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Absetax News

IRS Confirms Tax Filing Season to Begin January 28

Published On: 21st Jan, 2019

IR-2019-01, January 7, 2019


WASHINGTON ― Despite the government shutdown, the Internal Revenue Service today confirmed that it will process tax returns beginning January 28, 2019 and provide refunds to taxpayers as scheduled.
 
“We are committed to ensuring that taxpayers receive their refunds notwithstanding the government shutdown. I appreciate the hard work of the employees and their commitment to the taxpayers during this period,” said IRS Commissioner Chuck Rettig.
 
Congress directed the payment of all tax refunds through a permanent, indefinite appropriation (31 U.S.C. 1324), and the IRS has consistently been of the view that it has authority to pay refunds despite a lapse in annual appropriations. Although in 2011 the Office of Management and Budget (OMB) directed the IRS not to pay refunds during a lapse, OMB has reviewed the relevant law at Treasury’s request and concluded that IRS may pay tax refunds during a lapse.

The IRS will be recalling a significant portion of its workforce, currently furloughed as part of the government shutdown, to work. Additional details for the IRS filing season will be included in an updated FY2019 Lapsed Appropriations Contingency Plan to be released publicly in the coming days.

“IRS employees have been hard at work over the past year to implement the biggest tax law changes the nation has seen in more than 30 years,” said Rettig.
 
As in past years, the IRS will begin accepting and processing individual tax returns once the filing season begins. For taxpayers who usually file early in the year and have all of the needed documentation, there is no need to wait to file. They should file when they are ready to submit a complete and accurate tax return.
 
The filing deadline to submit 2018 tax returns is Monday, April 15, 2019 for most taxpayers. Because of the Patriots’ Day holiday on April 15 in Maine and Massachusetts and the Emancipation Day holiday on April 16 in the District of Columbia, taxpayers who live in Maine or Massachusetts have until April 17, 2019 to file their returns.
 
Software companies and tax professionals will be accepting and preparing tax returns before Jan. 28 and then will submit the returns when the IRS systems open later this month. The IRS strongly encourages people to file their tax returns electronically to minimize errors and for faster refunds.

Tax Reform Basics for Individuals and Families

Published On: 21st Jan, 2019

Please visit following for more details.

https://www.irs.gov/tax-reform

FS-2018-17, October 2018

The Tax Cuts and Jobs Act included a few dozen tax law changes that affect businesses. Most of the changes in the new law take effect in 2018 and will affect tax returns filed in 2019.

This fact sheet summarizes some of the changes for businesses and gives resources to help business owners find more details.

Business taxpayers should re-estimate estimated tax payments

The Tax Cuts and Jobs Act changed the way tax is calculated for most taxpayers, including those with substantial income not subject to withholding, such as small business owners and self-employed individuals. Among other reforms, the new law changed the tax rates and brackets, revised business expense deductions, increased the standard deduction, removed personal exemptions, increased the child tax credit and limited or discontinued certain deductions. As a result, many taxpayers may need to raise or lower the amount of tax they pay each quarter through the estimated tax system.

Because of the far-reaching tax changes taking effect this year, the IRS urges all employees, including those with other sources of income, to perform a Paycheck Checkup now. Doing so now will help avoid an unexpected year-end tax bill and possibly a penalty. The easiest way to do this is to use the Withholding Calculator available on IRS.gov.

A companion publication, Publication 505, Tax Withholding and Estimated Tax, has additional details, including worksheets and examples, which can help taxpayers determine whether they should pay estimated tax. Some of those groups that should consult Publication 505 are those who have dividend or capital gains income, owe alternative minimum tax or have other special situations.

Form 1040-ES can also help taxpayers figure these payments simply and accurately. The estimated tax package includes a quick rundown of key tax changes, income tax rate schedules for 2018 and a useful worksheet for figuring the right amount to pay.

More information about tax withholding and estimated tax can be found on the IRS’s Pay As You Go web page.

New or revised deductions for businesses

  • Qualified business income deduction. Many taxpayers may be eligible for a new deduction for qualified business income (QBI) from a qualified trade or business operated directly or through a pass-through entity.

    The deduction has two components.
     
    1. Eligible taxpayers may be entitled to deduct up to 20 percent of their qualified business income (QBI) from a domestic business operated as a sole proprietorship or through a partnership, S corporation, trust or estate. For taxpayers with taxable income that exceeds $315,000 for a married couple filing a joint return, or $157,500 for all other taxpayers, the deduction is subject to limitations such as the type of trade or business, the taxpayer’s taxable income, the amount of W-2 wages paid by the qualified trade or business and the unadjusted basis immediately after acquisition (UBIA) of qualified property held by the trade or business. Income earned through a C corporation or by providing services as an employee is not eligible for the deduction.
    2. Eligible taxpayers may be entitled to deduct 20 percent of their combined qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income. This component of the section 199A deduction is not limited by W-2 wages or the UBIA of qualified property.

