Category Archives: Tax News

IRS tax estimates

Estimated Taxes – New IRS Late Penalty Waiver

IRS tax estimates

If you’re a freelancer or self-employed paying estimated taxes late, the IRS has good news for you. They’re waiving estimated tax payment penalties, even if you don’t meet the threshold for “safe harbor” protection. Normally, you would owe the IRS for paying late, but not for your 2018 taxes if the waiver applies to you. Here’s a closer look at the IRS announcement and what it means for freelancers.

Why Did the IRS Issue the Waiver?

Under IRS rules, freelancers and other self-employed individuals must pay the bulk of their taxes throughout the year by estimating their taxes and making prepayments. However, new changes to the law makes this a tricky task for taxpayers. When the IRS first released the tax withholding tables in early 2018, the table did not yet reflect adjustments from newly-introduced tax laws. This affected taxpayers’ ability to correctly calculate estimated tax payments. The waiver provides some relief.

What Does the Waiver Mean for People Who Pay Estimated Taxes?

They must still make estimated tax payments and file their taxes in accordance with IRS rules. Because the details of the waiver can be confusing, consult with a tax attorney to be sure you’re estimating your tax payments and filing your taxes correctly. In general, if you prepaid at least 85% of your estimated tax due, the waiver may apply to you; if you haven’t paid at least 85%, you will most likely not be eligible. For a freelancer who is also receives a W-2, the tax for that part of their income should still be withheld from each paycheck.

What is Safe Harbor?

A safe harbor rule shields you from a penalty or other consequence, as long as you qualify under its boundaries. In this case, the applicable safe harbor rule requires that your tax payments are equal to a percentage of your tax liability for a given year. The waiver means you may still avoid paying a penalty even if you don’t qualify for safe harbor.

How Do I Know if I Should Use the Waiver?

The best thing to do is to talk to your tax attorney. You can be prepared for that meeting by asking yourself a few questions: Did you adjust your estimated tax payments or your tax withholding in 2018? If not, you may need the waiver. Will you have a payment due when you file your taxes? If so, this waiver may allow you to breathe a sigh of relief. Of course, this comes with the caution that just because the IRS issued this waiver for the 2018 tax year, they won’t necessarily extend it into 2019. You may also need to adjust your withholding and estimated tax payments to qualify for safe harbor next year and avoid possible penalties in the future.

Dutton Legal Group – Indiana’s Tax Resolution Law Firm

The Dutton Legal Group helps the people and businesses of Indiana navigate ever-changing State and Federal tax codes. Our goal as experienced tax attorneys is to assist you in finding an immediate, cost-effective answer to your tax challenges. We provide a variety of tax services from balance resolution and return preparation to wage garnishment relief and audit assistance. Make Dutton Legal Group your next call at 1-800-334-0255 or send an email to request a free consultation. Trustworthy and affordable, for over 15 years.

state tax code changes

2018 Tax Reform Brings Changes to State Tax Codes

state tax code changes

Since the end of 2017, everyone is scrambling to figure out how the Tax Cuts and Job Act (TCJA) affects them. Individual taxpayers, businesses and state governments (like Indiana) are determining how this new legislation affects them on a state and local level. An unexpected consequence is some states can expect to collect additional tax revenue without raising rates. Of the 41 states that impose an income tax, only five (Alabama, Arkansas, Mississippi, New Jersey and Pennsylvania) do not have laws tied to sections of the federal code. The remaining states must decide whether to change their plan to match the new TCJA, reform individual state code to be different from the federal one or continue to follow 2017 filing guidelines until they decide what to do. Preliminary estimates show states that do nothing are going to increase their tax revenue. Many legislators are already planning how to spend the windfall.

Why Would States Gain More Revenue?

With the increase in federal standard deductions, more individuals and businesses will skip itemizing starting in 2018. Some of the exemptions eliminated in the TCJA still exist on the state level. Unfortunately, you won’t get to use them since you must file your state return the same way as your federal. Those unused exemptions mean individuals pay more in state tax than the year before. States currently reforming their tax codes look to balance the tax obligations for their citizens.

