.On June 25th the New York Times took a look at the draft "postcard" tax form that is to be unveiled  next week and reported the following -

• The form shrinks the form to postcard size by eliminating more than half of the 78 lines on the current form 
• The new form omits lines for a variety of popular deductions, including those for student loan interest and the teachers' credit.  Those are found on one of six accompanying worksheets.
• Business income, capital gains and several other forms of income are also omitted from the postcard and must be reported on accompanying worksheets.
• There is a line for the child tax credit but if you claim child care expenses you'll have to find the right worksheet to claim that credit along with a number of other credits.
• There is no line to reconcile the health care premium, even though the requirement to have health insurance or be penalized remains for Tax Year 2018.

If you prepare your own taxes, it will be more complicated to do so with this new form unless you have a very simple tax life.  The new form could also make things more complicated for the IRS.  More than 90% of taxpayers now file electronically but if more people opt for the postcard return which has to be handled manually, the IRS could be overwhelmed, given the budget cuts over the past several years that have reduced staffing, delaying the issuance of refunds.  

For many taxpayers, an additional complication may be created by the state tax return they need to prepare and submit.  Many states have not adopted the changes in the federal law and so far no state has announced it will go to a "postcard" form.

The postcard form assumes that taxpayers will claim the standard deduction, rather than itemizing. That may not result in the highest deduction, but taxpayers will not know that unless they calculate their itemized deduction and compare that to the standard deduction.  Additionally, while it may be advantageous to claim the standard deduction on your federal return, that may not be the case on your state return.

Turner's Tax Service will be closely monitoring this new form as well as all the other changes as a result of the Tax Cuts and Jobs Act (TCJA).  As additional information becomes available, it will be posted here.

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​The Tax Cut and Jobs Act is the biggest tax reform law in over 30 years. When you file your 2018 tax returns — about a year from now — your tax return will look very different. And because most changes don’t happen until then, there's time to learn about the changes and plan for next year. Here are a few of the biggest changes that may affect you.

Tax rate changes. Both individual and corporate rates have changed. The maximum individual rate is reduced to 37% and the corporate rate is now a flat 21%. Because each taxpayer's situation is unique, whether the rate changes help or hurt can't be determined without looking at the individual situation.

Standard deduction increases but personal exemptions eliminated.  Again - each taxpayer's situation is unique and whether these changes help or hurt can't be determined without looking at the individual situation.

Increased Child Tax Credit and new Dependent Credit: The credit is increased for each child to $2,000 (up to $1,400 of which is refundable for each child) and each non-child dependent can now receive a new credit of $500. The phaseout thresholds for these credits are drastically increased. Married taxpayers filing a joint return can claim the full credits if their adjusted gross income is $400,000 or less ($200,000 for all others). The credits are fully phased out for married taxpayers filing a joint return when their adjusted gross income reaches $440,000 ($240,000 for all others). This means that many more taxpayers will be able to claim these credits in 2018 and beyond.

Disappearing deductions: Beginning with the 2018 tax year, you will no longer be able to deduct:

• State income tax and property taxes above $10,000 per year in total;
• Moving expenses (with an exception for certain military);
• Employee business expenses such as mileage, travel, entertainment, home office expenses, union dues, tax preparation fees, and investment fees, among others;
• Mortgage interest beyond interest on $750,000 of acquisition debt, if you purchase a new home; and
• Mortgage interest paid on equity debt (this is no longer deductible for any taxpayers).

Some new benefits for individuals: These new benefits include:

• The medical expense AGI threshold will temporarily drop to 7.5% of AGI for 2017 and 2018;
• The AMT threshold is increased, so fewer middle-income taxpayers will be subject to AMT;
• The estate tax exclusion has nearly doubled, to $10 million (adjusted for inflation); and
• The annual gift tax exclusion remains the same ($14,000 for 2017 and $15,000 for 2018), but the maximum rate on gifts is 35%.

