2018 tax laws Archives - Mendes Weed, LLP

California wants to increase your tax deductions. The IRS is trying to prevent that.

California State Tax Law (FTB, EDD, and SBE), Federal Tax Law

At the end of May, 2018, the IRS issued Notice 2018-54. The Notice indicates that the IRS is working on proposed regulations to address State attempts to circumvent the new laws regarding the deductibility of state and local tax payments on an individual’s federal income tax return.

See SB 227, which would have started the California Excellence Fund allowing taxpayers to make payments to the fund and deduct those payments as charitable deductions. This was an attempt to help taxpayers in California achieve more deductions on their tax returns, since under the new federal tax law state and local income tax deductions are limited to $10,000. Other states like New York were contemplating similar laws.

The Notice reiterates that federal law controls the characterization of payments for federal income tax purposes without deference to state law.

If the proposed regulations are passed, the California Excellence Fund would likely not happen.

If you have questions about the new tax laws, you should reach out to a tax lawyer who can assist you with your questions and concerns.

Mendes Weed, LLP is here to help you if you have any questions. (925) 390-3222.

The tips and materials provided on this page are for informational purposes only, offered as public service. No information on this website should be considered legal advice or used as a substitute for legal advice. For legal advice, you should contact an attorney directly.

Christina Weed - Taxation Law Specialist

Top 3 Ways to Hack the Tax Cuts and Jobs Act

Federal Tax Law

Update your W-4

Taxpayers can no longer claim a personal exemption. Make sure you have proper wage withholding. If you enjoy getting a refund when you file taxes, and you don’t want to owe, you will likely need to update your W-4

Get the medical procedure you’ve been putting off done in 2018

The AGI floor for itemizing medical deductions is now 7.5% instead of the previous 10%. In other words, if you pay more than 7.5% of your AGI on medical expenses, you will be able to deduct them.

Bunch your charitable contributions

The standard deduction has nearly doubled. If you are close to being able to itemize deductions, you may want to consider bunching your charitable contributions in one year.

For example, if you normally make charitable contributions of $10,000 per year, you may want to consider making $30,000 in charitable contributions in one year and itemizing deductions, and taking the standard deduction in the next two years.

Remember, many of these provisions are set to expire after 2025. It is important to stay on top of the tax law changes to make sure you are compliant while also using the tax laws to your favor.

If you have questions about the new tax laws and how they affect you, you should reach out to a tax lawyer who can assist you with your questions and concerns.

Mendes Weed, LLP is here to help you if you have any questions. (925) 390-3222.

The tips and materials provided on this page are for informational purposes only, offered as public service. No information on this website should be considered legal advice or used as a substitute for legal advice. For legal advice, you should contact an attorney directly.

Tax Cuts and Jobs Act – S Corporation of Partnership

Federal Tax Law, Tax Lawyer

Business owners may have questions about which flow-through entity might be right for them after the Tax Cuts and Jobs Act.

Internal revenue Code (IRC) Section 199A provides a deduction for individuals and trusts on combined qualified business income (QBI). This provision is effective December 31, 2017, through December 31, 2025, and it applies to sole proprietorships, disregarded entities, partnerships (LLCs taxed as partnerships), and S Corporations.

QBI is ordinary income less ordinary deductions (with exceptions), and does not apply to wages, long-term and short-term capitals gains/losses, dividend income, interest income, or guaranteed payments.

The deduction is 20% of QBI, unless household income exceeds the $315,000 to $415,000 phase out range for married filing jointly (different phaseout limits apply to other tax filers). If QBI does exceed phase out, the deduction is limited to the greater of 50% of W-2 wages or 25% of W-2 wages plus 2.5% of property’s unadjusted basis.

However, if you are a qualified services business, owners cannot take any deduction after “phase out.” Disfavored businesses include services in the fields of health, law, accounting, performing arts, consulting, athletics, financial and brokerage services, in addition to others.

In addition, when considering whether to be a partnership or an S corporation, business owners should consider the unemployment tax liabilities they will face if they are a partnership versus the amount they will need to pay themselves as a “reasonable salary” if they are an S corporation.

