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2018 Year End Tax Planning

Posted by Mike Noon Posted on Nov 14 2018

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As we quickly approach the New Year, I wanted to check in with you to see if you had any tax questions for 2018 or 2019.  The new Federal tax bill became mostly effective on the first of this year and you can read about the changes in the below 2 below blogs.  
 
A few things I wanted to mention:
 
For individual taxpayers; the rates have decreased for mostly all, standard deduction is now $12K single/$24K married, state taxes/real estate’s tax is capped at $10K, the income limitation to claim the child tax credit has gone up substantially and the credit has doubled to $2K per child, the alternative minimum tax has been substantially sidelined, and unreimbursed business expenses and all 2% itemized deductions have gone away for Federal (stays for CA).  
 
For C-Corporations taxpayers; the tax rate is 21% for 2018, C-Corp AMT has been repealed, bonus depreciation is 100% on new or used fixed assets, Sec. 179 expense deduction is now $1M, no more 50% deduction for entertainment (50% deduction still applies to meals), and sedan purchase vehicle depreciation limits have increased to make them much more competitive with leasing sedans.
 
For S-Corporations, Partnerships, Schedule C sole proprietor, Schedule F farming taxpayers; new 20% deduction on positive qualifying income is a significant tax change and a deduction that gets more complicated to calculate as the income increases.   New tax law changes that also impact these taxpayers is the bonus depreciation is 100% on new or used fixed assets, Sec. 179 expense deduction is now $1M, no more 50% deduction for entertainment (50% deduction still applies to meals), and sedan purchase vehicle depreciation limits have increased to make them much more competitive with leasing sedans.
 
If you would like us to take a look at things and prepare a 2018 tax projection, please let us know.  Here is a list of some “moves” clients make before yearend:
 
Adjust wage or withholding up or down and/or max out pretax payroll items (retirement contributions, HSA contributions, employee reimbursement,  etc.).  W2 withholding counts as the funds being paid in evenly throughout the year, even if comes in at the end of year (i.e. can help reduce estimated tax payment penalties).  
 
Exercise stock options or maximize employee stock purchase plan. 
 
Ensure you are maxing out the 20% flow through business deduction, wages sometimes need adjusting.  
 
Max out IRA’s, but you do have until 4/15/19 to max out.  
 
Fund company retirement plans; 401-K, SEP-IRA, Simple IRA, defined benefit plans, etc.  Some contributions have to be done by 12/31 and others can be done by the tax return deadline.  Don't forget about the catch-up contributions for those 50 or older.
 
Charitable contributions by 12/31, donation of appreciated assets for deduction at FMV (maximizes charitable donation with no tax), or satisfy a required minimum distribution (mandatory distribution over age 70 1/2) by making a qualified charitable distribution up to $100,000 directly from your IRA to a qualified charity. Neither the qualified charitable distribution income nor the charitable contribution is reported on the tax return.  This technique protects the charitable donations from the charitable donation AGI limitations or other AGI income limits (Medicare, etc.)
 
Analyze capital gains or losses and see if it is prudent to harvest capital gain or loss depending on your situation.  Keep in mind that capital losses offset capital gains and if a net loss, only $3K of capital loss is deductible per year.   Losses can be disallowed under the wash sale rule if repurchased within 30 days, but you could re-purchase after 30 days or make similar industry or mutual fund investment within the 30 days.  
 
Solar installed by 12/31 for 30% credit, business too.  
 
Pay in 2018 estimated tax to reduce balance owed penalties.  
 
Purchase of fixed assets (equipment, vehicle, leasehold improvements, etc.).  
 
Business apply for CA Competes Credit in the 19 day window starting on 1/2/2019, $20K minimum credit, see more here http://www.business.ca.gov/Portals/0/CA%20Competes/Docs/CaliforniaCompetesFAQ.pdf 
 
Payment or prepayment of property taxes or mortgage interest.
 
Payment of bonuses for employees or to zero out a C-Corporation.  
 
Closing on purchase or sale of business on 12/31 or 1/1.  
 
Selling assets on installment sale method. 
 
Creation of new entity in 2018 or first thing in 2019.  
 
Analyze benefits of filing S-Corp election (especially under new tax law) and file the election.  
 
Gifting appreciated assets to children with low income who are not subject to the kiddie tax, will be taxed at a 0% capital gains rate.  Also, gifting dividend assets to children in lower brackets can provide benefits.  
 
Closing out an entity or bank account.
 
Filing back tax returns.
 
Most important of all, taking that much needed vacation:)!!!
 
If you have any tax questions as we approach the end of the year, please do not hesitate to ask.  I hope you all have a great holiday season with your loved ones!  Mike
 

Michael R. Noon, CPA, MSA

Partner

Prudhomme Associates CPAs

43460 Ridge Park Dr. Ste 220

Temecula, CA 92590

Tel: 951-676-3131

Fax: 951-676-4141

www.prudhommecpas.com

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