Small business benefit: Beginning in 2018, there will be up to a 20% deduction from net business income for a sole proprietorship, LLC (excluding those taxed as a C corporation), partnership, S corporation, and rental activity. The rules are incredibly complex but there is a lot of planning that we can do to maximize this deduction for you.

Courtesy of Parker Tax Publishing

Yesterday, December 14th, the conference committee reconciling the House and Senate versions of the Tax Cuts and Jobs Act (TCJA) ("House Bill" and "Senate Bill", respectively) is reported to have reached a deal in principle and is working rapidly to finalize legislative language for the massive tax bill. The legislators are rushing to get a bill passed before the holiday recess, a self-imposed deadline made more urgent by a Democratic victory in the Alabama special Senate election earlier this week.

The conference committee has not released a summary of its agreement, but a number of key details have emerged through comments (on and off the record) by members of Congress close to the negotiations and their staffs. According to the sources, negotiations between the House and the Senate have yielded the following compromises, concessions, and changes:

(1) A top individual tax rate of 37 percent (compared with 39.6 percent rate in the House Bill and 38.5 percent rate in the Senate Bill);
(2) A top corporate rate of 21 percent (compared with a rate of 20 percent in both the House and Senate Bills);
(3) Full repeal of the corporate alternative minimum tax (AMT) (adopts provision from the House Bill; the Senate Bill had retained the corporate AMT);
(4) A 20 percent deduction against qualified business income from passthrough business entities (compared with a 23 percent deduction in the Senate Bill, from which the provision is derived) and a likely tightening of the rules for calculating "qualified business income" (moving them toward the generally stricter ones in the House Bill);
(5) Repeal of shared responsibility payments (individual healthcare mandate) under the Affordable Care Act (provision was in the Senate Bill but not the House Bill);
(6) A maximum $10,000 deduction for state and local property taxes for individuals, with taxpayers being able to choose between deducting either property taxes or income taxes (the House and Senate Bills allowed for only the deduction of property taxes up to the limit; it's not clear whether taxpayers would be able to deduct sales taxes instead of income taxes, as they can under present law);
(7) A lowered $750,000 limit on the loan amount for which a mortgage interest deduction can be claimed by individuals, with existing loans grandfathered (splits the difference between the House and Senate Bills; the limit under present law is $1 million);
(8) Continued deductibility of unreimbursed medical expenses of individuals (the House Bill repealed the deduction);
(9) Retention of individual AMT with an exclusion of $1 million for joint filers and $500,000 for all others (the House Bill repealed the individual AMT; the Senate Bill retained it with far less generous enhancements to the AMT exemption amounts);
(10) Likely enhancement in the refundability of the child tax credit; As of last night this became a potential sticking point as Senator Rubio and Senator Lee indicated the refundable amount would need to be increased in order for them to vote yes on the bill. 
(11) Continued deductibility of student loan interest and exclusion from income of graduate student tuition waivers (both breaks would have been repealed by the House Bill);
(12) Continued tax-exempt status for qualifying private activity bonds (the House Bill ended the tax break).

How the final bill will pay for the many taxpayer-friendly changes on the above list and still stay within the $1.5 trillion dollar increase to the deficit (in a 10-year timeframe) allowed by the instructions constraining the Senate is not known. Relative to the bill that passed the Senate earlier this month, the only known "pay-fors" are the increase in the corporate tax rate, the decrease in the percentage of the deduction against passthrough business income and the tightening of the rules for calculating "qualified business income"; and the tightening of the mortgage interest deduction. Those changes would not be enough to pay for the enhancements to other tax breaks on the list.

Unconfirmed rumors circulating Wednesday suggest that another possible pay-for might be an increase in the repatriation rates for foreign-earned income. Another likely candidate would be a tightening of the generous child tax credit phase-out provisions in the Senate Bill. Phaseouts don't begin until modified adjusted gross income reaches $500,000, more than double the threshold for joint filers in the House Bill and more than four times the threshold single and head of household filers.

