Posts Tagged ‘Nick Hopkins’

Tax Form Highlight Sheets Available for Download

By Nick Hopkins, CPA, CFP®
Partner, Director of Tax Services

 

Sponsel CPA Group has developed two highlight sheets which provide a helpful recap of some of the most significant tax reform changes. It’s part of our ongoing effort to bring as much clarity as possible to our valued clients about the most significant changes to the tax code in three decades.

 

We have one version addressing individual taxpayers and another one for business taxpayers. Click on the thumbnail images below to view or download them in PDF form.

 

Individual Taxpayers:

 

Business Taxpayers:

 

 

 

 

 

 

 

 

 

 

If you have any questions about the new tax outlook, please call Nick Hopkins at (317) 608-6695 or email nhopkins@sponselcpagroup.com.

Deductability of Prepaid Real Estate Taxes Under New Law

Nick HopkinsBy Nick Hopkins, CPA, CFP®
Partner, Director of Tax Services

Under the recently passed tax law, individual taxpayers are limited to a maximum of $10,000 for the amount of combined state and local income tax, property tax and sales tax (if elected) claimed as an itemized deduction for tax years beginning after December 31, 2017.

As a result of these changes, many taxpayers have asked if they can prepay their 2018 real estate property taxes before December 31, 2017, in order to claim the amount as an itemized deduction on their 2017 federal individual income tax return.

In response, yesterday the IRS has issued an advisory: click here to read it.

In general, the IRS states that a taxpayer is allowed a deduction for the prepayment of state or local real property taxes in 2017 if the taxpayer makes the payment in 2017 and the real property taxes are assessed prior to 2018. A prepayment of anticipated real property taxes that have not been assessed prior to 2018 are not deductible in 2017.

Please be aware of one important caveat: Individual taxpayers who will pay alternative minimum tax (AMT) on their 2017 federal individual income tax return will most likely receive no benefit by prepaying their 2018 real estate taxes in 2017.

If you have any questions about real estate deductions, please call Nick Hopkins at (317) 608-6695 or email nhopkins@sponselcpagroup.com.

Tax Reform: What It Means for You

Nick HopkinsBy Nick Hopkins, CPA, CFP®
Partner, Director of Tax Services

Now that the debate is over and the votes have been taken, tax reform is the new reality. President Trump is expected to sign the “Tax Cuts and Jobs Act” in the coming days, bringing the most sweeping changes to the U.S. tax code in three decades.

The Act in its entirety is a whopping 1,097 pages long, which will take some time to digest all of the details of the bill. However, below is a summary of some of the key changes for both individual taxpayers and business owners.

FOR INDIVIDUAL TAXPAYERS:

  • Tax Rates — There will now be seven tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The top rate was reduced from 39.6% to 37% and applies to taxable income above $500,000 for single taxpayers, and $600,000 for married couples filing jointly.
  • Standard Deduction — The standard deduction is increased to $24,000 for joint filers, $18,000 for head of household and $12,000 for singles or married taxpayers filing separately. The expected result is fewer people will be itemizing deductions.
  • Exemptions — Starting in 2018, taxpayers can no longer claim personal or dependency exemptions.
  • Child and Family Tax Credit — The child and family tax credit doubles to $2,000, and increases the refundable portion to $1,400. This means that some lower-income families could receive a refund check even if they pay no federal income tax.
  • State and Local Taxes — State and local income and property tax itemized deductions are limited to a total of $10,000.
  • Mortgage InterestMortgage interest on a principle or second home is deductible up to $750,000, down from $1 million starting with loans taken out in 2018. Home Equity Loan (HELOC) interest is no longer deductible after December 31, 2017, no matter when the debt was incurred.
  • Miscellaneous Itemized Deductions — There is no longer a deduction for miscellaneous itemized deductions which were formerly deductible to the extent they exceeded 2 percent of adjusted gross income. This included such deductions as tax preparation costs, investment expenses, union dues and unreimbursed employee expenses.
  • Medical Expenses — Medical expenses are deductible after they exceed 7.5% of adjusted income (down from 10%) for 2017 and 2018.
  • Health Care “Individual Mandate — The Affordable Care Act (“Obamacare”) tax penalty for people who fail to purchase minimum essential health coverage is abolished starting in 2019.
  • Estate and Gift Tax Exemption — The estate and gift tax exemption is increased to $11.2 million ($22.4 million for married couples).
  • Alimony — Alimony payments are no longer deductible by the payer, nor includable by the recipient for divorce decrees issued after December 31, 2018.
  • Individual Alternative Minimum Tax (AMT) Exemption — The individual Alternative Minimum Tax is retained, but the exemption increased to $109,400 for joint filers, $54,700 for married couples filing separately and $70,300 for singles. It is phased out for taxpayers with income above $1 million for joint filers, $500,000 for everyone else.

