Seven Year-End Tax Tips for 2018

December 12, 2018 by Leave a Comment

Seven Year-End Tax Tips for 2018

 

Here are 7 tax moves for you to consider before the end of the year.

  1. Defer income to next year. Consider opportunities to defer income to 2019, particularly if you think you may be in a lower tax bracket then. For example, you may be able to defer a year-end bonus or delay the collection of business debts, rents, and payments for services. Doing so may enable you to postpone payment of tax on the income until next year.

 

  1. Accelerate deductions and take capital losses. You might also look for opportunities to accelerate deductions into the current tax year. If you itemize deductions, paying  medical expenses, mortgage interest, and charitable deductions before the end of the year, instead of paying them in early 2019, could make a difference on your 2018 return.

 

  1. Harvest Capital Gains and Losses. Any appreciated stocks that you have held for a year and a day you can lock in the lower capital gains rate by selling at year end.   You should also consider selling any stocks that can generate capital losses which you can deduct up to $3,000 after netting all your capital losses against all your capital gains.  Keep in mind after you sell a stock you can buy it back after 31 days to avoid the wash sale rules.

 

  1. Maximize retirement contributions. Deductible contributions to a traditional IRA, SIMPLE IRA or SEP IRA or pre-tax contributions to an employer-sponsored retirement plan such as a 401(k), can reduce your 2018 taxable income. If you haven’t already contributed up to the maximum amount allowed, consider doing so by year-end.

 

  1. Take any required minimum distributions. Once you reach age 70½, you generally must

start taking required minimum distributions (RMDs) from traditional IRAs and employer-sponsored retirement plans. However an exception may apply if you’re still working for the employer sponsoring the plan). Take any distributions by the date required — the end of

the year for most individuals. The penalty for failing to do so is substantial: 50% of any

amount that you failed to distribute as required.

 

  1. Beware of the 3.8% net investment income tax. This additional tax may apply to some or all of your net investment income if your modified adjusted gross income (AGI) exceeds $200,000 ($250,000 if married filing jointly, $125,000 if married filing separately, $200,000 if head of household).

 

  1. Bump up withholding if you expect to owe tax. If it looks as though you’re going to owe federal income tax for the year, especially if you think you may be subject to an estimated tax penalty, consider asking your employer to increase your withholding for the remainder

of the year to cover the shortfall.  The biggest advantage in doing so is that withholding is

considered as having been paid evenly through the year instead of when the dollars are actually

taken from your paycheck. This strategy can also be used to make up for low or missing

quarterly estimated tax payments. With all the recent tax changes, it may be especially

important to review your withholding for 2018.

 

If you have any questions or need any help preparing your taxes please call Gregory J. Spadea at 610-521-0604.  The Law Offices of Spadea & Associates, LLC prepares tax returns and advises business and individual clients on estate and tax planning year round. 

Filed Under: Federal Tax

Business Owners Can Deduct the New Section 199A Business Income Deduction in 2018

December 12, 2018 by Leave a Comment

 

Eligible business owners may now deduct up to 20 percent of certain business income from a business operated as a sole proprietorship, partnership, S corporation, trust, or estate.  The deduction may also be claimed on dividends from real estate investment trusts.  The new deduction is referred to as the Section 199A deduction and was created by the Tax Cuts and Jobs Act (TCJA).  Congress made this change to create tax parity between business owners and C Corporations.  The TCJA reduced the top federal corporate tax rate from 35 % to 21% but only reduced the top federal personal income tax rate from 39.6% to 37%. Excluding the 20% of qualified business income reduces the top personal rate from 37% to 29.6%.

 

Here are four basic things business owners should know about this complicated deduction:

  1. There is an income threshold to qualify for the deduction so if your total taxable income

before taking the qualified business income deduction is less than $315,000 for a married couple filing a joint return, or $157,500 for all other filers you are eligible for Section 199A deduction regardless of what type of business you have.  In addition if your business does not fall into one of the service fields listed below you can take the full deduction regardless of your taxable income.

 

  1. The deduction is available whether you itemize your deductions on Schedule A or take the standard deduction.  However, the deduction will not reduce your adjusted gross income or

reduce your earnings subject to Social Security or Medicare.  Keep in mind income earned

through a C corporation or by providing services as an employee is not eligible for the deduction.

 

  1. For each qualified trade or business the Section 199A deduction is limited to the lesser of

these two amounts:
– Twenty percent of qualified business income; or
– Twenty percent of taxable income computed before the qualified business income

deduction minus net capital gains.

