The Tax Cuts and Jobs Act (TCJA) put some sharper teeth into the “kiddie tax” rules. But with some astute planning, parents can avoid dire tax consequences.
Starting this year, the calculation used to tax unearned income above an annual threshold received by a dependent child under age 19 (or a full-time student under age 24) is based on the federal income tax rates for estates and trusts.
The resulting kiddie tax is generally greater than it would be under the old rules that said unearned income should be taxed at the top tax rate of the child’s parents. Now, the estates and trusts tax brackets are more compressed than the individual brackets for parents, and higher rates kick in sooner.
The good news is that you may be able to cut the kiddie tax down to size if you apply one or more of the following strategies:
1. Minimize transfers. Don’t go overboard putting money in your child’s name. No kiddie tax is due if the child’s 2018 investment income stays below $2,100. This kiddie tax threshold stays the same as it was in 2017.
2. Monitor the situation. As the year progresses, you may avoid transactions that would trigger the kiddie tax. For instance, you might defer short-term gains on sales of securities.
3. Invest tax-wisely. Consider investments in growth stocks that produce little or no dividend income, or tax-free municipal bonds or bond funds. Time your investments so that any unearned income is only collected when it falls below the $2,100 threshold.
4. Use other methods of transferring income. One possibility is to have your teenager work for your company during the summer. Because this income is “earned,” it doesn’t count towards the kiddie tax calculation.
The IRS recently issued its annual list of the Dirty Dozen tax scams to watch out for throughout the year. Here are three top scam themes to come out of the list, plus ways to protect yourself from them:
1. Phishing: With phishing, a criminal uses the bait of an email or fake website to lure victims into providing personal information. For instance, the sender may pretend to be from the IRS.
In a recent twist, criminals are directing refunds to their victims’ bank accounts, and then using lies, threats and intimidation to convince the victims to hand over the money using various methods to collect the refunds.
To combat phishing:
- Report IRS-related expeditions to email@example.com.
- Remember that the IRS generally doesn’t initiate contact via email.
- Educate yourself about taxpayer rights on the IRS website.
2. Untrustworthy phone calls: The IRS has reminded taxpayers to beware aggressive phone scams from criminals posing as IRS agents. About 12,716 victims have collectively paid more than $63 million through phone scams since October 2013.
Typically, the caller demands that you pay a bogus tax bill in cash, usually through a wire transfer or a prepaid debit or gift card. They may also leave urgent callback requests via robo-calls or phishing emails. The IRS advises the following:
- Don’t give any information. Hang up immediately.
- Contact the U.S. Treasury Inspector General for Tax Administration (TIGTA) to report the call. Review the IRS Impersonation Scam Reporting. Alternatively, call 800-366-4484.
- Report calls to the Federal Trade Commission. Use the FTC Complaint Assistant on the FTC website.
3. Identity theft: Be alert to tactics aimed at stealing your identity — not just during tax filing season, but all year long. Luckily, strides are being made to protect taxpayers. For example, the number of taxpayers reporting ID theft declined from 2016 to 2017 by 40 percent.
The IRS says it will continue to pursue tax returns that use someone else’s Social Security information. But taxpayers can help themselves. Here’s how:
- Always use security software with firewall and anti-virus protections.
- Don’t click on links or download attachments from unknown or suspicious emails.
- Protect personal data.
Finally, treat personal information like cash; don’t leave it lying around. Contact Dye & Whitcomb if you have questions about your tax information safety.
The new Tax Cuts and Jobs Act (TCJA) includes numerous provisions designed to stimulate business growth, including changes in depreciation rules. A business entity can now write off the entire cost of qualified property the year it is placed in service. The following four changes may benefit businesses of all shapes and sizes:
1. Section 179’s increased expensing limit
Under Section 179 of the tax code, a business can expense the cost of qualified property placed in service during the year. The TCJA doubles the expensing limit to $1 million and increases the phaseout threshold to $2.5 million. (Note: The maximum Section 179 deduction can’t exceed the amount of business income.)
2. Increased bonus depreciation
The TCJA also authorizes a 100 percent bonus depreciation write-off for the cost of qualified property, doubled from 50 percent. This change is effective for property placed in service after Sept. 27, 2017. In addition, the new law expands the definition of qualified property to include used property acquired and placed into service at your company. However, the 100 percent bonus depreciation deduction is temporary. It begins to phase out after five years and vanishes completely after 2026.
3. Shortened real estate depreciation period
Generally, building improvements must be depreciated over a lengthy 39-year period. However, a faster 15-year write-off was previously permitted for qualified leasehold improvement property, qualified restaurant improvement property and qualified retail improvement property. The TCJA consolidates these provisions with the intent of providing a 15-year depreciation period for qualified improvement property.
4. Better business vehicle tax breaks
Luxury car rules limit the annual deductions a business can claim for business vehicles. Fortunately, the TCJA increases the business vehicle tax deduction limits for 2018 and thereafter. For instance, the maximum first-year deduction limit for a passenger car is multiplied by more than three, to $10,000 from $3,160. Plus, the vehicle may be eligible for an $8,000 bonus depreciation allowance.
We can help you learn more about these depreciation tax breaks and how they affect your situation. Contact Dye & Whitcomb today
The new Tax Cuts and Jobs Act (TCJA) includes significant changes for individuals and businesses alike, enhancing some tax breaks and eliminating or reducing others. One new provision creates a new tax credit for employers who pay wages for family and medical leaves.
Currently, the new credit has a short shelf life, taking effect in 2018 and only lasting through 2019. However, there’s a chance it will be extended by future legislation.
Eligible employers can claim a credit equal to a percentage of wages paid to qualifying employees on leave under the Family and Medical Leave Act (FMLA).
Here’s how it works
The IRS has yet to issue official guidance, but here are some of the basics:
- To qualify for the credit, the employer must provide at least two weeks leave at a rate of at least 50 percent of regular earnings.
- The credit percentage ranges from 12.5 percent to 25 percent of the paid leave based on the amount of wages. For instance, the credit is equal to only 12.5 percent of the wages if the employer pays the minimum 50 percent of the regular pay rate, but gradually increases to a maximum of 25 percent if the employer pays the normal wages.
- The credit is available only for wages paid to workers employed at the company for at least a year who are paid no more than $72,000 annually in 2017, adjusted for inflation in future years.
- Family and medical leave must be offered to both full- and part-time workers.
- Employers need to have a written policy that includes two weeks paid leave for family and medical leave at 50 percent or more of wages for full-time employees. And the amount must be prorated for part-time employees.
- Leave that is paid for or required under state and local law shouldn’t be considered when determining the amount of paid family and medical leave
provided by the employer.
No double dipping
Finally, if the employer claims the credit, they can’t also deduct the wages as regular business expenses. Usually, the credit will be more valuable to employers than the deduction.