IRS Issues Final QBI Deduction Regulations

The IRS has issued final regulations on determining allowable deductions based on qualified business income (QBI) from pass-through entities. This break is available only through 2025, unless it’s extended by future legislation. (more…)

Important Tax Figures for 2019

The following table provides some important federal tax information for 2019, as compared with 2018. Many of the dollar amounts are unchanged and some changed only slightly due to inflation.

Social Security/ Medicare 2019
2018
Social Security Tax Wage Base $ 132,900 $ 128,400
Medicare Tax Wage Base No limit
No limit
Employee portion of Social Security 6.2% 6.2%
Employee portion of Medicare
1.45% 1.45%
Individual Retirement Accounts 2019 2018
Roth IRA Individual, up to 100% of earned income $ 6,000  $ 5,500
Traditional IRA Individual, up to 100% of earned Income $ 6,000 $ 5,500
Roth and traditional IRA additional annual “catch-up” contributions for account owners age 50 and older $ 1,000 $ 1,000
Qualified Plan Limits 2019 2018
Defined Contribution Plan limit on additions on Sections 415(c)(1)(A) $ 56,000 $ 55,000
Defined Benefit Plan limit on benefits (Section 415(b)(1)(A)) $ 225,000 $ 220,000
Maximum compensation used to determine contributions $ 280,000  $ 275,000
401(k), SARSEP, 403(b) Deferrals (Section 402(g)), & 457 deferrals (Section 457(b)(2)) $ 19,000 $ 18,500
401(k), 403(b), 457 & SARSEP additional “catch-up” contributions for employees age 50 and older $ 6,000  $ 6,000
SIMPLE deferrals (Section 408(p)(2)(A)) $ 13,000  $12,500
SIMPLE additional “catch-up” contributions for employees age 50 and older $ 3,000  $ 3,000
Compensation defining highly compensated employee (Section 414(q)(1)(B)) $ 125,000  $ 120,000
Compensation defining key employee (officer) $ 180,000  $ 175,000
Compensation triggering Simplified Employee Pension contribution requirement (Section 408(k)(2)(c)) $ 600  $ 600
Driving Deductions 2019 2018
Business mileage, per mile 58 cents
54.5 cents
Charitable mileage, per mile 14 cents 14 cents
Medical and moving, per mile 20 cents
18 cents
Business Equipment 2019 2018
Maximum Section 179 deduction $1,020,000 $1,000,000
Phase out for Section 179 $2.55 million $2.5 million
Transportation Fringe Benefit Exclusion 2019 2018
Monthly commuter highway vehicle and transit pass $  265  $  260
Monthly qualified parking $  265  $  260
Standard Deduction 2019 2018
Married filing jointly $ 24,400 $ 24,000
Single (and married filing separately) $ 12,200 $ 12,000
Heads of Household $ 18,350 $ 18,000
Domestic Employees 2019 2018
Threshold when a domestic employer must withhold and pay FICA for babysitters, house cleaners, etc. $ 2,100 $ 2,100
Kiddie Tax 2019 2018
Net unearned income not subject to the “Kiddie Tax” $ 2,200 $ 2,100
Estate Tax 2019 2018
Federal estate tax exemption $11.4 million
$11.18
million
Maximum estate tax rate 40% 40%
Annual Gift Exclusion 2019 2018
Amount you can give each recipient $ 15,000 $ 15,000

 

 

Introducing KWC Client Advisory Services

We are pleased to introduce KWC Client Advisory Services – a new service line in our firm. Unlike traditional assurance, tax, and bookkeeping services, KWC Client Advisory Services moves past the day-to-day accounting functions of bill payment, payroll processing and sales invoicing to delve deeper into our clients’ businesses. We utilize a suite of technology solutions coupled with financial expertise and strategic planning to help our clients meet short and long term financial goals, and to streamline day-to-day operations.

