Janell A. Israel & Associates
1585 Kapiolani Blvd., Suite 1604, Honolulu, Hawaii 96814 Phone: 808-942-8817
May 2018 Tax Newsletter
Update on the Tax Cuts and Jobs Act (TCJA)
The Tax Cuts and Jobs Act (TCJA) was passed by Congress in a hurry late last year, and the IRS and tax preparers have been working to digest some of the more thorny issues created by the tax overhaul. Here are the latest answers to some of the most common questions:
The short answer is: Not unless you’ve used the money to buy, build or substantially improve your home.
Before the TCJA, homeowners were able to take out a home equity loan and spend it on things other than their residence, such as to pay off credit card debt or to finance large consumer purchases. Under the old tax code, they could deduct interest on up to $100,000 of such home equity debt.
The TCJA effectively writes the concept of home equity indebtedness out of the tax code. Now you can only deduct interest on “acquisition indebtedness,” meaning a loan secured by a qualified residence that is used to buy, build or substantially improve it. If you have taken out a home equity loan before 2018 and used it for any other purpose, interest on it is no longer deductible.
Short answer: It’s complicated and you should get help.
Certain small businesses structured as sole proprietors, S corporations and partnerships can deduct up to 20 percent of their qualified business income. But that percentage can be reduced after your taxable income reaches $157,500 (or $315,000 as a married couple filing jointly).
The amount of the reduction depends partly on the amount of wages paid and property acquired by your business during the year. Another complicating factor is that certain service industries including health, law, consulting, athletics, financial services and accounting are treated slightly differently.
The IRS is expected to issue more clarification on how these rules are applied, such as when your business is a mix of one of those service industries and some other kind of business.
There are a few things that have changed regarding dependents and caregiving:
Stay tuned for more guidance from the IRS on the new tax laws, and reach out if you’d like to set up a tax planning consultation for your 2018 tax year.
Audit Rates Decline for 6th Year In a Row
(but don't get complacent)
IRS audit rates declined last year for the sixth year in a row and are at their lowest level since 2002, the agency reported. That's good news for people who don't like to be audited (which is everybody)!
But don't get complacent. A closer look at the IRS data reveals some audit pitfalls to beware. Here is what you need to know:
Audit rate statistics for individuals
Though audit rates are declining, don't discount the possibility that you may still be selected randomly for an audit. Always retain your tax records and support documents for as long as you need them to substantiate claims on a return. The IRS normally has a window of three years from the filing date to audit a return, but this can be extended if the agency believes there's any fraudulent activity going on.
If you do receive an audit letter from the IRS, it's best to reach out for some professional assistance as soon as possible.
How to Handle a Gap in Health Care Coverage
Health care coverage gaps happen. Whether because of job loss or an extended sabbatical between gigs, you may find yourself without health care for a period. Here are some tax consequences you should know about, as well as tips to fix a coverage gap.
Coverage gap tax issues
You will have to pay a penalty in 2018 if you don’t have health care coverage for three consecutive months or more. Last year the annual penalty was equal to 2.5 percent of your household income, or $695 per adult (and $347.50 per child), whichever was higher. The 2018 amounts will be slightly higher to adjust for inflation.
Example: Susan lost her job-based health insurance on Dec. 31, 2016, and applied for a plan through her state’s insurance marketplace program on Feb. 15, 2017, which went into effect on April 1, 2017. Because she was without coverage for three months, she owes a fourth of the penalty on her 2017 tax return (three of 12 months uncovered, or 1/4 of the year).
While the penalty is still in place for tax years 2018 and earlier, it is eliminated starting in the 2019 tax year by the Tax Cuts and Jobs Act.
Three ways to handle a gap
There are three main ways to handle a gap in health care coverage:
Managing Money Tips For Couples
Spring is here and love is in the air. Or, it is as long as you aren't arguing over money with your special someone. Couples consistently report finances as the leading cause of stress in their relationship. Here are a few tips to avoid conflict over finances with your long-term partner or spouse:
Securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC. Janell Israel & Associates is not an affiliate company of LPL Financial.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
All information is believed to be from reliable sources, however we make no representation as to its completeness or accuracy. The information contained in this newsletter is provided by Mostad & Christensen, Inc. The information is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance. For more information on anything in this newsletter, or for assistance with any of your tax, business or financial strategy concerns, contact our office.
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