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Dear Friends & Clients: 

We would like to take this chance to wish you and your family HAPPY NEW TAX YEAR ......greeting from Torrance Office and we trust you have had a wonderful year and we are looking forward to seeing all fm you at your upcoming tax appointment. 

This year, we are celebrating our 48 years anniversary in the income tax business because 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 and we thank you for placing your trust and confidence in us previous years. 

We hope our service to you last year, was as efficient and courteous as we continuously strive to make it. 

State of California and most other states, did not confirm with the Federal under the New Tax law. This means that, the preparation of the tax return this year will be more complex and will take more time than usual. 

As requested by most of you, the following are Highlights of Tax Law changes that took effect in 2018 taxable year for you to read and share with your friends, neighbors and co-workers: 

I. The Tax Cuts and Jobs Act (TCJA): 

It is the biggest massive new tax reform in more than 30 years. The new law will decrease the Federal Tax for majority of you. Lowered the Tax Rates from 39.6% to 37% and CorporateTax Rates from 35% to 21%. Also, This bill repealed the Corporate AMT and individual shared responsibility requirement for post 2018 years,(It is continue to apply for 2018). However, the new law reduces the penalty of not having Medical Insurance to $0 but after 12/31/2018. 

II. Refund Delays to earned Income Credit Filers: 

The IRS will continue holding refunds on returns claiming the lower Earned Income Tax Credit (EITC) and/or the Additional Child Tax Credit (ACTC)until February 15,2019. 

III. Tax Rate Structure: 

The new Tax law keeps the same Seven tax rates brackets with different rate as below: 

1. 2018 Tax Rates for Federal:

 Tax Rate  

Married Joint

Head of Household

Single

 10%

$0 - $19,650

$0 - $13,600

$0 - $9,525

 12%

$19,050 - $77,400

$13,600 - $51,800  

$9,525 - $38,700

 22%

$77,400 - $165,000

$51,800 - $82,500

$39,700 - $82,500

 24%

$165,000 - $315,000

$82,000 - $157,500

$82,500 - $157,500

 32%

$315,000 - $400,000

$157,500 - $200,000 

$157,500 - $200,000

35%

$400,000 - $600,000

$200,000 - $500,000  

$200,000 - $500,000

 37%

 Over $600,000

Over $500,000

Over $500,000

2. Estate & Gift Tax rate remains at: 40% and for 2018, $11,180,000 lifetime exemption. However, Heirs will continue to receive a "stepped-up, at date of death" basis for inherited assets for purposes of any subsequent sale. 

Gift Tax Annual exclusion stays at: $15,000 per donee during 2018 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. Long Term Capital Gain: 

There is no change for Federal on Long-term Capital Gains and qualified dividends. But California, Tax Long Tern Gains as Ordinary Income. 

The 0% rate will continue for taxpayers with income below $38,700 for Singles and $77,400 for Joint filers. 

The Top rate on Capital Gain remains at 20% starting at $425,800 for Singles and $479,00 for Joint Filers. 

4. Standard Deduction: 

(a) The standard deduction for taxpayers who do not itemize deductions in 2018 has doubled:

Federal State
Married Filing Joint & Widow(er)  $24,000 $8,802
Head of Household  $18,000 $8,802
Single  $12,000 $4,401
Married Filing Separate  $12,000 $4,401

(b) An additional standard deduction amount for elderly over 65 or blind (for Married Filing Jointly, Qualify Widow(er) & Married Filing Separately is $1,300 and for Single & Head of Household is $1,600 per person. 

(c) Child Tax credit, increased from $1,000 to $2,000 for each qualified child. The phase-out is $200,000 for Single and $400,000 for Married Filing Jointly. 

(d) State and local taxes. Deductions for state and local sales and property taxes may not exceed $10,000 ($5,000 for Married Filing Separately). 

(e) Home Mortgage Interest. Mortgage Interest used to buy building or improve your home decrease to $750,000 (375,000 for Married Filing Separately)for mortgage taken after 12/15/2017. 

