Fox Accounting & Tax Services Inc. (503)246-6994 Income Tax Preparation, Payroll & Bookkeeping Services - Tax News

2019 Mileage Rates Announced

12/17/2018

The Internal Revenue Service has issued the 2019 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes. Beginning on Jan. 1, 2019, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

58 cents per mile driven for business use, up 3.5 cents from the rate for 2018,
20 cents per mile driven for medical or moving purposes, up 2 cents from the rate for 2018, and
14 cents per mile driven in service of charitable organizations.

The business mileage rate increased 3.5 cents for business travel driven and 2 cents for medical and certain moving expense from the rates for 2018. The charitable rate is set by statute and remains unchanged.
It is important to note that under the Tax Cuts and Jobs Act, taxpayers cannot claim a miscellaneous itemized deduction for unreimbursed employee travel expenses. Taxpayers also cannot claim a deduction for moving expenses, except members of the Armed Forces on active duty moving under orders to a permanent change of station. For more details see Notice-2019-02.
The standard mileage rate for business use is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.

Depreciation Changes for 2018 & Beyond

10/22/2018

The Tax Cuts and Jobs Act was signed into law on Dec. 22, 2017, and it provides many incentives for small business owners, including three ramped up depreciation benefits you should know about:

1. Bonus Depreciation
Congress has increased bonus depreciation from 50 percent to 100 percent for property placed in service after Sept. 27, 2017. Generally, bonus depreciation applies to personal property, such as furniture and equipment, and now, used property also qualifies for the deduction.
Your clients can only elect out of bonus depreciation on an asset class basis and must attach an election statement to do so. Bonus depreciation will not begin phasing down until 2023 under the following schedule:

100 percent for property placed in service after Sept. 27, 2017, and before Jan. 1, 2023
80 percent for property placed in service during calendar year 2023
60 percent for property placed in service during calendar year 2024
40 percent for property placed in service during calendar year 2025
20 percent for property placed in service during calendar year 2026

2. Section 179 Expensing
Congress has doubled the Section 179 limit from $500,000 in prior years to $1 million in 2018 and beyond for qualified property. The annual phase-down threshold based on investment has increased from $2 million to $2.5 million.

The Section 179 deduction allows for more flexibility than bonus depreciation because taxpayers are able to pick and choose the assets and amounts versus an all-or-nothing approach required of bonus depreciation (per asset class). But remember, the 179 deduction is limited to business income and is recaptured if the business use percentage drops below 50 percent.

Under the current law, qualified real property eligible for Section 179 has been expanded to include personal property used predominantly to furnish lodging, so has been expanded to include rentals. Examples include beds, furniture, refrigerators, ranges, roofs, HVAC property, fire protection, alarm systems and security systems. To qualify, these items must be placed in service after the date nonresidential real property was placed in service.

It’s important for the small business owner to consider purchasing assets and taking advantage of the first-year deductibility, which thereby reduces their taxable income.

3. Luxury Auto Limits
Another big gift in the area of deprecation is the automobile depreciation limits, which have almost been tripled under the new law. As a reminder, the word “luxury” applies to almost all four-wheeled vehicles that drive on public roads and weigh less than 6,000 lbs.
Below are the auto limits beginning in 2018 under the new law. Remember to add $8,000 to the first-year amounts when bonus depreciation is taken.
Any depreciation that is not allowed because of these annual limitations is allowed once the vehicle reaches the end of the depreciation schedule but is still subject to certain limits:

$10,000 year one (was $3,160 under prior law)
$16,000 year two (was $5,100 under prior law)
$9,600 year three (was $3,050 under prior law)
$5760 years four through six (was $1,875 under prior law)

Important Numbers for 2018

6/15/2018

2018 Standard Mileage Rates-

54.5 cents per mile for business
18 cents per mile for medical
14 cents per mile for charity

2018 IRA Contribution Limits Remain Unchanged At $5500 ($6500 for Individuals over 50.)

Individuals who have earned income may make deductible contributions to a traditional IRA up to $5,500 or that year's compensation from wages or self-employment, whichever number is lower. The contribution limit is $6,500 for taxpayers age 50 or above. You can make deductible contributions to your IRA up to April 18, 2026 this year's tax filing deadline.

