Tag Archives: 2018 Tax Reform

When To Claim a Disaster Loss

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Disaster Loss Claim for TaxesTax reform eliminated the deduction for casualty losses but did retain a deduction for losses within a disaster area. With the wild fires in the west, hurricanes and flooding in the southeast and eastern seaboard we have had a number of presidentially declared disaster areas this year. If you were an unlucky victim and suffered a loss as a result of a disaster, you may be able to recoup a portion of that loss through a tax deduction. If the casualty occurred within a federally declared disaster area, you can elect to claim the loss in one of two years: the tax year in which the loss occurred or the immediately preceding year.

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Tax Reform 2.0 Is in the Works

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Kiddie Tax no longer tied to parent incomeThe dust has not yet settled from the Tax Cuts and Jobs Act (TCJA), passed into law in December 2017, and the House Ways and Means Committee is already considering another round of tax changes. The committee chair, Kevin Brady, Republican from Texas, wants to include input from stakeholders such as business groups, think tanks and other relevant organizations. Historically, major tax reforms have been decades apart, so the committee chair is looking for another approach to the way Washington deals with tax policy. 

As with all tax legislation, it begins with talking points. From what we can gather, it appears the focus of Tax Reform 2.0 will include these updates in the attached article.

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IRS Regulations Clarify Business Pass-Through Deduction

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IRS Tip - Clarification on Business Pass Through Expenses

Some of the major provisions of last year’s tax reform legislation were the many benefits provided for businesses, including cutting the C corporation tax rate to 21%. Not to leave out other forms of business, the bill also included what was termed the 20% pass-through deduction that applies to sole proprietorships, partnerships, s-corporations and the like. The short-hand title for this tax benefit is the Sec 199A deduction, and it is one of the more complicated pieces of tax legislation ever conceived by Congress. So complicated in fact that the legislation left a lot of unanswered questions, and for the most part the tax preparation community has sat back and waited for the IRS to release regulations, hoping they would explain the many grey areas of this new deduction.

The Treasury Department and the IRS finally released the 184 page proposed regulationson August 8, 2018, explaining how they interpret and propose to apply the provisions and limitations included in the legislation. The regulations are “proposed” and the IRS is asking for feedback from stakeholders. So these are not the “final” regulations and have left some unanswered questions.

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Preparing for Taxes for 2018 and Beyond

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Preparing for Taxes for 2018 and BeyondTax reform has changed the way most taxpayers need to think about and plan for their taxes. It is no longer business as usual, and those who think it is are in for a rude awakening come tax time next year.

For most taxpayers, the most significant change is the increase in their standard deduction, which on the surface seems like a big benefit. But don’t overlook the fact that the same tax reform that nearly doubled the standard deduction took away the personal exemption as a deduction. So, for example, under old law for 2018, a married couple’s standard deduction would have been $13,000, and their two personal exemptions would have been $8,300 (2 x $4,150), for a total deduction of $21,300. Under the new law, they will be able to deduct $24,000, the new standard deduction for 2018. So, their total increase over what they would have gotten under prior law is only $2,700. If they have four children, their deductions for 2018 under prior law would have been $37,900 ($13,000 plus 6 x $4,150), as compared to the new law’s $24,000. However, for individuals with children under age 17, the child tax credit for 2018 was increased to $2,000 (with $1,400 being refundable) from the prior $1,000, in many cases making up for the loss in the exemption deduction. Note that a credit is a dollar-for-dollar reduction of the tax, while a deduction reduces the income that is taxable.

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