Is Indiana Reforming Its Tax Code?

The Indiana legislature has actively worked to revise our tax code since 2011. By passing numerous bills over several years, the state’s reform package is less obvious but no less sweeping. Indiana has lowered individual and corporate rates, broadened tax bases, simplified tax structures and improved competitiveness for Hoosier businesses. We rank ninth on the State Business Tax Climate Index.

Will My State Taxes Go Up?

Indiana does follow the federal tax code in some areas. Any changes to our state laws pass through the legislature before being implemented. Because of the tax reforms our state government is already doing, any rate increase is expected to be offset by the cuts on federal returns.

If Indiana Has an Increase in Tax Revenue, Will I Get a Refund?

In 2011, Indiana passed a successful taxpayer rebate program. The regulation states if our state’s rainy-day fund grows over 12.5% of its budget spending, we get money back. All excess cash splits between the teacher’s pension program and taxpayers. In 2012, lots of happy Hoosiers received a $111 refund. With this law in place, any extra revenue from the new federal tax reform means refund checks for Indiana citizens.

Dutton Legal Group – Indiana’s Tax Resolution Law Firm

Dutton Legal Group helps the people and businesses of Indiana navigate ever-changing State and Federal tax codes. Our goal as experienced tax attorneys is to assist you in finding an immediate, cost-effective answer to your tax challenges. We provide a variety of tax services from balance resolution and return preparation to wage garnishment relief and audit assistance. Make Dutton Legal Group your next call at 1-800-334-0255 or send an email to request a free consultation. Trustworthy and affordable, for over 15 years.

taxes eliminating marriage penalty

How 2018 Tax Changes Eliminate the Marriage Penalty

taxes eliminating marriage penalty

For years, marriage has meant the union of two people in all things except their taxes. For some odd reason, combining their incomes results in pushing a couple into a higher tax bracket than if they file separately. This tax anomaly is called the marriage penalty. The 2018 Tax Cuts and Job Act (TCJA) eliminates this discrepancy for couples except those earning more than $400,000. Regardless of filing jointly or separately, spouses remain in the same tax percentage.

This common-sense adjustment saves money if you always file together. Due to other TCJA changes in the tax code, we suggest couples complete their tax returns both jointly and separately and compare them. Seek the assistance of a tax professional, like those at the Dutton Law Group, if you still have questions regarding the 2018 changes.

Is It More Advantageous for Married Couples to File Jointly?

Previously, the tax brackets for spouses filing jointly are only 12.5% more than single filers. It should be twice that of a single person due to combining two incomes. The TCJA corrects these thresholds, doubling the amount. For the 2018 tax year, there is no difference in the rate for married couples filing jointly or separately. 

What Issues Arise from Filing Jointly?

Lower-income couples who file jointly run the risk of moving into a higher percentage, making them ineligible to use the Earned Income Tax Credit. Unfortunately, some of these benefits cannot be applied if you file separately. A tax professional can help determine what deductions you qualify for and if they can benefit your family.

Should We File Separately and Itemize?

The standard deduction for married couples filing jointly is $24,000 (up from $13,000). Itemized deductions must be over this amount. The TCJA has eliminated or revamped many itemized exemptions so check the tax code. You may not have as many deductions as in years past. If you decide to file separately, remember one spouse cannot itemize while the other claims the standard deduction. Both must itemize. Filing separately can also cause you to lose out on using benefits like the Child and Dependent Care Credit.

Why Do Married Couples Need to Adjust Payroll Withholding?

Because married couples can combine incomes to file, it is a good idea to make sure each spouse has enough withheld for taxes. Filing jointly can put you into a higher tax percentage and require you to pay an additional Medicare fee. The goal of withholding is to match the amount of tax you are required to pay for the year. You do not want to receive a significant refund or pay a hefty amount.