      The sum of these two amounts is referred to as the combined qualified business income amount. Generally, this deduction is the lesser of the combined qualified business income amount and an amount equal to 20 percent of the taxable income minus the taxpayer’s net capital gain.

      The deduction is available for tax years beginning after Dec. 31, 2017. Most eligible taxpayers can claim it for the first time when they file their 2018 federal income tax return in 2019. The deduction is available regardless of whether an individual itemizes their deductions on Schedule A or takes the standard deduction.

      For more information, see the FAQs on the Deduction for Qualified Business Income.
  • Excess business losses. Noncorporate taxpayers may be subject to excess business loss limitations. The at-risk limits and the passive activity limits are applied before calculating the amount of any excess business loss. An excess business loss is the amount by which the total deductions attributable to all of your trades or businesses exceed your total gross income and gains attributable to those trades or businesses plus $250,000 (or $500,000 in the case of a joint return). A “trade or business” can include, but is not limited to, Schedule F and Schedule C activities, the activity of being an employee, an activity reported on Form 4835, and other business activities reported on Schedule E. Business gains and losses reported on Form 4797 and Form 8949 can be included in the excess business loss calculation. They also include pass-thru income and losses attributable to a trade or business. This includes farming losses from casualty losses or losses by reason of disease or drought. Excess business losses that are disallowed are treated as a net operating loss carryover to the following taxable year. See Form 461 and instructions for details.
  • Net operating losses. Most taxpayers no longer have the option to carryback a net operating loss (NOL). For most taxpayers, NOLs arising in tax years ending after 2017 can only be carried forward. The 2-year carryback rule in effect before 2018, generally, does not apply to NOLs arising in tax years ending after December 31, 2017. Exceptions apply to certain farming losses and NOLs of insurance companies other than a life insurance company. Also, for losses arising in taxable years beginning after Dec. 31, 2017, the net operating loss deduction is limited to 80% of taxable income (determined without regard to the deduction).
  • Meal and entertainment expenses. The new law generally eliminated the deduction for any expenses related to activities generally considered entertainment, amusement or recreation. However, under the new law, taxpayers can continue to deduct 50 percent of the cost of business meals if the taxpayer - or an employee of the taxpayer - is present and the food or beverages are not considered lavish or extravagant. The meals may be provided to a current or potential business customer, client, consultant or similar business contact. Food and beverages that are purchased or consumed during entertainment events will not be considered entertainment if purchased separately from the entertainment, or if the cost is stated separately from the entertainment on one or more bills, invoices or receipts.
  • Fines and penalties paid to a government. Taxpayers can’t deduct certain fines and penalties for violation of the law. See Notice 2018-23 for more details.
  • Payments made in sexual harassment or sexual abuse cases. Taxpayers can’t deduct certain payments made in sexual harassment or sexual abuse cases.
  • Payments under state or local tax credit programs. Business taxpayers who make business-related payments to charities or government entities for which the taxpayers receive state or local tax credits can generally deduct the payments as business expenses.
  • The business expense deduction is available to any business taxpayer, regardless of whether it’s doing business as a sole proprietor, partnership or corporation, as long as the payment qualifies as an ordinary and necessary business expense.

Changes to fringe benefit deductions

There are important changes to fringe benefit deductions that employers need to know about. These changes can affect a business’s bottom line and its employee’ deductions.

  • Transportation fringe benefits. The new law disallows deductions for expenses associated with qualified transportation fringe benefits or expenses incurred providing transportation for commuting (except as necessary for employee safety).
  • Bicycle commuting reimbursements. Under the new tax law, employers can deduct qualified bicycle commuting reimbursements as a business expense for 2018 through 2025. The new tax law suspends the exclusion of qualified bicycle commuting reimbursements from an employee’s income for 2018 through 2025. Employers must now include these reimbursements in the employee’s wages.
  • Moving expenses. Employers must now include moving expense reimbursements in employees’ wages. The new tax law suspends the former exclusion for qualified moving expense reimbursements. One exception: Active duty members of the U.S. Armed Forces can still exclude moving expenses from their income. Notice 2018-75 provides guidance on 2018 reimbursements for employees’ 2017 moves. Generally, reimbursements in this situation are not taxed.
  •  Achievement awards. Special rules allow an employee to exclude achievement awards from wages if the awards are tangible personal property. An employer also may deduct awards that are tangible personal property, subject to certain deduction limits. The new law clarifies the definition of tangible personal property.

See the Employer Update on IRS.gov for more details.

