The IRS recently announced mileage rates to be used for travel in 2018. The standard business mileage rate increased by 1 cent to 54.5 cents per mile. The medical and moving mileage rates also increased by 1 cent to 18 cents per mile. Charitable mileage rates remained unchanged at 14 cents per mile.
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Here are 2017 rates for your reference as well.
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Remember to properly document your mileage to receive full credit for your miles driven.
The maximum contribution to 401(k) accounts rises by $500 in 2018, the first increase in three years. If you have not already done so, now is the time to plan for contributions into your retirement accounts in 2018.
| Retirement Contribution Limits | ||||
| Retirement Program | 2018 | 2017 | Change | Age 50 or over catch up |
| 401(k), 403(b), 457 plans |
$18,500
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$18,000
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+$500 | add: $6,000 |
| IRA: Roth |
$5,500
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$5,500
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none | add: $1,000 |
| IRA: SIMPLE |
$12,500
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$12,500
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none | add: $3,000 |
| IRA: Traditional |
$5,500
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$5,500
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none | add: $1,000 |
| Social Security | ||||
| Item | 2018 | 2017 | Change | |
| Wages subject to Social Security |
$128,700
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$127,200
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+$1,500 | Annual Social Security employee tax: $7,979.40 |
| Average estimated monthly retirement benefit |
$1,404
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$1,360
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+$44 | |
Don’t forget to account for any matching programs offered by your employer as you determine your various funding levels for next year.
Five tax tips for job changers
There are a lot of new things to get used to when you change jobs, from new responsibilities to adjusting to a new company culture. One thing you may not have considered are the tax issues created when you change jobs. Here are tips to reduce any potential tax problems related to making a job change this coming year.
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Don’t forget about in-between pay. It is easy to forget to account for pay received while you’re between jobs. This includes severance and accrued vacation or sick pay from your former employer. It may also include unemployment benefits. All are taxable but may not have had taxes withheld, causing a surprise at tax time. |
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Adjust your withholdings. A new job requires you to fill out a new Form W-4, which directs your employer how much to withhold from each paycheck. It may not be best to go with the default withholding schedule, which assumes you have been making the salary of your new job all year. You may need to make special adjustments to avoid having too much or too little taken from your paycheck. This is especially true if there is a significant salary change or you have a period of low-or-no income. Luckily, the IRS provides a withholding calculator on its website (IRS Withholding Calculator). Keep in mind you’ll have to fill out a new W-4 in the next year to rebalance your withholding for a full year of your new salary. |
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Roll over your 401(k). While you can leave your 401(k) in your old employer’s plan, you may wish to roll it over into your new employer’s 401(k) or into an IRA. The best way is to get your retirement funds rolled over directly between investment companies. If you take a direct check, you’ll have to deposit it into the new account within 60 days, or you may be assessed a 10 percent penalty and pay income tax on the withdrawal. |
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Deduct job-hunting expenses. Tally up your job-seeking expenses. If they and other miscellaneous deductible expenses total more than 2 percent of your adjusted gross income for the year, you can deduct them on an itemized return. This includes things like costs for job-search tools, placement agencies and recruiters, and printing, mailing and travel costs. A couple caveats: you can only use these deductions if your expenses were to search for a job in the same industry as your previous job and you were not reimbursed for them by your new employer. |
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Deduct moving and home sale expenses. If you moved to take a new job that is at least 50 miles farther from your previous home than your old job was, you can also deduct your moving expenses. There’s another benefit for movers, too. Typically, you can only use the $250,000 capital gain exclusion for home sales if you lived in your primary residence for two of the last five years before you sold it. But there is an exception to the rule if you sold your home to take a new job. |
Finding a new job can be an exciting experience, and one that can create tax consequences if not handled correctly. Feel free to call for a discussion of your situation.
Donations are a great way to give to a deserving charity, and they also give back in the form of a tax deduction. Unfortunately, charitable donations are under scrutiny by the IRS, and many donations without adequate documentation are being rejected.
Here are six things you need to do to ensure your charitable donation will be tax-deductible.