Dutton Legal Group – Indiana’s Tax Resolution Law Firm

Dutton Legal Group helps the people and businesses of Indiana navigate ever-changing State and Federal tax codes. Our goal as experienced tax attorneys is to assist you in finding an immediate, cost-effective answer to your tax challenges. We provide a variety of tax services from balance resolution and return preparation to wage garnishment relief and audit assistance. Stop worrying about your taxes and how the TCJA affects them. Make Dutton Legal Group your next call at 1-800-334-0255 or send an email to request a free consultation. Trustworthy and affordable, for over 15 years.

2017 tax deadlines extensions

Consider Extension Deadlines for Filing 2017 Small Business Returns

2017 tax deadlines extensions

If you’re a small business, you may be focused on how the new tax laws will affect your company’s future tax returns. Meanwhile, the 2017 tax return deadline for individual filers and sole proprietor or single member LLC small businesses is looming. This year, the ubiquitous April 15 deadline was extended by two days (April 17, 2018). Other types of businesses would have had to meet 2017 tax deadlines earlier in 2018 or are subject to quarterly payments – so you may want to switch to extension mode and think about taking advantage of current tax breaks that will be phased out with your 2018 tax returns.

The type of tax entity a company is determines their tax deadlines. While converting to an LLC or S-Corporation may seem advantageous, it is prudent to weigh your options. If you are considering incorporating to take advantage of the new 2018 tax changes, you would need to meet tax deadlines earlier than those you may be used to meeting. Learn more about official federal income tax return due dates here and talk to a tax professional to determine what is the best move for your company.

What Deductions Could I Take on My 2017 Business Taxes?

After 2017, companies can no longer deduct entertainment as a business expense. They can still claim client meals. For example, if your sales staff takes a client to a baseball game, you can only claim the food eaten at the game. The game tickets will not be deductible. 

Can I Still Claim My Home Office for My Business?

After 2017, any room you claim as an office must be 100% dedicated to your company. It cannot be an office/guest room. The IRS is cracking down on individuals claiming an office is any space with a computer in it. Phone, internet and supplies must be solely for the function of the office. If you are a sole proprietor and work out of your home, seek the expertise of a tax professional to help you review what you can itemize on your 2018 tax return. With the new standard deductions, you may find itemizing is no longer beneficial.

In 2018, Will the Loss of Business Deductions Affect My Company?

Many of the eliminated deductions are those individuals claim on their 1040 Schedule A forms. Business owners file Schedule C forms. The new changes do not affect their deductions.

Should I Convert from a Sole Proprietor to an LLC?

If you are considering incorporating due to the loss of Schedule A itemized deductions, you may find limited benefits. Costs are involved in incorporating and maintaining an LLC. Tax deductions reduce your overall taxable income. They do not reduce your tax bill on a dollar per dollar basis.

Dutton Legal Group – Indiana’s Tax Resolution Law Firm

We know small business is big in Indiana. Dutton Legal Group helps the people and businesses of our state navigate ever-changing State and Federal tax codes. Our goal as experienced tax attorneys is to assist you in finding an immediate, cost-effective answer to your tax challenges. We provide a variety of tax services from balance resolution and return preparation to wage garnishment relief and audit assistance. Stop worrying about your company taxes and get back to business. Make Dutton Legal Group your next call at 1-800-334-0255 or send an email to request a free consultation. Trustworthy and affordable, for over 15 years.

small business pass-through tax deductions

How the 2018 TCJA Benefits Pass Through Companies

small business pass-through tax deductions

Many small businesses are pass-through companies, those with sole proprietorship, limited liability corporations, S-corporations and partnerships. These businesses do not pay corporate taxes, filing income from the business through the owner’s personal tax returns. The 2018 Tax Cuts and Job Act (TCJA) offers a 20% deduction of taxable income for all pass-through businesses if they meet specific criteria to use the deduction.

Is the 20% an Itemized Deduction?

The tax deduction is called a below-the-line deduction, which refers to adjusted gross income (AGI) where personal exemptions, tax credits and itemized deductions are applied. Because the 20% falls below the line, a company’s taxable income can be lowered, although the AGI is not less. The tax law eliminates several itemized deductions allowed through 2017. Many pass-through businesses are using the standard deduction for the first time and can use the 20% in addition to the standard deduction.

