Newsletters

Happy New Year! 

Following is an update of a few of the new 2018 tax law changes.  In addition, our website contains about 90 financial calculators, along with a number of financial and tax links including IRS and WI/IL Dept of Revenue websites.  This site is packed with lots of information that will be helpful for both tax information and planning.  If you are a returning client and would like a personalized client organizer for tax planning, request one via email at wendy@carefreetax1040.com.  An organizer is also on the website under the info center tab.  Call 608-756-9930 to set up your appointment. 

We hope 2018 was a year full of blessings to you and your loved ones.  Looking forward to seeing you soon! 

Wendy and Robin

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Identity Theft

IRS Identity Verification.  If you have had a breach of identity with a 2017 filed tax return, you should be receiving an IRS letter with an IP PIN number that is required to file your return.  Be sure to bring that to your appointment.  You will receive a new number every year. 

Phishing Warning! –A law was enacted in 2017 to allow 4 private debt collection services to collect taxes from older accounts.  A person will receive a letter from both the IRS and the private debt collection service. Please verify this by calling the IRS if you have any questions on past due IRS balances.  The debt services may call people (and I know this is confusing because the IRS won’t), but neither the debt service nor the IRS will ask for credit card payments, wire transfer, or debit/ITunes card payments. There continues to be a variety of phone, email, and snail mail scams demanding payment.  A caller will ask you to verify personal information, and then threaten to sue, put you in jail, etc.  As far as the IRS goes, they only contact people by mail – not by phone – about unpaid taxes.  The scammers are now creating letters that look like legitimate IRS letters.  If you receive a letter and it doesn't make sense to you, bring it into the office. Also, be alert for email scams that use the IRS name and ask for personal or financial information. Never open up an email from the IRS, as there may be a virus attached.  Forward all scam emails to phishing@irs.gov.  If you get a scamming letter or phone call, call 800-366-4484.  The scammers cannot be caught unless the calls are reported.  These scammers have stolen millions of dollars from people, especially the elderly.

New Tax Laws  

FORMS. 1040A, 1040EZ, WI forms 1-A and WI-Z forms are now eliminated.  All returns will be filed on 1040 and WI form 1.

Tax Rate Changes. There is still a 7-bracket structure with lower rates for most taxpayers.  Most dropped by 3-4%. Under these changes, the marriage penalty is also gone for most taxpayers.

Standard Deduction Increased.  For tax years 2018-2025, the standard deduction is increased to $24,000 for married individuals filing a joint return, $18,000 for head-of-household filers, and $12,000 for all other taxpayers, adjusted for inflation in tax years beginning after 2018.

***NEW: Even if you think you will not itemize your deductions for federal tax purposes, bring in your receipts, including charitable contributions, because it may be useful for WI tax purposes.

Personal Exemptions Suspended.  For tax years 2018-2025 the deduction for personal exemptions is suspended by reducing the exemption amount to zero.

Head of Household.  The IRS may be requiring documentation for this filing status and more audits will take place. Answers to specific questions must be recorded this year when filing your return.

Child Tax Credit Increased.  In an effort to make up for the loss of the personal exemptions for tax years 2018-2025, the child tax credit is increased to $2,000. The income levels at which the credit phases out are increased from $110,000 to $400,000 for married taxpayers filing jointly and from $75,000 to $200,000 for all other taxpayers.  This, along with increase refundability amounts ($1400 from $1000), will allow many more families to claim the credit.

Non-child dependent credit. A $500 nonrefundable credit is provided for dependent children over 16 years of age, as well as other adult dependents.

2018 Old Law/2019 New Law:  Beginning in 2019, the amount of the individual shared responsibility payment/penalty for not having health insurance is reduced to zero. Taxpayers still need to have health insurance coverage or show an exemption for 2018.  Beginning in 2019, this requirement is eliminated.

Deduction for Personal Casualty & Theft Losses Suspended.  For tax years 2018-2025, the personal casualty and theft loss deduction is suspended, except for personal casualty losses incurred in a Federally-declared disaster area.

Expanded Use of 529 Account Funds.  For distributions beginning in 2018, “qualified higher education expenses” include tuition at an elementary or secondary public, private, or religious school, as well as tutoring in K-12, up to a $10,000 limit per tax year. Homeschooling costs are not included. The WI private school subtraction cannot be used if the funds to pay were taken from a 529 Plan. 

