Seven Year-End Tax Tips for 2018

Seven Year-End Tax Tips for 2018

 

Here are 7 tax moves for you to consider before the end of the year.

  1. Defer income to next year. Consider opportunities to defer income to 2019, particularly if you think you may be in a lower tax bracket then. For example, you may be able to defer a year-end bonus or delay the collection of business debts, rents, and payments for services. Doing so may enable you to postpone payment of tax on the income until next year.

 

  1. Accelerate deductions and take capital losses. You might also look for opportunities to accelerate deductions into the current tax year. If you itemize deductions, paying  medical expenses, mortgage interest, and charitable deductions before the end of the year, instead of paying them in early 2019, could make a difference on your 2018 return.

 

  1. Harvest Capital Gains and Losses. Any appreciated stocks that you have held for a year and a day you can lock in the lower capital gains rate by selling at year end.   You should also consider selling any stocks that can generate capital losses which you can deduct up to $3,000 after netting all your capital losses against all your capital gains.  Keep in mind after you sell a stock you can buy it back after 31 days to avoid the wash sale rules.

 

  1. Maximize retirement contributions. Deductible contributions to a traditional IRA, SIMPLE IRA or SEP IRA or pre-tax contributions to an employer-sponsored retirement plan such as a 401(k), can reduce your 2018 taxable income. If you haven’t already contributed up to the maximum amount allowed, consider doing so by year-end.

 

  1. Take any required minimum distributions. Once you reach age 70½, you generally must

start taking required minimum distributions (RMDs) from traditional IRAs and employer-sponsored retirement plans. However an exception may apply if you’re still working for the employer sponsoring the plan). Take any distributions by the date required — the end of

the year for most individuals. The penalty for failing to do so is substantial: 50% of any

amount that you failed to distribute as required.

 

  1. Beware of the 3.8% net investment income tax. This additional tax may apply to some or all of your net investment income if your modified adjusted gross income (AGI) exceeds $200,000 ($250,000 if married filing jointly, $125,000 if married filing separately, $200,000 if head of household).

 

  1. Bump up withholding if you expect to owe tax. If it looks as though you’re going to owe federal income tax for the year, especially if you think you may be subject to an estimated tax penalty, consider asking your employer to increase your withholding for the remainder

of the year to cover the shortfall.  The biggest advantage in doing so is that withholding is

considered as having been paid evenly through the year instead of when the dollars are actually

taken from your paycheck. This strategy can also be used to make up for low or missing

quarterly estimated tax payments. With all the recent tax changes, it may be especially

important to review your withholding for 2018.

 

If you have any questions or need any help preparing your taxes please call Gregory J. Spadea at 610-521-0604.  The Law Offices of Spadea & Associates, LLC prepares tax returns and advises business and individual clients on estate and tax planning year round. 

Business Owners Can Deduct the New Section 199A Business Income Deduction in 2018

 

Eligible business owners may now deduct up to 20 percent of certain business income from a business operated as a sole proprietorship, partnership, S corporation, trust, or estate.  The deduction may also be claimed on dividends from real estate investment trusts.  The new deduction is referred to as the Section 199A deduction and was created by the Tax Cuts and Jobs Act (TCJA).  Congress made this change to create tax parity between business owners and C Corporations.  The TCJA reduced the top federal corporate tax rate from 35 % to 21% but only reduced the top federal personal income tax rate from 39.6% to 37%. Excluding the 20% of qualified business income reduces the top personal rate from 37% to 29.6%.

 

Here are four basic things business owners should know about this complicated deduction:

  1. There is an income threshold to qualify for the deduction so if your total taxable income

before taking the qualified business income deduction is less than $315,000 for a married couple filing a joint return, or $157,500 for all other filers you are eligible for Section 199A deduction regardless of what type of business you have.  In addition if your business does not fall into one of the service fields listed below you can take the full deduction regardless of your taxable income.

 

  1. The deduction is available whether you itemize your deductions on Schedule A or take the standard deduction.  However, the deduction will not reduce your adjusted gross income or

reduce your earnings subject to Social Security or Medicare.  Keep in mind income earned

through a C corporation or by providing services as an employee is not eligible for the deduction.

 

  1. For each qualified trade or business the Section 199A deduction is limited to the lesser of

these two amounts:
– Twenty percent of qualified business income; or
– Twenty percent of taxable income computed before the qualified business income

deduction minus net capital gains.

  1. If your total taxable income before taking the qualified business income deduction exceeds $315,000 for a married couple filing a joint return, or $157,500 for all other filers, there are additional limitations if you in a specified service field.  If you are in a specified service field, once your income exceeds $415,000 for a married couple filing jointly and $207,500 for all other filers, your Section 199A deduction is totally phased out.  A specified service field includes health care, accounting, law, performing arts, consulting, financial services and any service business that relies on the reputation of one of the officers or employees. The good news is that if you do not fall into one of the specified service fields you can take the full deduction regardless of your income.

In closing, I would highly recommend you make the maximum contribution to your Simple IRA, solo 401(k) or SEP IRA to reduce your taxable income and increase your eligibility for the Section 199A deduction.  If you need assistance calculating the Section 199A deduction or preparing your taxes please call Gregory J. Spadea at 610-521-0604.

