Finally a tax break to help small business. This will include anyone getting pass through income such as a sole proprietor, Sub S income, LLC, or LLP. Individuals who earn income through pass-through businesses may qualify to deduct from their income tax an amount equal to up to 20% of their “qualified business income” (“QBI”) from each pass-through business they own. QBI is the net income (profit) your pass-through business earns during the year. It is essentially net income from your pass through businesses. QBI includes rental income so long as your rental activity qualifies as a business it will qualify too.
20% Deduction for Taxable Income Below $315,000 ($157,500 for Singles)
Now here is what I see as a planning point. In the past it has always been beneficial to be an employee as opposed to a 1099 contractor. With this 20% deduction most people would benefit from being a 1099 contractor. Certainly worth taking a look at the total picture. I’ll have more on this later.
Long Term Capital Gains Tax Rates
||Head of household
|0% tax bracket
|beginning of 15% tax bracket
|beginning of 20% tax bracket
Don’t forget that Net investment tax of 3.8% will apply at certain modified adjusted gross incomes.
As many of you know the federal income tax laws have so dramatically changed that many of you that have previously itemized deductions on schedule A will no longer benefit from doing that on your federal return. This is due to the tremendous increase in the standard deduction and most folks simply will not benefit from itemizing on their federal returns any longer. Most of the returns that we saw this year will pay lower income tax bills many are $2K or more in tax savings. However, for State of Alabama return nothing major has changed so if you have been itemizing you should continue to gather and submit the same information that you are accustomed to gathering. Don’t get lazy or you’ll end up losing a large portion of your federal tax saving to the state.
A Qualified Charitable Distribution (QCD) permits annual direct transfers to a qualified charity totaling up to $100,000 of tax-deferred IRA savings. An owner cannot receive a distribution from the IRA to then contribute to charity and qualify. QCDs offer advantages over taking a taxable IRA distribution and then contributing the proceeds of that distribution to a charity. That’s because taxable IRA distributions must be included in adjusted gross income. This can cause:
Income taxes on Social Security benefits can increase,
Adjusted gross income (AGI) limitations on annual charitable deductions can defeat current deduction of the charitable contribution of IRA distribution proceeds (carryovers to a limited number of future tax years is available),
AGI limitations trimming itemized deductions can apply, and
Medicare insurance premiums can increase.
The bottom line is if you over 70 1/2 making charitable contributions and taking IRA distributions you should look at this as a tax reduction strategy.
The 2018 standard mileage rates are:
Business – 54.5 cents
Moving or Medical – 18 cents
Charitable – 14 cents
As always you need a good mileage log.