The deduction for taxpayers contributing to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $63,000 and $73,000. These thresholds are unchanged from 2015. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $101,000 to $121,000. For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

Individuals who exceed these phase out thresholds may still contribute to their IRA but will be unable to deduct the contributions.

Roth IRA Income Limits Increase Slightly For 2018

Like traditional IRAs, Roth IRA contributions are limited to $5,500/$6,500. Contributors must have earned income at least equal to their contribution amount. But Roth contributions are not deductible and Roth distributions are not taxed.

Unlike traditional IRAs, Roth IRAs also have an income test for eligibility. Individuals with adjusted gross income above certain levels may not contribute to a Roth. The AGI phase-out range for taxpayers making contributions to a Roth IRA in 2018 is $189,000 to $199,000 for married couples filing jointly. For singles and heads of household, the income phase-out range is $120,000 to $135,000. As with the traditional IRA, the phase out limit For married separate is $10,000.

Taxpayers in these ranges will have their maximum Roth contribution amounts "phased out" with the amount at the lower end close to the max and the amount at the upper end near zero.

CYBER CRIMINALS & IDENTITY THEIVES HAVE A NEW SCAM

2/4/2026

Only a few days into the filing season and the IRS has already identified a new scam. In a new twist, these criminals are filing fraudulent returns and using the taxpayers' real bank accounts for the deposit. A woman posing as a debt collection agency official then contacts the taxpayers to say a refund was deposited in error and asks the taxpayers to forward the money to her. This scheme is likely just the first of many that will be identified this year as the IRS, state tax agencies and tax industry continue to fight back against tax-related identity thieves.
In addition to contacting your tax preparer, taxpayers who receive a direct deposit refund they did not request should take the following steps:

Contact the Automated Clearing House (ACH) department of the bank/financial institution where the direct deposit was received and have them return the refund to the IRS.
Call the IRS toll-free at 800-829-1040 (individual) or 800-829-4933 (business) to explain why the direct deposit is being returned.
Visit the IRS identity protection page at: - https://www.irs.gov/identity-theft-fraud-scams/identity-protection

1099's Are Due January 31 - New Penalties Are Quite Punishing

1/8/2026

If your business pays non-employee individuals, LLC's, or partnerships for services and those payments exceed $599 per vendor, you need to file 1099 Information Reports. These reports are due on January 31st. The penalties for not filing these forms have increased substantially over the past few year. Additionally,The state of Oregon now has the power to disallow your deductions for Wages and Sub-contract, or outside services where the appropriate information return has not been filed timely. That is a big deal. It is more important than ever for our small business clients to stay on top of these filing requirements and due dates. See the high-lights of the 1099 reporting rules below:

If you pay any individual, partnership, or LLC $600 or more for services then you must file a form 1099 no later than January 31.
1099's are also due for rent paid to any non-corporate payee.
If you file copies of 1099s late with the IRS, but within 30 days of the due date, then the IRS assesses a penalty of $50 per late 1099. I believe this is $50 for the payee copy and another $50 for the IRS copy.
If you are running more than 30 days late on your Form 1099s, but complete and submit them by August 1, the IRS may assess a more severe penalty of $100 per late form.
The potential penalty increases still further after August 1, with 1099s still outstanding meriting fines of up to $260 per form.
The penalty is increased to $530 per missed form if the IRS deems that the failure to file is due to intentional disregard of the filing requirement.
Additionally, Oregon has a new enforcement tool in their box. If a form 1099 or W-2 is not filed timely, they may disallow your deduction for the item - so the wages or sub contract costs paid. This applies no matter how late the form. It is only likely to come up in audit but the potential loss is so large that I would not disregard that possibility.

These requirements are applicable to payments made in the course of your trade or business. Personal payments are not reportable. You are engaged in a trade or business if you operate for gain or profit. However, nonprofit organizations are considered to be engaged in a trade or business and are subject to these reporting requirements. Rental operations that rise to the level of a business are also subject to these rules. Most rental owners are considered to be engaged in a passive activity rather than a business so would not need to issue 1099's.