  1. If your total taxable income before taking the qualified business income deduction exceeds $315,000 for a married couple filing a joint return, or $157,500 for all other filers, there are additional limitations if you in a specified service field.  If you are in a specified service field, once your income exceeds $415,000 for a married couple filing jointly and $207,500 for all other filers, your Section 199A deduction is totally phased out.  A specified service field includes health care, accounting, law, performing arts, consulting, financial services and any service business that relies on the reputation of one of the officers or employees. The good news is that if you do not fall into one of the specified service fields you can take the full deduction regardless of your income.

In closing, I would highly recommend you make the maximum contribution to your Simple IRA, solo 401(k) or SEP IRA to reduce your taxable income and increase your eligibility for the Section 199A deduction.  If you need assistance calculating the Section 199A deduction or preparing your taxes please call Gregory J. Spadea at 610-521-0604.

Filed Under: Federal tax

What Every Landlord and Tenant Should Know About the Implied Warranty of Habitability

November 25, 2018 by Leave a Comment

What Landlords and Tenants Need to Know about the Implied Warranty of Habitability

 

The Pennsylvania Supreme Court has ensured that tenants have the right to a decent place to live.  This guarantee to decent rental housing is called the implied Warranty of Habitability.

 

The Warranty means that in every residential lease in Pennsylvania whether oral or written, there is a promise (the Warranty) that a landlord will provide a home that is safe, sanitary, and healthful.  A rental home must be safe to live in and the landlord must keep it that way throughout the rental period by making necessary repairs.  Even if the renter signs a lease to take the dwelling “as is”, the Warranty protects the individual.  The right to a livable home cannot be waived in the lease.  Remember, the Warranty is in the lease, whether or not the lease says so.  Any lease clause attempting to waive this Warranty is unenforceable.

 

The Warranty does not require the landlord to make cosmetic repairs.  For example, the landlord is not required to repair faded paint, install new carpeting, or make other cosmetic upgrades or improvements.  However, the landlord must remedy serious defects affecting the safety or the ability to live in the rental unit.

 

The following are examples of defects covered by the Implied Warranty of Habitability:

 

  • Lack of hot and/or cold running water
  • Defunct sewage system
  • No ability to secure the leased premises with locks (doors, windows)
  • Lack of adequate heat in winter
  • Insect or rodent infestation
  • Leaking roof
  • Unsafe doors, stairs, porches and handrails
  • Inadequate electrical wiring (fire hazard) or lack of electricity
  • Inability to store food safely because of broken refrigeration unit (when the landlord is responsible for maintenance and repair of refrigerator in the lease)
  • Unsafe structural component that makes it dangerous to occupy the premise

 

If you are a tenant living in leased premises that have any of the defects listed above you have the following legal rights after you have complied with the notice requirements of the lease:

  1. the right to withhold rent until repairs are made, or
  2. the right to “repair and deduct”—that is, to hire a repairperson to fix a serious defect that makes a unit unfit (or buy a replacement part or item and do it yourself) and deduct the cost from your rent.

If you have any questions or need a landlord tenant lawyer, please call Gregory J. Spadea at 610 521 0604.  The Law Offices of Spadea & associates, LLC has been helping landlords and tenants since 2001 and is located in Ridley Park, Pennsylvania.

Filed Under: Real Estate

When Can I Deduct Alimony Ordered Prior to December 31, 2018

November 18, 2018 by Leave a Comment

When divorce occurs, one ex-spouse is often obligated to make continuing payments to the other spouse. However for the payments to be deducted by the payer, they must meet the tax-law definition of alimony. For any particular payment to qualify as deductible alimony for federal income tax purposes and meet the tax law definition of alimony, all the following requirements must be met:
1. The payment must be made pursuant to a written divorce decree or separation agreement such as a temporary support order. Note that payments made in advance of signing a written divorce or separation agreement or before the effective date of a court order or decree cannot be deductible alimony. Such payments are considered voluntary and are therefore nondeductible. The same is true for payment of amounts in excess of what is required under a written divorce decree or separation agreement.

2. The payment must be to or on behalf of a spouse or ex-spouse. Therefore, Payments to third parties, such as attorneys and mortgage companies, are okay if made on behalf of a spouse or ex-spouse and pursuant to a divorce decree or separation agreement.

3. The divorce decree or separation agreement must state the payments are alimony.

4. After divorce or legal separation (meaning the couple is considered divorced for federal income tax purposes), the ex-spouses cannot live in the same household or file a joint return for the year they separated or thereafter.

