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2017 Tax News

Dear Friends & Clients:

HAPPY NEW TAX YEAR ......greetings from the Torrance Office, we trust you have had a wonderful year and we are looking forward to seeing all of you at your upcoming tax appointment. 
This year, we are celebrating our 47 years anniversary in the income tax business because it is folks like you who make being in business a pleasure. You have enabled us to grow. You have encouraged us to do a better job, and for this we are deeply grateful. 
We hope our service to you last year, was as efficient and courteous as we continuously strive to make it. 

The IRS Urges the Public to Stay Alert for Scam Phone Calls. The IRS continues to warn Taxpayers from thieves' intent on stealing their money or their identity. Many phone scams use threats to intimidate and bully a victim into paying. They may even threaten to arrest. DO NOT

GIVE OUT ANY INFORMATION. JUST HANG UP IMMEDIATELY.

As requested by most of you, the following are highlights of Tax Law changes that took effect in the 2017 taxable year for you to read and share with your friends, neighbors and co-workers:

    I. The Tax Cuts and Jobs Act:

      This historical bill lowered the Individual Tax Rates to 37% and Corporate Tax Rates to 21%. Also, this bill repealed the Corporate AMT and individual shared responsibility requirement, beside the new regime for Pass-Throughs. 

      I know that most of you confused in regard to this tax bill. Therefore, I thought to mention to all of you that this new Tax Cut bill will take an effect in next Taxable year. 

 

    II. Refund Delays:

      The IRS will hold refunds on returns claiming the lower Earned Income Tax Credit (EITC) and/or the Additional Child Tax Credit (ACTC) until February 15, 2018.  

    III. Tax Rate Structure:

     The tax rates have increased for the inflation during 12-month period with the same seven-bracket as below:

  

      1. 2017 Tax Rates for Federal:

 Tax Rate  

Married Joint

Head of Household

Single

 10%

$0 - $18,650

$0 - $13,350

$0 - $9,325

 15%

$18,651 - $75,900

$13,351 - $50,800  

$9,326 - $37,950

 25%

$75,901 - $153,100

$50,801 - $131,200

$37,951 - $91,900

 28%

$153,101 - $233,350

$131,201 - $212,500

$91,901 - $191,650

 33%

$233,351 - $416,700

$212,501 - $416,700 

$191,651 - $416,700

35%

$416,701 - $470,700

$416,701-$444,550 

$416,701-  $418,400

 39.6%

 Over $470,700

Over $444,550

Over $418,400

      2. Estate & Gift Tax rate remains at: 40% and for 2017$5,490,000 lifetime exemption. Gift Tax Annual exclusion stays at: $14,000 per donee during 2017 and for Non-citizen spouses $149,000. The annual exclusion is available to all donors including non-resident citizens. Taxable gifts are taxed at the same rates that apply to U.S. Citizens [IRS Code Sec. 2501(a)(1)].

      3. Standard Deduction:

         (a) The standard deduction for taxpayers who do not itemize deductions in 2017 has increased a bit:

Federal State
Married Filing Joint & Widow(er)  $12,700 $8,472
Head of Household  $9,350 $8,472
Single  $6,350 $4,236
Married Filing Separate  $6,350 $4,236

        (b) An additional standard deduction amount for elderly or blind (for Married Filing Jointly, Qualify Widow(er) & Married Filing Separately is $1,250 and for Single & Head of Household is $1,550

        (c) The basic standard deduction for the dependents is $1050, or $350 plus the dependent's earned income up to regular standard deduction of $6,350 whichever is greater.

 

    4. Itemized Deduction Limitation:

        (a) 3% reduction for higher income taxpayer of excess of AGI over $261,500 for Single, $287,650 for Head of Household, $313,800, for Married Filing Jointly and $156,900 for Married Filing Separately. But total reduction can't exceed 80% of Itemizations.
        (b) The Medical expenses deductable on schedule "A" will be after 10% of AGI to all taxpayers including those who are aged 50 or older. 

    5. Personal Exemption:

        (a) The personal exemption amount. The personal exemption remained the same in 2017 as $4,050. However, this will be phased out for higher incomes. It is decreased by 2% for each $2,500 of AGI over the threshold amount (see 5 above).

        (b) The kiddies Tax. The first $1,050 of unearned income of a dependent who does not work is tax-free. The next $1,050 is taxed at 10% and any unearned income above $2,100 is taxed at the parents' rate.            

        (c) For California Taxpayers. The personal exemption increased for single, Married Filing Separately or Head of Household taxpayers from $111 to $114, for Married/RDP Filing Jointly or surviving spouses from $222 to $228. The dependent exemption credit increased from $344 to $353 per dependent.           