GOP Tax Plan Released By House Ways and Means

11/7/2026

The House Ways and Means Committee has proposed sweeping changes to the tax rules. The proposal would drop corporate rates from the current top rate of 35% to a top rate of 20%. It also collapses the individual rates to 4 brackets ranging from 12% to 39.6%. This is being touted as a middle class tax cut but is it?

How it affects individuals and families will depend a lot on where they live and how reliant they are on specific deductions. The deductions for state and local taxes and medical costs are on the chopping block. Mortgage interest deductions would be limited and no deduction would be allowed for second homes. Standard deductions double for most taxpayers, but they repeal the personal exemptions. This would be a positive change for taxpayers who do not itemize but likely not for those who do. The higher standard deduction minus is unlikely to make up for the lost exemptions and itemized deductions for many, if not most, folks who currently itemize. The proposal would increase the child credit to $1,600 per child and extend the credit to those earning $230,000. This could mitigate the loss of the exemption deductions for dependents but not those claimed by the taxpayer and spouse.

The only way to know for certain how this bill would impact you would be to re-work your tax return under the new proposed laws. My sense is that it will be a middle class tax cut for some and an increase for many. Again, this is just a proposal at this point. The final tax bill is likely to have many changes. In its current form, it is estimated that the bill would increase the national debt by 1.4 trillion dollars.

One item to note when doing your tax planning is the proposed change to the sale of principal residence rules. Under the current law, you can exclude gain on the sale of your principal residence up to $250,000 for singles or $500,000 for married joint. Currently, you need to have resided in the home for 2 of the past 5 years. The new proposal would change that to 5 out of the last 8 years. This rule would take effect for sales after 12/31/17. This could negatively impact taxpayers whose houses are currently on the market if they have not met the new residency rules. See item 7 below.

For those of you with stock options, take a look at item 11 under business proposals. The incentive to exercise and hold stock options may be on its way out.

Individual Proposals

Individual rates would be changed – 12% for income under $45000 single $90,000 joint, 25% up to $200,000 single $260,000 joint (I see the marriage penalty is back) 35% up to $500,000 single $1,000,000 joint, and 39.6% for all income over $500,000 single and $1,000,000 joint.
Personal and dependency exemption deductions (currently $4,050 each) would be eliminated.
The child tax credit would be increased from $1,000 to $1,600 for a qualifying child..)
The standard deduction would be increased to $12,200 single, $18,300 HOH and
$24,400 MFJ. The additional standard deduction for the elderly and the blind would be repealed.
The phaseout of itemized deductions would be repealed.
AMT would be repealed. AMT credit carryovers would reduce regular tax in 2018, and then become 50% refundable 2019–2021. Any unused AMT credit carryover would be 100% refundable in 2022.
For sales and exchanges after Dec. 31, 2017, §121 exclusion of gain on the sale of a personal residence would require that the home be owned and used for five of the last eight years. (Current law requires 2 out of the last 5.) Section 121 would be modified to phase-out the exclusion based on AGI above $250,000 ($500,000 MFJ).
The credits for adoption and plug-in electric vehicles would be repealed.
You will no longer be able to exclude from income amounts received from employers for employee achievement awards, dependent care assistance programs, moving expense reimbursement, and adoption assistance programs.
Education credits would be consolidated into one credit only - the American Opportunity Tax Credit The credit would remain the same at 100% of the first $2,000 and 25% of the next $2,000 and would be available for five years (the fifth year at ½ the rate of the first four years.)
The deduction for interest on student loans would be repealed. The exclusion for interest on US savings bonds used for higher education expenses would be repealed. The exclusion for employer provided education assistance programs would be repealed.
The special rule permitting a recharacterization of Roth IRA contributions as traditional IRA contributions would be repealed.
The moving expense deduction would be repealed.
The alimony paid deduction would be repealed for agreements executed after Dec. 31, 2017. There would be a corresponding repeal of the provisions providing inclusion of alimony in gross income.
The phase-out of itemized deductions would be repealed.
The medical expense deduction and the deduction for state and local taxes would be repealed.
The mortgage interest deduction would be reduced from acquisition debt amounts of $1,000,000 to $500,000 for new home purchases on or after Nov. 2, 2017. Interest on home equity borrowing after the effective date of the law would be repealed.
Mortgage interest deduction would be limited to one qualified residence.
The 50% AGI limitation on cash contributions to public charities and certain private foundations would be increased to 60%.
Charity mileage would be indexed for inflation.
Miscellaneous itemized deductions for employee business expenses, personal casualty losses, and tax preparation fees would be repealed.
The exclusion for housing provided for the convenience of an employer and for employees of educational institutions would be limited to $50,000 and would phase-out beginning at AGI of $120,000. The exclusion would be limited to one residence.
The estate, gift, and generation skipping transfer tax exemption amount would be increased to $10,000,000 for decedents dying after Dec. 31, 2017. Estate taxes would be repealed after Dec. 31, 2023.

