Tag Archives: itemized deductions

Recent Tax Law Changes

Schutte & Hilgendorf, PLLC has been tracking the Tax Cuts & Jobs Act very closely. We believe your knowledge of these changes and how they affect you and/or your business is very important.  Following are a few of the main components of the bill that may affect your tax returns. Most of the provisions of the bill go into effect for 2018 tax returns, but there are couple changes that will go into effect for 2017 tax returns.

 

Individual Tax Law Changes

Individual mandate

The act removed (by reducing it to zero) the penalty for not obtaining qualified health insurance, effective after 2018.

 

A top individual tax bracket of 37%

The top tax bracket for individuals has been reduced from 39.6% to 37%. Many of the other brackets have been reduced as well.

 

Standard deduction: The act increased the standard deduction to $24,000 for joint returns and $12,000 for single individuals. The additional standard deduction for elderly and blind taxpayers was not changed by the act. The personal exemptions of $4,050 per person were repealed.

 

Itemized deductions

  • Overall limitation: The act repealed the overall limitation on itemized deductions.
  • Mortgage interest: The home mortgage interest deduction was modified to reduce the limit to $750,000 of acquisition debt (from the limit of $1 million) on mortgages created or modified after December 15th, 2017.
  • Home-equity loans: The home-equity loan interest will no longer be deductible. 
  • State and local taxes: Individuals will only be allowed to deduct up to $10,000 in state and local income or property taxes.
  • Miscellaneous itemized deductions: All miscellaneous itemized deductions subject to the 2% floor under current law will no longer be allowed, including common deductions like employee business expenses, tax preparation fees, investment fees, safe deposit box fees.
  • Medical expenses: The threshold for deduction of medical expenses was reduced to 7.5% from 10% of adjusted gross income for 2017 and 2018.

 

Individual Alternative Minimum Tax (AMT)

The act increased the thresholds for when AMT will apply to individuals.

 

Child tax credit

The act increased the amount of the child tax credit to $2,000 per qualifying child. The maximum refundable amount of the credit is now $1,400. The act also created a new nonrefundable $500 credit for qualifying dependents who are not qualifying children. The threshold at which the credit begins to phase out was increased to $400,000 for joint returns and $200,000 for other taxpayers.

 

Education provisions

The act modifies Sec. 529 plans to allow them to distribute up to $10,000 in expenses for tuition at an elementary or secondary school. This limitation applies on a per-student basis, rather than on a per-account basis.

 

Alimony

For any divorce or separation agreement executed or modified after Dec. 31, 2018, the act provides that alimony and separate maintenance payments are not deductible by the payer spouse. Payments to the recipient spouse are also no longer taxable.

 

Business Tax Law Changes

 Corporate tax rate of 21%

The act replaced the prior-law graduated corporate tax rate, with a flat rate of 21%. The new rate took effect Jan. 1, 2018.

 

Pass-through income deduction

For tax years after 2017, individuals may be allowed to deduct 20% of “qualified business income” from a partnership, S corporation, or sole proprietorship, as well as 20% of qualified real estate investment trust (REIT) dividends, qualified cooperative dividends, and qualified publicly traded partnership income.

 

The deduction can be phased out based on W-2 wages above a threshold amount and for “specified service businesses” when the taxpayer has taxable income in excess of $315,000 for a joint return and $157,500 for single individuals.

 

Bonus depreciation

The act extended and modified bonus depreciation, allowing businesses to immediately deduct 100% of the cost of eligible property in the year it is placed in service. It also removed the rule that made bonus depreciation available only for new property.

 

Sec. 179 expensing 

The act increased the maximum amount a taxpayer may expense under Sec. 179 to $1 million and increased the phaseout threshold to $2.5 million. These amounts will be indexed for inflation after 2018.

 

Like-kind exchanges 

Under the act, like-kind exchanges under Sec. 1031 will be limited to exchanges of real property that is not primarily held for sale. This will affect the trade in of company vehicles when purchasing a new company vehicle.

 

Domestic production activities

The act repealed the Sec. 199 domestic production activities deduction.

 

Entertainment expenses

The act disallows a deduction for (1) an activity generally considered to be entertainment, amusement, or recreation; (2) membership dues for any club organized for business, pleasure, recreation, or other social purposes; or (3) a facility or portion thereof used in connection with any of the above items.

 

Corporate Alternative Minimum Tax (AMT)

The act repealed the corporate AMT.

 

Employer credit for paid family or medical leave

The act allows eligible employers to claim a credit equal to 12.5% of the amount of wages paid to a qualifying employee during any period in which the employee is on family and medical leave if the rate of payment under the program is 50% of the wages normally paid to the employee. The credit is increased by 0.25 percentage points (but not above 25%) for each percentage point by which the rate of payment exceeds 50%. The maximum amount of family and medical leave that may be taken into account for any employee in any tax year is 12 weeks. However, the credit is only available in 2018 and 2019.

