Category: Business Taxes

2019 Income Tax Brackets

Posted on November 25, 2019March 25, 2020 by PM Editor

Never too early to organize your tax documents for 2019

Although the tax deadline for filing and paying 2019 federal income taxes is still months away, it’s never too early to get organized.

On a yearly basis (usually in November) the IRS adjusts as many as 40 tax provisions for inflation. This is done to prevent what is called “bracket creep,” when people are pushed into higher income tax brackets or have reduced value from credits and deductions due to inflation, instead of any increase in real income. In some cases the changes may seem minimal, but hey – a penny saved is a penny earned!

The IRS used to use the Consumer Price Index (CPI) to calculate the past year’s inflation. However, with the Tax Cuts and Jobs Act of 2017, the IRS will now use the Chained Consumer Price Index (C-CPI) to adjust income thresholds, deduction amounts, and credit values accordingly. Below see the updated tax brackets for 2019.

Income Tax Brackets and Rates

In 2019, the income limits for all tax brackets and all filers will be adjusted for inflation and will be as follows (Tables 1). The top marginal income tax rate of 37 percent will hit taxpayers with taxable income of $510,300 and higher for single filers and $612,350 and higher for married couples filing jointly.

**Table 1. Tax Brackets and Rates, 2019**
Rate	For Unmarried Individuals, Taxable Income Over	For Married Individuals Filing Joint Returns, Taxable Income Over	For Heads of Households, Taxable Income Over
10%	$0	$0	$0
12%	$9,700	$19,400	$13,850
22%	$39,475	$78,950	$52,850
24%	$84,200	$168,400	$84,200
32%	$160,725	$321,450	$160,700
35%	$204,100	$408,200	$204,100
37%	$510,300	$612,350	$510,300

Standard Deduction and Personal Exemption

The standard deduction for single filers will increase by $200 and by $400 for married couples filing jointly (Table 2).

The personal exemption for 2019 remains eliminated.

**Table 2. 2019 Standard Deduction and Personal Exemption**
Filing Status	Deduction Amount
Single	$12,200
Married Filing Jointly	$24,400
Head of Household	$18,350

Today is IRS Tax Filing Deadline Day.

Posted on April 15, 2019April 15, 2019 by PM Editor

How do I file a tax extension for 2019?

Today is the deadline for filing and paying 2018 federal income taxes. Any filings after today that are not on extension will be considered late and subject to penalties and interest assessments. Remember if you mail in your return, it must be postmarked today, so make sure that the mailing service you are using whether it be the US Postal service drop-off or other have a collection time that will meet the April 15th postmark deadline.

In the event that you cannot file your tax return by the deadline, you need to file for a tax extension, which is also subject to the above April 15th postmark deadline. To get a filling a tax extension, you will need to submit Form 4868(Application for Automatic Extension of Time To File U.S. Individual Income Tax Return).

The IRS also allows you to get an extension by paying all or part of your estimated income tax due and indicate that the payment is for an extension using Direct Pay, the Electronic Federal Tax Payment System (EFTPS), or a credit or debit card. This way you won’t have to file a separate extension form and you will receive a confirmation number for your records.

It is important to note that, an extension to file will give you six more months to file your taxes, until Oct. 15. It does not however, give you extra time to pay your taxes. You still must estimate and pay what you owe by April 15. You will be charged interest on any amount not paid by the deadline. Below are the 2018 Income Tax Brackets to assist you estimate how much money you will need to send (if any) along with your Form 4868.

2018 Income Tax Brackets and Standard Deduction Rates

Table 1. 2018 Income Tax Brackets and Rates

Table 2. 2018 Personal Exemption and Standard Deduction

The personal exemption for 2018 is eliminated

Understanding The New Tax Code: How It Affects You

Posted on March 21, 2019March 21, 2019 by PM Editor

The Tax Cuts and Jobs Act (TCJA) was signed into law by President Donald Trump on December 22, 2017. The TCJA has brought with it many sweeping changes to a broad part of the tax code. Some of the notable changes include:

(1) Elimination of personal exemptions – previously taxpayers were allowed to subtract $4,500 from their income as a personal exemption.

(2) Elimination of the “personal mandate” enforced by the Affordable Care Act (known more commonly by many as “Obamacare”) – it is important to note that the elimination of this penalty did not go into effect until January 1, 2019. Hence, if you failed to obtain “qualifying health coverage” in 2018, the IRS will assess the penalty.

(3) Expansion of the Child Tax Credit – the TCJA increased the Child Tax Credit from $1,000 to $2,000. The income level at which point the tax credit phases out has been raised from $110,000 to $400,000 for married tax filers. The age cut-off stays at 17 (child must be under 17 at the end of the year for taxpayers to claim the credit). The refundable portion (applicable to parents who do not earn enough income to pay taxes) of the credit is limited to $1,400. This amount will be adjusted for inflation after the 2018 tax year.

(4) Standard deduction for single filers increased by $5,500 and by $11,000 for married couples filing jointly (see Table 2 below). Most itemized deductions eliminated.

(5) Mortgage Interest Deduction Reduced (learn more).

(6) If you’re caring for an elderly parent, you can get a $500 credit for each non-child dependent.

(7) Tax table changes (see Table 1 below)

To protect individuals that are pushed into higher income tax brackets due to reduced value from credits and deductions instead of increase in real income (known as “bracket creep”), the act also requires that the IRS adjust numerous tax provisions for inflation.

