Education Costs Going Bonkers?

Everyone knows that college costs are expensive, but do you know that elementary and secondary tuition amounts can be costly, too?  A way to prepare for rising education costs is to set up and contribute to a 529 plan.  Prior to January 1, 2018, a contributor would establish an account for the benefit of a designated beneficiary to provide for that beneficiary’s higher education expenses.  Qualified higher education expenses include:

·         tuition,

·         fees,

·         books,

·         supplies,

·         equipment (including technology) required for the enrollment or attendance at an eligible educational institution,

·         expenses for special needs services in the case of a special needs beneficiary that are incurred in connection with such enrollment or attendance, and

·         room and board for students who are enrolled at least half-time.

The Tax Cuts and Jobs Act of 2017 modified the rules of 529 plans.  After December 31, 2017, 529 plans now allow for up to $10,000 in annual distributions for tuition in connection with the enrollment or attendance of the designated beneficiary at a public, private or religious elementary or secondary school.  This limitation applies on a per-student basis, rather than a per-account basis.  So now, not only can you pay for college from the 529 accounts, you can also pay for elementary school and high school from these accounts.  This is a beneficial modification for those who pay significant elementary and high school tuition.

There are tax benefits available for using these accounts.  First, the investment growth is federal tax-free as long as the money is used for educational purposes.  Second, 34 states offer residents a tax deduction or credit for 529 plan contributions.  Most states require that you invest in your home state’s plan to qualify for the deduction or credit, but 6 states including Kansas offer tax benefits for residents who invest in any state’s 529 plan.

Be smart! Start as soon as possible. You can set up a plan as soon as your baby is born and has been assigned a Social Security number. Think about gifting. It is a perfect opportunity for grandparents who want to gift money to their grandchildren. Don’t let education costs go bonkers before you start saving!

Happy Half Birthday!

If you had a summer birthday when you were in grade school, you got to celebrate your half birthday during the school year.  Maybe since then you haven’t cared about it or would really prefer to forget your birthday altogether.  If you are turning 70 ½ this year though, you will join roughly 25 million Americans who need to mark their calendars.  For this first year, you can delay your required minimum distribution, or RMD, until April 1st of 2019.  For every year after, you must take your RMD from your traditional IRAs, SEP IRAs, SIMPLE IRAs or employer retirement plans by December 31st to avoid an IRS penalty.  

If you are now required to take an RMD and are also charitable-minded, you should consider a Qualified Charitable Distributions, or QCD. Under the new tax law, fewer taxpayers will be able to itemize with the increased standard deduction, which is giving QCDs elevated popularity.  The idea is that you would give your RMD directly to your favorite charity, which avoids income tax on the distribution and can also provide other tax benefits as a result of the decrease in adjusted gross income.

Call us for more details and to discuss the benefit to your personal tax situation!   

What does the Wayfair decision mean?

The Supreme Court ruling yesterday overturned the nearly two decades old ruling of Quill Corp v North Dakota that had governed how states could collect sales tax on interstate sales.  The Quill decision previously required retailers have a physical presence (i.e. warehouse, distribution center, brick-and-mortar store, employees) in a state before they were required to collect sales tax in that state.  South Dakota v. Wayfair Inc. means now sales alone are enough to create sales tax nexus in a state. 

The states have long said those purchasing goods from out-of-state sellers should pay use tax if the retailer didn’t collect sales tax.  That hasn’t been happening.  As internet sales continue to expand and brick-and-mortar stores continue to close, the states are left with empty wallets from those missing sales tax dollars.  Estimates put the lost sales tax revenue for the state of Kansas around $200 million annually. 

This Supreme Court ruling suggests technological advancements contributed to overturning the 1992 QuiII decision.  Justice Kennedy cited a staggering statistic, that “[i]n 1992, mail-order sales in the United States totaled $180 billion.  Last year, e-commerce retail sales alone were estimated at $453.5 billion.” 

Most larger retailers already collect sales tax in multiple states.  As each state sets their own rules for what is a taxable sale and what is nontaxable, smaller businesses may feel an administrative burden collecting and remitting the correct sales tax under the new ruling. 

States are attempting to make following the rules small business friendly.  Massachusetts implemented regulations last fall making online sellers that do more than $500,000 in sales or at least 100 transactions in their state collect and remit state sales tax.  South Dakota’s law, that initiated this Supreme Court case, requires any entity with a minimum of $100,000 in annual sales or 200 individual transaction within the state to collect sales tax. 

Now that the Supreme Court has shown their support for South Dakota’s interstate sales tax law, some are estimating the state of South Dakota will move forward with collecting sales tax in as little as 30 to 90 days. Other states will likely start adjusting their laws under the new guideline.  Those living in the five states without sales tax --Alaska, Delaware, Montana, New Hampshire, and Oregon – will continue to not be subject to sales tax, unless their state laws change.  As we move forward, we’re here to help guide businesses through the changes.

Social Security maximum taxable wage base and 2018 Withholding Tax Tables

You may have read information regarding the Social Security maximum taxable wage base reported to be $128,700 for 2018.  The Social Security Administration announced, on November 27,  that the amount was changed to $128,400.  You might want to check with your payroll peeps to make sure they are aware of this change.

Also, the IRS released 2018 Withholding Tax Tables on January 11. Employers should start using them ASAP, but no later than 2/15/18. The IRS is still working on updating the W-4. Continue to use the W-4 on file for calculating employee withholding. For more information see Notice 1036 https://www.irs.gov/pub/irs-prior/n1036--2018.pdf

 

New Tax Bill

Congress has passed the first major tax legislation, the Tax Cuts and Jobs Act of 2017, in more than three decades.  It is expected to be signed by the President shortly.  The following is a summary of some of the key provisions of the bill.

·             For individuals, there are now seven federal tax brackets, and the range is 10% to a new top rate of 37% (reduced from 39.6%).

·             The new standard deduction will be $12,000 for single filers and $24,000 for married couples filing jointly.

·             Personal exemptions are eliminated.

·             Elimination of any entertainment business deduction, including expenses related to the purchase of sporting event tickets.

·             A cap on deductions for state income and local property taxes to a combined $10,000.

·             Charitable deductions and student loan interest deductions remain.

·             All miscellaneous itemized deductions have been eliminated.

·             The AMT remains, but its exemption is widened.

·             The Child Tax Credit is expanded from $1,000 per qualifying child to $2,000.  Additionally, the income requirements are increased, to $200,000 for individuals and $400,000 for married couples. 

·             Estate tax exemption amount is doubled to $11.2M for individuals, and $22.4M for couples.

·             A new cap on mortgage interest deductibility on the first $750,000 of debt principal with some grandfathering provisions for existing mortgages and homes under contract for sale.

·             Medical expense deductions remain, and are expanded to expenses in excess of 7.5% of AGI (from 10%).

·             For corporations, there will now be a single 21% permanent tax rate.

·             Pass-through entities (LLCs, S Corporations and Sole proprietorships) will be allowed to deduct 20% of their profit in 2018, subject to certain service industry and income limitations. 

The plan is expected to result in a reduction of taxes for most individual households. The business provisions are permanent, but many of the tax breaks for individuals are set to expire in future years.

Let's chat about how the changes impact your personal situation.