Tax Cuts and Jobs Act

The Impact of the Tax Cuts and Jobs Act on Your Favorite Charity

May 26, 2018/in Hot Topics /by admin

There are many winners and losers from the recent Tax Cuts and Jobs Act passed by Congress in December 2017, and nonprofits may be one of the biggest losers. While you may still plan on contributing to your local charity in 2018 and beyond, it will be harder for you to receive the tax benefit due to an increase in the standard deduction. While not everyone gives to charity to take a tax deduction, there will be a substantial downshift in the quantity and frequency of contributions that nonprofits may start to see. The upside is that these impacts are ‘temporary’ as a part of the TCJA and will phase out by 2025 unless extended by Congress.

What’s changed?

A major part of the TCJA was a simplification in tax filing. This streamlining resulted in an increase in the standard deduction from $6,350 to $12,000 for single individuals and $12,700 to $24,000 for married couples. It is estimated that the approximate 30 percent of tax payers who currently itemize their deductions will drop to about 6 percent in 2018. That translates to a drop of between $12 billion to $20 billion in charitable giving and charitable tax deductions according to the Tax Policy Center. Less itemized deductions means less opportunity for would-be donors to take a tax deduction for their charitable giving. Nonprofits are already bracing for the financial black hole that is to come.

Taxpayers are thinking strategically about their charitable giving, too. The New York Times wrote recently about the option of ‘bunching’ charitable contributions. Bunching is where instead of making annual contributions to charity, tax payers would accumulate donations over several years and make them in one year’s worth of gifts in order to take the larger itemized deduction and receive the tax break. But what happens to the nonprofit that counts on a steady stream of income and now faces substantial changes to donations? Let’s take a quick look at donor advised funds. A somewhat daunting term for what translates to donating funds privately, donor advised funds allow the contributors to donate money and take the tax deduction in the same year, but pay the money to chosen charities over a predetermined time horizon. The donor doesn’t control the money once it’s deposited to the fund, but can direct the fund’s administrator on how they would like the dollars allocated. Additionally, certain funds have an investment component that allows the fund to potentially yield even greater profits down the road. While donor advised funds aren’t new to the financial industry, they are gaining traction as larger national funds have affiliated with big financial firms such as Fidelity and Charles Schwab.

In addition to the increase of the standard deduction, taxpayers are also facing substantially limited deductions for state and local taxes along with home mortgage interest. In states like California, New York, and Massachusetts, where both local and state taxes are high coupled with high real estate values may mean that the tax burden will be greater and charitable giving even less.

There is a small upside to these changes. The Act calls for an increase in the amount of deduction that an individual can make from 50 percent to 60 percent of his/her adjusted gross income. The nonprofit may see a slightly larger contribution than had been seen previously. Time will tell if this greater increase in donation maximums will bear fruit for nonprofits big and small across the country.

If you have questions or still aren’t clear on what type of contributions will be deductible or what your deduction threshold is, it may be time to talk with a Small Business Advisor. You can find one in your area by clicking on the Find an Accountant link above.

PASBA member accountants bring the collective resources of a nationwide network of Certified Public Accountants, Public Accountants, Enrolled Agents and other practitioners available to answer your tax and financial questions and streamline your business accounting, bookkeeping, and payroll operations.

To find a trusted accountant in your area, visit www.SmallBizAccountants.com.

Please be advised that, based on current IRS rules and standards, any advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty that the IRS may assess related to this matter. Any information contained in this article, whether viewed or subsequently printed, cannot be relied upon as qualified tax and accounting advice. Any information contained in this article does not fall under the guidelines of IRS Circular 230.

New 2018 Tax Withholdings May Bring an Unwanted Surprise

February 5, 2018/in Hot Topics /by admin

The Treasury Department recently announced revisions to the 2018 withholding tables to reflect the changes spurred by the Tax Cuts and Jobs Act (TCJA). Included in the law, employers can use worker’s existing W-4 Forms already on file to make the adjustments to their withholding.

What that means for employers:

Since it isn’t mandatory for employees to review their W-4 form after their initial employment, employers may want to reach out to workers to encourage them to thoroughly review their pay stubs after the first payroll with the new withholding rates. Additionally, new forms will be forthcoming from the IRS, so employers will need to again communicate with workers about completing the new form to update their individual withholdings.