Business Proposals

Maximum corporate tax rates would be reduced to 20% from 35%. For a personal service corporation, the maximum rate would be 25%.
Dividends received by a domestic corporation from a specified 10%-owned foreign corporation would be allowed as a deduction in an amount equal to the foreign-source portion of such dividend
A portion of net income distributed by a pass-through entity to an owner or shareholder would be treated as “business income” subject to a maximum rate of 25%. Provisions are included to guard against reclassifying wages as business income to utilize the lower rate.
The 100% bonus depreciation (§168(k)) would be extended through Dec. 31, 2022.
Section 179 expensing would be increased to $5,000,000 for taxable years beginning after Dec. 31, 2017, and before Jan. 1, 2023. A phase-out would apply if the business places in service more than $20,000,000 of §179 property during the taxable year.
The gross receipts test on the use of the cash method of accounting by a corporation or partnership with a corporate partner would be increased to $25,000,000.
Interest deduction would be limited for large corporations and partnerships. Businesses with gross receipts of less than $25,000,000 would be exempt.
The NOL carryback would be eliminated except for a one-year carryback for eligible disaster losses. The NOL carryforward would be indefinite (currently 20 years) but limited to 90% of taxable income (like AMT limitation now.).
Section 199 deduction for income attributable to domestic production activities would be repealed.
Self-created property (patent, invention, design, formula, or process) would not be treated as a capital asset.
Incentive stock options would be treated like non-qualified stock options (taxed at exercise unless subject to forfeiture or §83(b) election).
Section 1031 would apply to real property exchanges only.
Rehabilitation credit, work opportunity credit, and disabled access credit would be repealed.
No tax-exempt bonds could be issued for professional stadiums.

2017 Mileage Rate and Other Auto Related Information

4/20/2017

The standared mileage rate for business has been reduced from 54¢ to 53.5¢ for tax year 2017. The rates for charity and medical deductions are 14¢ and 17¢ respectively.

For those claiming actual expenses rather than using the standard mileage rate, the Annual depreciation and expensing deductions for so-called luxury autos are limited to specific dollar amounts. These amounts are inflation-adjusted each year. The IRS has announced that for autos (not trucks or vans) first placed in service during 2017, the dollar limit for the first year an auto is in service is $3,160 ($11,160 if the bonus first-year depreciation allowance applies); for the second tax year, $5,100; for the third tax year, $3,050; and for each succeeding year, $1,875. These dollar limits are the same as those that applied for autos first placed in service in 2016.

For light trucks or vans (passenger autos built on a truck chassis, including minivan and sport-utility vehicles (SUVs) built on a truck chassis) first placed in service during 2017, the dollar limit for the first year the vehicle is in service is $3,560 ($11,560 if the bonus first-year depreciation allowance applies); for the second tax year, $5,700; for the third tax year, $3,450; and for each succeeding year, $2,075. For a light truck or van placed in service in 2017, the dollar figures are the same as for such vehicles first placed in service in 2016, except that the third-year amount is $100 higher.

A taxpayer that leases a business auto may deduct the part of the lease payment representing its business/investment use. If business/investment use is 100%, the full lease cost is deductible. So that auto lessees can't avoid the effect of the luxury auto limits, however, taxpayers must include a certain amount in income during each year of the lease to partially offset the lease deduction. The amount varies with the initial fair market value of the leased auto and the year of the lease, and is adjusted for inflation each year. The IRS has released a new inclusion amount table for autos first leased during 2017.

Tax Season is Over - It's Time For a Premium Tax Credit Check-Up.