     6. Federal Earned Income Tax Credit (EIC):

        For 2017 the amount of credit has increased. The maximum credit is $6,318 for taxpayers with three or more children and earned less than $48,340 ($53,930 if Married Filing Jointly); $5,616 for taxpayers with two children and earned less than $45,007 ($50,597 if Married Filing Jointly) and $3,400 with one child and earned less than $39,617($45,207 if Married Filing Jointly). The maximum credit for taxpayers without children is $510 and earned less than $15,010 ($20,600) if Married Filing Jointly). Taxpayers still get the credit even having investment income of $3,450 or less.   

     7. California Earned Income Tax Credit (Cal EITC): 

        (a) The credit is $223 with maximum AGI of $15,008 without children, $1,495 with maximum income of $22,322 with One child, $2,467 with maximum income of $22,309 with Two children and $2,775 with maximum AGI of $22,302 with Three or more children.

        (b) Effective 1/1/2017 and after, for the purposes of  CAEITC to include earning from Self-Employment. Accordingly, It is important to keep very good records for Self-Employer. The FTB may need bank statement and additional documentation to verify Income & Expenses.

        (c) Rental Tax Credit: None refundable $60 credit for single filers with an AGI less than $40,078 and $120 for Joint filers with AGI less than $80,156.
 

     8. Qualified Senior Head of Household Credit:

        The credit is 2% of California taxable income, with a Maximum of California AGI of $71,370. The credit Maximum is $1,345.

    9. Joint Custody Head of Household Dependent Parent Credit:

        This credit is the lesser of $451 or 30% of net Tax.
         

    10. Reporting Foreign Accounts:

        If you have Foreign Accounts or Trust, you must report them on your return if they are over $10,000 at any time during 2017. Foreign Bank Account Reporting (FBAR)(Form 114) needs to be filed electronically. The due date will be April 15 instead of June 30 with an extension of 6 months. There are substantial penalties for failure to disclose these items.

        Also, U.S. taxpayers holding specified financial assets   with an aggregate value exceeding $50,000 will report those assets to IRS on form 8938 along with their tax.

    11. Foreign Income Exclusion:

        The 2017 exclusion is $102,100 ($104,100 IN 2018) and maximum housing exclusion is 30% of the $102,100($30,630) less the base housing cost of 14% of the maximum foreign earned income exclusion $14,294.

It should be noticed that income in excess of the exclusion amount will be taxed at higher regular tax.

       

    12. Limited Liability Company, (LLC):

        The 2017 LLC minimum fees of $800 and on total income are unchanged, (None for $0 - $249,999; $900 for $250,000 - $499,999; $2,500 for $500,000 - $999,999; $6,000 for $1,000,000 - $4,999,999 and $11,700 for $5,000,000 or more.

    IV. Standard Mileage, Meal Rates and Per Diem:      

       (a) Standard Mileage:

       In 2017, the standard mileage rate for business use of cars has been decreased to 53.5 cents per mile, (54.5 cents in 2018).

       The standard mileage rate for charitable contributions remained 14 cents per mile and for medical reasons & moving expenses has been decreased to 17 cents per mile, (18 cents in 2018).

       (b) Qualified Transportation fringe Benefits:

       For 2017, an employee may exclude from taxable income up to $255 a month for qualified parking expenses, transit passes and commuter Highway ($260 in 2018).

       (c) Meal & Entertainment and Per Diem deduction limits:

       The amount allowable deduction for meal or entertainment expenses remained 50%, (80% for certain transport workers while away from home).    

       (d) In high-cost locations, employees can get free of tax up to $282 per day after 9/30/16 (last year was $275) and in other area is $189 (last year was $185).

       No change to the rates for meals, stay at $68 per day in high-cost area and $57 in other location.

       (e) Luxury Automobile:

       Taxpayer may be required to include in income a certain amount of the value of a leased passenger automobile with a lease term beginning in calendar year 2013 if the fair market value of the automobile exceeds $19,000.

    V. Other Tax changes TO BE EFFECTIVE IN 2017:

  

    1. Social Security (FICA) and Medicare Tax:

       (a) For 2017, the Social Security wage base is increased from $118,500 to $127,200, with Maximum Social Security Tax of $8,700. Self-employed $14,694 and Medicare Tax is still no limit.

       (b) The social security wages Tax rate remains at 6.2% and Medicare Tax remains 1.45% (total 7.65%). The Medicare surtax also remains at .09% if wages exceed $250,000 for Married and $200,000 for Singles.

       (c) Earned income ceilings for social security benefits for prior to normal retirement age (65 plus 10 months) is $16,920($1 in benefits will be deducted for each $2 you earn above the $16,920 ($17,040 in 2018).

       (d) In the year you reach full retirement age, your benefits will be reduced $1 for every $3 you earn above $41,880.         