FOR BUSINESSES:

  • Pass-Through Deduction — The Act establishes a 20 percent deduction of qualified business income from certain pass-through businesses (i.e. partnerships, S-Corporations, LLC’s, or sole proprietorships). Specific services, such as health, law and professional services, are generally excluded. However, joint filers with taxable income below $315,000 (deduction phased-out fully at $415,000) and other files with taxable income below $157,500 (deduction phased-out fully at $207,500) can claim the deduction on income from service industries. Additionally, for taxpayers with taxable income more than the above thresholds, a limitation on the amount of the deduction is phased in based on either wages paid or wages paid plus a capital element.
  • Corporate Tax Rates Reduced — The graduated corporate tax rates of 15%, 25%, 34% and 35% are replaced with a single flat rate of 21%.
  • Corporate Alternative Minimum Tax — For tax years beginning after Dec. 31, 2017, the corporate Alternative Minimum Tax is repealed.
  • Increased Section 179 Expensing — Code Sec. 179 expensing, which allows a taxpayer to deduct the cost of qualifying property, is increased to a maximum of $1 million, and the phase-out threshold is increased to $2.5 million.
  • 100% Expensing of Qualified Business Assets — A 100% depreciation expensing of qualifying business assets acquired and placed in service after Sept. 27, 2017 and before Jan. 1, 2023. The additional first-year depreciation deduction is allowed for both new and used property. This provision replaces the previous 50% bonus depreciation available for qualified new property.
  • Limits on Deduction of Business Interest — For tax years beginning after Dec. 31, 2017, every business, regardless of its form, is generally subject to a disallowance of a deduction for net interest expense in excess of 30% of the business’s adjusted taxable income. The net interest expense disallowance is determined at the tax filer level. However, a special rule applies to pass-through entities, which requires the determination to be made at the entity level. The amount of any business interest not allowed as a deduction for any taxable year is treated as business interest paid or accrued in the succeeding taxable year. Business interest may be carried forward indefinitely, subject to certain restrictions applicable to partnerships. An exemption for these new rules applies for taxpayers with average annual gross receipts of under $25 million for a three-year tax period ending with the prior tax year.
  • Modification of Net Operating Loss Deduction — The net operating loss (NOL) deduction is modified with the repeal of the two-year carryback and special carryback provisions, though the two-year carryback still applies in the case of certain farming losses. For losses arising after Dec. 31, 2017, the deduction is limited to 80% of taxable income. Carryovers to other years are adjusted to take account of this limitation, and NOLs can be carried forward indefinitely (with some exceptions, notably for insurance companies).
  • DPAD — The Domestic Production Activities Deduction (DPAD) is repealed.
  • Like-Kind Exchange Treatment Limited — The rule allowing the deferral of gain on Like-Kind Exchanges is modified to allow them only with respect to real property that is not held primarily for sale. It can still apply to exchanges of personal property if the taxpayer has disposed of the relinquished property or acquired the replacement property by Dec. 31, 2017.
  • Cash Method of Accounting — Expanded use of the Cash Method of accounting for taxpayers that satisfy a $25 million gross receipts test, regardless of whether the purchase, production, or sale of merchandise is an income-producing factor. The exceptions from the required use of the accrual method for qualified personal service corporations and taxpayers other than C corporations are retained. Accordingly, qualified personal service corporations, partnerships without C corporation partners, S Corporations, and other pass-through entities are allowed to use the cash method without regard to whether they meet the $25 million gross receipts test, so long as the use of the method clearly reflects income.

These are significant changes that will create new opportunities and challenges for everyone, whether individuals or businesses, looking to minimize their tax burden. Consult with your trusted tax advisor to create a strategy going forward with all the variables that come with tax reform in mind.

If you have any questions about the new tax outlook, please call Nick Hopkins at (317) 608-6695 or email nhopkins@sponselcpagroup.com.

How Trump’s Tax Plan Could Affect You

Nick HopkinsBy Nick Hopkins, CPA, CFP®
Partner, Director of Tax Services

After months of behind-the-scenes discussion and hype, the Trump Administration and GOP leaders have finally released their framework for a major overhaul of the U.S. tax code – the biggest of its kind in more than 30 years.

The overall goal of this framework is to lower income tax rates for individuals and businesses, while eliminating some important deductions and simplifying the tax code.

