ICYMI: Florida Minimum Wage Change, January 1, 2018

The 2018 minimum wage in Florida is $8.25 per hour, effective January 1, 2018, with a minimum wage of at least $5.23 per hour for tipped employees, in addition to tips.

Tax Reform Year-end Tips

Here are a few tips and to-dos prior to December 31:

• Prepay any 2017 state income taxes.
• Pay or prepay Property Tax by December 31.
• Make charitable contributions before December 31.
• Accelerate any of your children’s unearned income into 2017 (rates go up in 2018).
• Defer business income to 2018 (rates go down in 2018, plus deduction)
• Cash-basis taxpayers should pay for business expenses before December 31. 
• Buy and place in service an electric car (tax credit expires at end of 2017).
• Recognize any possible business losses (they will be limited in 2018).
• Prepay investment expenses and tax prep fees in 2017 (nondeductible in 2018).
• Pay any moving expenses related to a job in 2017 (the deduction is eliminated in 2018).
• Sell any business processes or patents before the end of the year (this will be treated as ordinary income in 2018, and is capital gains in 2017).
• Wait to buy a business vehicle until 2018 (depreciation on luxury autos goes up substantially in 2018).

These tips are general in nature and should not be relied upon as professional advice. You are encouraged to discuss these matters with a professional prior to actions that may affect your tax returns. 

IRS Provides Safe Harbors for Determining Casualty and Theft Losses

In a set of Revenue Procedures, the IRS has provided safe harbor methods that taxpayers may use in determining the amount of their casualty and theft losses for their homes and personal belongings. Rev. Proc. 2018-8 offers four safe harbor methods that apply to any qualifying casualty or theft loss, as well as three methods that apply only to losses occurring as a result of a federally declared disaster. Rev. Proc. 2018-9 provides a safe harbor method that allows a homeowner to use one or more cost indexes to determine the amount of a home loss due to Hurricanes Harvey, Irma, or Maria (2017 Hurricanes). The safe harbors outlined in Rev. Proc. 2018-8 are effective on 12/13/17. The method detailed in Rev. Proc. 2018-9 is effective for losses attributable to a 2017 Hurricane and that arose in the 2017 disaster area after 8/22/17. News Release IR 2017-202; Rev. Procs. 2018-8, 2018-2 IRB and 2018-9, 2018-2 IRB

IRS increases standard mileage rates for 2018

The Internal Revenue Service released on Thursday the 2018 optional standard mileage rates that taxpayers and tax professionals can use to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
Beginning on Jan. 1, 2018, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be

• 54.5 cents for every mile of business travel driven, up 1 cent from the rate for 2017.
• 18 cents per mile driven for medical or moving purposes, up 1 cent from the rate for 2017.
• 14 cents per mile driven in service of charitable organizations.

The IRS noted that the business mileage rate and the medical and moving expense rates have each increased 1 cent per mile from the rates for this year. The charitable rate, however, is set by statute and stays unchanged.

The standard mileage rate for business comes from an annual study of the fixed and variable costs of operating an automobile, while the rate for medical and moving purposes is based on the variable costs.

The IRS noted that taxpayers also have the option of figuring the actual costs of using a vehicle instead of relying on the standard mileage rates.

However, taxpayers can’t use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System or after they claim a Section 179 deduction for that vehicle. On top of that, the business standard mileage rate can’t be used for more than four vehicles used simultaneously. The IRS describes those and other requirements in Rev. Proc. 2010-51.

The IRS noted that taxpayers also have the option of figuring the actual costs of using a vehicle instead of relying on the standard mileage rates.
However, taxpayers can’t use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System or after they claim a Section 179 deduction for that vehicle. On top of that, the business standard mileage rate can’t be used for more than four vehicles used simultaneously. The IRS describes those and other requirements in Rev. Proc. 2010-51.

Year-end planning in light of potential tax reform

Dear Client:

Congress appears poised to enact a major tax reform law that could potentially make fundamental changes in the way you and your family calculate your federal income tax bill, and the amount of federal tax you will pay. This letter is designed to help you cope with the changes Congress is hammering into shape right now—to take advantage of tax breaks that may be heading your way, and to soften the impact of any crackdowns. Keep in mind, however, that while most experts expect a major tax law to be enacted this year, it's by no means a sure bet. So keep a close eye on the news and don't swing into action until the ink is dry on the President's signature of the tax reform bill.

Lower tax rates coming. Both the tax bill passed the House of Representatives and the one before the Senate would reduce tax rates for many taxpayers, effective for the 2018 tax year. Additionally, businesses may see their tax bills cut, although the final form of the relief isn't clear right now.

The general plan of action to take advantage of lower tax rates next year would be to defer income into next year. Some possibilities follow:

• . . . If you are an employee who believes a bonus is coming your way before year end, consider asking your employer to delay payment of the bonus until next year.
• . . . If you are thinking of converting a regular IRA to a Roth IRA, postpone your move until next year. That way you'll defer income from the conversion until next year and hopefully have it taxed at lower rates.
• . . . If you run a business that renders services and operates on the cash basis, the income you earn isn't taxed until your clients or patients pay. So if you hold off on billings until next year—or until so late in the year that no payment can be received this year—you will succeed in deferring income until next year.
• . . . If your business is on the accrual basis, deferral of income till next year is difficult but not impossible. For example, you might, with due regard to business considerations, be able to postpone completion of a job until 2018, or defer deliveries of merchandise until next year. Taking one or more of these steps would postpone your right to payment, and the income from the job or the merchandise, until next year. Keep in mind that the rules in this area are complex and may require a tax professional's input.
• . . . The reduction or cancellation of debt generally results in taxable income to the debtor. So if you are planning to make a deal with creditors involving debt reduction, consider postponing action until January to defer any debt cancellation income into 2018.