(f) Equity Indebtedness is no longer deductible, (including any equity indebtedness prior to 1/1/2018). 

5. Itemized Deduction Limitation: 

(a) Under the new law, the Phase-Out of itemized deductions is eliminated. 

(b) The Medical expenses deductible on schedule "A" will be after 7.5% of AGI to all taxpayers including who are age of 50 or older, (keeping in mind that there are many out of pocket expenses exceed this limit including special diet expenses, such as gluten-free food & special need supplies). 

(c) The AGI limitation of charitable contribution write off is increased from 50% to 60%. 

6. Personal Exemption: 

(a) The personal exemption amount. Under the new law, for individual and their dependents are repealed for Federal only. That repeal would reduce the net benefit of the standard deduction for most of you. 

(b) The kiddie Tax. The child is allowed the standard deduction for the dependents, then the next batch of income is subject to the child's own tax rate. the child's unearned income will be taxed at the trust rates (37%). 

(c) For California Taxpayers. The personal exemption increased for single, Married Filing Separately or Head of Household taxpayers to $118, for Married/RDP Filing Jointly or surviving spouses to $236. The dependent exemption credit increased to $367 per dependent. 

7. Alimony Income. Is no longer taxable nor is it deductible for instruments executed after 12/31/2018.Therefore,it will no longer qualify as earned income for IRA contribution purposes. 

8. Federal Earned Income Tax Credit (EIC): 

For 2018 the amount of credit has increased. The maximum credit is $6,431 for taxpayers with three or more children and earned less than $48,340 ($53,930 if Married Filing Jointly); $5,716 for taxpayers with two children and earned less than $45,007 ($50,597 if Married Filing Jointly) and $3,461 with one child and earned less than $39,617 ($45,207 if Married Filing Jointly). 

The maximum credit for taxpayers without children is $519 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. 

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

(a) The credit is $223 with maximum AGI of $16,751 without children, $1,495 with maximum income of $22,322 with nne child, $2,467 with maximum income of $24,951 with Two children and $2,775 with maximum AGI of $24,951 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 $41,641 and $120 for Joint filers with AGI less than $83,282. 

10. Qualified Senior Head of Household Credit: 

The credit is 2% of California taxable income, with a Maximum of California AGI of $76,082. The credit Maximum is 1,434. 

11. Joint Custody Head of Household Dependent Parent Credit: 

This credit is the lesser of $469 or 30% of net Tax. 

12. 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 2018. Foreign Bank Account Reporting (FBAR) (form 114) need to be filed electronically. The due date will be April 15 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. 

13. Foreign Income Exclusion: 

The 2018 exclusion amount is $104,100 and maximum housing exclusion is 30% of the $104,100 ($31,230)less the base housing 

cost of 14% of the maximum foreign earned income exclusion($14,574). 

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

14. Limited Liability Company, (LLC): 

The 2018 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 $1,000,00-$4,999,999 and $11,700 for $5,000,000 or more. 

IV. Standard Mileage, Meal Rates and Per Diem: 

(a) Standard Mileage: 

In 2018, the standard mileage rate for business use of cars has been increased to 54.5 cents per mile. 

The standard mileage rate for charitable contributions remained 14 cents per mile and for medical reasons & moving expenses has been increased to 18 cents per mile. 

(b) Qualified Transportation fringe Benefits: 

For 2018, An employee may exclude from taxable income up to $260 a month for qualified parking expenses, transit passes and commuter Highway. 

(c) In high-cost locations, employees can get free of tax up to $287 per day and in other area is $195. The rates for meals, went up to $71 per day in high-cost area and $60 in other location. 

V. Other Tax changes TO BE EFFECTIVE IN 2018: 

1. The New Tax Law Repealed Miscellaneous deduction including unreimbursed employee business expenses, job-related moving expenses, brokerage & IRA fees, preparation tax fees, the cost of a safe deposit box & Investment management fees. The spouses receiving Alimony will not paying tax on the alimony they receive. 