       (e) Optional methods for computing self-employment earnings are $5,200 and the earnings required for one quarter is $1,300 ($1320 in 2018).

       (f) Self-Employment Tax rate is imposed on net earnings. The rate is 15.3%, (12.4% component for Social Security and 2.9% component for Medicare hospital insurance), but the 0.9% Medicare surtax kicks in for singles with wages exceed $200,000; for Married filing Jointly earning above $250,000 and for Married Filing Separately above $125,000. 


       (g) The "Nanny" Tax Rules, requires the taxpayer to withhold social security and Medicare taxes for any household employee that earns $2,000 annually. These rules apply to baby sitters, house cleaners, yard workers, care givers and general labor that are not incorporated.     

       (h) The Medicare Part "B" and Part "D" premiums per month are based upon the Modified Adjusted Gross Income (MAGI). The law requires upper-Income seniors to pay higher premium for their Medicare Part B and prescription drug coverage (part D) as follow:

IF YOU FILED AS

WITH MAGI OF

PART “B”

PART “D”

Single, Head of Household or Qualifying Widow (er) 

$85,001-$107,000

$53.50

$13.00

$107,001-$133,500

$133.90

$33.60

$133,501-$160,000

$ 214.30

$54.20

More than  $160,000

$ 294.00

$74.80

Married filing Jointly

$170,001-$214,000

$53.50

$13.00

$214,001-$267,000

$ 133.90

$33.60

$267,001-$320,000

$ 214.30

$ 54.20

More than $320,000

$ 294.60

$ 74.80

Married filing Separately (Living Apart)

More than $85,000

$ 294.60

$ 74.80

       There is an increase by 2% in the cost of living during the taxable year of 2018 based on the Consumer Price Index (CPI) published by the Department of Labor.

    2. Kiddies Tax and Credit Rules:

       (a) Dependent children under Age 19 (24 full time students) having over $2,100 in 2017 in unearned income will pay income tax based on the parent's top marginal tax rate (form 8615 need to be filed).

       (b) Taxpayer who have qualifying children under 17 years old are entitled to claim a credit in the amount of $1,000 for each child subject to the AGI limitations.

       (c) Parent could elect to include child's income in their return, if the unearned income was less than $10,500 for 2017 (form 8814 need to be filed).

               

    3. Higher Qualified education Expenses:

       (a) For the American Opportunity Credit (Hope Credit), the   credit has remained the same at $2,500 a year for each eligible student, (100% of $2,000 plus 25% of the next $2,000).

The phase-out of the credit begins at AGI in excess of $80,000-$90,000 ($160,000-$180,000 for joint filers). 40% of the credit of $2,500 is refundable up to $1,000, even if you owe no taxes.

       (b) For Life-time learning, the credit has remained the same, at $2,000 per family (20% of $10,000 of qualified tuition and related expenses paid), subject to the limitations of the AGI of $55,000 to $65,000 ($111,000 to $131,000 for joint filers).

       (c)For Qualified Higher Education Expenses Deduction, it is above line tax deduction with a maximum of $4,000, subject to the limitations of the AGI of $65,000 to $80,000 ($130,000 to $160,000 for joint filers).

       (d) Saving Bond interest exclusion for Higher Educations, the interest on U.S Saving bonds redeemed to pay qualified higher education expenses may be Tax-Free, the phase-out limitation of the AGI begins at $77,550-$92,550 for Single & Head of Household ($116,300-$146,300 for Joint Filers), Form 8815 need to be filed.

       (e) Student Loan Interest Deduction, has been remained the same at $2,500 with phase-out of $65,000-$80,000 for Single and Head of Household ($130,000-$160,000 for Joint Filers), and no deduction is allowed for Married Filing Separate. 

     

    4. Adoption Credit and Assistance Program:

       The credit and exclusion for adoption of child with special needs have been increased to $13,570 of cost. The phase-out amounts begin when the AGI is between $203,540 - $243,540, and the credit will no longer refundable.

    5. Long-Term Care Insurance Premium Limits:

       For 2017,Taxpayers may deduct annual premiums of up to $410 if they are age 40 or younger; $770 for age more than 41 to 50; $1,530 for age more than 51 to 60; $4,090 for age more than 60 to 70; and $5,110 if over age 70. 

       Also, the limit for tax free payout under such policies increased to $360 a day and $131,400 per year.

    6. The IRA contributions and Pension Plan Limitation:

       (a)The maximum annual contribution limit for IRAs remains the same at $5,500 in 2017, $6,500 for individuals reaching age 50 by 12/31/2017.

       The phase-out for joint filers is between $99,000 and $119,000, for Single & Head of Household it is between $62,000 and $72,000 and for Married Filing Separately it is between $0 and $10,000. However, taxpayers will still be able to take an IRA deduction even if they are covered by a retirement plan at work, as long as the MAGI is between $62,000-72,000 for Single & Head of house hold and between $99,000-$119,000 for Married Filing Jointly or qualifying Window(er).