If you have questions about which business entity might be right for you, you should reach out to a tax lawyer who can assist you with your questions and concerns.

Mendes Weed, LLP is here to help you if you have any questions. (925) 390-3222.

The tips and materials provided on this page are for informational purposes only, offered as public service. No information on this website should be considered legal advice or used as a substitute for legal advice. For legal advice, you should contact an attorney directly.

Repeal of State and Local Income Tax (SALT) Deduction

Tax Lawyer

By now, you have probably heard that the 2017 Tax Cuts and Jobs Act has limited the deduction for state and local income tax (SALT) to $10,000 for all tax filers, including tax filers who file their tax returns as married filing jointly. If you are a California resident, this may be very concerning for you.

The good news is that this change is set to automatically expire after December 31, 2025. The bad news is that Californians will be very limited in what they can deduct in terms of state income tax and property tax for the next several years.

California legislators have proposed several bills to hopefully alleviate the challenges that the new federal tax bill has presented.

First, there is AB 1864, the Prosperous Economy and Payer Protection through Equitable Rates Act, or PEPPER, which was introduced by Assembly Member Kiley. This proposed legislation would have allowed taxpayers to deduct their full federal tax liability on their state tax return. While this proposed legislation may seem appealing to California residents, it was estimated that it would cost approximately $400 billion. As of April 9, 2018, this proposed legislation officially failed to pass.

There is also SB 227 introduced by Senator De Leon. This bill would allow California taxpayers to make charitable contributions to the state to mitigate a new cap on the federal deduction for SALT. The bill has passed the Senate and will continue to the Assembly.

The Franchise Tax Board’s analysis on this bill indicates that the bill assumes the California Excellence Fund, which taxpayers would contribute to, would be allowed as a charitable contribution deduction on the federal income tax return.

For now, California taxpayers will have to wait and see how this legislation turns out.

If you have any questions about the new tax laws, and what options you have, you should consult with a tax lawyer. Christina Weed has an LL.M. in Taxation, and assists clients with their tax law questions.

Mendes Weed, LLP is here to help you if you have any questions. (925) 390-3222.

The tips and materials provided on this page are for informational purposes only, offered as public service. No information on this website should be considered legal advice or used as a substitute for legal advice. For legal advice, you should contact an attorney directly.

Estate Planning After the Tax Cuts and Jobs Act

Estate Planning

The new tax laws increased the estate, gift, and generation-skipping transfer (GST) exemptions to $11.2 million in 2018. The annual gift exclusion has been increased to $15,000 in 2018.

It is still very important to plan even with the new tax laws. The tax laws related to estate planning automatically expire after 2025. Also, many states have estate taxes as well. While California currently does not have an estate or inheritance tax, that could change in the future. Even if there is no estate tax, your estate could be subject to probate which is a long and expensive process. Finally, with the rise of financial elder abuse, it is important to have an estate plan in place while you are still able to have one prepared and eventually implemented.

The Tax Cuts and Jobs Act did not make changes to some of the following:

Step-up in basis of appreciated assets at death
Grantor retained annuity trusts (GRATs)
Qualified Personal Residence Trusts (QPRTs)
Charitable Trusts
Crummey Trusts
Lack of Control or Marketability Discounts

The preceding list is not exclusive.

If you have questions about any of this, it is important to speak with an estate planning lawyer who understands the tax laws.

Christina Weed has an LL.M. in Taxation, and assists clients with their estate planning and tax questions.

Mendes Weed, LLP is here to help you if you have any questions. (925) 390-3222.

The tips and materials provided on this page are for informational purposes only, offered as public service. No information on this website should be considered legal advice or used as a substitute for legal advice. For legal advice, you should contact an attorney directly.

California wants to increase your tax deductions. The IRS is trying to prevent that.

Top 3 Ways to Hack the Tax Cuts and Jobs Act

Tax Cuts and Jobs Act – S Corporation of Partnership

Repeal of State and Local Income Tax (SALT) Deduction

Estate Planning After the Tax Cuts and Jobs Act

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