Beyond the pay-fors, the list of unknowns about the final tax bill remains long and will not be addressed until the text of the legislation is released, which could happen as early as this morning, according to the Wall Street Journal. Until then, the status of dozens of conflicting provisions in the House and Senate bills will likely remain a mystery.

Multiple reports have indicated that final votes on TCJA will follow quickly on the heels of the release of legislative text. The Senate is expected to vote first, possibly as soon as Monday.

Turner's Tax Service will, of course, keep you up to date as this bill moves through the legislative process.

UPDATE PROVIDED BY  THE NATIONAL ASSOCIATION OF TAX PROFESSIONALS

In the early morning of December 2, the Senate passed by a 51-49 vote their version of the Tax Cuts and Jobs Act. Sen. Susan Collins (R-ME) agreed to a yes vote when several amendments she offered were incorporated into the bill, including the restoration of a $10,000 deduction for property taxes and a lower threshold for deducting medical expenses. 
Previous Republican holdouts — Senators Jeff Flake (R-AZ), Steve Daines (R-MJT) and Ron Johnson (R-WI) threw their support behind the bill once they were assured their concerns were addressed – including increasing the deduction for pass-through entities from 17.4 to 23 percent and a gradual phase-out of §179 expensing. Also included was the return of the alternative minimum tax provisions for individuals and corporations. Thresholds would be increased and adjusted for inflation. 
The Senate bill includes the repeal of the individual mandate clause of the Affordable Care Act, which requires most to have health insurance or pay a penalty. If the Senate's proposal remains in the final version, then beginning in 2019, there would be no penalty if taxpayers go without coverage. The penalty would remain for 2018.The House and Senate are expected to work out the differences between the two proposals over the next weeks in joint committee. Several key differences remain. Once an agreement is reached between both chambers of Congress, the bill will go to the president for signature.

The Senate has begun the 20-hour debate of their legislation—during this time, amendments can be offered to the bill. Since the 20 hours are not continuous, it’s not clear when the final vote will be. Republicans are tentatively planning to vote on Friday.
With potential changes on the horizon, here are a few suggestions for you -
Retirement Plans
If you are planning to convert a traditional IRA to a Roth IRA, do it before the end of the year. The House proposal repeals this option.
Review retirement plan contributions and make sure you are contributing as many tax-free dollars are you are eligible for and able to make.
Income & Business Expenses
Review your income stream and see if there is some way to defer income to 2018 when you might be in a lower tax bracket.
Make sure all your business-related expenses are in order and documented. This might be the last year unreimbursed employee business expenses are deductible. 
Itemized Deductions
Look at doubling up on itemized deductions such as property taxes, medical expenses and charitable contributions. For many taxpayers, these deductions may no longer reap the tax savings as they have in the past. 
While the Senate version of the tax proposal retains a deduction for real property tax, the House repealed the deduction. It might be advantageous to double up on deductions that are still allowed in 2017 and take the standard deduction in the future as both versions double the standard deduction for all taxpayers. 
There would be little to no advantage this late in the tax year to close escrow on a new house now. However, if you close in 2017, any points paid would be deductible in 2017. That deduction goes away in 2018. The small amount of mortgage interest that would be deductible in 2017 probably wouldn’t save any tax dollars and the one month of property taxes, if any, wouldn’t really make a big difference either.
Both versions of tax reform retain the deduction for charitable contributions but neither provided any detail on how taxpayers would claim a deduction. Currently charitable contributions are deducted as itemized deductions on Schedule A. If a taxpayer is no longer able to itemize because their collective deductions do not exceed the standard deduction AND charitable contributions remain an itemized deduction, it is best to make as many contributions as you can in 2017 to maximize your tax savings.
Both versions repeal the sales tax deduction. If you are looking to maximize your itemized deductions in 2017, buying a big ticket item such as a car, boar or RV, might be appropriate. If reform passes, the deduction goes away in 2018.