What Types Businesses May Not Benefit From the 20% Deduction?

Service businesses like doctors, lawyers, athletes and financial advisers must first determine if their income is too high to take the deduction. Income totals must come below the thresholds of $157,500 for single filers and $315,500 for married taxpayers, filing jointly. The deduction phases out at $207,500 (single) and $415,000 (married/jointly).

Why Can’t My Business Partner Take the Deduction When I Can?

It depends on how each of you qualifies as a taxpayer. If your business income is less than the threshold, you can take the 20 percent. Income above the limit is subject to stipulations. If your partner is married, filing jointly and has a spouse with a high-paying job, their combined income may prevent a benefit from the deduction.

When Would It Benefit Me to Incorporate?

Incorporating can help protect your assets and make it easier to obtain a loan. Before jumping to incorporate, though, analyze your business structure. Is it still working for you? Crunch the numbers. See if incorporating brings more advantages than headaches. Some of the 2108 changes for small businesses are confusing. When in doubt, seek the help of a tax professional like a certified CPA or tax lawyer. Our job is to study these changes and we can help you decide your best option.

Dutton Legal Group – Indiana’s Tax Resolution Law Firm

We know small business is big in Indiana. Dutton Legal Group helps the people and businesses of our state navigate ever-changing State and Federal tax codes. Our goal as experienced tax attorneys is to assist you in finding an immediate, cost-effective answer to your tax challenges. We provide a variety of tax services from balance resolution and return preparation to wage garnishment relief and audit assistance. Stop worrying about your company taxes and get back to business. Make Dutton Legal Group your next call at 1-800-334-0255 or send an email to request a free consultation. Trustworthy and affordable, for over 15 years.

2018 tax changes

How 2018 Tax Cuts Affect Individuals & Married Couples

2018 tax changes

The 2018 Tax Cuts and Job Act (TCJA) will affect most taxpayers, although the new law won’t affect taxes for 2017 (the return you file in 2018). Of the seven income brackets that determine a person’s tax rate, only a slight reduction in income tax occurs in five of the categories. For many individual and married filers, the most significant change is the elimination of certain deductions on itemized returns.

Can I Still Take a Personal Exemption?

The TCJA eliminates the personal exemption and increases the standard deduction. Previously, an individual filer would take a $6,500 standard deduction and a $4,150 personal exemption for a total of $10,650 in income exclusion. Now, the standard deduction is $12,000. It is not exactly double, but it is an improvement. It also simplifies the process.

What are the Changes for Married Couples?

The so-called Marriage Penalty for couples filing jointly is scaled back. Whether a couple files separately or together, they remain in the same tax bracket. For most couples, it is no longer advantageous to submit individual returns. Only those earning more than $400,000 will experience the previous tax discrepancy.

Can the Interest on a Home Equity Loan Be Deducted?

You previously could deduct up to $100,000 in interest. Now, you can still take the interest on your mortgage for loans up to $750,000. Deducting the interest on home equity is eliminated and applies to loans completed after December 17, 2017. Those established before that date are grandfathered.

What Are Some of the Other Deductions That Have Changed?

  • 529 College Savings Plans – You can now use them for other expenses like private school or special tutoring
  • Medical Expenses – These are lowered to 7.5% of your adjusted gross income (AGI)
  • State & Local Taxes – They are now limited to $10,000, a point of contention with high-tax states
  • Child Tax Credit – Increased to $2,000 for children under the age of 17. The amount of refundable credit increases to $1,400
  • Tax Preparations – Eliminated
  • Moving Expenses – Eliminated
  • Casualty and Theft Losses – Eliminated
  • Employer-Subsidized Parking and Transportation Reimbursement – Eliminated
  • Unreimbursed Employee Expenses – Eliminated

Should I Consider Not Itemizing Future Tax Returns?

