As we near the end of 2018 and begin to prepare our 2018 tax documents, here are a few tax changes taking effect this upcoming tax season.
New Tax Rates Mean New Withholding Rates On Your Pay Stub
Many of you who receive income from a W-2 may have noticed an increase in your paycheck during 2018. This increase may have been due to a change to the withholding tables as a result of the changes in the Tax Law passed in 2017.
Kristen McKeone, a Tax Manager & Accountant at Ellingson & Ellingson, warned that since this is the first year, we’re not sure how each client will be affected. “Some clients will receive a pleasant tax surprise around April 15th this coming year, while others may be shocked by the taxes they owe,” she cautioned. Right now, the Government Accountability Office expects about 30 million Americans did not have enough withheld from their paychecks in 2018.
If you’re concerned about not having enough withheld from your paycheck (or other sources of income) during 2018, please contact us.
IRS Changes to Meals and Entertainment Deduction
Starting in 2018, the IRS will no longer allow business deductions for an activity considered to be entertainment, amusement, or recreation.
Entertainment includes, but is not limited to, the following:
- Country Clubs
- Sporting Events
- Cocktail Lounges
In applying this, your professional trade or business will be considered. The IRS guidance states, “although attending a theatrical performance would generally be considered entertainment, it would not be considered entertainment for a professional theater critic attending in a professional capacity.” Instead, this expense would still be considered deductible.
Previously allowable meal expenses remain deductible, limited to 50 percent. If food or beverage is purchased separately at an event considered entertainment, the food or beverage expense can be 50 percent deductible.
New 20% Business Income Deduction
If you have business income through a partnership, LLC, S-Corp, or as a sole-owner, you may be eligible for the 20 percent qualified business income deduction.
If your taxable income is less than $315,000 for married filing joint taxpayers or $157,500 for single taxpayers, your business income will qualify for the deduction. Income-earners above these levels may be eligible but need to meet certain qualifications.
According to Jane Ehresmann, a partner at Ellingson & Ellingson, “Taxable income is determinant #1. Then you must look at the type of business, qualified business income, business wages, and basis of capitalized assets. There are many variables that will determine if you qualify and how much of a deduction you will qualify for, and this is not a cookie-cutter calculation”
Your federal tax bill may lessen under the new regulations, but we recommend you check your business situation and income level to make sure you qualify.