​Turner's Tax Service will continue to monitor what's going on in Washington and keep you updated.  If you have questions, please feel free to call the office at 530-626-8551 or send an email to turnerstaxservice56@gmail.com.

Yesterday the House Ways and Means Committee amended its version of the tax bill and the Senate Committee on Finance introduced its tax reform plan.   The plans differ in a number of ways and will undoubtedly under go changes as the bills move through the legislative process.  Here are some of the key provisions of the two bills -

Tax Rates - The House has 4 (12%, 25%, 35% and 39.6%), the Senate has 7 (10%, 12%, 22.5%, 25%, 32.5%, 35% and 38.5%).

Personal Exemptions - Eliminated in both versions

Child Tax Credit - The House bill provides a $1600 credit for children under 17 and adds a $300 credit for taxpayers and other dependents.  The credit is reduced based on adjusted gross income.  The Senate bill provides a $1650 credit for children under 18 and adds a $500 credit for other dependents.  The credit is not reduced based on adjusted gross income.

Standard Deduction - Both versions increase the standard deduction to $12K for single filers and $24K for married filers.  The House version eliminates additional amounts for the blind and elderly - the Senate version retains additional amounts for the blind an elderly.

Medical Deduction - The House version eliminates the deduction.  The Senate version allows a deduction for expenses greater than 10% of adjusted gross income.

State and Local Taxes - The House version eliminates all but up to $10K for property taxes.  The Senate version eliminates all state and local taxes.

Mortgage Interest - For purchases after 2017, the House version allows interest on purchases up to $500K and eliminates deductions for interest on a second home.  The Senate version allows interest on purchases up to $1M but eliminates interest on equity loans.

Charitable Contributions - Both versions increase the amount that can be deducted from 50% of adjusted gross income to 60% of adjusted gross income.

Miscellaneous Itemized Deductions - The House version eliminates unreimbursed employee business expenses, personal casualty losses, fees for tax preparation and financial management but retains the deduction for casualty losses in a presidentially declared disaster area.  The Senate version eliminates all miscellaneous deductions but also retains the deduction for casualty losses in a presidentially declared disaster area.

AMT - Both versions repeal the alternative minimum tax.

Adoption Credit - Both versions retain the credit.  

Exclusion of Profit on the Sale of a Personal Residence - For sales after 2017, the House version require homes to be owned and used for 5 of the last 8 years before any profit can be excluded from income.  The amount that can be excluded is limited for taxpayers with adjusted gross income more than $250K.  The Senate version also requires homes to be owned and used for 5 of the last 8 years but there is no limitation based on adjusted gross income.

​Moving Expenses - Both versions eliminate the deduction except for military personnel.

Alimony -  The House version does not allow payers to deduct the amount paid and does not require the recipient to report alimony as income.  The Senate version is silent.

​Estate Taxes - The House version doubles the exemption to $10K and repeals the provision after 2023.  The Senate version doubles the exemption but does not repeal it.

What happens next?  The House version has been approved by the Ways and Means Committee and moves to the full House for consideration.  The Senate version is still in committee.  Once the committee has completed its work it will send a bill to the full Senate for consideration.  Eventually there should be two bills - the House version and the Senate version - though it's unclear that the votes are there to approve what's coming out of the committees.  If bills do pass, a conference committee will be appointed to reconcile the two bills and come up with one final bill that will have to be approved by both the House and Senate and finally signed by the President.  There are LOTS of hurdles facing the bills and there is no guarantee that there will be a bill for the President to sign.

​Turner's Tax Service will be monitoring the bills closely and updating information as events unfold.

  

A summary of the tax reform proposal from Sharon Kreider, a well-respected CPA who teaches tax classes around the country.  Comments in italics are mine.

Tax reform was part of President Trump’s campaign promises.  Although short on details, leadership from the House, Senate, and administration has proposed a Tax Reform Framework to the House Ways and Means Committee, charged with writing the tax reform legislation. The individual proposals include:

1. Reduce tax rates from seven to three—12%, 25%, and 35%. The increase from the current 10% to 12% could cost some taxpayers more but the larger standard deduction is intended to offset the rate increase. The income tax brackets are not specified so there's no way to predict exactly who might be impacted.

