Here is a little background information on HSA plans first. An HSA is a plan that eligible individuals can use to save throughout their lives and use the balance of funds to pay for qualified medical expenses. Qualified expenses mean costs like prescription drugs and visits to the doctor. However, they do not include insurance premiums unless you are paying for COBRA benefits or are receiving unemployment income at the time. The balance in your account just carries forward year-after-year. So, there is no use it or lose it provision. If you use the funds for anything besides qualified medical expenses before age 65 the distribution is taxable and a 20% penalty may be assessed.

To be eligible to contribute to an HSA plan you need to have a high-deductible health insurance plan. The deductible on the health insurance plan needs to be at least $1,350 for self only coverage or $2,700 for family coverage in 2018. Your health plan administrator can tell you whether your plan qualifies.

If you are an eligible individual and your plan qualifies, you can contribute up to $3,450 with a self-only health insurance policy or $6,900 with a family policy in 2018. The contributions are deductible against income taxes. What’s even better is if you contribute through an employer plan. The contributions are deductible against FICA and Medicare taxes as well as income taxes. So, employees that contribute to HSA plans can conceivably not ever pay any tax on the contributions made to the plan as long as every nickel is used to pay for qualified medical expenses. Okay, if that is not exciting to you then you can just stop reading now.

Alright, if you are still reading you realize what a big deal that is. So, you can stuff this plan with contributions over your life which you can use to pay for medical expenses tax-free at any point after you establish the plan. Well, what happens when you are older and you want to use some of the money for a non-medical reason. If you are at least 65 years old or disabled, you can withdrawal money from the HSA plan just like a traditional IRA account. The withdrawals which are not used for medical expenses are taxable, but there is no 20% penalty. Furthermore, if you contributed over your working career as an employee then you with have never paid payroll taxes on that money. That is pretty slick huh!

Beyond the tax-free medical expense benefits of Health Savings Accounts, I just told you about another way you can save for your retirement and get a deduction using these accounts. The HSA plans are just another arrow in the quiver of options available to people who want to manage their taxable income. If you would like more information please give me a call.

Dan Busenbark, CPA

The post Health Savings Account – The Dark Horse Retirement Account first appeared on Busenbark Wright.

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Here are the new federal tax brackets

For Single Filers:

For Heads of household:

For Married taxpayers filing joint returns and surviving spouses:

Standard Deduction

The standard deduction increases to $24,000 for married people filing jointly, to $18,000 for the head of household filers, and $12,000 for single filers.

Personal Exemption Repealed

The personal exemption of $4,050 per person in your family has been repealed.

Itemized deductions

The group of taxpayers that itemize rather than taking the standard deduction is going to drop substantially due to the increase of that deduction.  However, if it is beneficial or required for you to itemize then here are the changes that will affect you.

• State Tax deductions, which include state income taxes and personal and real property taxes, will be limited to $10,000 per year total. The sales tax deduction is still allowed subject to the $10,000 limit.
• The home mortgage interest deduction has been limited to loans of $750,000 or less.
• The home equity loan deduction has been repealed.
• The deduction for charitable contributions made to colleges for athletic event seating rights has been removed. There were some other small changes, but it is basically the same.
• Miscellaneous itemized deductions subject to the 2% adjusted gross income floor have been repealed. The big ones here are investment advisory fees, unreimbursed employee expenses, and tax preparation fees not otherwise deductible elsewhere.

Child Tax Credits

The child tax credit was increased to $2,000 per qualifying child.  Also, the phase-out of the credit was increased to $400,000 for married filing jointly returns and $200,000 for single filers.  This is a big deal for parents.

Estate Tax Changes

The act has doubled the estate tax exemption from approx. $5 million to $10 million.  Those with estates below this amount need not file an estate tax return.

Alternative Minimum Tax Changes

The AMT is still around.  However, the exemptions were increased and the exemption phase-out range had over a three-fold increase.  These changes should drastically limit the number of our clients that fall into AMT situations.