       (b)For an IRA contributor who is not covered by a work place retirement plan and is married to someone who is covered, the deduction is phased out if the couple's income is between $186,000 and $196,000.      

       (c)Taxpayers may make non-deductible contributions to Roth IRA, subject to IRA contributions limitation. The maximum annual contribution that can be made to a Roth IRA is phased-out for taxpayers with MAGI between $186,000-$196,000 if Filing Jointly, between $118,000-$133,000 for Single & Head of Household filers and between $0-$10,000 if Married Filing Separately. 

       (d)For 2017, an individual is allowed a maximum annual deductible of Health Plan contribution (HSA) of $3,350 for Single coverage and $6,750 for family coverage. HSA owners who reach age 55 by 12/31/2017 can increase their annual contribution by $1,000.

       (e)For the Define Contribution Pension Plan and Simplified Employee Pensions (SEPs) have been increased to a maximum of $54,000 for each employee with a maximum earnings for contribution calculation is $270,000.

       (f)For Simple Plans, the amount remains the same at $12,500 and $15,500 for those aged 50 or over by 12/31/2017.

       (g)For the Defined Benefit Pension Plan, the Maximum annual retirement benefit has been remained the same $215,000 and the annual compensation limit is increased to $270,000.

       (h)For 401(k), 403(b) & 457(e) contribution has remained the same at $18,000 and $24,000 for those aged 50 and older by 12/31/17.                  

       (i)Retirement Savings contribution Credit: The Saver's Credit helps offset part of the first $2,000 workers voluntarily contribute to IRAs and to 401(k). The Maximum saver's credit is $1,000 for Single and $2,000 for Married, subject to the AGI limitation, (up to $61,500 for Married Filing Jointly, up to $30,750 for Single and $46,120 for Head of Household (Form 8880 needs to be filed).

    7. Reminder of filing Deadlines:

       (a)The deadline of filing C Corporations will be April 17 instead of March 15 (the 4th months after the closing of the calendar year and for the fiscal year the corporation deadline will remain on the 15th day of the 3rd month after the close of the fiscal year with an extension of 5 months (September 15);

       (b)The deadline of filing the Partnership will be March 15 instead of April 17 with an extension of 6 months;

       (c)The deadline of filing FBAR (Form 114) is April 17 instead of June 30, with a new extension of 6 months;

       (d)The due date of filing Form 990 still May 15 with a new 6 month extension until November 15 (instead of 2 extensions of August 15 & November 15);   

       (e)The deadline of filing Form 5500(Employee Benefit Plan) is still July 31 with a new extension to November 15 instead of October 15;

       (f)The deadline of filing forms 1041 & 706(Trust & Estates) will be on April 17 with a new extension until September 30, instead of September 15;

       (g)The deadline of filing forms 1099 and W-2 will be January 31, 2018.

   8. Alternative Minimum Tax (AMT) and Exemption Amount:  

       (a)For 2017, the AMT Federal exemption for Married Filing Jointly is $84,500 (phase-out starts at $160,900); for Single & Head of Household is $54,300 (phase-out starts at $120,900 and for Married Filing Separately is $42,250 and (phase-out starts at $79,850).

Estate and Trust is $23,900 with (phase-out of starts at $79,850).

       (b)The rate for The Alternative Minimum Tax Income is 26% on  the first $187,800 and then the 28% rate tax bracket kicks in above $187,801.

   

    9. U.S. Citizen Living Aboard:

       U.S. citizens working and residing abroad are required to file and report on their worldwide income. Also, they must report their foreign bank and financial accounts (FBAR) on Forms 8938 & 114 to avoid the penalty of 50% of the balance of the unreported accounts per year, beside the criminal charges.             

   10. Back-Up Withholding Rate Drops:

       For 2018, The Back-up Withholding rate decreased from 28% to 24% for those people who either refuse to sign or give an incorrect taxpayer identification number in completing form W-9,(Code sec. 3406).

   For an appointment or further information, please call us at:

   (310)326-6888 or e-mail us at: abits@aol.com.

   Also, you can visit us on-line at: www.abits.org. As always, we will do our best to justify your faith in us and in our ability to serve you well. Pass out my business card, recommend us to your friends, or better yet, bring one with you (just let us know in advance). A friendly smile and a cup of coffee await you.     

     

       Sincerely,

       

       Dr. Ahmed Abdelnaby, EA.,MST.,JD.

       Doctor of Jurisprudence

       Master of Science Degree in Taxation

       Enrolled to practice before the IRS

       IRS Certified Acceptance Agent

       America's Tax Expert