Being a partner and open ear to our clients’ business needs, we’ve encountered owners expressing similar frustrations:

  • Financial reports and information being provided too late to be useful
  • Financial information that isn’t relevant or useful to analyze the key business components
  • The desire for a CFO or Controller position, but lack the ability to bring in house
  • The accounting process takes too much staff time, which is reducing profitability

Based on this feedback, we have built a suite of products that can be tailored to each client’s needs, automating significant portions of the accounting function. This takes the emphasis off data input to free up time for important budgeting, forecasting and analysis that business owners need to make daily decisions.

We are excited about the opportunities this new endeavor will provide both to us as well as to the clients we serve. If you have any questions or have clients that you think would be interested, we would be happy to discuss how KWC Client Advisory Services can add value to their business. Please contact a team member today for more information.

The Washington Post Names KWC To 2018 Top Workplaces List

Top Workplaces_150x150KWC has been awarded a 2018 Top Workplaces honor by The Washington Post. The list is based solely on employee feedback gathered through a third-party survey.

“We are thrilled to be named as one of the Top Workplaces by The Washington Post,” said Steve Travis, Managing Principal of KWC. “The firm’s success is wholly the result of the collaborative spirit of our staff. This award is confirmation of their enthusiasm for our firm and our commitment to making it a great work environment.”

The Top Workplaces survey is administered by research partner Energage, LLC (formerly WorkplaceDynamics), a leading provider of technology-based employee engagement tools. The anonymous survey measures several aspects of workplace culture, including alignment, execution, and connection, just to name a few.

“Top Workplaces is more than just recognition,” said Doug Claffey, CEO of Energage. “Our research shows organizations that earn the award attract better talent, experience lower turnover, and are better equipped to deliver bottom-line results. Their leaders prioritize and carefully craft a healthy workplace culture that supports employee engagement.”

Supreme Court Spotlights Employee Status: Exempt or Not?

Thousands of cases are appealed to the U.S. Supreme Court every year, but usually fewer than 100 get a full-blown hearing and ruling. One case that made it through in the current court term is Encino Motorcars v. Navarro. On the surface, this case looks at whether car dealer service advisors are exempt or nonexempt. But the larger issue affecting jobs of all kinds involves just how narrowly the relevant law — the Fair Labor Standards Act (FLSA) — can be interpreted when determining between exempt status and nonexempt. (more…)

Timing and Taxes: Two Critical Issues when Buying or Selling a Home

You might be in a rush to buy or sell a home before summer starts or interest rates increase even more. But, first, it’s important to review the tax rules related to home sales and deductions for mortgage interest, property taxes and work-related moving expenses. Beware: Some rules have changed under the Tax Cuts and Jobs Act (TCJA). (more…)

Capital Gains Rates Before and After the New Tax Law

Are you confused about the federal income tax rates on capital gains and dividends under the Tax Cuts and Jobs Act (TCJA)? If so, you’re not alone. Here’s what you should know if you plan to sell long-term investments or expect to receive dividend payments from your investments. (more…)

Congress Raises 401(k) Hardship Withdrawal Limits

Most 401(k) plans permit hardship withdrawals, though plan sponsors aren’t required to allow them. As it stands today, employees seeking to take money out of their 401(k) accounts are limited to the funds they contributed to the accounts themselves, and only after they’ve first taken a loan from the same account. Loans must be repaid, of course. The theory behind the loan requirement is that employees would be less apt to permanently deplete their 401(k) accounts with hardship withdrawals.

Thanks to the Bipartisan Budget Act (BBA) enacted in February, the rules change, beginning in 2019. Under the BBA, the employees’ withdrawal limit will include not just amounts they have contributed. It also includes accumulated employer matching contributions plus earnings on contributions. If an employee has been participating in your 401(k) for several years, this modification could add substantially to the amount of funds available for withdrawal in the event of a legitimate hardship.

Liberalized Participation Rule

In addition to the changes above, the BBA also eliminates the current six-month ban on employee participation in the 401(k) plan following a hardship withdrawal. This is good news on two fronts: Employees can stay in the plan and keep contributing, which allows them to begin recouping withdrawn amounts right away. And for plan sponsors, it means they won’t be required to dis-enroll and then re-enroll employees after that six-month hiatus.

