January 2019 Client Update Letter

January 2019 Client Update Letter

What to Expect as the Biggest Tax Law Change in over 30 Years Takes Effect The Tax Cuts and Jobs Act (“TCJA”) was signed into law on December 22, 2017. This legislation introduces significant changes to taxation of your 2018 income, and is the biggest change in over 30 years. The TCJA redefines self-employment income, using a new concept called Qualified Business Income (“QBI”). Personal exemptions have been eliminated, tax brackets have changed, tax rates are lower throughout the new brackets, child credits have been enhanced, and itemized deductions were thoroughly overhauled. Other changes are included as well. The State of Minnesota has not enacted a conformity bill with the TCJA. The calculation of taxable income in Minnesota for 2018 will rely on the rules in place for the 2016 tax year. Due to the numerous changes in place for 2018, our fees for preparing your returns will increase. We will confirm your 2018 tax preparation fee when we receive your file. Thank you for your business and we look forward to working with you once again. Federal vs. State differences Minnesota taxpayers will file a tax return with several major differences when compared to the 2018 Federal return, including the differences in itemized deduction rules. The Qualified Business Income deduction is completely excluded from tax year 2018 Minnesota returns. Personal exemptions will be calculated using the rules in place for 2016 returns. A total of 38 Federal-to-Minnesota differences are in play for 2018. Other states have different level of compliance with, and differences from, the changes in the TCJA. To properly manage the differences in the State and Federal returns for 2018, we’ll likely need additional information from you. How will the changes to Itemized Deductions affect you? Itemized deductions are expenses and expenditures, commonly called “write-offs”, that are subtracted from Adjusted Gross Income and which lower your taxable income. In prior years, we would gather information about your qualifying expenses – for medical expenses, mortgage interest, income and property taxes paid, charitable donations, brokerage fees paid, unreimbursed work expenses and a host of others – and summarize them on Schedule A. In choosing either itemized deductions, or the standard deduction, we would prepare the returns as if all clients would itemize, and then select the larger of the itemized or the standard deduction. In this way the maximum benefit for each client, based on the details of their situation, ensures that the lowest allowable taxable income – and tax – is calculated. The TCJA markedly increases the standard deduction, while limiting many traditionally deductible expenses. Minnesota will continue to use the more generous itemized deduction rules from 2016. As such you may take the standard deduction on Form 1040, and take itemized deductions on the Minnesota return. To allow for the most beneficial calculation of itemized deductions in your 2018 returns, please bring us all of the items that have traditionally gone into itemized deductions in the past. We’ll again calculate the lowest income and tax under these new rules. New Mortgage Interest rules Itemized deductions for mortgage interest paid are more restricted under the TCJA, and interest paid on home equity loans may no longer be deductible at all. We may request additional information from you to properly calculate this heavily revised deduction. What is Qualified Business Income? Qualified Business Income is income reported to a business owner or investor via a Schedule K1 (from your S-Corporation or Partnership), Schedule C, or Schedule E. For married taxpayers filing jointly with income of $315,000 or less, or others with income of $157,500 or less, you are eligible to exclude 20% of QBI from taxation on your Federal tax return. There is an alternate calculation based on wages paid in the business, and the fraction of wages attributable to each owner. The Qualified Business Income deduction is phased out for married taxpayers with income over $415,000 and other taxpayers with income over $207,500. Wages paid from an S-Corporation to the owner do not qualify for treatment as QBI. Guaranteed payments to a partner also do not meet the QBI definition and also do not receive the QBI benefits. Tax Organizer We included a summarized checklist in your client letter.  If you did not receive a client letter or if you would like the more detailed organizer sent to you, please let us know.  We would be happy to provide either to you by e-mail or regular mail.  Our main office number is (952) 934-8405.      

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Everything You Need to Know About the New Tax Law Before the End of the Year


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Answers to some common questions concerning the new tax bill and how it will affect you:  

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How Does the Tax Cuts and Jobs Act Affect you?

The Tax Cuts and Jobs Act (TCJA) was signed into law on December 22, 2017. This legislation introduces the biggest changes to taxation of your income in over 30 years. We are summarizing and highlighting the changes introduced with this legislation to allow for the best opportunity to utilize these changes. We encourage you to call us with questions, or to schedule a meeting to evaluate how these changes effect you.

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New Tax Form Preview

 

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IRS Scam

The IRS will never ask you for gift cards as payment.  They also will not threaten you with jail or call you out of the blue.  These types of calls can be scary, but do not panic.  Call your accountant or the IRS directly if you are concerned.

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IRS Releases 2018 Withholding Calculator

The IRS has updated their withholding tool for 2018.  It now takes into account the new tax law.  Now is a great time to check your withholding for 2018.  Check out the tool here: IRS Withholding Calculator  

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2018 Tax Withholding Tables Released

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YOU MAY BENEFIT FROM PRE-PAYING YOUR 2018 PROPERTY TAXES

The recent 2018 tax legislation passed in Washington includes a significant change to itemized deductions. In 2018, the itemized deduction for income tax paid and for property tax paid is limited to $10,000. As such you may benefit by accelerating the payment of your 2018 property taxes into 2017. How can you benefit? If you are itemizing deductions, and you are not subject to the Alternative Minimum Tax, combining your 2017 and 2018 property taxes in 2017 will increase your tax year 2017 itemized deductions. Even though this will likely lower your 2018 itemized deductions, you will still receive the full benefit of the new legislation for 2018, by meeting the new $10,000 limit with the income tax that you are paying to Minnesota. You will need to pay your 2018 property tax by December 31, 2017 to receive this benefit. We’ll be happy to walk you through the specifics of your returns – please call with your questions.

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W-2 Email Phishing Scams

The Minnesota Department of Revenue and the IRS are warning about email phishing scams targeting payroll and human resource professionals: MN Department of Revenue News Release    

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Your Tax Return and the Affordable Care Act

The Affordable Care Act – popularly known as Obamacare – introduces issues that must be addressed on your tax return. Learn more in this informative article from the Wall Street Journal.   http://www.wsj.com/articles/affordable-care-act-creates-a-trickier-tax-season-1420157063

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