What the changes mean for workers:

Some 90 percent of workers will see an increase in their weekly pay as a result of the TCJA according to Government estimates. The Tax Policy Center estimates that about 80 percent of all filers will see a tax cut, while approximately 5 percent will see an increase, and no change for the remaining 15 percent.

What’s the issue?

Many Americans haven’t reviewed or even seen their W-4 Form since they were hired, so changes to the withholding could have more serious impact on a family that has grown or shrank over the years. Tax payers who are either under or over-withholding aren’t going to see the full impact of the change until it comes time to pay their 2018 income taxes – too late to make what could be costly changes. “The results could vary dramatically from one individual to the next,” says Steven Feinberg, CPA and owner of Appletree Business Services in Londonderry, NH. “We are encouraging both employers and employees to review their withholdings, compare it to their current situation and make any necessary changes now rather than waiting a full year to see what the impact might be.”

New Tax Brackets for 2018

Single	Rate	Married
Above $500,000	37%	Above $600,000
$200,001-$500,000	35%	$400,001-$600,000
$157,501-$200,000	32%	$315,001-$400,000
$82,501-$157,500	24%	$165,001-$315,000
$38,701 -$82,500	22%	$77,401-$165,000
$9,526-$38,700	12%	$19,051-$77,400
Up to $9,525	10%	Up to $19,050

Source: Joint Explanatory Statement of the Committee of Conference, H.R.1

The new withholding tables have been adjusted to include new larger standard deductions, lower tax rates and the repeal of the personal exemption. What the tables couldn’t include is how the changes would affect individuals differently. For example, the reducing alternative minimum tax, expanded child credits and repeal of deductions on the state and local levels. All of these items can come into play and impact what an individual might normally ‘expect’ for an annual tax refund.

Tax officials at the US Treasury and the IRS are working on a revised W-4 form, which they hope to release sometime in February 2018.

Those at risk for under-withholding could include employees who receive bonuses, stock options or commissions because the withholding rate for that population has dropped from 25 percent to 22 percent. Additionally, parents with dependents over the age of 17 are also losing a key tax credit of $2,000, replacing it with just $500. Couple that with the loss of the personal exemption, and those tax cuts aren’t looking nearly as attractive as they were on the surface.

Another item to remember is that the tax penalty for underpayment, meaning the requirement of taxpayers to pay in at least 90 percent of what they owe by April 15^th still carries a 4 percent interest rate quarterly. “Waiting and finding out that you substantially owe more income taxes could be coupled with a pretty hefty penalty,” continues Feinberg.

To learn more about the new 2018 payroll withholding changes, talk with a Professional Small Business Advisor by clicking on Find an Accountant at the top of the page.

ACA Reporting Extension Announced

January 25, 2018/in Hot Topics /by admin

If you were panicking about getting those pesky Forms 1095-B and 1095-C’s out to your employees by January 31, 2018, there’s a little good news. The IRS announced an extension on December 22, 2017 that now provides additional time for Applicable Large Employers (ALEs), those employers with 50 ore more full time employees, to prepare and send the Form 1095-B/1095-C to report information about each employee’s offer of health coverage, affordability and month’s actually covered by the employer plan. Employers that also offer employer-sponsored self-insured coverage will also use Form 1095-C. The new deadline, which is a 30-day extension from the original and is automatic, is now March 2, 2018 to provide the Form 1095-B or 1095-C to individuals. Due dates for filing the 2017 information returns with the IRS are not extended and remain February 28, 2018 for paper filers and April 2, 2018 for electronic filers.

But you thought that the Tax Cuts and Job Act (TCJA) of 2017 put an end to employer ACA reporting?

Well, yes and no. The only item related to the Affordable Care Act was the repeal of the individual mandate, which was the penalty for not actively seeking out and obtaining health coverage. The penalty still remains in effect throughout 2018 and will be $695 per adult or 2.5% of household income in excess of tax filing thresholds, whichever is greater. Employers must continue to report under Section 6055 and 6056 of the Internal Revenue Code regarding minimal essential coverage (MEC). This information is reported on Forms 1094-C (the IRS transmittal) and 1095-C, the employee informational form. For other plan sponsors such as multi-employer plans, health plan issuers, etc., the reporting is done on Forms 1094-B and 1095-B respectively.

Employees do not need to submit the 1095-B or 1095-C with their 2017 individual income tax return.

If you have questions or still aren’t clear on your business’ responsibilities, talk with a Small Business Advisor. You can find one in your area by clicking on the Find an Accountant link above.