Another tax headache ahead: IRS is changing paycheck withholdings and it'll be a doozy

Another tax headache ahead: IRS is changing paycheck withholdings and it'll be a doozy: You finally finished your taxes and are learning – for better or worse – the ins and outs of the new law.

It's Not Too Late to Make a 2018 Retirement-Plan Contribution

Article Highlights: 

• Traditional IRAs 
• Roth IRAs 
• Spousal IRA Contributions 
• Simplified Employee Pension Plans 
• Solo 401(k) Plans 
• Health Savings Accounts 
• Saver’s Credit 
• Children with Earned Income 

Have you been ignoring your future retirement needs? This tends to happen when people are young; because retirement is far in the future, they believe that they have plenty of time to save for it. Some people even ignore the issue until late in life, which causes them to scramble to fund their retirement. Others even ignore the issue altogether, assuming that they will qualify for Social Security and that the resulting income will take care of their retirement needs.

Did you know that you can make retirement savings contributions after the close of the tax year and that these contributions may be deductible? With the April tax deadline in the near future, the window of opportunity is closing to maximize contributions to retirement and special-purpose plans for 2018. Many of these retirement contributions will also deliver tax deductions or tax credits for the 2018 tax year. 

Contribution Opportunities – Some 2018 retirement contributions are available after the close of the year. 

• Traditional IRAs – For 2018, the maximum traditional IRA contribution is $5,500 (or $6,500 if the taxpayer is at least 50 years old on December 31, 2018). A 2018 traditional IRA contribution can be made until April 15, 2019. However, for taxpayers who have other retirement plans, some or all of their IRA contributions may not be deductible. To be eligible to contribute to IRAs (of any type), taxpayers—or spouses if married and filing jointly—must have earned income such as wages or self-employment income.
  
• Roth IRAs – A Roth IRA is a nondeductible retirement account, but its earnings are tax-free upon withdrawal—provided that the requirements for the holding period and age are met. Roth IRAs are a good option for many taxpayers who aren’t eligible for deductible contributions to a traditional IRA. For 2018, the contribution limits for a Roth IRA are the same as for a traditional IRA: $5,500 (or $6,500 if the taxpayer is at least 50 years old). A 2018 Roth IRA contribution can also be made until April 15, 2019.
  
  Caution: For those who have both traditional and Roth IRA contributions, the combined limit for 2018 is also $5,500 (or $6,500 if the taxpayer is at least 50 years old).
   
• Spousal IRA Contributions – A nonworking spouse can open and contribute to a traditional or Roth IRA based on the working spouse’s earned income. The spouses are subject to the same contribution limits, and their combined contributions cannot exceed the working spouse’s earned income. Spousal IRA contributions for 2018 must also be made by April 15, 2019.
  
• Simplified Employee Pension IRAs – Simplified Employee Pension IRAs are tax-deferred plans for sole proprietorships and small businesses. This is probably the easiest way to build retirement dollars, as it requires virtually no paperwork. The maximum contribution depends on a business’s net earnings. For 2018, the maximum contribution is the lesser of 25% of the employee’s compensation or $55,000. A 2018 contribution to such a plan can be made up to the return’s due date (including extensions). Thus, unlike a traditional or Roth IRA, a Simplified Employee Pension IRA can be established and funded for 2018 as late as October 15, 2019 (if an extension to file a 2018 Form 1040 has been granted).
  
• Solo 401(k) Plans – A growing number of self-employed individuals are forsaking the Simplified Employee Pension IRA for a newer type of retirement plan called a Solo 401(k) or Self-Employed 401(k). This plan is available to self-employed individuals who do not have employees, and it is notable mostly for its high contribution levels.
  
  For 2018, Solo 401(k) contributions can equal 25% of compensation, plus a salary deferral of up to $18,500. The total contributions, however, can’t exceed $55,000 or 100% of compensation. Note that an individual must have established the Solo 401(k) account by December 31, 2018, to make 2018 contributions. However, contributions to an established account can then be made up to the return’s due date (which can be extended to October 15, 2019, for most taxpayers). Taxpayers who did not establish a Solo 401(k) account by the end of 2018 can still open one now for 2019 contributions.
  
