TAX TIME 2019

 

Steep Mountain Road 960x642

 

Tax season 2019 began on Monday January 28, 2019 when the IRS started processing returns. On January 7, 2019 the IRS issued a news release stating it would issue refunds even if the U.S. government is shut down. The next government shutdown may occur around February 15th.

 

This article discusses the many changes to the tax law that took effect at the beginning of 2018 as a result of the Tax Cuts and Jobs Act. This legislation is the most significant change in tax law in 30 years.

 

For more detailed information on the new tax law see my article:

 

THE NEW TAX LAW

 

 

The Health Care Penalty Continues

Many people will be surprised (and sickened) to learn that the penalty for not having health insurance continues through 2018. This penalty was repealed effective Jan. 1 2019 for 2019 tax returns that will be filed in 2020. The penalty is the higher of $695 per adult or 2.5% of adjusted gross income. Qualifying coverage is determined on a monthly basis. Many exemptions continue to apply however.

 

Because of disruptions and higher costs impacting health insurance, large numbers of people are looking for interim solutions for coverage. Due to new federal rules one option is short term health insurance. Maine appears to allow residents to have short term coverage for up to 24 months and the cost of such plans can be significantly less than other options. See:

 

www.healthinsurance.org

 

 

The Due Date This Year is Wednesday April 17th

Because of holidays in Maine and D.C. the due date for filing individual (and trust) tax returns is Wednesday, April 17th.

 

 

New 20% Deduction for Business Owners

The new tax law provides for a deduction of 20% of income for many qualifying businesses, subject to a variety of limitations. This deduction will be available to a broad spectrum of businesses including real estate enterprises treated as a trade or business, and unincorporated Schedule C businesses. Regular C corporations and wage income do not qualify for this deduction.

 

On January 18, 2019 the IRS finally issued definitive guidance on the so-called Qualified Business Income Deduction. However, because of the complexity of the rules governing this new deduction I predict many errors will be made in calculating it. In general, amended returns to correct errors may be filed up to three years after the due date of a return. I will be offering a free "tax return checkup" sometime this summer to business owners who suspect that their QBI deduction was not calculated correctly.

 

For further detailed information on this new deduction see the following resources:

 

(1) Pages 49 - 57 of IRS Publication 535. See:

IRS PUBLICATION 535

 

(2) Simplified method worksheet for calculating the deduction on page 37 of 2018 IRS Instructions to Form 1040 (applicable if your taxable income is below $315,000 for joint tax returns or below $157,500 for other returns). See:

IRS INSTRUCTIONS TO 2018 FORM 1040

 

(3) If your taxable income is below $315,000 for joint tax returns or below $157,500 for other returns see the examples found in pages 160 - 161 of IRS Regulations. If your taxable income exceeds this threshold see the examples in pages 166 - 172 of the Regulations. See:

IRS REGULATIONS

 

The QBI deduction is claimed on Line 9, Page 2 of 2018 Form 1040.

 

The old Domestic Production Deduction is now gone effective January 1, 2018.

 

 

Re-Think Being a C Corporation

If your business is a regular C corporation then your QBI deduction will be zero. Corporate income taxes were changed to a flat rate of 21% starting January 1, 2018. For many small Maine C corporations with taxable income less than $90,000 this change will result in higher taxes and no QBI deduction. Further, C corporation profits are taxed again (double-taxed) when they are paid out to the owner as salary or dividends.

 

I strongly recommend that any business currently organized as a regular corporation rethink this tax status, and consider switching to an S corporation or LLC.

 

 

The Format of Form 1040 Has Changed Drastically

The 2018 federal form 1040 looks quite different from prior versions. In what appears to be a stunt to give the impression of tax simplification, page one of the new Form 1040 does indeed resemble a postcard. The reality of what actually happened is that much of the information previously summarized on page one of Form 1040 has been pushed down into supporting schedules. In my opinion this makes it harder to trace the flow of numbers from schedules to the actual tax return. This is another major change that is likely to result in more errors this year.

 

 

Hold on Refunds for Returns Containing EIC and ACTC

Returns containing the Earned Income Credit and Additional Child Tax Credit will be held until February 15, 2019. This is an anti-fraud procedure implemented by the IRS for the past two years. Taxpayers filing these types of returns should expect to receive their refunds on or around February 27, 2019.

 

 

Other Major Changes This Year

The deduction for personal exemptions has been deleted for 2018 and future years.

 

The standard deduction for individuals was increased to $12,000 and for joint returns to $24,000.

 

So-called miscellaneous itemized deductions have been deleted (with a few exceptions such as gambling losses, impairment-related work expenses, and a few others.)

 

Schedule A itemized deductions for state income taxes, property taxes and auto excise taxes have been capped at $10,000.

 

The official IRS mileage rates for 2018 are as follows:

 

Business use: 54.5 cents/mile

Medical and moving: 18 cents/mile

Charity: 14 cents per mile

 

 

Where Do Our Tax Dollars Go?