That is the big question. The Joint Committee on Taxation estimates 94% of filers will go with the new 2018 standard deduction compared to 70% of filers last year. Because the standard deduction is increased, itemizing may not be your best option. Calculate your taxes both ways and see which is to your advantage. If you are confused with the changes to the tax code, talk to a tax professional. They know the intricacies of the new tax reform and can advise you on the best plan for you and your family.

Dutton Legal Group – Indiana’s Tax Resolution Law Firm

Dutton Legal Group helps the people and businesses of Indiana navigate ever-changing State and Federal tax codes. Our goal as experienced tax attorneys is to assist you in finding an immediate, cost-effective answer to your tax challenges. We provide a variety of tax services from balance resolution and return preparation to wage garnishment relief and audit assistance. Stop worrying about your taxes and how the TCJA affects them. Make Dutton Legal Group your next call at 1-800-334-0255 or send an email to request a free consultation. Trustworthy and affordable, for over 15 years.

Tax Cuts and Jobs Act

How the 2018 Tax Cuts Affect Your Small Business

 

Tax Cuts and Jobs Act

At the end of 2017 when the 2018 Tax Cuts and Job Act (TCJA) passes, it effectively begins the most sweeping overhaul of the U.S. tax system in 30 years. Some of the clear winners are American businesses. For instance, the TCJA lowers the tax rate for C-corporations, meaning companies that are taxed separately from the owners, from 35% to 21%. However, what do the new tax cuts mean for the 90% of registered businesses that have one or two owners and a few employees? Will the new TCJA benefit your small business?

What is the Biggest Tax Benefit for Smaller Companies?

The new TCJA offers a 20% reduction of taxable income for pass-through businesses. These are companies where owners claim their business income on their tax returns rather than corporate filings. Exclusions and thresholds to the law may prevent you from using it. Some job classifications (like doctors, lawyers, athletes, artists and financial service providers) have restrictions. A certified public accountant (CPA) or tax lawyer can determine whether your business qualifies.

What are the Types of Pass-Through Businesses?

  • Sole Proprietorship – This is an unincorporated business owned by one person and is not considered a legal entity. Income and losses are handled through the owner’s tax filing.
  • Limited Liability Corporations (LLCs) – The IRS considers this a legal entity. Many individuals form these to protect their personal assets from business losses or liability. Regulations vary by state.
  • S-Corporations – The company shares profits and losses, with up to 100 shareholders. The shareholders get taxed on their returns.
  • Partnerships – Formed between two or more people who share the profit and liability of a corporation. There are three basic types – general, limited liability and limited partnerships.

With the New Corporate Tax Reduction, Should I Incorporate to Save Money?

Depending on the tax entity you choose (sole proprietorship, limited liability corporation (LLCs), S-corporations and partnerships), incorporating can result in lower business taxes than your personal rates. Incorporating may offer more opportunity to obtain third-party funding like loans. If you have a sole proprietorship or are self-employed, forming a business entity can protect your assets, but it will not save you money on your taxes.

How Does the TCJA Affect Employees’ Withholding Taxes?

The new law eliminates the personal exemptions workers list on their W-4 forms. Employees’ wages are now taxed based on where their wages fall in the seven tax withholding brackets. These are the same seven wage groups from 2017 except the TCJA has adjusted the tax percentage on five of these levels.

What Deductions Are Eliminated?

There are changes to a few deductions. If you typically deduct business entertainment expenses, they now only cover meals. Companies can no longer supplement their employees’ transportation expenses and use it as a deduction. Employees can use the cost of commuting as a deduction on their returns.

Dutton Legal Group – Indiana’s Tax Resolution Law Firm

Dutton Legal Group helps the people and businesses of Indiana navigate ever-changing State and Federal tax codes. Our goal as experienced tax attorneys is to assist you in finding an immediate, cost-effective answer to your tax challenges. We provide a variety of tax services from balance resolution and return preparation to wage garnishment relief and audit assistance. Stop worrying about your company taxes and get back to business. Make Dutton Legal Group your next call at 1-800-334-0255 or send an email to request a free consultation. Trustworthy and affordable, for over 15 years.