 

Schutte & Hilgendorf offers a broad range of professional accounting, tax, and audit services to individuals and businesses throughout Yavapai County and Northern Arizona.   With over 40 years combined certified public accounting experience, we specialize in providing services to numerous industry specific areas, including non-profit organizations, homeowner’s associations and construction contracting.  We also provide tax planning and preparation, sales tax and payroll tax return preparation, ongoing accounting/bookkeeping, live payroll, and QuickBooks setup and training (QuickBooks Proadvisors).  Given our small size, we can still provide a personal touch with professional expertise. Come in and see us anytime at 2086 Willow Creek Road, Prescott, Arizona or call us at 928-778-0079.


Tax-Exempt Church Schools – Frequently Asked Questions

As we enter tax season, important questions that have been in the back of our minds for the past year float to the surface.  Attached is an article from the American Institute of Certified Public Accountants (AICPA) addressing frequently asked questions regarding Tax-Exempt Church Schools that we would like to share with our clients.  As the season progresses, we will share these frequently asked about topics and other important accounting and tax issues as they arise, so stay tuned…..

Tax Exempt Church Schools FAQs

If you have additional questions about this post or any other, please contact us directly at 928-778-0079.

Schutte & Hilgendorf is a leading Prescott CPA firm, offering superior client service to individuals, small businesses, non-profit organizations, and homeowners associations.

Our services include accounting, bookkeeping, audit, review, tax return preparation, tax planning, payroll and QuickBooks consulting.  We are located in Prescott and serve all of Yavapai County, and Northern Arizona.


Non-Cash Contributions – Have your Documentation

From Western CPE

eTax Alert™

 

Court Shows No Charity in Disallowing $37,315 of Non-cash Contributions (Kenneth Kunkel, TCM 2015-71)

Kenneth and Susan Kunkel claimed a $37,315 charitable deduction for non-cash contributions on their 2011 tax return. The Kunkels claimed to have donated property to four organizations: their church, Goodwill, Purple Heart, and Vietnam Veterans. They had no receipts, photos, or other documentation for the contributions, but claimed that they didn’t need receipts because each donation was less than $250.

What documentation is required?

$250 or more. For all contributions of $250 or more, the taxpayer generally must obtain a contemporaneous written acknowledgment from the donee (§170(f)(8)).

Less than $250. “Separate contributions of less than $250 are not subject to the requirements of Subscribe Share Past Issues Translate §170(f)(8), regardless of whether the sum of the contributions made by a taxpayer to a donee organization during a taxable year equals $250 or more” (§1.170A-13(f)(1)).

$500 or more. Additional substantiation requirements are imposed for contributions of property with a claimed value exceeding $500 (§170(f)(11)(B)).

More than $5,000. Still more rigorous substantiation requirements, including the need for a “qualified appraisal,” are imposed for contributions of property with a claimed value exceeding $5,000 (§170(f)(11)(C). “Similar items of property” must be aggregated in determining whether gifts exceed the $500 and $5,000 thresholds (§170(f)(11)(F)).

What are “similar items?” The term “similar items of property” is defined as “property of the same generic category or type,” such as clothing, jewelry, furniture, electronic equipment, household appliances, or kitchenware (§1.170A-13(c)(7)(iii)).

The court categorized similar items from Kunkel’s list of non-cash items.

Clothing – $21,920
Books – $8,000
Furniture – $3,090
Household items – $1,653
Toys – $1,072
Telescopes – $800
Jewelry – $780

No appraisals and no receipts equal no deduction.
Clearly the clothing and book donations exceeded the $5,000 value and required appraisals to properly substantiate the deduction. All other categories exceeded $250 and required receipts. The court agreed with the IRS’s disallowance of all non-cash contributions.

Tax practitioner idea. Claiming a $6,000 contribution of “household goods” would require an appraisal. Claiming a $3,000 donation of furniture and a $3,000 donation of clothing would not. Categorize the donations carefully.

 

© Vern Hoven and Sharon Kreider 

Western CPE

If you have additional questions about this post or any other, please contact us directly at 928-778-0079.

Schutte & Hilgendorf is a leading Prescott CPA firm, offering superior client service to individuals, small businesses, non-profit organizations, and homeowners associations.

Our services include accounting, bookkeeping, audit, review, tax return preparation, tax planning, payroll and QuickBooks consulting.  We are located in Prescott and serve all of Yavapai County, and Northern Arizona.


2014 Year-end Tax Update

The team at Schutte & Hilgendorf, CPA’s wishes you a very Happy Holiday Season. We hope you enjoy this time with your family and friends and take time to enjoy the sights and sounds of Prescott-“Arizona’s Christmas City”.

The 4th Quarter Estimated Payments are due January 15, 2015 – however, if you pay Arizona by December 31, it can count as a state tax deduction for 2014.