According to recent data from the Bureau of Economic Analysis, as reported by the non- partisan Tax Foundation, Americans will spend $3.3 trillion on federal taxes and $1.6 trillion on state and local taxes. Our total national tax bill is $4.9 trillion or 31% of national income. This is significantly more than the combined national total spent on food, housing and clothing. These amounts are from pre-2018 data.

 

IRS Headquarters 2 960x520

 National Headquarters of the Internal Revenue Service, Washington DC.

The inscription at the top of this building says:

 

 Taxes are what we pay for a civilized society

 

 

2019 is the 107th year of the income tax in the United States, following ratification on February 3, 1913 of the 16th Amendment to the Constitution. See here for the very first U.S. income tax return for the year 1913:

 

http://www.irs.gov/pub/irs-utl/1913.pdf

 

People who disregard paperwork are condemned to be punished by it.

 

 

 

LEGAL DISCLAIMER

George Adams
Certified Public Accountant Master of Business Administration
Tel: (207) 989-2700 E-Mail: GeorgeAdams@IntelligenceForRent.com
450 South Main Street: The HQ of IQ
Brewer, Maine 04412-2339

©2015 Copyright George Adams CPA MBA. All Rights Reserved.

 

Business Cases:

Nucor Steel: Into the Storm

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Nucor Steel: Into the Storm

One of the largest steel companies in the U.S.had a forty year track record of unbroken profitability until 2009. How can Nucor succeed in a tougher, harsher climate?

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RITZ-CARLTON (Circa 2008)

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RITZ-CARLTON (Circa 2008)

 The business strategy of luxury with a human face requires both popularity and exclusivity. How can Ritz-Carlton master this apparent contradiction?

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SAS Company Analysis (Circa 1995)

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SAS Company Analysis (Circa 1995)

Does it pay to fly dirty?

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Otis Elevator (Circa 2004)

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Otis Elevator (Circa 2004)

The largest elevator company in the world has to make some tough choices.

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Vertex Company Analysis (Circa 2003)

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Crucial business decisions can benefit from the insights of combinatoric analysis.

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Walmart Company Analysis (Circa 2003)

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Walmart Company Analysis (Circa 2003)

The largest retailer in the world is getting too big to grow any further without new and better thinking.

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Sara Lee Corporation (Circa 2008)

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Sara Lee Corporation (Circa 2008)

Nobody doesn’t like Sara Lee, until the company started hating itself.

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Southwest Airlines (Circa 2010)

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Southwest Airlines (Circa 2010)

How can the most successful U.S. airline keep it up?

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The Power to Save the World: Fusion, the Unknown Ideal

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The Power to Save the World: Fusion, the Unknown Ideal

Energy is the ultimate question of our time: how do we get it, at what cost and what consequences?

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Business Issues:

TAX TIME 2019

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TAX TIME 2019

Tax season 2019 began on Monday January 28, 2019 when the IRS started processing returns.

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WHAT RECORDS SHOULD YOU GIVE YOUR ACCOUNTANT?

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WHAT RECORDS SHOULD YOU GIVE YOUR ACCOUNTANT?

For many people it's not obvious what records and information their accountant needs. This article will discuss the most important information your accountant must know when it's time to do your taxes.

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SELLER FINANCING: WHAT YOU NEED TO KNOW

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SELLER FINANCING: WHAT YOU NEED TO KNOW

Trying to sell or buy a business or commercial real estate? If you are the biggest obstacle you will encounter is financing.

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WHY THINGS GO WRONG

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WHY THINGS GO WRONG

 The supreme Enemy of Mankind is an equation.

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WATCH YOUR MAIL

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WATCH YOUR MAIL

It is an unfortunate fact that many people and businesses treat administrative tasks like opening up mail as a nuisance. When people get busy with substantive work and the distracting events of life these seeming nuisance tasks get neglected, leading...

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MEASURING EMPLOYEE WORTH

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MEASURING EMPLOYEE WORTH

The job market today is tough and highly competitive. The first concern of many employees is to just hold onto their job. Labor force mobility (workers quitting one job to begin another) is at an all-time low. But all workers...

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SMART MID-YEAR TAX MOVES

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SMART MID-YEAR TAX MOVES

Mid-year and mid-summer arrive on schedule every June 30th or so. Here are some smart tax moves you should consider in order to avoid a nasty 'April surprise' next year:

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PLANNING FOR THE UNEXPECTED

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Anyone who owns anything of value needs three things to document their intentions and protect their interests. These three critical documents are a will, a durable power of attorney and a living trust.

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MAINE OPPORTUNITY CREDIT

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MAINE OPPORTUNITY CREDIT

One of the most generous and most overlooked Maine income tax credits is the so-called Credit for Educational Opportunity. In my experience few accountants and even fewer clients are aware of its existence. The credit is intended to reward college-educated...

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UNUSUAL TAX RULES

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UNUSUAL TAX RULES

The tax law is a strange hybrid containing many obscure rules, exceptions to the exceptions, and deeply counter-intuitive definitions. Buried in the clutter of what Congress created is opportunity. Finding useful opportunities in the tax law is like digging through...