2. Double the standard deduction to $12,000 for single taxpayers and $24,000 for MFJ
taxpayers. (The standard deduction for head of household filing status is not mentioned.) This will reduce the number of taxpayers claiming itemized deductions.

3. Eliminate personal exemptions. According to the Framework document, "To simplify the tax rules, the additional standard deduction and personal exemptions for the taxpayer and spouse are consolidated into this larger standard deduction".  In addition to the elimination of the personal exemption for the taxpayer and spouse, the exemption for a qualifying child and a qualifying relative is also eliminated. Under the current system, a family of six has a deduction for exemptions of $24,300 ($4,050 times 6) and a standard deduction of $12,700 ($37,000 total). Unless the tax rates are significantly reduced for this family, the increased standard deduction won’t make up for the loss of the current deductions for exemptions and the standard deduction. 

4. Increase the child tax credit—amount to be announced. Currently, the child tax credit is $1,000 for a qualifying child up to age 17. AGI limits apply. The Framework proposes to increase the income levels at which the child tax credit begins to phase out so that more middle-income families will benefit. If the child tax credit is increased to $1,500 or $2,000, a family of six might have a tax reduction, unless of course they have a child older than 17 or include in their family an elderly parent. To help, the Framework proposes a non-refundable credit of $500 for non-child dependents.

5. Eliminate most itemized deductions—retain only mortgage interest and charitable contributions.

• This proposal could mean the elimination of the medical expense deduction when health insurance premiums and out of pocket costs are sky rocketing and many more taxpayers might have been able to finally deduct medical expense over 10% of their AGI. The FSA and the HSA will be more valuable.
• The repeal of state and local taxes will particularly annoy taxpayers living in high tax states such as California but some taxpayers won’t notice the repeal as AMT nixed their tax benefit.
• Mortgage interest deduction is protected in the “Framework” but there have been discussions by some tax writers of reducing the home mortgage debt limit to $500,000 and removing second homes as a “qualified residence.” A reduction in home mortgage interest may be on the table if an increase in the deficit due to other aspects of tax reform is unpalatable and more revenue is needed to get an agreement.
• The charitable contribution deduction seems to be safe, but remember that the doubling of the standard deduction will mean all itemized deductions may go away for some clients, particularly those who are retired. The IRA transfer to charity may be even more attractive.
• Many taxpayers don’t get a benefit from miscellaneous itemized deductions because of the 2% of AGI limitations. But those that do get a benefit will be hurt by this change. Employee business expenses and the employee home office deduction would be gone. Investment adviser fees and tax preparation fees would be gone. Personal casualty losses would disappear (but most likely, the casualty loss in a federally declared disaster area would remain due mostly to Harvey, Irma and their sisters and brothers.) What would happen to gambling losses or the deduction for income in respect of a decedent is unknown.

6. Repeal AMT. What more can you say other than “yeah”? But note that the proposed repeal of exemptions, state and local taxes, and miscellaneous itemized deductions — the bulk of AMT preferences—would mean that many taxpayers would not be subject to AMT anyway. Note. The repeal of the 3.8% tax on net investment income was originally included in President Trump’s tax reform and simplification proposals. The high price tag of that
repeal has seen it hit the cutting room floor. And, it didn’t help the cause that the repeal’s benefit was to high-income taxpayers.

7. Retain tax benefits for education and retirement.

8. Repeal estate taxes and generation-skipping tax.

What, When, and How? The path to tax reform is arduous. We don’t know what the final changes will be. We don’t know when the changes will be effective. And, we don’t know how the changes will be implemented. In other words, we are looking at the first steps toward individual tax reform.

Turner's Tax Service will continue to keep you updated ass this proposal moves through the legislative process.