As has been our tradition, we want to remind you of changes that have occurred in the area of individual tax for the year 2014 and to give you some tax planning tips that might apply to your specific tax and financial situation. As always, please call or email if you have any questions or concerns. All areas of tax cannot be covered here, but I have highlighted the major changes.

There are two major changes this year:

  1. The Affordable Care Act (ACA) – The individual requirement under the ACA means everyone is required to have health insurance for the year 2014. There is an additional line on the Individual Tax Form – 1040 – that asks that specific question. If the box is not checked, this will indicate to the IRS you were not covered by the minimal essential health insurance and may be subject to a penalty. Even though Medicare and Medicaid recipients were qualified participants without having to do anything additional, they are still required to check this box. There are 5 additional tax forms, plus worksheets, that may be required to be completed with the tax return, depending on your situation and the coverage you have.

The subsidized credits and possible penalties are calculated on the tax returns. The additional forms will be similar to a 1099 Form/W-2 Form and will be issued by the Exchange, the insurance companies, or your employer. These will arrive in January/February with other tax forms you normally receive. We are required to have a copy of these before we can prepare your tax return. Please remember to save these with your other tax forms you will be receiving and bringing to us.

If you have college students that are covered by your health insurance policy and they have earnings that require them to file a return, we recommend we prepare their returns along with yours. There are family income levels that must be considered in determining the subsidies or credits.

Because of the additional time and calculations that are required of preparers and the liability it exposes us to, your tax preparation fee will increase this year. We are estimating it to be a $50 minimum increase. Depending on the complexity of your situation, the cost could be quite a bit higher . If you are receiving Medicare coverage for health costs, the additional cost will be on the low end. Those with private insurance plans or employer plans could be on the more complex side.

If you have any questions regarding how this will affect your tax return, please call us now.

  1. The second change is the “Extenders” as they are referred to in the media. These are a number of credits/deductions that were allowed in 2013, but expired January 1, 2014. These include:
  • Energy credits for windows, insulation, doors, etc. The only energy credits allowed are for solar installations
  • The above-the-line deduction for out-of-pocket school classroom supplies for teachers
  • The contribution to charitable organizations of your RMD
  • The above-the-line deduction for qualified tuition and related expenses
  • The state and local general sales tax deductions
  • Exclusion of $2 million for discharge of principal mortgage debt

These “extenders” are now being debated in Congress, and as of this date the House passed a bill allowing them to continue for 2014. It is now in the Senate for debate. We are closely watching the developments.

Arizona is continuing with the credits for schools and other charitable organizations for this year, which is very good news.

The credits will allow you to re-direct any Arizona tax liability to other avenues of your choice rather than the State, and most of these credits also qualify for a Federal charitable contribution, if you itemize. You do not need to itemize for Arizona to take advantage of these credits.

The credits and amounts allowed are as follows: (for single/married filing jointly)

  • Public School Credit – $200/$400
  • Qualifying charitable organizations (formerly known as the “Working Poor” credit) – $200/$400
  • Qualifying Foster Care organizations – $200/$400
  • Private School Tuition organization – $528/$1,056
  • Certified School Tuition organization – $525/$1050

Except for the last two, all charitable donations must be made before December 31, 2014. You have until April 15, 2015 to contribute the 2 School Tuition credits to have it apply for 2014 returns.

There is a link on our website www.prescottaccountants.com also detailing these credits and links for you to verify if an organization you are considering for a contribution is a qualified organization for receiving these.

You are also encouraged to call or email us if you have any questions regarding these.

General Info: The standard deduction for a Married Filing Jointly is $12,400 and for Singles is $6,200. If you do not have mortgage interest, high medical bills, or considerable charitable donations for 2014, your itemized deductions may not total these amounts. It will be to your advantage to take the standard deduction, and you do not have to gather and total your medical receipts. TIP:   if you want to do a comparison, all medical offices and pharmacies will print out an annual recap of the amounts you paid to them, if asked. A big time saver!

The tax organizers will be mailed to you after the Christmas Holiday. There will be additional questionnaires included this year asking you to verify specifics on Health Insurance, foreign bank accounts and foreign pensions. These must be returned to us along with the questionnaire (which will also have a place for signature this year) and the signed engagement letter.

We are offering another option for you this year. The organizer will include a pre-set date and time for your tax appointment. If the pre-set date and time is inconvenient for you, please call or email Sharon sharonb@ prescottaccountants.com in our office to change the appointment. In order to make tax preparation more convenient for you, if you do not feel you need a personal face-to-face appointment, you are welcome to drop off your tax information. We have a secure “drop box” just to the left of the entrance, if the time convenient to you is not during office hours.  Adam Rutherford or Lois Hilgendorf will call you when we are preparing your return if we have any questions, or you may set up a telephone consultation appointment if that is more convenient.

This tax update is also posted on our website, www.prescottaccountants.com, so if you have family or friends that would find this helpful, please urge them to visit the website.

If you need assistance in organizing or planning call us before December 31.