• Health Savings Accounts – Health savings accounts are only available for individuals who have high-deductible health plans. For 2018, this refers to plans with a deductible of at least $1,350 for individual coverage or $2,700 for family coverage. These accounts allow individuals to save money to pay for their medical expenses.
  
  Money that an individual does not spend on medical expenses stays in that person’s account and gains (tax-free) interest, just like in an IRA. Because unused amounts remain available for later years, health savings accounts can be used as additional retirement funds. The maximum contributions for 2018 are $3,450 for individual coverage and $6,900 for family coverage. The annual contribution limits are increased by $1,000 for individuals who are at least 55 years old. Contributions to a health savings account for 2018 can be made through April 15, 2019.

Please note that the information provided above is abbreviated. Contact this office for specific details on how each option applies to your situation. 

Saver’s Credit – Low- and moderate-income workers are eligible for a saver’s credit that helps them offset part of the first $2,000 that they contribute to an IRA or a qualified employer-based retirement plan. This credit helps individuals who don’t normally have the resources to set money aside for retirement, and it is available in addition to the other tax benefits that are associated with retirement-plan contributions. 

This credit is provided to encourage taxpayers to save for retirement. To prevent taxpayers from taking distributions from existing retirement savings and then re-depositing them to claim this credit, the qualifying retirement contributions used to figure the credit are reduced by any retirement-plan distributions taken during a “testing period”: the prior two tax years, the current year, and the portion of the subsequent tax year up to the return’s due date (including extensions). 

Children with Earned Income – Many children hold part-time jobs, and after the recent tax reform, the standard deduction allows these children to earn $12,000 tax-free. This earned income also qualifies children for IRA contributions. Although children may balk at contributing their hard-earned income to an IRA, their parents or grandparents can gift Roth IRA contributions to children. That Roth IRA will significantly increase in value by the time the child reaches retirement age, 45 or 50 years later. 

Individuals’ financial resources, family obligations, health, life expectancy, and retirement expectations vary greatly, and there is no one-size-fits-all retirement strategy. Events such as purchasing a home or putting children through college can limit retirement contributions; these events must be accounted for in any retirement plan. 

If you have questions about any of the retirement vehicles discussed above or if you would like to discuss how retirement contributions will affect your 2018 tax return, please give this office a call.  816-220-2001

Tax and Financial Advice For Families and Small Business in the Kansas City Area Looking for Someone to Trust

Alliance Financial & Income Tax is a income tax and financial services business located in Blue Springs, MO. Our team of experienced Enrolled Agents offer a broad range of services for business owners, executives, and independent professionals. Alliance Financial prides itself on our affordable, experienced, and friendly services including: 

Financial Services     Income Tax Preparation     Business Tax Preparation      Retirement Strategies 

* Investment Strategies      Debt Freedom Coaching      Tax Problem Assistance      Tax Planning for Big Savings

We understand that individuals face unique tax and financial challenges. We can help take the mystery out of preparing for today and tomorrow. Whether you are investing to build wealth, protecting your family, or preserving your assets, our personalized services focuses on your needs, wants, and long-term goals.

Our team of professionals have years of experience in tax and financial services. We can help you address your needs of today and for many years to come. 

Call today for an initial consultation. The sooner you call, the sooner our financial professionals can get started evaluating your financial situation and saving your hard earned money.  We look forward to working with you.

Videos help taxpayers learn more about tax reform

The IRS has several videos that can help individual and business taxpayers learn more about the tax reform legislation. The IRS posts these videos on the IRS Video Portal and to their YouTube channel. Aside from these sites, the IRS offers tax reform information on its other social media channels, such as Twitter and their new Instagramaccount. Taxpayers can visit the Multimedia Center on IRS.gov for links to all the agency’s social media sites.

Here are some of the tax reform videos taxpayers can watch on their computer or on their smartphone when they’re on the go.

IRS Video Portal

The IRS produces and posts videos to post on the Video Portal. These videos can help individual and business taxpayers better understand how the tax reform law affects them and their taxes.