2. Conversion of a Regular IRA into a Roth IRA. 

Under the new TCJA, the right to recharacterize this IRA conversion has been repealed. Therefore, this conversion is irrevocable. 

3. The New Tax Law, created a new deduction for Pass- through entities, such as Sole Properietors, Partnerships, Sub-chapter"S Corporation and Limited Liability Companies They now get to deduct 20% of their business Income. 

4. Social Security (FICA) and Medicare Tax: 

The Social Security benefits, will increase by 2.8% in 2019. 

(a) For 2018, the Social Security wage base is increased from $127,200 to $136,200, 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 now 66 or older is $17,640,($1 in benefits will be deducted for each $2 you earn above the $17,040. 

(d) In the year you reach full retirement age in 2019, your benefits will be reduced $1 for every $3 you earn above $46,920 until the month you turn age 66. 

(e) Optional methods for computing self-employment earnings is $5,440 and the earnings required for one quarter is $1,360. 

(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, require taxpayer to withhold social security and Medicare taxes for any household employee that earns $2,000 annually. This 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). 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

$54.10

$12.40

$107,001-$133,500

$135.40

$31.90

$133,501-$160,000

$ 216.70

$51.40

$160,001-$499,000

$ 297.00

$70.90

More than $499,000

$ 325.00

$ 77.40

Married filing Jointly

$170,001-$214,000

$54.10

$12.40

$214,001-$267,000

$ 135.40

$31.90

$267,001-$320,000

$ 216.70

$ 51.40

$320,001- $749,999

$ 297.90

$ 70.90

More than $749,999

$ 325.00

$ 77.40

Married filing Separately (Living Apart)

$85,001-$414,999

$ 297.00

$ 70.90

More than $414,999

$325.00

$77.40

5. Kiddies Tax and Credit Rules: 

(a) Dependent children under Age 19 (24 full time students) having over $2,100 in 2018 in unearned income will pay income tax, 

(b) Taxpayer who have qualifying children under 17 years old are entitled to claim a credit in the amount of $2,000 

for each child subject to the AGI limitations, with refundable amount of $1,400. 

(c)there is a new credit in the amount of $500 for each dependent who is not a qualifying child. 

6. Higher Qualified education Expenses: 

(a) For the American Opportunity Credit (Hope Credit), the credit has been remained the same $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 between 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 $2,000, even if you owe no taxes. 

(b) For Life-time learning, the credit has been remained the same, as $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). 

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). 

(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. 

7. 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 begins when the AGI is between $203,540 - $243,540, and the credit will no longer refundable. 

8. 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. 

9. The IRA contributions and Pension Plan Limitation: 

(a) The maximum annual contribution limit for IRAs remains the same at $5,500 in 2018, $6,500 for individual reached age 50 by 12/31/2018. 

However, In 2019, the traditional IRAs and Roth IRAs limits increase to $6,000 and $7,000 for individual who are age 50 and older by 12/31/2019. 

The phase-out for joint filers is between $193,000 and 

$203,000, for Single & Head of Household is between 

$122,000 and $137,000, and for Married Filing Separately is between $0 and $10,000. 

However, taxpayers still will be able to take an IRA deduction even they 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 - $119,0000 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 for Filing Jointly, between $118,000-$133,000 for Single & Head of Household filers and between $0-$10,000 for 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 $55,000 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. (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 been remained the same at $18,500 and $24,500,($6,000 more) for those aged 50 and older by 12/31/18. . 

(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 need to be filed). 

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

(a) For 2018, the AMT Federal exemption for Married Filing Jointly is $109,400; for Single & Head of Household is $70,300. The new law raises the exemption phase-out to $1 Million for joint filers and $500,000 for others. Estate and Trust is $23,900 with (phase-out of starts $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 above $187,801. 

11. 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. 

12. 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