5. The payment must be made in cash or cash equivalent such as check or money order.

6. The payment cannot be fixed or deemed child support in the divorce decree.

Fixed child support simply refers to amounts designated as such in the divorce or separation agreement,

so it’s easy to identify. Payments are considered to be deemed child support if they are terminated or reduced by any of the following so-called contingencies relating to a child:

a. Attaining the age 18, or the local age of majority.
b. Death.
c. Marriage.
d. Completion of schooling.
e. Leaving the ex-spouse’s household.
f. Attaining a specified income level.

7. The payer’s return is required to include the recipient’s social security number.

8. The obligation to make payments (other than payment of delinquent amounts) must cease if the recipient party dies. If the divorce decree is unclear about whether or not payments must continue, state law controls. If under state law, the payer must continue to make payments after the recipient’s death, the payments cannot be alimony. Therefore, to avoid problems, the divorce decree should always explicitly stipulate whether a payment obligation continues to exist after the death of the recipient party. Failing this test is probably the most common cause for lost alimony deductions.

9. There is also an IRS rule that states if alimony payments decrease by more than
$15,000 per year between years 1 and 2, or years 2 and 3, then part of the payments will not qualify for a tax deduction to the payor (and hence will not be taxable to the payee.) In other words, if alimony payments total more than $15,000 per year then they must last more than one year and cannot be reduced too quickly. The reason for this is because the IRS sees this as a property settlement, not alimony. Because of this rule replacing all monthly payments with a lump sum “alimony” payment that is paid all in one year will often cause a trigger of this recapture rule, since alimony will go down to $0 in year 2.

Keep in mind the Tax Cuts Jobs Act repealed the deduction for alimony paid and the corresponding inclusion of alimony in income by the recipient. The provision is effective for any divorce or separation agreement executed after December 31, 2018, or for any divorce or separation agreement executed on or before December 31, 2018, and modified after that date, if the modification expressly provides that the amendments made by this provision apply to such modification. Thus, alimony paid under a separation agreement entered into prior to the effective date is generally grandfathered.

It is very important to consult a tax attorney like Gregory J. Spadea before signing the marital settlement agreement. You can reach him at the Law Offices of Spadea & Associates, LLC in Ridley Park at 610-521-0604.

Filed Under: Alimony, Divorce, Family Law

Understanding the New VA Requirements for Veterans Aid & Attendence Benefits

November 12, 2018 by Leave a Comment

 

The Department of Veterans Affairs (VA) has finalized new rules that establish an asset limit, a look-back period, and asset transfer penalties for veterans applying for VA Aid & Attendance pension benefits. The Veterans Aid and Attendance Benefit pays a monthly pension to low-income veterans or their spouses who are in nursing homes or who need help at home with everyday tasks like eating, bathing, dressing, using the toilet or walking.

Veteran Estate Planning

Currently, to be eligible for Aid and Attendance a veteran or his spouse must meet certain income and asset limits. The asset limits aren’t specified, but the range is $40,000 to $80,000 depending on the age of the veteran. In the past there have been no penalties if an applicant divests himself of assets right before applying. That is, before now you could transfer assets over the VA’s limit to an Intentional Defective Grantor Trust or transfer them to your children before applying for benefits and the transfers would not affect eligibility. The new regulations prevent that by setting a net worth limit of $123,600, which coincidentally is the current maximum amount of assets in 2018 that a Medicaid applicant’s spouse is allowed to retain. But in the case of the VA, this number will include both the applicant’s assets and income. It will be indexed to inflation in the same way that Social Security increases. The good news is an applicant’s house (up to a two-acre lot) will not count as an asset even if the applicant is currently living in a nursing home. Applicants will also be able to deduct medical expenses including payments to assisted living facilities from their income.

The regulations also establish a three-year look-back provision. Applicants will have to disclose all financial transactions they were involved in for three years before applying for VA benefits. Applicants who transferred assets to put themselves below the net worth limit within three years of applying for benefits will be subject to a penalty period which can last as long as five years. This penalty is a period of time during which the person who transferred assets is not eligible for VA benefits. There are exceptions to the penalty period for fraudulent transfers and for transfers to a trust for a child who is unable to support him or herself.
Under the new rules, the VA will determine a penalty period in months by dividing the amount transferred that would have put the applicant over the net worth limit by the maximum annual pension rate (MAPR).

You will need the following information to apply for VA Aid & Attendance Benefits:
• Discharge or Separation Documents (DD 214)
• Form 21-4142: Authorization and Consent to Release Information to the Department of Veterans Affairs
• Physician Statement, VA Form 21-2680 or Nursing Home Statement, VA Form 21-0779
• Medical Expenses incurred, VA Form 21P-8416
• Marriage Certificate and Death Certificate (Surviving Spouses only)
• Asset Information (bank account statements, etc.)
• Verification of Income (social security award letter, pensions, IRAs or annuity statements)
• Proof of Medical Premiums (Insurance Statements, Medication or Medical bills that are not reimbursed by Medicare)

The new rules go into effect on October 18, 2018. The VA will disregard asset transfers made before that date. If you need estate planning assistance please contact Gregory J. Spadea at 610-521-0604. Mr. Spadea has been preparing free wills for Veterans since 2001 to thank them for their service.