The key components for business taxes are:

  • A reduction in the top corporate tax rate to 20 percent (down from 35%)
  • A new 25 percent rate for certain passthrough business income
  • International reforms that include a territorial tax system and a one-time mandatory repatriation tax
  • 100 percent full expensing for the cost of new investments in depreciable assets for at least five years, effective after September 27, 2017, while partially limiting the deduction for net business interest expense
  • Aims to eliminate the corporate alternative minimum tax (AMT)
  • Repeal the Section 199 domestic manufacturing deduction and “numerous other special exclusions and deductions,” but retains the research credit and the low-income housing tax credit

For individual taxes, the most important proposed changes are:

  • Replace the current seven individual tax brackets with three brackets with rates set at 12 percent, 25 percent, and 35 percent, with the possibility of a fourth higher rate for high-income individuals
  • Roughly double the standard deduction to $24,000 for married taxpayers filing jointly and $12,000 for single filers
  • Repeal personal exemptions
  • Increase the current $1,000 per-child tax credit by an unspecified amount
  • Eliminate the individual alternative minimum tax (AMT) and estate tax
  • Repeal “most itemized deductions,” though tax incentives for mortgage interest and charitable donations generally would be preserved, along with incentives for work, higher education and retirement security

It must be stressed that at this time the proposal is simply a framework for tax reform, and much of the specifics of legislation must still be worked out. Congress has to first pass a FY 2018 budget resolution, which could entail its own partisan challenges.

In addition, unless significant spending cuts are made, these tax cuts would potentially add to the federal government deficit in the years to come, with the goal of jump-starting economic growth and producing more tax revenue to close the gap.

Much remains uncertain: the framework leaves many difficult policy issues to be resolved by the House and Senate tax committees. We will keep you posted on specific developments in tax reform as the legislative process moves forward in the months ahead.

If you have any questions or feedback, please call Nick Hopkins at (317) 608-6695 or email nhopkins@sponselcpagroup.com.

“What Do You Expect?” is a Good Question to Ask

Nick HopkinsBy Nick Hopkins, CPA, CFP®
Partner, Director of Tax Services

What is expected of us in our position within a business or organization? It’s a question people tend to ask when they’re first hired or promoted, but not afterward – especially those in an executive or management role.

If you want to excel on a personal basis as well as make the company better, it’s a good idea to regularly ask others, “What do you expect of me?” And not just your supervisors, but also those under you within the hierarchy.

What we often see in a lot of work environments is that in order for a person to achieve excellence, they must have a clear set of expectations for themselves in terms of what their responsibilities and duties are. Sometimes these can be different from the expectations your superiors and subordinates hold. When your sense of expectations varies too far from those you work with, invariably conflict or disappointment arise.

If you’re the CEO or leader of an organization, this disparity can be even more acute. Clearly someone in this position has a lot of responsibilities for having a vision, setting direction and holding people accountable. Because there’s no one “above” you other than shareholders and/or a board of directors, the leader has to have a robust set of expectations for him or herself.

But have you flipped it around and asked the people under you – the department heads, the managers, the rank-and-file – what they expect of you?

If you do so, you may find things they demand of their leader that are not currently a top priority for you – or that are even on your radar at all.

If a leader is proactive in seeking out the feedback of a broad spectrum of people within the organization, it can not only reveal hidden opportunities or challenges, it will also help them improve on their relationships – which opens the door wider to improving on results.

Likewise, if you’re a staff member in a company who reports to someone, it’s wise to focus on setting goals, doing well on performance reviews and identifying unmet expectations. If you’re not meeting the requirements of your position, it’s possible there has been poor communication between you and your supervisor about clearly outlining those expectations.

It’s common in any type of human relationship to fall into the trap of assuming too much about the activities in which we are engaged, such as how our colleagues regard what we’re doing. And we all know the old joke about “assume.”

Gaining feedback about what others expect of us is especially important for employees who have stayed in a single position or department for a long time. They may have become very effective doing things a certain way, so they stick to that modus operandi – because it’s comfortable and because it’s always worked for them.

But the world is always changing, nowhere more so than in business. If an employee fails to recognize that change and adapt to it, it’s easy for a gap to grow between their expectations for the job and what others have. By asking one another what their expectations are for us, it assists us in realizing that we often must change how we deliver a product or service to best serve the customer’s needs.

The benefits of asking for feedback on what others expect of us translates to every facet of life – our bosses, those we supervise, coworkers, spouses, best friends, etc. It never hurts to ask another for a frank appraisal of what they see as your duties and responsibilities.

Whether it’s part of an official performance review or just a quick check-in, keeping the lines of communication open about our expectations of one another is the best way to maximize productivity and performance, not to mention enhance the way we work together.

If you have any questions or feedback, please call Nick Hopkins at (317) 608-6695 or email nhopkins@sponselcpagroup.com.

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