Moving Expenses Deduction Suspended.  For tax years 2018-2025, the deduction for moving expenses is suspended, except for members of the Armed Forces on active duty who move pursuant to a military order and incident to a permanent change of station.

State and Local Tax Deduction Limited.  For tax years 2018-2025, a taxpayer may claim an itemized deduction of up to $10,000 ($5,000 for a married taxpayer filing separately) for total of State income tax and local property taxes. Foreign real property taxes may not be deducted.

Property Tax Bill. Check your personal residence property tax bill to verify you have the lottery credit applied on it.

Home Equity Indebtedness Interest Deduction.  For tax years 2018-2025, the deduction for interest on home equity indebtedness is suspended.

Mortgage Interest Deduction. For tax years 2018-2025, the deduction for mortgage interest is limited to original loan amount of indebtedness of up to $750,000 ($375,000 for married taxpayers filing separately).

Mortgage Insurance Premiums (PMI) has been extended for the 2018 tax year.

Medical Expense Deduction. For tax year 2018, the threshold on medical expense deductions is reduced to 7.5% of adjusted gross income for all taxpayers. In 2019, the threshold is scheduled to return to 10%.

Meals and Entertainment Expense.  Beginning in tax year 2018, entertainment expense is no longer allowed as a business deduction.  Meals are still allowed, limited to 50%. Meals provided by an employer is reduced from a 100% to a 50% deduction.

Miscellaneous Itemized Deductions Suspended.  For tax years 2018-2025, the deduction for miscellaneous itemized deductions that are subject to the 2% floor are suspended. These include unreimbursed employee business expenses, mileage, tax preparation fees, investment fees, job hunting expenses, etc.

AMT exemption amounts for higher-income earners significantly increased, as previously it was not adjusted for the inflation.  That change is now permanent.

Gambling Loss Limitation.  For tax years 2018-2025, the limitation on wagering losses is modified to provide that all deductions for expenses incurred in carrying out wagering transactions, and not just gambling losses, are limited to the extent of gambling winnings.  The losses are still reported as an itemized deduction.

Kiddie Tax Modified.  For tax years beginning in 2018, the taxable income of a child attributable to earned income is taxed under the rates for single individuals, and taxable income of a child attributable to net unearned income is taxed according to the brackets applicable to trusts and estates.

Alimony.  For any divorce or separation agreement executed beginning in 2019, or executed before that date but modified after it, alimony and separate maintenance payments are not deductible by the payor spouse and are not included in the income of the payee spouse. For those taxpayers who were divorced before January 1, 2019, the old rules will still apply where alimony is deductible by the payor spouse and taxable by the payee spouse.

Additional Information

Standard Mileage Rate.  Taxpayers can use the standard mileage rate (in lieu of actual expenses) in computing the deductible costs of operating automobiles owned or leased by them for self-employment purposes. This rate is also used as a benchmark by the federal government and many businesses to reimburse their employees for business travel.   The following rates are applicable for the 2018 tax year: Business - $.545, Medical - $.18,    Charitable  -  $.14.

Deduction for Pass-through Income. Generally, for tax years 2018-2025, the TCJA added a new section, Code Sec. 199A, “Qualified Business Income,” under which a non-corporate taxpayer, including a trust or estate, who has qualified business income (QBI) from a partnership, S corporation, or sole proprietorship may be entitled to a deduction of up to 20% of their QBI.

For 2018, if taxable income exceeds $315,000 for a married couple filing jointly, or $157,500 for all other taxpayers, the deduction may be limited based on whether the taxpayer is engaged in a service-type trade or business (such as law, accounting, health, or consulting), the amount of W-2 wages paid by the trade or business, and/or the unadjusted basis of qualified property (such as machinery and equipment) held by the trade or business. The limitations are phased in for joint filers with taxable income between $315,000 and $415,000 and for all other taxpayers with taxable income between $157,500 and $207,500.

In addition, another whole category of income qualifies for the 20% deduction. The amount of your qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income for the tax year, also qualifies for the Code Sec. 199A deduction. These would be reported on a K-1 form.

