Tax Guide 2018

TAXGUIDE

20 18

Contents

3

Feeling like you paid too much in taxes this year?

Contact your financial advisor today to learn about investing strategies that could benefit you.

Letter from the Editor

What is a Tax Adviser?

Drea Pressley FAP-1942L-A-AD

Financial Advisor

6

www.edwardjones.com

Member SIPC

.

140 W 8th Street Durango, CO 81301 970-259-3317

2017 Tax Rates

Tax Tips for Landlords

Serving Durango & the Four Corners Region for 25 years.

10

Let us focus on your payroll, so you can focus on your business!

Time & Attendance HR Resources Background Screening

970-259-6960

2530 Colorado Ave Ste #2B Durango, CO www.payrolldept.biz

5 7

Tax Cuts and Jobs Act

What Happens If You Don’t Pay?

CHIEF EXECUTIVE OFFICER DIRECTOR OF FINANCE

Douglas Bennett

VICE PRESIDENT OF ADVERTISING DIRECTOR OF CREATIVE SERVICES SPECIAL SECTIONS EDITOR

David Habrat

Carrie Cass Tad Smith

Hunter Harrell

11

8

Where’s My Refund?

ADVERTISING Christian DESIGN/PREPRESS

Ridings Justin Meek Samuel Lindsay Michelle Martin Ryan Brown

ADVERTISING SALES Amy OPERATIONS

Baird Kelly Bulkley Shawna Long Tana Bowen

The Durango Herald uses reasonable effort to include accurate and up-to-date information for its special magazine publications. However, all information comes from a variety of sources and may change at any time for any reason. To verify specific information, refer to the organization or business noted. To view the online version of this guide, visit www.durangoherald.com

LetterFROMTHEEditor TAXGUIDE 20 18 3

Proper Planning Ben Franklin famously said death and taxes are the only things certain in life. The only comfort in that statement is that tax season is predictable.

Though I’ve been working and contributing to programs funded by federal taxes for nine years, I don’t know the first thing about filing. It’s not something taught in midwestern schools where standardized testing scores dictate funding.

However, when tax time comes around I know it is important to work with a trusted individual.

My mom is my not-so-certified private accountant and greatest adviser. She meets all my criteria, and this year, my refund is already on its way. If your mom doesn’t do your taxes, this guide will help explain not only what to look for in a tax adviser, but also how to find one.

Our section also features information about what happens if you don’t pay your taxes. I always imagined agents like the Men in Black auditing American citizens, then using neuralyzers to cleanse their memories of the actual amount paid.

In reality, it involves mail, penalties, compounded interest and total awareness because that money is already spent in the government’s eyes.

Speaking of money that’s as good as gone, where’s my refund? That is the most popular question between February and May, so we have included information to help you track it. We also have tax season tips for landlords and information about how new tax laws affect both individuals and small businesses.

I may not file my own taxes, but I do understand the benefits of proper planning: less liability and maximum savings. Whether reading about the adjusted tax rates or searching for a CPA in our advertisements, we hope this guide functions as a helpful reminder and resource to our community during tax season.

Thank you for your support.

Best,

Hunter

I may not file my own taxes, but I do understand the benefits of proper planning: less liability and maximum savings.

IT’S CRUNCH TIME!

Thirsty for the Truth.

THIS YEAR’S IRS TAX FILING DEADLINE IS

APRIL 17TH, 2018 Call or Come in today for fast and easy filing!

Clark, White, & Associates, Inc. Your Local Tax Practitioners.

570 Turner Drive Unit B • Durango, CO (970) 247-3954 • cpasofdurango.net

www.DurangoHerald.com @TheDurangoHerald

@DurangoHerald

THEPROS TAXGUIDE 20 18 5

What is a Tax Adviser?

When looking for a tax adviser — also known as a tax consultant – consider the amount of money you will be paying for the services compared to how much you could save in the process. For those with complex tax situations, the investment can be worth every penny.

LEVELS OF EXPERTISE

Just like hiring any other type of local professional, research available services in your area.

There are many different credentials in the tax preparation industry, including the Certified Public Accountant (CPA) and Enrolled Agent designations. An enrolled agent is a professional who has worked for the Internal Revenue Service or has passed a comprehensive IRS exam.

This rigorous testing can give you peace of mind when choosing your tax advisor. Remember to always check in with two or three service providers before making your final decision. This bit of due diligence will ensure you finding the right fit for your particular situation.

WHY HIRE A TAX ADVISOR?