Filed Under: Estate Planning

Seven Year-End Tax Tips for 2018

November 4, 2018 by Leave a Comment

Here are 7 tax moves for you to consider before the end of the year.

1. Defer income to next year. Consider opportunities to defer income to 2019, particularly if you think you may be in a lower tax bracket then. For example, you may be able to defer a year- end bonus or delay the collection of business debts, rents, and payments for services. Doing so may enable you to postpone payment of tax on the income until next year.

2. Accelerate deductions and take capital losses. You might also look for opportunities to accelerate deductions into the current tax year. If you itemize deductions, paying medical expenses, mortgage interest, and charitable deductions before the end of the year, instead of paying them in early 2019, could make a difference on your 2018 return.

3. Harvest Capital Gains and Losses. Any appreciated stocks that you have held for a year and a day you can lock in the lower capital gains rate by selling at year end. You should also consider selling any stocks that can generate capital losses which you can deduct up to $3,000 after netting all your capital losses against all your capital gains. Keep in mind after you sell a stock you can buy it back after 31 days to avoid the wash sale rules.

4. Maximize retirement contributions. Deductible contributions to a traditional IRA, SIMPLE IRA or SEP IRA or pre-tax contributions to an employer-sponsored retirement plan such as a 401(k), can reduce your 2018 taxable income. If you haven’t already contributed up to the maximum amount allowed, consider doing so by year-end.

5. Take any required minimum distributions. Once you reach age 70½, you generally must start taking required minimum distributions (RMDs) from traditional IRAs and employer- sponsored retirement plans. However an exception may apply if you’re still working for the employer sponsoring the plan). Take any distributions by the date required — the end of
the year for most individuals. The penalty for failing to do so is substantial: 50% of any amount that you failed to distribute as required.

6. Beware of the 3.8% net investment income tax. This additional tax may apply to some or all of your net investment income if your modified adjusted gross income (AGI) exceeds
$200,000 ($250,000 if married filing jointly, $125,000 if married filing separately, $200,000 if head of household).

7. Bump up withholding if you expect to owe tax. If it looks as though you’re going to owe federal income tax for the year, especially if you think you may be subject to an estimated tax penalty, consider asking your employer to increase your withholding for the remainder
of the year to cover the shortfall. The biggest advantage in doing so is that withholding is considered as having been paid evenly through the year instead of when the dollars are actually taken from your paycheck. This strategy can also be used to make up for low or missing quarterly estimated tax payments. With all the recent tax changes, it may be especially important to review your withholding for 2018.

If you have any questions or need any help preparing your taxes please call Gregory J. Spadea at 610-521-0604. The Law Offices of Spadea & Associates, LLC prepares tax returns and advises business and individual clients on estate and tax planning year round.

Filed Under: Tax Law

How Much Can I Deduct If I Buy a Car or Truck for Business in 2018

October 22, 2018 by Leave a Comment

Typically during the last quarter of the year my clients will call me and ask me how much they can save if they buy a business car or truck by the end of the year.  In light of the Tax Cuts and Jobs Act (TCJA) that was enacted on December 22, 2017 I thought I would write a blog to address it.  There are three vehicle weight categories that affect how much you can expense under Internal Revenue Code (IRC) § 179.  The first is for vehicles that have a gross vehicle weight (GVW) less than 6,000 pounds, the second is for vehicles that have a GVW of between 6,000 and 14,000 pounds and the third is for vehicles that have a GVW of over 14,000 pounds.

I. Passenger Vehicles, Light Trucks and Vans under 6000 pounds

The good news is that the TCJA allows for much bigger depreciation deductions for vehicles used for business. The changes apply to passenger vehicles, light trucks and vans  having a GVW of less than 6,000 pounds.  For 2018, the amount of the depreciation (expensing deduction) for a passenger car or light duty truck or van are as follows:

  • $10,000 for the 1st year,
  • $16,000 for the 2nd year,
  • $9,600 for the 3rd year, and
  • $5,760 for the 4th year and each succeeding year in the recovery period.

The TCJA retained the $8,000 limit for additional first-year depreciation for passenger automobiles. So in 2018, the maximum amount you can deduct for a passenger automobile in the first year is $18,000 (10,000 of regular depreciation plus $8,000 of bonus depreciation.) These numbers assume 100% business use so if the vehicle was used for less than 100% the depreciation deduction would be reduced accordingly.  The deduction will be adjusted for inflation after 2018.