Social Security Wage Base for 2019.  The Social Security Administration recently announced the maximum earnings subject to the Social Security portion of the FICA tax will increase from $128,400 to $132,900 for 2019. The Medicare portion remains 1.45% of all earnings, and individuals with earned income of more than $200,000 ($250,000 for MFJ) will pay an additional 0.9% in Medicare taxes.

Gifting. You can give up to $15,000 to as many people as you wish in 2018-2019 free of gift or estate tax. If you are married, you both can elect to “gift split” and give up to $30,000 per beneficiary.

New For Wisconsin

Wisconsin is following federal tax law changes for the most part.  One thing they did NOT adopt was the 20% deduction for qualified business income.

Homestead Credit. For those eligible whose household income is less than $24,680, the following losses must be added back in beginning in 2018: net losses from sole proprietorships, sale of business property, rental real estate, partnerships, trusts, etc.  This does not apply to farmers whose primary income is from farming.

WI Tuition and Fees Subtraction. The income phase-outs increased substantially from $54,190 to 65,030 for single/HOH, and from $86,700 to 108,380 for MFJ.  More taxpayers will qualify for this subtraction.

College Savings Account Subtraction. For 2018, the subtraction increases to $3,200 from $3,140. 

Meals and Entertainment Expense.  Beginning in tax year 2018, WI is NOT following federal law, but is still allowing an entertainment subtraction with a 50% limitation.  WI is also still allowing 50% for employer provided meals. 

Unclaimed Property. This would include forgotten bank accounts, insurance policies, uncashed dividends, etc. Visit the WI Dept of Revenue Unclaimed Property webpage for more information about the program. You can also search an online database for unclaimed property in Wisconsin.

PRIVACY POLICY

We do not disclose any non-public personal information about our clients or former clients to anyone, except as instructed to do so by such clients, or required by law.  We restrict access to non-public personal information and we maintain physical, electronic, and procedural safeguards to guard your personal non-public information.

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Final regulations relating to the low-income housing tax credit revise and clarify requirements that low-income housing agencies must follow when conducting physical inspections of low-income units and reviewing low-income certifications and other documentation. The regulations finalize previously issued temporary regulations (T.D. 9753, February 25, 2016).

Final regulations relating to the low-income housing tax credit revise and clarify requirements that low-income housing agencies must follow when conducting physical inspections of low-income units and reviewing low-income certifications and other documentation. The regulations finalize previously issued temporary regulations (T.D. 9753, February 25, 2016).

Sample Inspection Size

The final regulations require the agency to inspect no fewer units than the number specified in the "Low-Income Housing Credit Minimum Unit Sample Size Reference Chart." The reference chart can be found in Rev. Proc. 2016-15, I.R.B. 2016-11, 435, and is borrowed from the U.S. Housing and Urban Development (HUD) Real Estate Assessment Center Protocol (the REAC protocol). Previously, an agency was permitted to inspect 20 percent of the low-income housing units in the project if this was lesser than the number required by the reference chart. This change addresses a concern that limiting physical inspections to 20 percent of units in small projects is not sufficient to ensure overall compliance with habitability and low-income requirements.

All-Buildings Requirement

No change is made to the requirement that an agency must inspect all buildings in a low-income housing project by the end of the second calendar year after the year in which the last building in the project is placed in service unless a project inspection is conducted under the REAC protocol. Suggestions that the IRS dispense with the all-buildings requirement for agencies not using the REAC protocol were not adopted.

Reasonable Notice Time Frame Shortened

A building owner and tenants are allowed a maximum 15 day advance notice that a project will be inspected. The temporary regulations allowed a 30-day notice period. The particular units to be inspected may only be identified on the day of the inspection. The 15 day advance notice limit will also apply to reviews of low-income certifications.

Amendment of Agency’s Qualified Allocation Plan

The final regulations are effective on February 26, 2019. However, an agency only needs to amend it qualified allocation plan by December 31, 2020, to reflect the requirements in the final regulations.

Rev. Proc. 2016-15 is obsolete with respect to an agency as of the date that on which the agency amends its qualified allocation plan.

The Senate’s top Democratic tax writer is calling on the IRS and Treasury to further waive underpayment penalties for the 2018 tax year. Nearly 30 million taxpayers are expected to have underpaid taxes last year, according to the Government Accountability Office (GAO).