Disappearing deductions, larger standard deduction. Beginning next year, both the House-passed tax reform bill and the version before the Senate would repeal or reduce many popular tax deductions in exchange for a larger standard deduction. Here's what you can do about this right now:

• The House-passed tax reform bill would eliminate the deduction for nonbusiness state and local income or sales tax, but would allow an up-to-$10,000 deduction for real estate taxes on your home. The bill before the Senate would ban all nonbusiness deductions for state and local income, sales tax, and real estate tax. If you are an employee who expects to owe state and local income taxes when you file your return next year, consider asking your employer to increase withholding on those taxes. That way, additional amounts of state and local taxes withheld before the end of the year will be deductible in 2017. Similarly, pay the last installment of estimated state and local taxes for 2017 by Dec. 31 rather than on the 2018 due date, or prepay real estate taxes on your home.
• Neither the House-passed bill nor the bill before the Senate would repeal the itemized deduction for charitable contributions. But because most other itemized deductions would be eliminated in exchange for a larger standard deduction (e.g., in both bills, $24,000 for joint filers), charitable contributions after 2017 may not yield a tax benefit for many. If you think you will fall in this category, consider accelerating some charitable giving into 2017.
• The House-passed bill, but not the one before the Senate, would eliminate the itemized deduction for medical expenses. If this deduction is indeed chopped in the final tax bill, and you are able to claim medical expenses as an itemized deduction this year, consider accelerating “discretionary” medical expenses into this year. For example, order and pay for new glasses, arrange to take care of needed dental work, or install a stair lift for a disabled person before the end of the year.

Other year-end strategies. Here are some other “last minute” moves that could wind up saving tax dollars in the event tax reform is passed:

• The exercise of an incentive stock option (ISO) can result in AMT complications. But both the Senate and House versions of the tax reform bill call for the AMT to be repealed next year. So if you hold any ISOs, it may be wise to hold off exercising them until next year.
• If you've got your eye on a plug-in electric vehicle, buying one before year-end could yield you an up-to-$7,500 discount in the form of a tax credit. The House-passed bill, but not the one before the Senate, would eliminate this credit after 2017.
• If you're in the process of selling your principal residence and you wrap up the sale before year end, up to $250,000 of your profit ($500,000 for certain joint filers) will be tax-free if you owned and used the property as your main home for at least two of the five years before the sale. However, under the House-passed bill and the bill before the Senate, the $250,000/$500,000 tax free amounts would apply to post-2017 sales only if you own and use the property as your main home for five out of the previous eight years.
• Under current rules, alimony payments generally are an above-the line deduction for the payor and included in the income of the payee. Under the House-passed tax bill but not the version before the Senate, alimony payments would not be deductible by the payor or includible in the income of the payee, generally effective for any divorce decree or separation agreement executed after 2017. So if you're in the middle of a divorce or separation agreement, and you'll wind up on the paying end, it would be worth your while to wrap things up before year end if the House-passed bill carries the day. On the other hand, if you'll wind up on the receiving end, it would be worth your while to wrap things up next year.
• Both the House-passed bill and the version before the Senate would repeal the deduction for moving expenses after 2017 (except for certain members of the Armed Forces), so if you're about to embark on a job-related move, try to incur your deductible moving expenses before year-end.

Please keep in mind that I've described only some of the year-end moves that should be considered in light of the tax reform package currently before Congress—which, it bears emphasizing, may or may not actually become law. If you would like more details about any aspect of how the proposed legislation may affect you, please do not hesitate to call.

Very truly yours,

Shawn

President Trump signs Disaster Relief bill into law.

On September 29, President Trump signed into law H.R. 3823, the “Disaster Tax Relief and Airport and Airway Extension Act of 2017,” which reauthorizes the Federal Aviation Administration (FAA) for six months and delivers temporary tax relief to the victims of Hurricanes Harvey, Irma, and Maria. One day earlier, on September 28, the House had passed the measure by a vote of 264 to 155; the Senate had then passed the bill by voice vote, with an amendment striking a provision on the development of a private flood insurance market; and the House, by voice vote, had again passed the bill, as amended. 

Tax provisions in the bill make it easier for people with hurricane losses to write them off on their taxes, eliminating a requirement that personal losses must exceed 10% of adjusted gross income to qualify for a deduction. It also gives hurricane victims penalty-free access to retirement funds and temporarily suspends limitations on the deduction for charitable contributions made before year-end for hurricane relief.

COLLIER 'BED TAX' INCREASES TODAY

Collier County’s tourist development tax, also known as the bed tax, increases from 4 to 5 percent effective today, according to a news release from the Naples, Marco Island, Everglades Convention and Visitors Bureau. The formula for how those funds are allocated now shifts to accommodate payments for the county’s planned amateur sports complex along with increased funds for beach renourishment, funding county museums up to a fixed amount, and maintaining the current level of funding for tourism marketing and promotion. That brings the total tax paid on hotel rooms, campgrounds and short-term vacation rentals to 11 percent when combined with the existing six percent sales tax. A room rate of $200 per night would increase from $220 to $222 with both the tourist and sales taxes applied. It is the responsibility of owners and rental agents to collect a tourist tax on all accommodations that are rented for six months or less. Any property owner or agent with questions should call (239) 252-TTAX (8829), or email toursttax@colliertax.com.