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THE NEW TAX LAW

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The 2017 Tax Cuts and Jobs Act was signed into law on December 22, 2017 and represents the most significant change in tax law since 1987.

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HOW TRUMP DID IT

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HOW TRUMP DID IT

This article is strictly non-political and explains how the billionaire Donald Trump legally avoided income taxes for many years.

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BEWARE OF DARK CARS

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BEWARE OF DARK CARS

One phenomenon that began in the last few years in Central Maine is dark cars

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YEAR END TAX PLANNING

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YEAR END TAX PLANNING

Once more it’s time to play another deep game of chess with the IRS. Are you ready? The clock is ticking....

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Why Are You Using An LLC?

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Why Are You Using An LLC?

It can cost you a fortune if you choose the wrong entity for your business.

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Pi and Pi Squared

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Pi and Pi Squared

How can companies motivate innovation and manage internal conflict effectively?

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Secret Unions: Employee Collusion and Conspiracy

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Secret Unions: Employee Collusion and Conspiracy

Anyone can use Game Theory to try to get ahead. But sometimes there is a better, simpler strategy.

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Jump! Employee Performance On Trial

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The true and the obvious frequently differ, especially when it comes to assessing employee performance.

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You Have to Break Eggs to Make an Omelet

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You Have to Break Eggs to Make an Omelet

Some employees take their work seriously while others don’t.

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The Fallacy of Teamwork Part I: Train of Thought

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The Fallacy of Teamwork Part I: Train of Thought

Is teamwork the answer to every business problem?

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The Fallacy of Teamwork Part II: Michael Jordan Doesn’t Need a Memo

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The Fallacy of Teamwork Part II: Michael Jordan Doesn’t Need a Memo

What does neuroscience have to say about the applicability of the team sports model to business collaboration?

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On the Relative Importance of Sales People and Technical People to Business

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On the Relative Importance of Sales People and Technical People to Business

Is it really true that technical employees are just a bunch of nerds a company puts up with so its star sales people can make big profits?

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Business Cannot Ignore Its Environment

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Business Cannot Ignore Its Environment

The power of goodwill to destroy the most successful companies.

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Artificial Intelligence

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Artificial Intelligence

There is nothing new under the sun, until computers become smarter than the smartest person.

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The Growing Spectacle of Job Lotteries

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The Growing Spectacle of Job Lotteries

A new take on the growing commodification of labor.

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Understanding Tax Clients

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The primary cliché of our profession of taxes and accounting is that every client is different.

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Making Business Succeed, Part One: Winning at Retail

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Making Business Succeed, Part One: Winning at Retail

What you don't know may put you out of business.

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Making Business Succeed, Part Two: Fresh Thinking For Farmers

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Making Business Succeed, Part Two: Fresh Thinking For Farmers

There are many reasons for having faith in a seed.

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Making Business Succeed, Part Three: Succeeding with Services

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Making Business Succeed, Part Three: Succeeding with Services

Your journey to success will have many twists and turns. Here are important insights to guide you to success with your service business.

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Making Business Succeed, Part Four: Victory for Vacationland

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Making Business Succeed, Part Four: Victory for Vacationland

Tourism and related businesses dominate the economy of Vacationland.

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Five Key Facts of Life for Non­‐Profits

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Five Key Facts of Life for Non­‐Profits

You may be the last line of defense for your non-profit organization.

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CLOUDY, WITH A CHANCE OF PAIN

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CLOUDY, WITH A CHANCE OF PAIN

The truth about cloud-based accounting and the dangers of bundling.

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TAX RETURN FRAUD IS RAMPANT

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TAX RETURN FRAUD IS RAMPANT

According to a January 2015 news release from the IRS, for the period 2011 – 2014 the tax agency stopped 19 million suspicious tax returns and prevented the issuance of approximately $63 billion in phony refunds.

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GEORGE'S POWER BREAKFAST

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GEORGE'S POWER BREAKFAST

Business owners are the nucleus of their business, the center upon which everything else depends. It is frequently the case that business owners simply can't afford to get sick. Healthy food is the best preventative medicine of all.

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GHOST ASSETS

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GHOST ASSETS

Are You Being Haunted By Them? If You Are It’s Costing You Money

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Contact Me

Member

Telephone: (207) 989-2700
Fax: 1-866-444-0032
Email - georgeadams@intelligenceforrent.com
Address: 450 South Main Street: The HQ of IQ
               Brewer Maine 04412-2339

Maine Society of Certified Public Accountants
Certified QuickBooks Professional Advisor
Bangor Region Chamber of Commerce
Beta Gamma Sigma and Phi Kappa Phi
National Association of Independent Writers and Editors
Published Contributing Writer-Maine Eagle Magazine
New England Peer Review

 

© 2019 Copyright George Adams CPA MBA. All Rights Reserved.
George Adams - More Than Just a CPASM

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