A good tax advisor helps keep you in the loop year round. They are able to keep you posted on any tax code changes that may impact your personal return.

They also can keep you informed of any changes you should make to your withholdings, investments or retirement contributions. This advice is invaluable — especially if you’re responsible for paying quarterly estimated taxes, which all self-employed professionals must do.

HOW TO CHOOSE A TAX CONSULTANT

The best place to start when searching for a quality local tax advisor is your friends, family members and colleagues. The closer someone is to you, the more you can trust their judgment and personal experience.

Ask those around you for recommendations. Be direct with your questions to make sure you are judging the personality, experience level and credentials of your prospective tax advisor.

You also can check the website of the National Association of Enrolled Agents. When searching, find out if the advisor has experience with your specific situation, including personal income taxes or small-business taxes.

You also can check with the Better Business Bureau to check the credibility of the advisors you are considering.

Tax advisers aren’t just for wealthy individuals.

Hiring a local expert can be both affordable and advantageous to your personal tax situation.

1 8 CRUNCHINGNUMBERS 6 TAXGUIDE 20

2017 Tax Rates Every year, the Internal Revenue Service announces the annual inflation adjustments for a number of provisions for the tax year, including tax rate schedules, tax tables and cost-of-living adjustments for certain tax items.

The following facts and figures are applicable for the tax year 2017, which means they are effective Jan. 1, 2017. They are the numbers and rates you need to know to prepare 2017 tax returns in 2018.

STANDARD DEDUCTIONS

Below is information on standard deductions for the 2017 tax year, according to the IRS: 2 The standard deduction for single taxpayers and married couples filing separately is $6,350 in 2017, up from $6,300 in 2016.

2 For married couples filing jointly, the standard deduction is $12,700, up $100 from the prior year.

2 For heads of households, the standard deduction is $9,350 for 2017, up from $9,300.

2 For 2017, the additional standard deduction amount for the aged or the blind is $1,250.

2 The additional standard deduction amount is increased to $1,550 if the individual also is unmarried and not a surviving spouse.

2 For 2017, the standard deduction for a taxpayer who can be claimed as a dependent by another taxpayer cannot exceed the greater of (a) $1,050 or (b) $350 + the dependent’s earned income.

OTHER CREDITS

There are a host of changes to credits affected by your life situation. Here are a few of the most notable from the IRS: Earned Income Tax Credit (EITC): For 2017, the maximum EITC amount available is $6,318 for taxpayers filing jointly who have three or more qualifying children.

Child and Dependent Care Credit: For 2017, the value used to determine the amount of credit that may be refundable is $3,000 (unchanged).

This is the value of the expenses used to determine the credit and not the actual amount of the credit.

Adoption credit: For 2017, the credit allowed for an adoption of a child with special needs is $13,570, and the maximum credit allowed for other adoptions is the amount of qualified adoption expenses up to $13,570.

Student loan interest deduction: For 2017, the maximum amount that you can take as a deduction for interest paid on student loans remains at $2,500.

Medical savings accounts: For 2017, “highdeductible health plan” means, for those with self-only coverage in a medical savings account, an annual deductible not less than $2,250 but not more than $3,350. For self-only coverage, the maximum out of pocket expense amount is $4,500.

18 7 INVESTMENTINCOME TAXGUIDE 20

Tax Tips for Landlords If you have been active in real estate investment, you know margins can be slim. As a landlord, long-term vision and good tenants can be the key to making sure your investment grows over time.

Keeping an eye on your taxes also can be a great step to maximizing your investment.

All rental income must be reported on your tax return. If you are a cash basis taxpayer, you report rental income on your return for the year you receive it. If you use an accrual method, you generally report income when you earn it.

According to the Internal Revenue Service, most individuals use the cash method of accounting.

No matter how you structure your real estate transactions and leasing agreements, working with an experienced local accountant to plan for taxes will help you stay on top of your investment portfolio and the returns it nets.

WHAT IS CONSIDERED RENTAL INCOME?

According to the IRS, you generally must include in your gross income all amounts you receive as rent. Rental income is defined as “any payment you receive for the use or occupation of property.”

In addition to normal rent payments, there are other amounts that may be considered rental income and must be reported. They include advance rent, which is any amount you receive before the period its covers. For example, security deposits you collect from tenants who are about to move in are considered advance rent.

POSSIBLE RENTAL DEDUCTIONS

If you receive rental income, there are certain expenses you may deduct on your tax return, including the following:

Reach Tafoya Barrett and Associates at (970) 259-8000.

