Congress is enacting the biggest tax reform law in thirty years….

One that will make fundamental changes in the way you, your family and your business calculate your federal income tax bill, and the amount of federal tax you will pay. Since most of the changes will go into effect next year, there’s still a narrow window of time before year-end to soften or avoid the impact of crackdowns and to best position yourself for the tax breaks that may be heading your way. Here’s a quick rundown of last-minute moves you should think about making.

Lower tax rates coming. The Tax Cuts and Jobs Act will reduce tax rates for many taxpayers, effective for the 2018 tax year. Additionally, many businesses, including those operated as passthroughs, such as partnerships, may see their tax bills cut.

The general plan of action to take advantage of lower tax rates next year is to defer income into next year. Some possibilities follow:

If you are about to convert a regular IRA to a Roth IRA, postpone your move until next year. That way you’ll defer income from the conversion until next year and have it taxed at lower rates.
Earlier this year, you may have already converted a regular IRA to a Roth IRA but now you question the wisdom of that move, as the tax on the conversion will be subject to a lower tax rate next year. You can unwind the conversion to the Roth IRA by doing a recharacterization—making a trustee-to-trustee transfer from the Roth to a regular IRA. This way, the original conversion to a Roth IRA will be cancelled out. But you must complete the recharacterization before year-end. Starting next year, you won’t be able to use a recharacterization to unwind a regular-IRA-to-Roth-IRA conversion.
If you run a business that renders services and operates on the cash basis, the income you earn isn’t taxed until your clients or patients pay. So if you hold off on billings until next year—or until so late in the year that no payment will likely be received this year—you will likely succeed in deferring income until next year.
If your business is on the accrual basis, deferral of income till next year is difficult but not impossible. For example, you might, with due regard to business considerations, be able to postpone completion of a last-minute job until 2018, or defer deliveries of merchandise until next year (if doing so won’t upset your customers). Taking one or more of these steps would postpone your right to payment, and the income from the job or the merchandise, until next year. Keep in mind that the rules in this area are complex and may require a tax professional’s input.
The reduction or cancellation of debt generally results in taxable income to the debtor. So if you are planning to make a deal with creditors involving debt reduction, consider postponing action until January to defer any debt cancellation income into 2018.
Disappearing or reduced deductions, larger standard deduction. Beginning next year, the Tax Cuts and Jobs Act suspends or reduces many popular tax deductions in exchange for a larger standard deduction. Here’s what you can do about this right now:

Individuals (as opposed to businesses) will only be able to claim an itemized deduction of up to $10,000 ($5,000 for a married taxpayer filing a separate return) for the total of

State and local property taxes; and
State and local income taxes.
To avoid this limitation, pay the last installment of estimated state and local taxes for 2017 no later than Dec. 31, 2017, rather than on the 2018 due date. But don’t prepay in 2017 a state income tax bill that will be imposed next year – Congress says such a prepayment won’t be deductible in 2017. However, Congress only forbade prepayments for state income taxes, not property taxes, so a prepayment on or before Dec. 31, 2017, of a 2018 property tax installment is apparently OK.
The itemized deduction for charitable contributions won’t be chopped. But because most other itemized deductions will be eliminated in exchange for a larger standard deduction (e.g., $24,000 for joint filers), charitable contributions after 2017 may not yield a tax benefit for many because they won’t be able to itemize deductions. If you think you will fall in this category, consider accelerating some charitable giving into 2017.
The new law temporarily boosts itemized deductions for medical expenses. For 2017 and 2018 these expenses can be claimed as itemized deductions to the extent they exceed a floor equal to 7.5% of your adjusted gross income (AGI). Before the new law, the floor was 10% of AGI, except for 2017 it was 7.5% of AGI for age-65-or-older taxpayers. But keep in mind that next year many individuals will have to claim the standard deduction because many itemized deductions have been eliminated. If you won’t be able to itemize deductions after this year, but will be able to do so this year, consider accelerating “discretionary” medical expenses into this year. For example, before the end of the year, get new glasses or contacts, or see if you can squeeze in expensive dental work such as an implant.
Other year-end strategies. Here are some other last minute moves that can save tax dollars in view of the new tax law:

The new law substantially increases the alternative minimum tax (AMT) exemption amount, beginning next year. There may be steps you can take now to take advantage of that increase. For example, the exercise of an incentive stock option (ISO) can result in AMT complications. So, if you hold any ISOs, it may be wise to postpone exercising them until next year. And, for various deductions, e.g., depreciation and the investment interest expense deduction, the deduction will be curtailed if you are subject to the AMT. If the higher 2018 AMT exemption means you won’t be subject to the 2018 AMT, it may be worthwhile, via tax elections or postponed transactions, to push such deductions into 2018.
Like-kind exchanges are a popular way to avoid current tax on the appreciation of an asset, but after Dec. 31, 2017, such swaps will be possible only if they involve real estate that isn’t held primarily for sale. So if you are considering a like-kind swap of other types of property, do so before year-end. The new law says the old, far more liberal like-kind exchange rules will continue apply to exchanges of personal property if you either dispose of the relinquished property or acquire the replacement property on or before Dec. 31, 2017.
For decades, businesses have been able to deduct 50% of the cost of entertainment directly related to or associated with the active conduct of a business. For example, if you take a client to a nightclub after a business meeting, you can deduct 50% of the cost if strict substantiation requirements are met. But under the new law, for amounts paid or incurred after Dec. 31, 2017, there’s no deduction for such expenses. So if you’ve been thinking of entertaining clients and business associates, do so before year-end.
Under current rules, alimony payments generally are an above-the line deduction for the payor and included in the income of the payee. Under the new law, alimony payments aren’t deductible by the payor or includible in the income of the payee, generally effective for any divorce decree or separation agreement executed after 2017. So if you’re in the middle of a divorce or separation agreement, and you’ll wind up on the paying end, it would be worth your while to wrap things up before year end. On the other hand, if you’ll wind up on the receiving end, it would be worth your while to wrap things up next year.
The new law suspends the deduction for moving expenses after 2017 (except for certain members of the Armed Forces), and also suspends the tax-free reimbursement of employment-related moving expenses. So if you’re in the midst of a job-related move, try to incur your deductible moving expenses before year-end, or if the move is connected with a new job and you’re getting reimbursed by your new employer, press for a reimbursement to be made to you before year-end.
Under current law, various employee business expenses, e.g., employee home office expenses, are deductible as itemized deductions if those expenses plus certain other expenses exceed 2% of adjusted gross income. The new law suspends the deduction for employee business expenses paid after 2017. So, we should determine whether paying additional employee business expenses in 2017, that you would otherwise pay in 2018, would provide you with an additional 2017 tax benefit. Also, now would be a good time to talk to your employer about changing your compensation arrangement—for example, your employer reimbursing you for the types of employee business expenses that you have been paying yourself up to now, and lowering your salary by an amount that approximates those expenses. In most cases, such reimbursements would not be subject to tax.
Please keep in mind that I’ve described only some of the year-end moves that should be considered in light of the new tax law.

If you would like more details about any aspect of how the new law may affect you, please do not hesitate to call.
www.weissthompson.com

BUSINESS AND OTHER STANDARD MILEAGE RATES INCREASE FOR 2018

IRS has announced that the optional mileage allowance for owned or leased autos (including vans, pickups or panel trucks) will increase by 1¢ to 54.5¢ per mile for business travel after 2017. This rate can also be used by employers with respect to reimbursements to employees who supply their own autos for business use, and to value personal use of certain low-cost employer-provided vehicles. IRS has also announced:

2018 rates for using a car to get medical care and in connection with a move that qualifies for the moving expense deduction and
The 2018 depreciation component of the mileage rate.
Background. The mileage allowance deduction replaces separate deductions for lease payments (or depreciation if the car is purchased), maintenance, repairs, tires, gas, oil, insurance and license and registration fees. The taxpayer may, however, still claim separate deductions for parking fees and tolls connected to business driving. (Rev Proc 2010-51, 2010-51 IRB 883, see Weekly Alert ¶ 4 12/09/2010)

Employers that require employees to supply their own autos may reimburse them at a rate that doesn’t exceed the business mileage allowance for employment-connected business mileage, whether the autos are owned or leased. (Rev Proc 2010-51, Sec. 9.01) The reimbursement is treated as a tax-free accountable-plan reimbursement if the employee substantiates the time, place, business purpose, and mileage of each trip. Additionally, an employee’s personal use of lower-priced company autos may be valued at the optional mileage allowance if the conditions specified in Reg. § 1.61-21(e)(1) are met.

A separate rate applies for using a car to get medical care or in connection with a move that qualifies for the moving expense deduction. (Rev Proc 2010-51) The mileage rate for driving an auto for charitable use (14¢ per mile) is a statutory rate that’s not adjusted for inflation. (Code Sec. 170(i))

IRS generally adjusts the standard mileage rate annually, based on a yearly study of the fixed and variable costs of operating an auto. However, IRS has made mid-year adjustments in certain years when necessary to better reflect the real cost of operating an auto in light of rapidly rising gas prices.

