Hello Client and Friend:
Time sure flies, it is hard to believe it is already October! Tax planning time is upon us. This has been a trying year with weather and crop prices. Most of us have had to make difficult health-care related decisions and it continues to be a major concern. There are many changes with the tax bill that passed in late 2017 that are now effective. Our schedules fill up fast, so please call the New Ulm or Winthrop office very soon to set up your planning appointment. Included in this letter are some important items for you to note and some that will impact your tax situation.
Tax Rates & Deductions
Individual tax rates have been lowered overall, however deductions have also changed. Most individuals will no longer itemize with the increase of the standard deduction and limit on certain itemized deductions. Exemptions have been eliminated. Child tax credits have been increased, and those who qualify for credits such as EIC has also been broadened so more individuals may see benefit here.
For those of you that purchased private health plans through MNsure in 2018, many of you received reductions in premiums based on income and household size. Tax planning may be especially important for you this year. As you may know, if your income is higher than the figures you provided MNsure at sign up time, you could owe additional premiums (tax credits) back in your 2018 tax returns. Some of you could owe the entire year’s premiums back if you exceed the income thresholds allowed. You should consider a tax planning appointment if you had changes during the year or are concerned about your income level.
Section 179 Deduction and Bonus Depreciation
As of today, the maximum section 179 deduction (first-year write-off) for new and used asset purchases for 2018 is $1 million, with phase-out if asset additions are over $2.5 million, and is now permanent, with annual inflation increases.
Bonus depreciation limit of 100% on new & used asset purchases in 2018, which can also be taken on up to 20-year assets.
Remember Minnesota does not comply with the federal section 179 or bonus depreciation. Minnesota section 179 limit is $25,000 and does not allow any bonus depreciation. Minnesota requires federal accelerated depreciation be taken over 5 years.
Farmers and Businesses
We understand that due to commodity prices, many of our area farmers are struggling along with ag-related businesses. Remember, some of the most important tax planning strategies can be implemented when there is a down year. There are many ways we can increase refunds, reduce taxes, protect social security, protect assets, etc. on those years when there are lower incomes.
There is a new Sec. 199A deduction available that is replacing the prior existing “DPAD”. Ultimately this is equivalent to a deduction of 20% of qualified net business income, subject to limits and phase outs. This is not available for C-Corporations, however many that did not qualify for DPAD in the past will now qualify for this new deduction. For our farmers that come in for planning, they will need to know the amount of crop sales sold to a cooperative versus a non-cooperative!
If you received hail or weather-related insurance proceeds for damage to farm or business buildings and assets (except the personal residence and personal assets), you may have a taxable gain depending upon when and how much you replace/fix. There are also tax implications to crop insurance proceeds. These are important planning discussions that need to take place.
The new tax law also requires trades of assets to be reported as sales, and the purchase of the new asset is at full price not just the “boot” as in past. We will now require all asset trade/purchase paperwork or information listed out to be sure everything is being recorded properly. Please review your depreciation schedules and identify assets that have been sold or are gone.
Other important items of note in summary are new limits on business meals and entertainment, and gifted grain to kids (avoid!).
Even if you have never had a tax planning appointment, this could be the year you need one.
If you have any questions on the above law changes or want more information, feel free to call us at (507) 354-7699 in New Ulm or (507) 647-5312 in Winthrop.
Karla Havemeier Ltd. CPAs