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Make sure your charity is eligible. Only donations to qualified charitable organizations registered with the IRS are tax-deductible. You can confirm an organization qualifies by calling the IRS at (877) 829-5500 or visiting the IRS website. |
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Itemize. You must itemize your deductions using Schedule A in order to take a deduction for a donation. If you’re going to itemize your return to take advantage of charitable deductions, it also makes sense to look for other itemized deductions. These include state and local taxes, real estate taxes, home mortgage interest and eligible medical expenses over a certain threshold. |
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Get receipts. Get receipts for your deductible donations. Receipts are not filed with your tax return but must be kept with your tax records. You must get the receipt at the time of the donation or the IRS may not allow the deduction. |
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Pay attention to the calendar. Donations are deductible in the year they are made. To be deductible in 2017, donations must be made by Dec. 31, although there is an exception. Donations made by credit card are deductible even if you don’t pay off the charge until the following year, as long as the donation is reported on your credit card statement by Dec. 31. Similarly, donation checks written before Dec. 31 are deductible in the year written, even if the check is not cashed until the following year. |
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Take extra steps for noncash donations. You can make a donation of clothing or items around the home you no longer use. If you decide to make one of these noncash donations, it is up to you to determine the value of the donation. However, many charities provide a donation guide to help you determine the value. Your donated items must be in good or better condition and you should receive a receipt from the charitable organization for your donations. If your noncash donations are greater than $500, you must file a Form 8283 to provide additional information to the IRS. For noncash donations greater than $5,000, you must also get an independent appraisal to certify the worth of the items. |
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Keep track of mileage. If you drive for charitable purposes, this mileage can be deductible as well. For example, miles driven to deliver meals to the elderly, to be a volunteer coach or to transport others to and from a charitable event, can be deducted at 14 cents per mile. A contemporaneous log of the mileage must be maintained to substantiate your charitable driving. |
Remember, charitable giving can be a valuable tax deduction — but only if you take the right steps.
Knowing whether you can or can’t expense a purchase for business purposes can be complicated. However, there are a few hard-and-fast rules to help you.
According to the IRS, business expenses must be ordinary and necessary to be deductible. That means they are common and accepted in your business, as well as helpful and appropriate. You’ll need to maintain records (such as statements and ledgers) and supporting documents (receipts and invoices) to substantiate your deductions. Certain expenses are subject to extra requirements, as described below.
Travel expenses pertain to business trips and can include transportation to and from airports, your hotel and business meeting places. They also generally include lodging, meals, tips and other related incidentals.
| Do: | + | Maintain trip logs describing your business expenses and the purpose of each. If your trip is mostly for business but includes personal components, separate them in your log. These nondeductible personal items could include extending your stay for a vacation or taking personal side trips. |
| + | Deduct travel-related meal costs, but only up to the 50 percent limit allowed by the IRS. | |
| Don’t: | – | Rely on estimates to determine the business vs. personal components of your expenses. |
| – | Deduct any of your travel expenses if your trip is primarily for personal purposes. | |
| – | Deduct any of your meal costs if they could be considered unreasonably extravagant. |
Entertainment expenses need to be either directly related to or associated with the conduct of your business. That means that business is the main purpose of the activities and it’s highly likely you’ll get income or future business benefits. Expenses from entertainment that aren’t considered directly related may still be deductible if they are associated with your business and happen right before or after an important business discussion.
| Do: | + | Keep records of entertainment expenses, including who was present and clear descriptions of the nature, dates and times of the pertinent business discussions. |
| + | Deduct up to 50 percent of entertainment expenses, as allowed by the IRS. | |
| Don’t: | – | Claim the costs of pleasure boat outings or entertainment facilities (e.g., hunting lodges) that are not related to business activity. |
Business use of your personal car is calculated according to your actual business-related expenses, or by multiplying your business mileage by the prescribed IRS rate (53.5 cents per mile in 2017).
| Do: | + | Log odometer readings for each business trip and record your business purpose. |
| + | Claim actual business deductions by applying the ratio of your business-miles-to-total mileage. | |
| Don’t: | – | Claim mileage or expenses pertaining to commuting to and from work. |
If you have any questions about how to handle your business expenses, reach out for further guidance.
Is a worker an independent contractor or an employee? This seemingly simple question is often the contentious subject of IRS audits. As an employer, getting this wrong could cost you plenty in the way of Social Security, Medicare, and other employment-related taxes. Here is what you need to know.
The basics…
As the worker. If you are a contractor and not considered an employee you must:
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Pay self-employment taxes (Social Security and Medicare-related taxes) |
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Make estimated federal and state tax payments. |
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Handle your own benefits, insurance and bookkeeping. |
As the employer. You must ensure your employee versus independent contractor determination is correct. Getting this wrong in the eyes of the IRS can lead to:
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Payment and penalties related to Social Security and Medicare taxes. |
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Payment of possible overtime including penalties for a contractor reclassified as an employee. |
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Legal obligation to pay for benefits. |
Things to consider
When the IRS recharacterizes an independent contractor as an employee they look at the business relationship between the employer and the worker. The IRS focuses on the degree of control exercised by the employer over the work done and they assess the worker’s independence. Here are some guidelines:
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The more the employer has the right to control the work (when, how and where the work is done), the more likely the worker is an employee. |
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The more the financial relationship is controlled by the employer the more likely the relationship will be seen as an employee and not an independent contractor. To clarify this, an independent contractor should have a contract, have multiple customers, invoice the company for work done, and handle financial matters in a professional manner. |
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The more businesslike the arrangement the more likely you have an independent contractor relationship. |
While there are no hard-set rules, the more reasonable your basis for classification and the more consistently it is applied, the more likely an independent contractor classification will not be challenged.