RIA observation: The advantages to using the standard mileage rate include:
Mileage rate users need not keep a record of actual expenses or retain receipts that would otherwise be required. A record of the time, place, business purpose and number of miles traveled suffices.
If an auto’s business expenses are deducted via the mileage rate, it is not subject to the Code Sec. 280F dollar caps or the special rules that apply if qualified business use does not exceed 50% of total use.
The mileage rate method may yield bigger deductions than the actual expense method for a thrifty, high-mileage-per-gallon model.
Standard mileage rates for 2018. Notice 2018-3 provides that the standard mileage rate for transportation or travel expenses is 54.5¢ per mile for all miles of business use (business standard mileage rate). The standard mileage rate is 18¢ per mile for use of an auto

For medical care described in Code Sec. 213; or
As part of a move for which the expenses are deductible under Code Sec. 217.
The standard mileage rate is 14¢ per mile for use of an auto in rendering gratuitous services to a charitable organization under Code Sec. 170. (Notice 2018-3, Sec. 3)
As Notice 2018-3 notes, taxpayers using the standard mileage rates must comply with Rev Proc 2010-51. Accordingly, the standard mileage rate may not be used for a purchased auto if:

It was previously depreciated using a method other than straight-line for its estimated useful life;
A Code Sec. 179 expensing deduction was claimed for the auto;
The taxpayer has claimed the additional first-year depreciation allowance for the auto;
The taxpayer depreciated it using MACRS under Code Sec. 168; or
The taxpayer is a rural mail carrier who receive qualified reimbursements. (Rev Proc 2010-51)
A taxpayer who uses the mileage allowance method for an auto he or she owns may switch in a later year to deducting the business-connected portion of actual expenses, so long as the taxpayer depreciates it from that point on using straight-line depreciation over the auto’s remaining life. The depreciation deductions would still be subject to the Code Sec. 280F dollar caps. (Rev Proc 2010-51, Sec. 4.05(3))

RIA observation: One of the disadvantages to using the standard mileage rate is that the mileage rate method may produce a smaller deduction than would be obtained by claiming actual business-connected operating expenses plus depreciation (or lease payments). Also, use of the mileage rate method prevents the taxpayer from claiming regular MACRS deductions (subject to the luxury auto dollar caps) for the auto in later years.
Depreciation. For 2018, Notice 2018-3, Sec. 4 provides that the depreciation component of the mileage rate for autos used by the taxpayer for business purposes is 25¢ per mile. (It was 25¢ per mile for 2017; 24¢ in 2016 and 2015; and 22¢ per mile for 2014.) The depreciation component reduces the basis of the auto for gain or loss purposes. (Rev Proc 2010-51, Sec. 4.04)

FAVR plans. A taxpayer may use the mileage allowance method for a leased auto only if he or she uses that method (or a fixed and variable rate (FAVR) allowance method) for the entire lease period. (Rev Proc 2010-51, Sec. 4.05(2)) Employers may use a FAVR allowance method to reimburse employees who supply their own cars for business (whether the cars are leased or owned). For 2018, the standard auto cost used to compute the FAVR allowance cannot exceed $27,300 (down from $27,900 for 2017). For trucks or vans, the 2018 standard auto cost used to compute the FAVR allowance cannot exceed $31,000 (down from $31,300 for 2017). (Notice 2018-3, Sec. 5)

When the new rates are effective. The revised standard mileage rates in Notice 2018-3 (54.5¢ for business; 18¢ for medical or moving) apply to deductible transportation expenses paid or incurred for business, medical, or moving expense purposes on or after Jan. 1, 2018, and to mileage allowances or reimbursements that are paid to an employee or charitable volunteer

On or after Jan. 1, 2018, and
For transportation expenses paid or incurred by the employee or charitable volunteer on or after Jan. 1, 2018.

PREPAY YOUR 2017 PROPERTY TAXES:

The Cook County Treasurer is now accepting prepayment of your 2017 First Installment Tax Bill.

HERE ARE FOUR WAYS TO PREPAY:

Online – Go to cookcountytreasurer.com and select “Prepay Your 2017 Taxes.” You can use your bank account or credit card to pay.

Download your bill – You can print a copy of your prepayment bill by choosing “Download Your Bill” on the homepage and entering your PIN or property address.

By mail – Send the prepayment bill and your payment to:
Cook County Treasurer
PO Box 805436
Chicago, IL 60680-4115

In person – Submit the prepayment bill and payment at a Chase branch bank or the Treasurer’s Office, 118 N. Clark St., Room 112, Chicago.

December 14—2017 Tax Reform: Conference Committee reaches agreement reconciling Senate and House versions of tax bill.

On December 13, the Conference Committee reached an agreement in principle on reconciling the Senate and House versions of their tax bill.

Key features include:
. . . a flat corporate tax rate of 21%;
. . . a repeal of the corporate alternative minimum tax;
. . . a top individual tax rate of 37%; and
. . . an election to choose either a property tax deduction or a state and local income tax deduction, up to $10,000.