Individual Health Insurance Mandate

The mandate that requires all individuals to get and maintain health insurance or pay a tax has been repealed for all years starting in 2019.

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There are many other changes to the tax laws that went into effect.  These listed above and the ones listed in the business tax changes article on our website are the bulk of the changes that will affect you.

If nothing is done by the end of 2025 to extend or adjust the new tax system mentioned here, the tax rates and rules will revert back to the laws in effect in 2017.

The post New Federal Tax Law – Individual Changes first appeared on Busenbark Wright.

C Corporations Rate Change

The corporate income tax brackets ranging from 15% – 39% were repealed.  Starting in 2018, all C corporation income will be taxed at a flat 21% rate.  This is a major cut for professional service corporations.

Sole Proprietors, Farmers, LLC and partnership owners, and S Corporation shareholders – New Deduction 199A

Now to the most complicated part of the new legislation.  There is a new deduction allowed of up to 20% of Qualified Business Income.  The deduction is taken after your Adjusted Gross Income (AGI) is figured and does not lower AGI.  This is a big deal!

The deduction is based on your Qualified Business Income (QBI).  QBI means ordinary income from any active trade or business as a sole proprietor or farmer.  Also, it means ordinary income from pass-through entities like Limited Liability Companies (LLC), S Corporations, or partnerships.  QBI does not include interest, dividends capital gains, or foreign-earned income.  In addition, QBI does not include wages paid to an S Corporation owner or guaranteed payments to a partner.

There are many limitations to the deduction.  Here are the Highlights of the limitations:

• 20% of QBI is the maximum deduction possible.
• The deduction cannot be greater than 20% of total taxable income after capital gains are removed on your personal income tax return. So, if you report a large profit from one business on your personal tax return and an equal loss from another business on your tax return your deduction is zero.
• For Married couples with an AGI greater than $315,000 or single filers with AGI greater than $157,500, the deduction is limited to a percentage wages paid or wages and/or fixed assets in the business.
• For professional service providers like medical professionals, attorneys, financial service professionals and consultants, the deduction starts to phases out starting at $315,000K for married couples and $157,500 for single filers. The law does not at this time limit the deduction for engineers or architects.  That may change though as there will be corrections to the bill.

Please note that there are no regulations yet that further define this new law.  There will be adjustments and tax planning opportunities will change with each change.

As complicated as this deduction is, it will be very beneficial to our clients who own businesses.  As more information and regulations are released later in 2018 on this deduction we will be in touch.

Changes For All Businesses

• The domestic production deduction was repealed.
• Bonus depreciation is increased to 100% through 2022 and then will be phased out over four years.
• The 179 deduction was increased to $1,000,000 starting in 2018. It is indexed for inflation.
• There are limits on the amount of interest that can be deducted for taxpayers with gross receipts greater than $25 million.
• Like-kind exchanges are no longer allowed for personal property. Real property exchanges are still allowed.
• Net operating losses are only allowed to the extent of 80% of future taxable income. Also, the two year and special carrybacks have been repealed.  NOLs can be carried forward indefinitely.  Farmers are still allowed a 2-year

The post New Federal Tax Law – Business Tax Changes first appeared on Busenbark Wright.

Here are the quick points related to income taxes:

• Taxable income from sole proprietorships, partnerships, LLCs, and S corporations is now fully taxable in Kansas for 2017 and going forward. The good old days of the last four years are over!
• For 2017, the top income tax bracket is increased to 5.2% in a three-tier system. In 2018, the top rate will again increase to 5.7%.
• No change on the disallowance of medical expense deduction in 2017, but a phase-in of the deduction starts in 2018 with a full restoration in 2020.
• No penalty for not estimating taxes in 2017 provided that you pay in full all 2017 Kansas tax due by April 17, 2018. This is only for items of tax that changed with this bill.
• Net operating losses deductions are fully restored. The Kansas Department of Revenue will more than likely provide guidance before yearend on this point.  I will summarize and post the details when I get them.

