IRS Issues New Mileage Rates For 2018

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The Internal Revenue Service today issued the 2018 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2018, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

  • 54.5 cents for every mile of business travel driven, up 1 cent from the rate for 2017.
  • 18 cents per mile driven for medical or moving purposes, up 1 cent from the rate for 2017.
  • 14 cents per mile driven in service of charitable organizations.

The business mileage rate and the medical and moving expense rates each increased 1 cent per mile from the rates for 2017. The charitable rate is set by statute and remains unchanged.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.

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2018 Tax Law Changes

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With the sweeping tax package bill about to become law, taxpayers are scrambling to find out how it might impact them and what steps, if any, they should be taking before the end of 2017 to maximize tax savings opportunities this year and for next year.  The situation is further complicated by all the mis-information be disseminated by the media and so-called tax experts.

For example, one concern I’ve been hearing from entrepreneurs and self-employed people is that they would no longer be able to deduct ordinary business expenses like a home office or staples, for that matter.   The confusion comes from the fact that there are two ways in which taxpayers can claim the home office deduction and other business expenses.  The first is in connection with a legitimate business by a taxpayer who operates as is a sole-proprietor (or LLC) and files Schedule C with their 1040.

There are no changes to this rule for self-employed taxpayers.

The other method for deducting business expenses is if the taxpayer is an employee and incurs out-of-pocket, unreimbursed expenses on behalf of your employer.  In that case, you’ve been able to deduct such expenses on Schedule A, provided, 1) you are able to itemize your deductions and 2) only to the extent that your claimed business expenses exceed 2% of your adjusted gross income.

Thus, if the increased standard deduction takes away your ability to itemize deductions, then you, as employee with unreimbursed business expenses, would lose the potential ability to take a deduction.

If you have been following me on Twitter (@StevenSiesser), you already know:

  • The final version of the tax legislation includes a provision that would disallow a deduction in 2017 for any prepayment of 2018 property taxes or 2018 state and local income taxes (otherwise known as SALT)
  • The final bill leaves many education tax breaks untouched – the deduction for student loan interest, the Lifetime Learning Tax Credit and the American Opportunity Credit. The final bill does not touch a $250 tax break for teachers who buy their own school supplies.
  • If you’re subject to the alternative minimum tax or close to it, you probably won’t get a tax benefit for pre-paying your 2017 real estate tax bill or pre-paying your 4th quarter state income tax estimated voucher in December.
  • Interest on home equity loans will no longer be deductible beginning in 2018 under the tax bill so it may be beneficial to pay your January 2018 home equity loan payment and regular mortgage payment in December 2017 to get an increased interest deduction.

There are so many moving parts to this tax legislation that the only answer I can give clients is, “It depends on your specific situation.”

However, there are some general tips I can share with you:

  • The floor for deducting medical expenses on Schedule A will decrease from 10% in 2017 to the “old” 7.5% floor, but only for 2018 and 2019, returning to 10% in 2020. Therefore, if you’re expecting significant medical expenses in 2018, consider delaying incurring or paying any more medical expenses in 2017.
  • If you’re self-employed, hold off on invoicing or taking payments until 2018, when your tax bracket could be lower.
  • Consider giving more to charity in 2017 because there’s less tax benefit in 2018 if you’re in a lower bracket or you don’t qualify for itemizing your deductions. The best charitable gift is appreciated publicly traded stock since you would also avoid paying capital gains taxes.
  • Consider rolling any home equity loan into a refinancing of your current first mortgage.

One more important change:  Starting in 2019, alimony would no longer be deductible by the payor for new decrees and payments would be excluded from the recipient’s income.

Most importantly, be aware of the Alternative Minimum Tax.  The only change to AMT was to slightly increase the exemption for next year, meaning only that there is a slightly higher entry point to being subjected to it.  If you’re not sure whether you have been paying the AMT, simply look at your most recent Form 1040, Page Two, line 45 and/or Form 6251.

If you are subject to AMT in 2017, you have limited options for minimizing your taxes under the new tax package.

Bottom line:  Time is running short.  Please contact me if you wish to retain me to perform a detailed analysis of your specific situation.

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2018 Social Security Maximum Earnings Amount Decreases

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In October of each year, the Social Security Administration announces adjustments that take effect the following January that are based on the increase in average wages. Based on the wage data Social Security had at the time of the October 13, 2017  announcement, the maximum amount of earnings subject to the Social Security tax (taxable maximum) was to increase to $128,700 in 2018, from $127,200 in 2017. The new amount for 2018, based on updated wage data reported to Social Security, is $128,400.
This lower taxable maximum amount is due to corrected W-2s provided to Social Security in late October 2017 by a national payroll service provider. Approximately 500,000 corrections for W-2s from 2016 were filed, resulting in the change.
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Why Do Stocks Split?

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Why do stocks split?  According to Wells Fargo Advisors, when a company feels its stock price is getting too expensive to appeal to individual investors, it can decide to do a stock split to lower its per-share price.  When this occurs, you now own more shares, yet the amount of equity you own in the company remains the same.

The stock split may not directly affect your portfolio. However, the lower-priced shares may eventually attract more buyers, eventually driving the stock price up over time. If that happens, you could benefit from the split and from the resulting share-price increase.  Unfortunately, stock splits are occurring less frequently than in prior years.

Here’s what you need to consider:

    • Don’t wait for a split. If you’re putting off buying stock in a particular company because you hope the stock will split and the per-share price will drop, don’t hold your breath. Buy stocks according to ongoing purchasing strategies upon which you and your Financial Advisor agree and that make sense for your portfolio.
    • Revisit your individual stock-buying strategy. It can be very satisfying to invest in certain companies you really like. However, individual stocks tend to be more volatile investments than aggregated funds such as an investment designed to track performance of the S&P 500® Index or Russell 2000 index. Be sure you have a well-diversified portfolio before and after you consider adding individual stocks.
    • Consider gifting differently to kids and grandkids. In the past, you may have enjoyed giving younger family members individual stocks — maybe in companies that made their favorite cereals or digital devices, for example. You can still do that, but with fewer splits happening over time, the per-share price could limit how many shares you can give. The 2017 annual gift tax exclusion of $14,000 will increase to $15,000 beginning in 2018.

If you have any questions regarding stock splits or gifts to family members, contact Steve Siesser at ssiesser@verizon.net

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