2 Mortgage interest;

2 Property tax;

2 Operating expenses; 2 Depreciation; and 2 Repairs.

You also can deduct the ordinary and necessary expenses for managing, conserving and maintaining your rental property.

The IRS defines ordinary and necessary expenses as: 2 Ordinary expenses: Common and generally accepted expenses in the business; and

2 Necessary expenses: Deemed appropriate, such as interest, taxes, advertising, maintenance, utilities and insurance.

The IRS states that you may not deduct the cost of improvements, as these expenses are considered to be recovered through depreciation.

The hardest thing in the world to understand is income taxes.

Albert Einstein Taxes can be confusing and with the new tax laws, even more so.

In today’s challenging and ever changing world it is critical to have a team of experienced professionals who understand how these changes will impact your business and/or your personal life.

We are committed to providing financial, tax and business planning services that lead our clients to financial success. Since 1979 we have brought together a skilled and dedicated team of professionals. We invest in the most innovative training programs and utilize the latest technology to ensure that the services we provide contribute to our clients’ success.

Call us at 970-259-8000 to make an appointment or visit us on the web at www.tafoyabarrett.com PD-old-70

1 8 TAX CUTS&JOBS ACT 8 TAXGUIDE 20

How Reform Affects Individuals Reach Kevin D. Smith, Tax Professional at the Durango CPA firm of Gervais & Associates, P.C. at (970) 385-1002.

Tax accountants have never been so popular. The Tax Cuts and Jobs Act, the first major tax reform in 31 years, is waking up an industry that has seen little change since the Tax Reform Act of 1986.

Major tax reform in the United States has been a long time coming. Now that it passed, it’s time to sift through the aftermath and determine how these changes will affect taxpayers. By now, individuals have heard numerous interpretations and opinions along with widespread misinterpretations about the Tax Cuts and Jobs Act. So, I am going to dive into some of the common questions asked by our clients, the biggest changes, and most commonly misunderstood parts of tax reform applicable to individuals.

Q: Can I deduct my Colorado income or property taxes?

A: You can still deduct state and local income, personal property, and real property taxes as itemized deductions, but the aggregate deduction is limited to $10,000.

Q: Okay, that’s better than I thought but didn’t they change other deductions?

A: Do you have a notepad? You might need it to keep up. There are quite a few changes affecting familiar tax deductions on your tax return.

2 The Standard deduction is increased to $24,000 for joint filers, $18,000 for heads of household and $12,000 for singles and married taxpayers filing separately. If you have been using the standard deduction, this is great news for you!

Additionally, many taxpayers who itemize may no longer need to do so as the new increased standard deduction may exceed the total of the taxpayer’s itemized deductions.

2 Personal exemptions are eliminated. Due to the increase in the standard deduction, personal exemptions are no more.

2 Mortgage interest on loans used to acquire a principal residence and a second home is only deductible on debt up to $750,000 (down from $1 million). And there is no longer any deduction for interest on a home equity line of credit (HELOC). The $750,000/$375,000 limit on deductible mortgage interest doesn’t apply on debt incurred on or before December 15, 2017. That is, the mortgage interest limitation on debt incurred before December 15, 2017 is still $1,000,000 ($500,000 for married filing separately).

2 Miscellaneous itemized deductions are no longer deductible. These include tax preparation costs, investment expenses and unreimbursed employee expenses.

2 Medical expense deductions have been increased. Medical expenses previously were deductible if they exceeded 10 percent of your adjusted

gross income (AGI). Now, they are deductible if they exceed 7.5 percent of your AGI. This increases the amount of medical expenses deductible on your tax return assuming you can still benefit from itemizing.

2 Casualty losses are still deductible but have been severely limited to include only losses incurred in a federally declared disaster. (Ex.: hurricanes, earthquakes and forest fires.)

2 The Overall limitation on itemized deductions is eliminated. Itemized deductions were previously limited if your AGI exceeded a certain threshold.

Q: Got it, I’m moving soon, can I still take this deduction?

A: The deduction for job-related moving expenses has been eliminated for everyone, with the exception of certain military personnel.

Q: Alright no moving expense deduction. How will the tax reform effect my child tax credit?

A: Very favorably. The child tax credit has doubled from $1,000 to $2,000 for qualifying children. The AGI limit at which the credit begins to phase out has been increased to $200,000 ($400,000 for joint filers). Also, the child tax credit can be refunded up to $1,400 for taxpayers that meet an earned income threshold. Thank Senator Mark Rubio for this one. He wants us to have more children.