II.   Heavy SUV’s Trucks and Vans Between 6,000 and 14,000 pounds

Heavy SUV’s, trucks, and vans that have a GVW of over 6,000 pounds are not subject to the passenger automobile depreciation limits above but remain subject to the $25,000 IRC § 179 limit, but they are eligible for 100% bonus depreciation if they are above 6,000 lbs.  This is true for both new and used vehicles.  In addition, taxpayers may elect to apply a 50 percent allowance which was the maximum in 2017 instead of the 100 percent allowance now available.

III. Vehicles that weigh more than 14,000 pounds

There is no depreciation limit under IRC §179 for vehicles that have a GVW of more than 14,000 pounds so you can write off the entire vehicle cost.

Therefore, the bottom line is that if you buy a new or used vehicle, that is used 100% for business and has a GVW of over 6000 pounds you can elect to deduct the entire cost of the vehicle in 2018 thanks to 100% bonus depreciation.

For property placed in service starting on January 1, 2018, the maximum depreciation expense deduction for the year is $1 million.  This dollar limit begins to phase out dollar for dollar once total purchases for the year exceed $2.5 million.  Therefore no depreciation expensing can be used once total purchases reach $3.5 million.

If you have depreciation questions or need help with your taxes please call Gregory J. Spadea at 610-521-0604.  The Law Offices of Spadea & Associates, LLC is located in Ridley Park, Pennsylvania.

Filed Under: 2018 Tax Cuts and Jobs Act Highlights

Understanding the Philadelphia Summary Diversion Program

October 22, 2018 by Leave a Comment

When someone makes a mistake, gets into trouble with the law, and gets a criminal record, the consequences can be severe. Having a clean record is important in order to take advantage of opportunities like getting into a good college or landing a good job.

The First Judicial District of Pennsylvania, in conjunction with the Philadelphia District Attorney’s Office has created “diversion” programs to divert a criminal case from the path towards trial to a potential resolution that will be more favorable to the person charged. When criminal charges are diverted, it allows the Philadelphia District Attorney’s Office to utilize its limited resources in a more effective manner with the goal of prosecuting more serious crimes. One such program is the Philadelphia “Summary Diversion” Program.

The majority of defendants charged with a summary citation who have not previously participated in the Summary Diversion program are eligible, with the exception of the following charges due to the nature of the charge:

  • Cruelty to Animals;
  • Criminal Mischief;
  • Cutting Weapons;
  • Weapons in general including

In addition, any defendant issued citations by any of the following four agencies also are not permitted to enroll and are automatically scheduled for trial in Philadelphia Municipal Court:

  1. Pennsylvania SPCA (Society for the Prevention of the Cruelty to Animals)
  2. Pennsylvania Department of Agriculture
  3. Pennsylvania Vehicle Fraud Investigations
  4. Pennsylvania Department of Revenue (which handles financial benefits and welfare fraud).

There are exceptions to this general rule, and sometimes my law firm may be able to secure the agreement of the Philadelphia District Attorney’s Office in resolving a Criminal Mischief charge, for example, through the Summary Diversion Program (SDP).

If a defendant’s case is approved for the SDP, the defendant will not enter a plea. Upon successful completion of the program, the Philadelphia District Attorney’s Office will withdraw prosecution of the criminal charges against the defendant.

Defendants accepted into the Philadelphia SDP attend the program on a Saturday. The program takes place at the Philadelphia Criminal Justice Center located at 1301 Filbert Street, Philadelphia, PA 19107. The cost of the Summary Diversion Program is $200, and full payment must be made by money order and payable on the day the defendant attends the program.

For example if you are facing a first time Philadelphia underage drinking or a Philadelphia fake ID charge, the Philadelphia Municipal Court will amend the charge to disorderly conduct and the defendant will not lose their driver’s license as would be the case if a person, often a college student, is convicted or pleads guilty to underage drinking or possessing a false ID.  You can then qualify for the and complete the SDP and get the charge expunged

A defendant’s case will be automatically expunged after successful completion of the Summary Diversion Program (SDP), but it can take up to nine months.

The reason the SDP is better than other Philadelphia diversion programs such as the Accelerated Misdemeanor Program or Accelerated Rehabilitation Disposition is that a person in the SDP isn’t required to serve any type of probation, but only complete the one day class.

If you have any questions or are charged with a crime contact Gregory J. Spadea at 610-521- 0604.

Filed Under: Criminal Law Tagged With: ,

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