The Senate’s top Democratic tax writer is calling on the IRS and Treasury to further waive underpayment penalties for the 2018 tax year. Nearly 30 million taxpayers are expected to have underpaid taxes last year, according to the Government Accountability Office (GAO).

Underpayment Penalty

The IRS announced in IRS News Release IR-2019-3 that it would waive the underpayment penalty for any taxpayer who paid at least 85 percent of their total tax liability during the 2018 tax year. The usual threshold is 90 percent. However, Senate Finance Committee (SFC) ranking member Ron Wyden, D-Ore., has said that the IRS should "do more."

"Instead of penalizing those who paid less than 90 percent of what they owed in 2018, now they’re penalizing those who paid less than 85 percent," Wyden said on February 7 from the Senate floor. "That was one small step in the right direction," he added.

Before the IRS’s news release, Wyden wrote to Treasury and the IRS urging the waiver of underpayment penalties for withholding errors related to the Tax Cuts and Jobs Act (TCJA) ( P.L. 115-97). Although the IRS did lower the penalty threshold for the 2018 tax year, Wyden stated on February 7 that "nobody should be penalized for the Trump administration’s mistakes on tax withholding."

Democrats are largely opposed to the TCJA as a whole, and claim that Republicans’ tax code overhaul was rushed. Thus, significant tax withholding errors and underpayments are expected to be incurred. "Change the penalty thresholds. Extend safe harbors. Whatever needs to happen," Wyden said.

Additionally, several Republicans have also voiced their concern about the expected increase in underpayment related to withholding. SFC Chairman Chuck Grassley, R-Iowa, recently urged the IRS to be "lenient" on underpayment penalties for 2018, as it is the first tax year since tax reform implementation.

AICPA

The American Institute of Certified Public Accountants (AICPA) has likewise urged Treasury and the IRS to provide more extensive penalty relief. "The substantial uncertainty surrounding the implementation of the TCJA and the updated federal tax withholding tables presented a challenge for many taxpayers in understanding and accounting for their tax liability," Annette Nellen, chair of the AICPA’s Tax Executive Committee said in a recent letter to Treasury and the IRS. The AICPA has recommended an 80 percent threshold for the underpayment penalty waiver.

Senators have introduced a bipartisan bill specifically tailored to reduce excise taxes and regulations for the U.S. craft beverage industry. The bill aims to promote job creation and permanently reduce certain taxes and compliance burdens.

Senators have introduced a bipartisan bill specifically tailored to reduce excise taxes and regulations for the U.S. craft beverage industry. The bill aims to promote job creation and permanently reduce certain taxes and compliance burdens.

Craft Beverage Tax Reform

The Craft Beverage Modernization and Tax Reform Bill of 2019 was introduced on February 6 by Senate Finance Committee (SFC) ranking member Ron Wyden, D-Ore., and Sen. Roy Blunt, R-Mo.

"By modernizing burdensome rules and taxes for craft beverage producers, this legislation will level the playing field and allow these innovators to further grow and thrive," Wyden said in a press release. The comprehensive measure is supported by the entire craft beverage industry, according to a summary of the bill.

Generally, the Craft Beverage Modernization and Tax Reform Bill of 2019 would implement the following provisions:

For Brewers:

• Reduce excise taxes to provide more cash flow to reinvest in personal business growth.
• Simplify rules for ingredient approval and brewery collaboration.

For Vintners:

• Expand the wine producer tax credit.
• Expand allowances for tax purposes on carbonation and alcohol content for certain wines.

For Distillers:

• Establish reduced excise taxes for small craft distilleries.
• Reduce restrictions on tax-free transfers of spirits between distillers.

The bill would also exempt beverage producers from certain capitalization rules for aged products.

"The craft beverage industry is driven by small businesses that support thousands of jobs and contribute billions in economic output," Blunt said in the press release.

As of February 6, the bill has 10 bipartisan cosponsors.

The IRS’s proposed 50-percent gross income locational rule on the active conduct of Opportunity Zone businesses is garnering criticism from stakeholders and lawmakers alike. The IRS released proposed regulations, NPRM REG-115420-18, for tax reform’s Opportunity Zone program last October.