What Every Landlord and Tenant Should Know About the Implied Warranty of Habitability

What Landlords and Tenants Need to Know about the Implied Warranty of Habitability

 

The Pennsylvania Supreme Court has ensured that tenants have the right to a decent place to live.  This guarantee to decent rental housing is called the implied Warranty of Habitability.

 

The Warranty means that in every residential lease in Pennsylvania whether oral or written, there is a promise (the Warranty) that a landlord will provide a home that is safe, sanitary, and healthful.  A rental home must be safe to live in and the landlord must keep it that way throughout the rental period by making necessary repairs.  Even if the renter signs a lease to take the dwelling “as is”, the Warranty protects the individual.  The right to a livable home cannot be waived in the lease.  Remember, the Warranty is in the lease, whether or not the lease says so.  Any lease clause attempting to waive this Warranty is unenforceable.

 

The Warranty does not require the landlord to make cosmetic repairs.  For example, the landlord is not required to repair faded paint, install new carpeting, or make other cosmetic upgrades or improvements.  However, the landlord must remedy serious defects affecting the safety or the ability to live in the rental unit.

 

The following are examples of defects covered by the Implied Warranty of Habitability:

 

  • Lack of hot and/or cold running water
  • Defunct sewage system
  • No ability to secure the leased premises with locks (doors, windows)
  • Lack of adequate heat in winter
  • Insect or rodent infestation
  • Leaking roof
  • Unsafe doors, stairs, porches and handrails
  • Inadequate electrical wiring (fire hazard) or lack of electricity
  • Inability to store food safely because of broken refrigeration unit (when the landlord is responsible for maintenance and repair of refrigerator in the lease)
  • Unsafe structural component that makes it dangerous to occupy the premise

 

If you are a tenant living in leased premises that have any of the defects listed above you have the following legal rights after you have complied with the notice requirements of the lease:

  1. the right to withhold rent until repairs are made, or
  2. the right to “repair and deduct”—that is, to hire a repairperson to fix a serious defect that makes a unit unfit (or buy a replacement part or item and do it yourself) and deduct the cost from your rent.

If you have any questions or need a landlord tenant lawyer, please call Gregory J. Spadea at 610 521 0604.  The Law Offices of Spadea & associates, LLC has been helping landlords and tenants since 2001 and is located in Ridley Park, Pennsylvania.

Understanding the New VA Requirements for Veterans Aid & Attendence Benefits

 

The Department of Veterans Affairs (VA) has finalized new rules that establish an asset limit, a look-back period, and asset transfer penalties for veterans applying for VA Aid & Attendance pension benefits. The Veterans Aid and Attendance Benefit pays a monthly pension to low-income veterans or their spouses who are in nursing homes or who need help at home with everyday tasks like eating, bathing, dressing, using the toilet or walking.

Veteran Estate Planning

Currently, to be eligible for Aid and Attendance a veteran or his spouse must meet certain income and asset limits. The asset limits aren’t specified, but the range is $40,000 to $80,000 depending on the age of the veteran. In the past there have been no penalties if an applicant divests himself of assets right before applying. That is, before now you could transfer assets over the VA’s limit to an Intentional Defective Grantor Trust or transfer them to your children before applying for benefits and the transfers would not affect eligibility. The new regulations prevent that by setting a net worth limit of $123,600, which coincidentally is the current maximum amount of assets in 2018 that a Medicaid applicant’s spouse is allowed to retain. But in the case of the VA, this number will include both the applicant’s assets and income. It will be indexed to inflation in the same way that Social Security increases. The good news is an applicant’s house (up to a two-acre lot) will not count as an asset even if the applicant is currently living in a nursing home. Applicants will also be able to deduct medical expenses including payments to assisted living facilities from their income.

The regulations also establish a three-year look-back provision. Applicants will have to disclose all financial transactions they were involved in for three years before applying for VA benefits. Applicants who transferred assets to put themselves below the net worth limit within three years of applying for benefits will be subject to a penalty period which can last as long as five years. This penalty is a period of time during which the person who transferred assets is not eligible for VA benefits. There are exceptions to the penalty period for fraudulent transfers and for transfers to a trust for a child who is unable to support him or herself.
Under the new rules, the VA will determine a penalty period in months by dividing the amount transferred that would have put the applicant over the net worth limit by the maximum annual pension rate (MAPR).

You will need the following information to apply for VA Aid & Attendance Benefits:
• Discharge or Separation Documents (DD 214)
• Form 21-4142: Authorization and Consent to Release Information to the Department of Veterans Affairs
• Physician Statement, VA Form 21-2680 or Nursing Home Statement, VA Form 21-0779
• Medical Expenses incurred, VA Form 21P-8416
• Marriage Certificate and Death Certificate (Surviving Spouses only)
• Asset Information (bank account statements, etc.)
• Verification of Income (social security award letter, pensions, IRAs or annuity statements)
• Proof of Medical Premiums (Insurance Statements, Medication or Medical bills that are not reimbursed by Medicare)

The new rules go into effect on October 18, 2018. The VA will disregard asset transfers made before that date. If you need estate planning assistance please contact Gregory J. Spadea at 610-521-0604. Mr. Spadea has been preparing free wills for Veterans since 2001 to thank them for their service.

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