Everybodys’ taxes are going up in Kansas.   Kansas is now close to where it was in 2012 with a few differences.  One being anyone who is in a nursing home and deducting the medical expenses will have it even worse in 2017, but get partial relief in 2018.  It has been rough for this group.

If you have any questions on the tax changes feel free to contact us.

Dan Busenbark, CPA

The post Kansas Raises Income Taxes first appeared on Busenbark Wright.

As a refresher, a Roth IRA is a retirement account where withdrawals are not taxable if taken out at age 59 ½ or later by the account owner.  The investments gains are essentially tax-free if you follow the rules.  You can only contribute to a Roth IRA if the “account owner” has earned income in an amount that is at least as much as the contribution.  Earned income is income that was acquired by working a job as an employee or self-employed.

So, how does your kid who is below the legal age to work get earned income?  You employ them.  Do you pay your child to babysit her younger siblings, mow the lawn, or take out the trash?  That is earned income to the child.  This income is not subject to FICA, Medicare, or federal unemployment taxes since it is paid by a parent as long as the child is under 18 years of age.  Also, as long as you keep the income under the standard exemption thresholds there would not be any income tax due on the earnings.  States may vary on the standard deduction.  In addition, you may want to check into state unemployment requirement thresholds to make sure you do not inadvertently owe state unemployment taxes.  A W-2 issued by the parents to the child would be required if you paid your kid $600 or more.

If you are paying your kids to do chores around the house you could have them get a super head start on their retirement with possibly 50+ years for the money to grow tax-free.  That sounds like a much better use of the money then scented pencils and Pokemon cards.

As always, make sure you run this plan by a qualified tax professional before doing it.  Most tax situations are unique.

-Dan Busenbark, CPA

The post Want Your Kid to Fund a Roth IRA Super Early? first appeared on Busenbark Wright.

Please note the federal S corporation tax return has not changed and is still March 15^th.

These new tax laws do not necessarily alter the state filing due dates.  For example, Kansas due dates are exactly the same as they were which will cause some tax filing issues for sure.  You need to check with your particular state.

If you have any questions please contact us.

The post New Business Tax Return Due Dates For Partnerships and C Corporations first appeared on Busenbark Wright.

That all changes starting with the 2016 filings due in 2017.  The forms are due to the federal government at the same time as to the employee/contractor, January 31, 2017.  This could cause some problems for many small businesses that are caught off guard.

Please be advised of this change and plan ahead accordingly.  If you have any questions please contact us.

The post Forms W-3/W-2s & 1096/1099s Sent To The Feds are Now Due January 31, 2017 first appeared on Busenbark Wright.

Please contact us for more information.

The post Work Opportunity Tax Credit Extended Through 2019 first appeared on Busenbark Wright.

This deduction is a great way to recoup the costs of your initial expenses.  If you would like to know more please contact me.

Dan Busenbark, CPA

The post Business Start-up Expenses are Deductible first appeared on Busenbark Wright.

The problem with owning partnership investments in a taxable brokerage account is that you have to report ‘your share’ of the partnership activities on your personal tax return.  The partnership will provide you a form called a schedule K-1 in February or March of the following year which has information the IRS will be looking for on your personal return.  For many people, they have no idea what a “K-1” is.  This will complicate most people’s tax return preparation more than they realize.  The information on the K-1 may need to be reported on multiple schedules, some you probably did not know existed.  Oh, and just wait until you sell the investment.  You will have to figure the “basis” in your investment and it usually does not equal what you paid.

If you want to avoid all of the extra tax reporting just own the publicly traded partnership investments in retirement accounts.  These accounts are tax-deferred, or tax-free in the case of a Roth IRA, so there is nothing that ever needs reported.  It is best to keep life and your money as simple as possible.

Hope this information helps.

Dan Busenbark, CPA

The post Own Publicly Traded Partnership Investments in a Retirement Account first appeared on Busenbark Wright.