Changes to depreciation and expensing for businesses

The Tax Cuts and Job Act changed some laws regarding depreciation and expensing. These changes can affect a business’s tax situation. Here are the highlights:

  • Businesses can immediately expense more under the new law.
  • Temporary 100 percent expensing for certain business assets (first year bonus depreciation).
  • Changes to depreciation limitations on luxury automobiles and personal use property.
  • The treatment of certain farm property changed.
  • Applicable recovery period for real property.
  • Use of alternative depreciation system for farming businesses.

More details are in FS-2018-9, New rules and limitations for depreciation and expensing under the Tax Cuts and Jobs Act.

New and revised tax credits for businesses

  • New employer credit for paid family and medical leave. This general business credit is a percentage of the amount of wages paid to a qualifying employee while on family and medical leave for up to 12 weeks per taxable year. The credit is generally effective for wages paid in taxable years beginning after Dec. 31, 2017, and before Jan. 1, 2020. For more information, see the Frequently Asked Questions about the Employer Credit for Paid Family and Medical Leave and Notice 2018-71.
  • Rehabilitation tax credit. The new law affects the rehabilitation tax credit for amounts that taxpayers pay or incur for qualified expenditures after Dec. 31, 2017. It repeals the 10 percent credit for buildings placed in service before 1936. It keeps the 20 percent credit for expenses to rehabilitate a certified historic structure, but requires taxpayers to prorate the 20 percent credit over five years instead of in the year they placed the building into service.

    A transition rule gives relief to owners of either a certified historic structure or a pre-1936 building by allowing owners to use the prior law if the project meets these conditions:
     
    • The taxpayer owns or leases the building on Jan. 1, 2018, and at all times thereafter, and
    • The 24- or 60-month period selected for the substantial rehabilitation test begins by June 20, 2018.

2018 California Tax Rates and Exemptions

Published On: 21st Jan, 2019

Rate of inflation

The rate of inflation in California, for the period from July 1, 2017, through June 30, 2018, was 3.9%. The 2018 personal income tax brackets are indexed by this amount.

Corporate tax rates

Entity typeTax rate
Corporations other than banks and financials 8.84%
Banks and financials 10.84%
Alternative Minimum Tax (AMT) rate 6.65%
S corporation rate 1.5%
S corporation bank and financial rate 3.5%

Individual tax rates

  • The maximum rate for individuals is 12.3%
  • The AMT rate for individuals is 7%
  • The Mental Health Services Tax Rate is 1% for taxable income in excess of $1,000,000.

Exemption credits

Filing Status/QualificationExemption amount
Married/Registered Domestic Partner (RDP) filing jointly or qualifying widow(er) $236
Single, married/RDP filing separately, or head of household $118
Dependent $367
Blind $118
Age 65 or older $118
Estates* $10
Trusts* $1

* Estates and Trusts exemption credits are considered "Special credits allowed" under R&TC §17733.

Phaseout of exemption credits

Higher-income taxpayers' exemption credits are reduced as follows:

Filing statusReduce each credit by:For each:Federal AGI exceeds:
Single $6 $2,500 $194,504
Married/RDP filing separately $6 $1,250 $194,504
Head of household $6 $2,500 $291,760
Married/RDP filing jointly $12 $2,500 $389,013
Qualifying widow(er) $12 $2,500 $389,013

When applying the phaseout amount, apply the $6/$12 amount to each exemption credit, but do not reduce the credit below zero. If a personal exemption credit is less than the phaseout amount, do not apply the excess against a dependent exemption credit.

Standard deductions

The standard deduction amounts for:

Filing statusDeduction amount
Single or married/RDP filing separately $4,401
Married/RDP filing jointly, head of household, or qualifying widow(er) $8,802
The minimum standard deduction for dependents $1,050

Reduction in itemized deductions

Itemized deductions must be reduced by the lesser of 6% of the excess of the taxpayer's federal AGI over the threshold amount or 80% of the amount of itemized deductions otherwise allowed for the taxable year.

Filing statusAGI threshold
Single or married/RDP filing separately $194,504
Head of household $291,760
Married/RDP filing jointly or qualifying widow(er) $389,013

Earned Income Tax Credit

The California earned income tax credit is available to California households with federal adjusted gross income (AGI) of:

  • Less than $16,751 if there are no qualifying children.
  • Less than $24,951 if there are one or more qualifying children.

The maximum amount of investment income to remain eligible for the credit is $3,699.

Nonrefundable Renter's credit

This nonrefundable, non-carryover credit for renters is available for:

  • Single or married/RDP filing separately with a California AGI of $41,641 or less.
    • The credit is $60.
  • Married/RDP filing jointly, head of household, or qualifying widow(er) with a California AGI of $83,282 or less.
    • The credit is $120.