Turbocharge Your Retirement Savings with an HSA

As you know, I’m big on wanting you to plan your retirement savings.

I was doing some tax research and noted this extra boost that you can give to your retirement monies. It’s the health savings account (HSA), which is in a way the Swiss Army knife of savings accounts. Not only does the HSA provide big benefits for medical expenses, but it is also a powerful tool to supplement your retirement savings.

If you had a choice of putting money into either a traditional IRA or an HSA, the money in the HSA would perform better than the money in the IRA. Why? With the HSA, it’s possible to avoid taxes forever. You can’t do that with a traditional IRA because you pay taxes on the back end when you withdraw funds.

With an HSA, you can withdraw funds at any time, tax free, to use for qualified medical expenses. When you reach Medicare-eligibility age (age 65), you qualify for an added benefit because you can use the HSA funds to cover your health insurance premiums, including Medicare Part B premiums and long-term care insurance premiums. These expenses are inevitable, so why not pay them with tax-free cash?

Of course, we want you to have all your retirement accounts growing tax free or tax deferred. So you could have both the traditional IRA and the HSA. You should also consider the Roth IRA, the 401(k), and the defined benefit plan.

But I think the HSA can work very well if that fits your medical needs at the moment. And if it fits your needs for many years, you could have a nice nest egg later.

If you would like to discuss the various retirement planning options available to you, please don’t hesitate to give me a call.

Simple Answers to Questions About Using Your Vehicle for Business


Using a Vehicle for Business: Q&A

IRS rules and exceptions abound, but there are some questions we can answer simply.

Next to your home, your car is probably the most expensive investment you make. And the costs of paying for and maintaining it can be considerable. Can you recoup some of your investment by claiming vehicle expenses on your tax return?

Sometimes. The IRS has many restrictions on the business use of a vehicle, and those restrictions have many exceptions. Better to know these upfront than to have to correct a tax return after you’ve filed it. Here are some questions and answers that may help you decide whether you’re eligible.

How does the IRS identify a “vehicle”?

A car, van, pickup, or panel truck.

What are transportation expenses?

These are “ordinary and necessary expenses” incurred when you, for example:

  • Visit customers,
  • Attend a business meeting held at a location other than your regular workplace, or
  • Go from home to a temporary workplace that is not your company’s principal location.

The daily commute to and from your regular office is not deductible. The IRS considers this personal commuting expenses.

What if I’m on an overnight business trip away from home?

The IRS considers these travel expenses, and they’re reported differently. Your car expense deduction, though, is calculated the same way in both situations.

What if I use my car for both business and personal purposes?

You’ll calculate the expenses incurred for each by determining how many miles you drive for business and how many you drive for personal reasons.

I work in a home office. Can I deduct any driving expenses?

Yes, you can deduct the cost of driving to “another work location in the same trade or business.”

How do I calculate my deductible expenses?

There are two options. Use the standard mileage rate. You are required to use this method for the first year you use the vehicle for business purposes. After that initial year, you can choose between the standard mileage rate and actual car expenses. These include depreciation, oil and gas, insurance, and repairs.

Depreciation? Isn’t that difficult to calculate?

Yes, especially for cars. If you plan to take this kind of deduction, please let us handle your tax preparation for you. Depreciation is very, very complex, and sometimes requires more than one calculation method.

Can I take a Section 179 deduction for my vehicle?

Possibly, if you use the car for business more than 50 percent of the time — and only for the first year.

What kind of vehicle expense records do I need to maintain?

You know the drill here. If the IRS ever wants to examine your return, it will expect evidence like receipts, cancelled checks, and credit card statements. You’ll need to document the date and location where you incurred the expense. You’ll need accurate mileage records (miles driven, purpose of trip, etc.).

These requirements scream for some kind of organized computer log or written diary, along with a safe place for any paper receipts, bills, etc. There are numerous mobile apps that can help you with this task. We can steer you in the right direction.

If you’re planning to deduct car expenses, it’s important that you keep careful paper or electronic records.

Where will I be reporting transportation expenses?

If you are self-employed, you will report business-related vehicle expenses on Schedule C or Schedule C-EZ (Form 1040). Farmers should use Schedule F (Form 1040). You’ll also want to complete a Form 4562, which is used to report depreciation and the Section 179 deduction.

Maintaining accurate records for car and truck expenses is time consuming and detail intensive. And that’s once you understand all of the IRS’s rules and exceptions surrounding this deduction. To avoid having to fix completed tax documents that the IRS has questioned, talk to us before you put a vehicle into business use. We’ll be happy to evaluate your transportation situation and guide you through the process.