One thing that hasn’t changed: Hardship withdrawals are subject to a 10% tax penalty, along with regular income tax. That combination could take a substantial bite out of the amount withdrawn, effectively forcing account holders to take out more dollars than they otherwise would have in order to wind up with the same net amount.

For example, an employee who takes out a $5,000 loan from his or her 401(k) isn’t taxed on that amount. But an employee who takes a hardship withdrawal and needs to end up with $5,000 will have to take out around $7,000 to allow for taxes and the 10% penalty.

Hardship Criteria

The BBA also didn’t change the reasons for which hardship withdrawals can be made. Here’s a reminder of the criteria, as described by the IRS: Such a withdrawal “must be made because of an immediate and heavy financial need of the employee and the amount must be necessary to satisfy the financial need.” That can include the need of an employee’s spouse or dependent, as well as that of a non-spouse, non-dependent beneficiary.

The IRS goes on to say that the meaning of “immediate and heavy” depends on the facts of the situation. It also assumes the employee doesn’t have any other way to meet the needs apart from a hardship withdrawal. However, the following are examples offered by the IRS:

  • Qualified medical expenses (which presumably don’t include cosmetic surgery);
  • Costs relating to the purchase of a principal residence;
  • Tuition and related educational fees and expenses;
  • Payments necessary to prevent eviction from, or foreclosure on, a principal residence;
  • Burial or funeral expenses; and
  • Certain expenses for the repair of damage to the employee’s principal residence.

The IRS gives two examples of expenses that would generally not qualify for a hardship withdrawal: buying a boat and purchasing a television.

Finally, a financial need could be deemed immediate and heavy “even if it was reasonably foreseeable or voluntarily incurred by the employee.”

Deadline Extension

Another important and somewhat related change in 401(k) rules was included in the 2017 Tax Cuts and Jobs Act (TCJA) that took effect this year; it pertains to plan loans. Specifically, prior to 2018, if an employee with an outstanding plan loan left your company, that individual would have to repay the loan within 60 days to avoid having it deemed as a taxable distribution (and subject to a 10% premature distribution penalty for employees under age 59-1/2).

The TCJA changed that deadline to the latest date the former employee can file his or her tax return for the tax year in which the loan amount would otherwise be treated as a plan distribution. So, for example, if an employee with an outstanding loan of $5,000 left your company and took a new job on Dec. 31, 2017, that individual would have until April 15 (or, with a six-month fling extension, Oct. 15) 2018 to repay the loan.

Alternatively, the former employee could make a contribution of the same amount owed ($5,000, in this example) to an IRA or the former employee’s new employer’s plan, assuming the new plan permitted it. In effect, that $5,000 contribution to a new plan would be treated the same as a rollover from the old plan.

While this new flexibility might seem like a boon to plan participants, it could also represent a financial trap. Employees typically aren’t accumulating enough dollars to put themselves on track to retire comfortably at a traditional retirement age. Therefore, although you can’t prevent a plan participant from taking advantage of the new rules if they qualify, you can redouble your efforts to help employees understand the importance of thinking of their retirement savings as just that — savings for retirement, and not a “rainy day” fund.

Health Savings Account Limits for 2018

With Health Savings Accounts (HSAs), individuals and businesses buy less expensive health insurance policies with high deductibles. Contributions to the accounts are made on a pre-tax basis. The money can accumulate year after year tax free, and be withdrawn tax free to pay for a variety of medical expenses such as doctor visits, prescriptions, chiropractic care and premiums for long-term-care insurance. (more…)

New Law Eases the Individual Alternative Minimum Tax

Unfortunately, the Tax Cuts and Jobs Act (TCJA) retains the individual Alternative Minimum Tax (AMT). But there’s a silver lining: The AMT rules now reduce the odds that you’ll owe the AMT for 2018 through 2025. Plus, even if you’re still in the AMT zone, you’ll probably owe less AMT than you did under the old rules. (more…)