5/24/2016

The IRS recently issued IRS Health Care Tax Tip # 2016-49, May 5, 2016:

While you may be tempted to forget all about your taxes and your premium tax credit once you've filed your tax return, don’t give in to that temptation.

When you applied for assistance to help pay the premiums for 2016 health coverage through the Marketplace, the Marketplace estimated the amount of your premium tax credit. Advance payments are based on an estimate of the premium tax credit that you will claim on your federal income tax return. You may be receiving the benefit of monthly advance payments to lower what you pay out-of-pocket for your monthly premiums. Doing a Premium Tax Credit (PTC) check-up now will help you avoid large differences between the advance credit payments made on your behalf and the amount of the premium tax credit you are allowed when you file your tax return next year.

The IRS will either subtract the difference from your refund or add it to your taxes owed. If you ended up owing money due to excess advance payments, you should consider adjusting the amount of those payments now to avoid any issues, like a large tax bill, when you file your 2016 tax return next year. Similarly, if you got a refund that was larger than you expected, you could increase the amount of the advance payments of the credit sent to your provider on your behalf, which will lower what you pay out-of-pocket for your monthly premiums.

The Premium Tax Credit Change Estimator can help you estimate how your premium tax credit will change if your income or family size changes during the year. This estimator tool does not report changes in circumstances to your Marketplace. To report changes and to adjust the amount of your advance payments of the premium tax credit you must contact your Health Insurance Marketplace.
For more information, see the Claiming the Credit and Reconciling Advance Credit Payments page on IRS.gov/aca.

IRS Standard Mileage Rates for 2016

1/26/2016

As of Jan. 1, 2016, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) are:

54 cents per mile for business miles driven.
19 cents per mile driven for medical or moving purposes.
14 cents per mile driven in service of charitable organizations.

Pension Plan Limitations Mostly Unchanged in 2016

1/26/2016

Inflation in 2015 was too tame to trigger the cost-of-living adjustments that nudge pension plan limitations upward. Here are some figures to help plan 2016.

Employees May Contribute up to $18,000 to their 401(k) plans in 2016

The contribution limit for employees who participate in 401(k), 403(b), most 457 plans and the federal government's Thrift Savings Plan remains unchanged at $18,000.

The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan remains unchanged at $6,000.

Employees May Contribute up to $12,500 to their SIMPLE retirement account

SIMPLE account contribution limits for 2016 are unchanged at $12,500. The additional "catch-up" contribution for people age 50 and over also remains unchanged at $3,000. The largest total SIMPLE contribution possible in 2016 is $15,500.

SEP (Simplified Employee Pension) plans are still limited to 25% of compensation (or self-employment earnings).

The maximum amount small business owners and the self-employed may contribute to a SEP or other defined contribution plan remains $53,000 in 2016.

Annual IRA contribution limits remain unchanged at $5,500 ($6,500 for individuals 50 or above)

Individuals who have earned income may make deductible contributions to a traditional IRA up to $5,500 or that year's compensation from wages or self-employment, whichever number is lower. The contribution limit is $6,500 for taxpayers age 50 or above. You can make deductible contributions to your IRA up to April 18, 2026 this year's tax filing deadline.

The deduction for taxpayers contributing to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $61,000 and $71,000. These thresholds are unchanged from 2015. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range remains unchanged at $98,000 to $118,000. For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

Individuals who exceed these phase out thresholds may still contribute to their IRA but will be unable to deduct the contributions.

Roth IRA income limits increase slightly in 2016

Like traditional IRAs, Roth IRA contributions are limited to $5,500/$6,500. Contributors must have earned income at least equal to their contribution amount. But Roth contributions are not deductible and Roth distributions are not taxed.

Roth IRAs also have an income test for eligibility, unlike traditional IRAs. Individuals with adjusted gross income above certain levels may not contribute to a Roth. The AGI phase-out range for taxpayers making contributions to a Roth IRA in 2016 is $184,000 to $194,000 for married couples filing jointly, up from $183,000 to $193,000 in 2015. For singles and heads of household, the income phase-out range is $117,000 to $132,000, up from $116,000 to $131,000.

Taxpayers in these ranges will have their maximum Roth contribution amounts "phased out" with the amount at the lower end close to the max and the amount at the upper end near zero.