• Tax Reform Basics for the Qualified Business Income Deduction, 199A
  This webinar provides an overview of who will be eligible for the new tax reform provisions of the Qualified Business Income Deduction under Section 199A. It also shows calculations and basics for reporting.
  
• Tax Reform Basics for Employers
  This provides an overview of tax reform changes for employers. Topics covered include changes to employer credit for family and medical leave, employee achievement awards, and qualified transportation fringe benefits.
  
• Tax Reform Basics for Individuals and Families
  Addresses tax reform changes that affect individual taxpayers. Topics include standard deductions, personal exemptions, itemized deductions, and the child tax credit.
  
• Understanding How to Use the IRS Withholding Calculator to Check & Correct Withholding 
  This video explains why many taxpayers may need to change their withholding. It also helps tax professionals understand how to use the IRS withholding calculator to help taxpayers change their withholding.

IRS YouTube Channel

These videos are all in English, with several also being offered in Spanish and American Sign Language.

• Paycheck Checkup: English | Spanish | ASL
  Taxpayers can watch this video to find out why they should do a Paycheck Checkup after tax reform legislation changed how much tax is taken out of individuals’ paychecks.
  
• IRS Withholding Calculator Tips: English | Spanish | ASL
  This video gives taxpayers tips for using the calculator, including what documents to have on hand before starting their Paycheck Checkup.
  
• Paid Family and Medical Leave:  English
  If employers provide paid family and medical leave for their employees, they may be eligible for a tax credit. This video has more information about this credit.

The Dave Ramsey Show (2-11-19)

Did You Sell Stocks, Real Estate Or Other Assets This Year?

When preparing your tax return these transactions receive special treatment and may require some extra tax appointment preparation. These include the following covered in this video.
 



Mike Mead, EA, CTC
Alliance Financial & Income Tax
807 NW Vesper Street
Blue Springs, MO. 64015
P - 816-220-2001 x201 
F - 816-220-2012
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Who is Alliance Financial & Income Tax

Find out how tax reform affects your businesses' bottom line at IRS.gov

Business may find they have questions about how 2017’s tax reform legislation affects their organization and their bottom line. IRS.gov is a great place to find answers. Here are several resources on the IRS website that address tax reform.

Tax reform provisions that affect businesses
This is the main page for businesses. Users can link from this page out to more resources with additional information, which is organized in sections by topic. These sections include a plain language description and links to news releases, notices and other technical guidance. Here are a few of the main tax topics on this page and the subtopics highlighted in each section:

• Income: taxation of foreign income, carried interest, and like-kind exchanges
• Deductions and depreciation: fringe benefits, moving expenses, standard mileage rates, deduction for passthrough businesses, and business interest expenses
• Credits: employer credit for paid family and medical leave, and the rehabilitation tax credit
• Taxes: blended federal income tax and withholding
• Accounting method changes
• Opportunity zones

This page also includes information for specific industries, such as farming, insurance companies, and aircraft management services.

Tax Reform Small Business Initiative
This one-stop shop highlights important tax reform topics for small businesses. From this page, users can link to several additional resources.

Tax reform resources
From this page, people can link to helpful products including news releases, tax reform tax tips, revenue procedures, fact sheets, FAQs and drop-in articles. Organizations can share these materials including the drop-in articles with employees, customers and volunteers to help them better understand tax reform.

Tax Cuts and Jobs Act: A comparison for businesses
This side-by-side comparison can help businesses understand the changes the new law made to previous law. It will help businesses then make decisions and plan accordingly. It covers changes to deductions, depreciation, expensing, tax credits, and other tax items that affect businesses.

Tax reform: What’s new for your business 
This electronic publication covers many of the TCJA provisions that are important for small and medium-sized businesses, their owners, and tax professionals to understand. This concise publication includes sections about:

• Qualified business income deduction
• Depreciation: Section 168 and 179 modifications
• Business-related losses, exclusions and deductions
• Business credits
• Corporate tax provisions
• S corporations
• Farm provisions