Q: That’s good news, especially since I understand a credit is much more valuable than a deduction. How about providing health care for my family?

A: Starting in 2019 there is no longer a penalty for individuals who fail to obtain minimum essential health coverage.

Q: What about the new tax rate structure? Will I pay less taxes?

A: This is easier shown then explained. Take a look at www.gervaiscpas.com/tax-rates to see the new tax rates and where you now fall on the table. This page also contains many other important items for 2018.

Q: Thanks, I’ll take a look at that. Last question, what about the dreaded alternative minimum tax (AMT) we try to avoid each year?

A: AMT is still around but the exemption has been greatly increased to $109,400 for joint filers ($54,700 for married taxpayers filing separately), and $70,300 for unmarried taxpayers. This should help many taxpayers escape AMT. The Tax Cuts and Jobs Act created many changes for taxpayers. How these changes affect you in 2018 and future years depends on your unique tax situation.

18 9 Tax cuts&Jobs Act TAXGUIDE 20

How Reform Affects Businesses The Tax Cuts and Jobs Act impacts businesses even more drastically than individuals. This makes sense since a primary purpose of the Act was to spur business growth. Whether tax reform will help small businesses or just large corporations is a politically heated debate. With both sides throwing out accusations and making claims it’s hard to determine what is false and what is factual about this new legislation.

The best way we could find answers was to analyze the numbers and apply the new tax law to our closely-held business clients. To our delight we have seen overwhelming positive results. If you know where to look and how to apply it, tax reform provides big tax savings and planning opportunities for small businesses.

Let’s dive into some hypothetical business examples and look at some of the bigger tax changes and opportunities in 2018 and onwards.

Q: I own a small C corporation. How is this going to affect my 2018 taxes?

A: Great news, your C corporation should experience significant tax savings in future years. The corporate tax rate has been cut to a flat rate of 21 percent. This is a big tax reduction compared to the previous graduated rates that topped out at 39 percent. And Alternative Minimum Tax (AMT) on C corporations is repealed.

Q: That’s good news for C corporations but what about sole proprietors and pass-through entities such as S corporations and partnerships? How does the tax reform impact them?

A: To remain competitive with C corporations from a tax rate perspective, a new 20 percent qualified business income (QBI) deduction for income from sole proprietorships and pass-through entities was implemented. There has never been a deduction like this before, so it’s a bit confusing.

Let’s walk through the basics.

The Act introduces a 20 percent deduction for “qualified business income,” which is trade or business income from S corporations, partnerships, or sole proprietorships. This deduction is available to all individual taxpayers with qualified business income assuming the taxpayer’s individual’s taxable income does not exceed $157,500 or $315,000 for joint filers.

This does not mean you cannot take the 20 percent QBI deduction if your taxable income is higher than these amounts.

It only means that after a phaseout range you are subject to additional rules such as W-2 wage limitations and the inability for certain specified service businesses to take the 20 percent QBI deduction. This means attorneys, accountants, doctors, consultants and other service-based businesses cannot take this deduction if their income is higher than these phaseout limits.

Simply stated, in 2018 if you are expecting to make $100,000 net profit from your pass-through entity AND your taxable income does not exceed $157,500 ($315,000 for joint filers), this 20 percent deduction will reduce your taxable income by $20,000. So, in 2018 you will only pay taxes on $80,000 of your pass-through income.

There is much more to the 20 percent qualified business income deduction but that’s the basic concept.

Q: That’s a great tax savings but I know there must be a catch; they must have taken some things away to afford these tax cuts?

A: Yep, they took away a few. Those that might affect your business include:

2 Domestic production activities deduction (DPAD) has been repealed. This deduction previously allowed businesses a deduction on qualified production activities income.

2 Entertainment expenses such as entertaining clients by taking them to a sporting event, skiing at Purgatory or other events are no longer tax deductible, regardless of whether they are directly related to or associated with your business. You may still generally deduct 50 percent of the food and beverage expenses associated with operating your trade or business, such as meals consumed by employees on work travel.

2 Like-kind exchange treatment has been limited. Instead of deferring taxable gain using like-kind exchanges for both business personal property and real estate property, now only real estate qualifies.

Q: Well, those changes have limited impact on my business.

What about depreciating or writing off business assets? I’m planning to purchase equipment for my business. Does the tax reform provide better equipment write offs?

A: I have good news for you. Bonus depreciation has been expanded to include a 100 percent deduction for qualified new and used property.

