The ”kiddie tax” was first enacted by Congress as a means to keep parents or grandparents in high tax brackets from shielding their income by giving it to children within their family in lower tax brackets. Although this tax was a bit of a headache for some in prior years, it has since evolved due to the Tax Cuts and Jobs Act (TCJA) restructuring the tax rate.
Business have long relied on Section 179 to allow them to claim tax deductions for certain assets, rather than having depreciation deductions taken over time. Beginning in the 2019 tax year, Section 179 has been expanded by the Tax Cuts and Jobs Act (TCJA).
Under the TCJA, the 100% bonus depreciation will also enable businesses to completely write-off qualified assets, such as property or equipment, that were placed in service in 2019.
Now that we have completed our first tax season of the year and got to see the Tax Cuts and Jobs Act (TCJA) in action, here are some key highlights of the tax reform to be aware of. Read More
While most provisions of the Tax Cuts and Jobs Act (TCJA) have gone into effect last year and either apply through 2025 or are permanent, there are two significant tax changes under the act for 2019. Here’s a quick overview.
It is no secret that health care costs increase every year, therefore, claiming any tax breaks related to health care is essential. However, there are requirements on how one can claim medical expenses that were already difficult for many taxpayers to meet, and it may be even harder to achieve this year.
For investors, fall is an excellent time to review year-to-date gains and losses. Not only can it help you assess your financial health, but it also can help you determine whether to buy or sell investments before year-end to save taxes. This year, you also need to keep in mind the impact of the Tax Cuts and Jobs Act (TCJA). While the TCJA didn’t change long-term capital gains rates, it did change the tax brackets for long-term capital gains and qualified dividends.
For 2018 through 2025, these brackets are no longer linked to the ordinary-income tax brackets for individuals. So, for example, you could be subject to the high long-term capital gains rate even if you aren’t subject to the top ordinary income tax rate.
For the last several years, individual taxpayers faced three federal income tax rates on long-term capital gains and qualified dividends: 0%, 15%, and 20%. The rate brackets were tied to the ordinary-income rate brackets.
Specifically, if the long-term capital gains and/or dividends fell within the 10% or 15% ordinary-income brackets, no federal income tax was owed. If they fell within the 25%, 28%, 33% or 35% ordinary-income brackets, they were taxed at 15%. And, if they fell within the maximum 39.6% ordinary-income bracket, they were taxed at the maximum 20% rate.
In addition, higher-income individuals with long-term capital gains and dividends were also hit with the 3.8% net investment income tax (NIIT). It kicked in when modified adjusted gross income exceeded $200,000 for singles and heads of households and $250,000 for married couples filing jointly. So, many people actually paid 18.8% (15% + 3.8%) or 23.8% (20% + 3.8%) on their long-term capital gains and qualified dividends.
The TCJA retains the 0%, 15% and 20% rates on long-term capital gains and qualified dividends for individual taxpayers. However, from 2018 through 2025, these rates have their own brackets. Here are the 2018 brackets:
For 2018, the top ordinary income rate of 37%, which also applies to short-term capital gains and non-qualified dividends, doesn’t go into effect until income exceeds $500,000 for singles and heads of households or $600,000 for joint filers. (Both the long-term capital gains brackets and the ordinary-income brackets will be indexed for inflation for 2019 through 2025.) The new tax law also retains the 3.8% NIIT and its $200,000 and $250,000 thresholds.
With new tax rate thresholds to understand, year-end tax planning for investments is especially complicated in 2018. If you have questions, please contact us.