The IRS’s proposed 50-percent gross income locational rule on the active conduct of Opportunity Zone businesses is garnering criticism from stakeholders and lawmakers alike. The IRS released proposed regulations, NPRM REG-115420-18, for tax reform’s Opportunity Zone program last October.

50-Percent Locational Rule

Many stakeholders have urged the IRS to reconsider its proposed rule requiring that at least 50-percent of gross income of a Qualified Opportunity Zone (QOZ) business is derived from the active conduct of a trade or business within the QOZ. The IRS heard from several of these stakeholders at a full house public hearing on the proposed regulations held last week at IRS headquarters in Washington, D.C.

"[W]e’re concerned that manufacturing businesses, e-commerce enterprises, and others that have the potential to spur significant economic activity could be excluded inadvertently because of this rule," Stefan Pryor, Rhode Island Secretary of Commerce said at the hearing. Additionally, other stakeholders commented that the proposed rule would go against congressional intent.

Comment. There is no locational-related rule for gross income of QOZ businesses included in the law’s statutory language. However, the statutory language does provide a tangible property test to ensure qualifying businesses are predominantly located within the QOZ.

QOZ Business Congressional Intent

To that end, the bipartisan, bicameral tax writers who drafted the original QOZ bill language, too, have urged the IRS to remove the 50-percent gross income locational requirement.

The Opportunity Zone program was enacted under the Tax Cuts and Jobs Act ( P.L. 115-97) in 2017. The program is housed under new Code Secs. 1400Z-1 and 1400Z-2. Although not a single Democrat voted for the TCJA, the Opportunity Zone program was based on a bicameral measure sponsored by a group of bipartisan tax writers.

"Since many businesses derive income from the sale of goods and services outside of a single census tract, this would significantly limit the ability for local operating businesses to qualify for Opportunity Fund investment, contrary to congressional intent," the lawmakers wrote in a recent letter to Treasury Secretary Steven Mnuchin. "Even for those businesses who might qualify under this rule, it would impose immense new administrative burdens to track and report the location of each source of business income," they added.

Second Round of Proposed Regulations

Currently, the IRS is working on a second batch of proposed regulations for Opportunity Zones. Those proposed rules "hopefully will see the light of day shortly," Scott Dinwiddie, an IRS official in the Income Tax and Accounting division said at last week’s hearing.

The IRS has said that it is postponing its plan to discontinue faxing taxpayer transcripts. The IRS statement came on the heels of a letter sent earlier this week from bipartisan leaders of the Senate Finance Committee urging such a delay.

The IRS has said that it is postponing its plan to discontinue faxing taxpayer transcripts. The IRS statement came on the heels of a letter sent earlier this week from bipartisan leaders of the Senate Finance Committee urging such a delay.

IRS Cybersecurity

The IRS announced in IRS News Release IR-2018-256 last December that it would stop its tax transcript faxing service for individuals and businesses on February 4, 2019. The IRS cited to reasons of taxpayer security for the change in procedure. To that end, ceasing the IRS’s transcript faxing service would better prohibit cybercriminals from obtaining taxpayer data, according to the IRS.

Grassley, Wyden Urge Delay

SFC Chairman Chuck Grassley, R-Iowa, and ranking member Ron Wyden, D-Ore., sent IRS Commissioner Charles Rettig a letter earlier this week expressing concern with the IRS’s original timeline for discontinuing the tax transcript faxing service. The bipartisan leaders did not ask the IRS to eliminate its plan to discontinue the particular service. However, they did encourage the IRS to extend the date of discontinuation for the sake of taxpayers and practitioners in light of the recent partial government shutdown, which included the IRS.

"[W]e encourage the IRS to delay its planned discontinuation of faxing taxpayer information until such time that the agency can reasonably resolve the legitimate concerns of the tax-practitioner community about alternatives to the IRS faxing taxpayer information," Grassley and Wyden wrote. "Of course, such a delay should not compromise the security or privacy of taxpayer information."

IRS Extends Transcript Faxing Service

The IRS’s Wage & Investment Division issued a January 30 statement stating that the IRS will extend its transcript faxing service beyond February 4. Additionally, the IRS said it is reviewing options for a new timeline and will provide taxpayers and practitioners advance notice of the new date.