2018 Income Tax Brackets and Standard Deduction Rates

Table 1. 2018 Income Tax Brackets and Rates

Table 2. 2018 Personal Exemption and Standard Deduction

The personal exemption for 2018 is eliminated

Small Business Stock Loss Deduction (Sec. 1244)

Posted on February 14, 2019February 20, 2019 by PM Editor

What is Section 1244 ?

Section 1244 is the IRS provision enacted to allow shareholders of small business corporations (corporation’s equity may not exceed $1,000,000 at the time the stock was issued) to dispose their stock as an ordinary loss, which is likely to be a significant impact difference on a shareholder’s personal return from stock being treated as a capital asset and hence losses being deducted as capital losses, provided the qualifications and limits found below are met. If you own stock in a small “domestic corporation” (note: as LLCs are state created entities that are taxed differently than corporations the membership interest in the LLC cannot be treated as section 1244 stock as defined in Title 26) and you plan to dispose of it for a given tax year, certain qualification requirements must be met.

Meeting the Sec. 1244 Requirement

The corporation must be a domestic small business corporation. A domestic corporation (including an S corporation) qualifies as a small business corporation if, when the stock is issued, its aggregate capital does not exceed $1,000,000.
The stock must have been issued in exchange for money or property (other than stock and securities) and not inheritance or gift. Therefore, stock issued for services or other does not qualify under Sec. 1244.
Only the original owner of the stock is entitled to claim a Sec. 1244 stock loss. If a partnership purchases Section 1244 stock of another company, and later disposes of the stock at a loss, the partnership entity may pass the resulting loss through to its partners. However, to be allowed to claim the loss as an ordinary loss instead of a capital loss, the partner must have been a partner when the stock was issued and have remained so until the time of the loss.
Section 1244 is available only for losses sustained by shareholders who are individuals. Losses sustained on stock held by a corporation, trust or estate do not qualify for 1244 treatment. In limited cases, a partnership can qualify as a shareholder of 1244 stock. Generally, all transfers of 1244 stock by the shareholder, whether in a taxable or nontaxable transaction, whether by death, gift, sale or exchange revoke 1244 status.

Sec. 1244 Limits

Provided all of the requirements listed above are met, ordinary loss treatment for losses that arise for stock disposition are allowed. However, there are limits to the the amount of ordinary loss that an individual taxpayer may realize by reason of the small business stock provision. Any amount of Sec. 1244 loss in excess of this limitation is treated as a capital loss (there is no carry-forward). For losses incurred by unmarried individuals, the maximum amount they may claim as an ordinary loss for all losses sustained on Sec. 1244 stock in a taxable year is $50,000. For married individuals filing a joint return, up to $100,000 of the loss on Section 1244 stock may be claimed as an ordinary loss even if only one spouse owns the stock.

Recordkeeping

It is important that records are maintained for a minimum of five(5) years, and the records must show that the corporation’s stock qualifies as Section 1244 stock.

The corporate minutes/by-laws, should make reference to the issuance of Section1244 stock.
Keep records of gross receipts for the past five(5) years.

Understanding and unearthing all the caveats in the IRS tax code can be a daunting task for even the most sophisticated business owners and taxpayers, therefore it is always a good idea to consult a tax professional like those found at TaxPM who can help you review, and if necessary revise your tax filings.

Business Owner Retirement Plans

Posted on January 16, 2019February 20, 2019 by PM Editor

Retirement Plan Options For Business Owners

Business owners, who are often burdened with many challenges building and running their businesses, too often miss special retirement plan opportunities available to businesses, instead electing to rely on their personal retirement plans instead. Below are a few options that business owners should consider.

Profit-Sharing Plan (DPSP)

A profit–sharing plan, also known as a deferred profit–sharing plan or DPSP, is a defined contribution plan under which the plan may provide, or the employer may determine, annually, how much will be contributed to the plan (out of profits or otherwise). Under this plan, an employee receives a percentage of a company’s profits based on its quarterly or annual earnings. The plan contains a formula for allocating to each participant a portion of each annual contribution. A profit-sharing plan may include a 401(k) feature.

Simplified Employee Pension Plan (SEPs)

SEP plans are ones in which an employer contributes on a tax-favored basis to IRAs owned by its employees. If the employer meets certain conditions, it isn’t subject to the reporting and disclosure requirements of most retirement plans. One of the distinctive advantages of a SEP plan, is that they can be established in one year and contributions are deductible as late as the due date of income tax returns for the previous year, including extensions.

Per the IRS rules regarding participation, Employees must be included in the SEP plan if they have:

attained age 21;
worked for your business in at least 3 of the last 5 years;
received at least $600 in compensation (in 2016 – 2019) from your business for the year.

Your plan may use less restrictive requirements, for example age 18 or three months of service, to determine which employees are eligible.

Defined Benefit Plans

Also known as a traditional pension plan, Defined Benefit plans promise the participant a specified monthly benefit at retirement. These plans can state an exact dollar amount (e.g. $1000 per month at retirement) with a maximum annual benefit capped at $220,000 (as of 2018) or 100% of the average earned income for the highest three consecutive years, whichever is less. Most often, the benefit amount is calculated through a plan formula that considers such factors as salary and service. Like SEPs, business owners and plan participants can make deductible contributions until the due date of income tax returns for the previous year, including extensions.

Retirement planning can be a daunting task for even the most sophisticated business owners, therefore it is always a good idea to consult a tax professional like those found at TaxPM who can help you review, and if necessary revise your retirement planning strategies.