Posts in Taxes
Pastors Can No Longer Itemize Deductions for Business Expenses

According to Richard Hammer, "prior to The Tax Cuts and Jobs Act of 2017, certain business expenses were deductible if, in aggregate, they exceeded 2 percent of the taxpayer’s adjusted gross income." However, recent tax reform means that certain business expenses are no longer deductible. This article suggests that small churches will be the ones bearing the brunt of these changes. Click here to read more.

Source: Christianity Today

Republican Tax Bill Summary

House Republicans today released the details of their plans to overhaul the U.S. tax code. (See the full House bill and House summary. ) WaterStone has put together a quick a rundown of key provisions in the proposal that we thought might interest you:

Business

  • Chops the corporate tax rate from 35% to 20% permanently, not temporarily as was earlier considered.
  • Businesses would lose the ability to deduct certain executive compensation above $1 million, which they can now do for performance-based pay.
  • Tax-exempt bonds could no longer be used to build professional sports stadiums.
  • Sets a top 25% rate for pass-through businesses such as S corporations and partnerships. The plan includes complicated guardrails that limit people from turning what would otherwise be wage income taxed at up to 39.6% into business income taxed at a lower rate.
  • New limits on corporate interest deductions, which would be capped at 30% of earnings before interest, taxes, depreciation and amortization, which is a measure of cash flow. Real-estate firms and small businesses would be exempt from that limit.
  • Creates a new one-time tax on overseas profits set at 12% for cash holdings and 5% for illiquid holdings, a provision meant to force companies to repatriate overseas profits. Creates a new 10% tax on U.S. companies’ high-profit foreign subsidiaries, calculated on a global basis, but active overseas profits wouldn’t otherwise be taxed.

 

INDIVIDUALS

  • Reduces seven individual income tax brackets to four at 12%, 25%, 35% and 39.6%.
  • Top tax bracket set for married couples earning $1,000,000 per year and individuals earning %$500,000. Bottom tax bracket extends up to $90,000 for couples and $45,000 for individuals.
  • The proposal doesn’t change the top tax rates on capital gains and dividend income.
  • The bill would preserve head-of-household filing status, often used by single parents. The standard deduction for that group is midway between individuals and married couples.
  • Nearly doubles individual standard deduction to $24,400 for married couples and $12,200 for singles in 2018.
  • Increases child tax credit from $1,000 in 2017 to $1,600 plus $300 for each taxpayer, spouse and non-child dependents.
  • Places new limit on home mortgage-interest deduction at loans up to $500,000, down from $1,000,000, but existing loans would be grandfathered.
  • The estate-tax exemption, set for $5.6 million per person and $11.2 million per married couple, would double immediately. The tax would be repealed starting in 2024.
  • Keeps 401(k) existing plan rules largely intact.
  • Repeals the alternative minimum tax
  • Repeals an itemized deduction for medical expenses.
  • Repeals the tax credit for adoption.
  • Repeals the deduction for student-loan interest.

Source: Waterstone

Killing Estate Tax Could Kill Charitable Giving

While many Americans would be happy to see the "death tax" go away, many are afraid of the effect it would have on charitable giving.  "In 2010, when the estate tax was temporarily repealed, gross charitable bequests in IRS tax filings totaled $7.49 billion -- a 37 percent drop from $11.9 billion the previous year. The tax returned in 2011, and charitable bequests soared to $14.36 billion." Click here to read more. 

Source: InvestmentNews

Inherited IRA Tax Savings

When clients or prospective clients tell you about having an inherited retirement plan or inherited IRA account, be sure to inquire whether or not the decedent's estate paid estate taxes. If estate taxes were paid on the value of the deceased's retirement plan accounts, then the beneficiaries of those inherited accounts can receive an income tax deduction for distributions up to the amount of the estate tax paid on the account.

It is calculated by determining the amount of estate tax with the retirement account included in the estate and without it. The difference in estate tax is attributable to the retirement account and is available to the beneficiary as they withdraw funds from the inherited account until exhausted.

This tax break is often missed by beneficiaries and their accountants who may not know whether or not an estate tax return was ever filed.   

TaxesRichard M. Todd