Miscellaneous credits

  • Qualified senior head of household credit
    • 2% of California taxable income
    • Maximum California AGI of $76,082
    • Maximum credit of $1,434
  • Joint custody head of household credit/dependent parent credit
    • 30% of net tax
    • Maximum credit of $469

AMT exemption

Filing statusAmount
Married/RDP filing jointly or qualifying widow(er) $95,373
Single or head of household $71,531
Married/RDP filing separately, estates, or trusts $47,685

AMT exemption phaseout

Filing statusAmount
Married/RDP filing jointly or qualifying widow(er) $357,650
Single or head of household $268,237
Married/RDP filing separately, estates, or trusts $178,822

FTB cost recovery fees

Fee typeFee
Bank and corporation filing enforcement fee $100
Bank and corporation collection fee $365
Personal income tax filing enforcement fee $81
Personal income tax collection fee $266

The personal income tax fees apply to individuals and partnerships, as well as limited liability companies that are classified as partnerships. The bank and corporation fees apply to banks and corporations, as well as limited liability companies that are classified as corporations. Interest does not accrue on these cost recovery fees.

2018 California Tax Rate Schedules

Schedule X — Single or married/RDP filing separately

Taxable income overBut not overTax is
$0 $8,544 $0.00 + 1.00% of amount over $0
$8,544 $20,255 $85.44 + 2.00% of amount over $8,544
$20,255 $31,969 $319.66 + 4.00% of amount over $20,255
$31,969 $44,377 $788.22 + 6.00% of amount over $31,969
$44,377 $56,085 $1,532.70 + 8.00% of amount over $44,377
$56,085 $286,492 $2,469.34 + 9.30% of amount over $56,085
$286,492 $343,788 $23,897.19 + 10.30% of amount over $286,492
$343,788 $572,980 $29,798.68 + 11.30% of amount over $343,788
$572,980 AND OVER $55,697.38 + 12.30% of amount over $572,980

Schedule Y — Married/RDP filing jointly, or qualifying widow(er) with dependent child

Taxable income overBut not overTax is
$0 $17,088 $0.00 + 1.00% of amount over $0
$17,088 $40,510 $170.88 + 2.00% of amount over $17,088
$40,510 $63,938 $639.32 + 4.00% of amount over $40,510
$63,938 $88,754 $1,576.44 + 6.00% of amount over $63,938
$88,754 $112,170 $3,065.40 + 8.00% of amount over $88,754
$112,170 $572,984 $4,938.68 + 9.30% of amount over $112,170
$572,984 $687,576 $47,794.38 + 10.30% of amount over $572,984
$687,576 $1,145,960 $59,597.36 + 11.30% of amount over $687,576
$1,145,960 AND OVER $111,394.75 + 12.30% of amount over $1,145,960

Schedule Z — Head of household

Taxable income overBut not overTax is
$0 $17,099 $0.00 + 1.00% of amount over $0
$17,099 $40,512 $170.99 + 2.00% of amount over $17,088
$40,512 $52,224 $639.25 + 4.00% of amount over $40,510
$52,224 $64,632 $1,107.73 + 6.00% of amount over $52,224
$64,632 $76,343 $1,852.21 + 8.00% of amount over $64,632
$76,343 $389,627 $2,789.09 + 9.30% of amount over $76,343
$389,627 $467,553 $31,924.50 + 10.30% of amount over $389,627
$467,553 $779,253 $39,950.88 + 11.30% of amount over $467,553
$779,253 AND OVER $75,172.98 + 12.30% of amount over $779,253

Individual Filing Requirements

If your gross income or adjusted gross income is more than the amount shown in the chart below for your filing status, age, and number of dependents, then you have a filing requirement.

Filing StatusAge as of December 31, 2018*California Gross IncomeCalifornia Adjusted Gross Income
DependentsDependents
012 or more012 or more
Single or head of household Under 65 $17,693 $29,926 $39,101 $14,154 $26,387 $35,562
65 or older $23,593 $32,768 $40,108 $20,054 $29,229 $36,569
Married/RDP filing jointly or separately Under 65 (both spouses/RDPs) $35,388 $47,621 $56,796 $28,312 $40,545 $49,720
65 or older (one spouse) $41,288 $50,463 $57,803 $34,212 $43,387 $50,727
65 or older 
(both spouses/RDPs)
$47,188 $56,363 $63,703 $40,112 $49,287 $56,627
Qualifying widow(er) Under 65 N/A $29,926 $39,101 N/A $26,387 $35,562
65 or older N/A $32,768 $40,108 N/A $29,229 $36,569
Dependent of another person (Any filing status) Under 65 More than your standard deduction
65 or older More than your standard deduction

* If you turn 65 on January 1, 2018, you are considered to be age 65 at the end of 2017.