This is a big change from previous years which only allowed a 50 percent deduction on new property. If you’ve been waiting on buying a company vehicle for your business or other equipment, your wait has paid off !

This only scratches the surface on tax changes affecting small businesses; tax planning opportunities created by the Tax Cuts and Jobs Act are substantial.

Reach Rachel Bell, Tax Manager at the Durango CPA firm of Gervais & Associates, P.C. at (970) 385-1002.

1 8 THELAW 10 TAXGUIDE 20

Paying income taxes on time each year is critical to public schools, construction projects and government programs. To protect programs and institutions, the United States government expects residents to pay income taxes to the Internal Revenue Service each year.

What Happens If You Don’t Pay? For most Americans, taxes are withheld from their wages, which helps to avoid owing the IRS a large sum at the end of the year. For the growing freelance and self-employed population, paying estimated tax payments throughout the year is critical.

As a taxpayer, it is important to understand that not paying taxes on time can lead to severe penalties. The IRS collection process is simple. The longer someone waits to resolve tax debt, the more costly it can become.

The IRS has defined the following process if taxes are not fully paid when the return is filed:

PENALTIES FOR PAST DUE TAXES

2 The first IRS notice received will explain the amount owed, including any taxes, penalties and interest charges. This notice will also demand full payment of the balance due.

2 The combined penalty for both filing and paying late is 5 percent of the tax owed (if the return is more than 60 days late, the penalty may be up to 100 percent of the tax owed.)

2 The IRS will send a bill for the amount owed.

This bill marks the beginning of the collection process.

There are tiers of penalties for not paying taxes.

With monthly late fees and interest charges, the amount owed can grow rapidly.

The longer taxes go unpaid, the bigger the ramifications. Asset seizure and even incarceration are possible outcomes in severe cases.

Here are some of the penalties and fees that apply to past due taxes:

2 Interest is compounded daily and accumulates on the owed amount. (The interest rate is equal to the Federal short-term rate, plus 3 percent.)

2 The late payment penalty is .05 percent of the owed amount and increases each month the taxes remain unpaid (up to a maximum of 25 percent.)

Having trouble coming up with the full tax bill? If individuals are unable to pay the amount in full, they can request a payment plan from the IRS and work with a local accountant to navigate the process.

STAYINTHEKNOW TAXGUIDE 20 1 8 11

Where’s My Refund?

Fortunately, the IRS makes it easy to track your Federal tax refund. The IRS.gov website features a handy “Where’s My Refund?” tool.

The tool is located on the right-hand side of the IRS homepage. You will see a column labeled “Filing & Payment.” The first item in that column is “Where’s My Refund?” Click on that and it will take you to the IRS refund status page. According to the IRS, this is the only refund tracking site that is accurate and safe. Taxpayers are urged to avoid any other services, as they may not be encrypted to protect your online identity.

WHAT WILL YOU NEED?

In order to use the “Where’s My Refund?” tool to check on the status of your refund, the IRS requires the following information: 2 Your Social Security number (for either spouse, if it’s a joint return);

2 Your filing status (single, married, head of household); and

2 The exact amount of the refund you are owed.

If you are unable to answer all three questions correctly, the IRS will not give you any information on your refund.

“WHERE’S MY REFUND?” STATUS

Here are the three statuses you may see after filling out your information, according to the IRS: 2 Return received: The IRS has received your tax return and it is being processed.

2 Refund approved: The IRS has completed processing your tax return and has scheduled your tax refund.

2 Refund sent: Your tax refund is on its way to you.

The IRS states that if you filed electronically, you need to wait between 24 and 72 hours before you can use the “Where’s My Refund?” tool. If you filed a paper tax return, it can take two weeks or more for any information to appear.

The Internal Revenue Service tries to process speedy electronic returns — generally within 21 days — but the process can take longer during peak tax season. Filing paper returns can take up to six weeks for processing. For someone waiting on a tax refund for an essential purchase, this can seem like a lifetime.

We’re here to help The Tax Cuts and Jobs Act has passed, initiating in 2018. If you’re confused by how this new law will impact you, you’re not alone. Congress waited until almost the end of last year to pass this very extensive tax bill. It’s time to identify and implement the tax savings opportunities this Act has on your tax return.

This is too difficult for a mathematician. It takes a philosopher.” – Albert Einstein, on filing tax returns

Taxation Professionals and Financial Advisors 3710 Main Avenue Suite 101 | Durango, CO 81301 970-385-1002 | gervaiscpas.com