It’s hard enough to watch your child leave for college. Now you also have to say goodbye to the tuition and fees tax deduction. Congress decided not to extend this $4,000 deduction for 2017, leaving many parents worried that college will now be more expensive.
But it isn’t as bad as it sounds. That’s because Congress left in place two popular education credits that often offer a more valuable tax break:
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The AOTC. The American Opportunity Tax Credit (AOTC) is a credit of up to $2,500 per student per year for qualified undergraduate tuition, fees and course materials. The deduction phases out at higher income levels, and is eliminated altogether for married couples with a modified adjusted gross income of $180,000 ($90,000 for singles). |
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Lifetime Learning Credit. The Lifetime Learning Credit provides an annual credit of 20 percent on the first $10,000 of tuition and fees, for either undergraduate or graduate level classes. There is no lifetime limit on the credit, but only couples making less than $132,000 per year (or singles making $66,000) qualify. Unlike the AOTC, this deduction is per tax return, not per student. |
So who is affected by the loss of the tuition and fees deduction? If you are paying for your student’s graduate-level courses and are making too much to qualify for the Lifetime Learning Credit, the tuition and fees deduction was generally the only means you had to reduce your tax bill.
But there’s still hope! In addition to the two alternative education credits, there are many other tax benefits that reduce the cost of education. There are breaks for employer-provided tuition assistance, deductions for student loan interest, tax-beneficial college savings options, and many other tax-planning alternatives. Please call if you’d like an overview of the alternatives available to you.
When it comes to choosing where to live during retirement, weather isn’t the only consideration. State and local tax laws have a big impact on your nest egg.
The charts here show the highest and lowest state tax rates and costs of living, from data provided by nonprofit think tanks the Tax Foundation and the Council for Community and Economic Research.
| State Income Tax Rates | ||||
| Highest | Lowest | |||
| 1. | California (13.3%) | 50. | Alaska (0%) | |
| 2. | Oregon (9.9%) | 49. | Florida (0%) | |
| 3. | Minnesota (9.85%) | 48. | Nevada (0%) | |
| 4. | Iowa (8.98%) | 47. | South Dakota (0%) | |
| 5. | New Jersey (8.97%) | 46. | Texas (0%) | |
| 6. | Vermont (8.95%) | 45. | Washington (0%) | |
| 7. | Washington DC (8.95%) | 44. | Wyoming (0%) | |
| State and Local Sales Taxes (state and average local tax rates combined) | ||||
| Highest | Lowest | |||
| 1. | Louisiana (10%) | 50. | Delaware (0%) | |
| 2. | Tennessee (9.5%) | 49. | Montana (0%) | |
| 3. | Arkansas (9.3%) | 48. | New Hampshire (0%) | |
| 4. | Alabama (9%) | 47. | Oregon (0%) | |
| 5. | Washington (8.9%) | 46. | Alaska (1.8%) | |
| Property Taxes (Rankings based on the statewide average of local rates.) | ||||
| Highest | Lowest | |||
| 1. | New Jersey | 50. | Hawaii | |
| 2. | Illinois | 49. | Alabama | |
| 3. | New Hampshire | 48. | Louisiana | |
| 4. | Connecticut | 47. | Delaware | |
| 5. | Wisconsin | 46. | Washington DC | |
| If taxes were the only consideration in our retirement destinations, everyone would move to Alaska, which has no state income or sales taxes. However, the “last frontier” state also has one of the highest costs of living in the U.S. Therefore, you may also wish to consider which states have high and low costs of living. |
| Don’t Forget: Cost of Living | ||||
| Highest | Lowest | |||
| 1. | Hawaii | 50. | Mississippi | |
| 2. | District of Columbia | 49. | Arkansas | |
| 3. | California | 48. | Oklahoma | |
| 4. | Alaska | 47. | Michigan | |
| 5. | New York | 46. | Tennessee | |
There’s a simple “safe harbor” home office deduction.
You take the square footage of your office, up to 300 square feet, and multiply it by $5. This gives you a potential $1,500 deduction under the simplified option. However, your savings could be much greater than $1,500, so it’s often worth getting help to calculate your full deduction using the standard rules.
If you recently got married, plan to get married, or know someone taking the matrimonial plunge, here are some important tax tips every new bride and groom should know.
If you’d like a review of how marriage will affect your tax and financial situation, call at your earliest opportunity. |
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