The IRS recently announced the inflation-adjusted contribution limits for 2018.

The 2018 401k limit, for those under 50 years of age, is $18,500 (a $500 increase from 2017).

The 2018 IRA limit, for those under 50 years of age, remains at $5,500.

More can be read here.