Tax law and tax rates vary by year, with change a constant. Another constant is our nation’s ever increasing debt. Our nation’s current debt is approximately $21,868,000,000,000. That is a lot of zeros and not a good thing!
In the brief few minutes it took to prepare this blog post our nation’s debt increased another $2,000,000. It really is incredible and something most do not give any thought to.
Current individual income tax rates, in comparison to historic rates, are quite low. Take a look at the 1954 individual income tax rate table:
It is hard to believe but the top individual income tax rate in 1954 was 91%! The top individual income tax rate for 2018 is 37%.
With uncontrolled spending, it is a certainty our nation’s debt will continue to increase. How will this be addressed and resolved?
The IRS has released a draft of the new Form 1040. It is a step in the right direction. The higher standard deduction for 2018 ($12,000 for single filers and $24,000 for those married filing jointly) will also result in a significant number of return filers not itemizing their deductions. It is hard to believe but we are headed in the direction of simplification.
There will be supplemental forms for return filing and in some cases individual returns may be more complex. (The details are still being worked out regarding the new 20% qualified business income deduction.)
The current 1040 draft of page 1 and page 2, as provided by the IRS:
Final regulations for 2015 tax (primarily regarding the extenders) was signed into law on December 18th. This brings a entire new meaning to tax planning! Provided Below are brief details of some of this legislation along with a few recommendations we offer to protect yourself against ID theft. As you gather records for income tax return preparation you will want to take precautions to protect yourself from ID theft.
Protecting Americans from Tax Hikes Act of 2015 – Signed 12/18/15
This tax act is projected to cost $622 billion over the next 10 years. This additional expense will likely add to our current federal deficit, which totals nearly $19 trillion.
Congress has been very taxpayer friendly over the last several years (in spite of a significantly growing federal deficit). Penalties (the alternative new taxes?) are a different story. There are currently over 150 civil penalties related to federal taxes, some downright absurd. For example, if you reimburse your employees for medical insurance you subject your business to a fine of $100 per day, per employee with reimbursed medical insurance!
Most items in the extenders were fixed for some period of time and some law extensions include phaseouts and indexing for inflation. The following items were renewed in this legislation:
• State sales tax
• Bonus depreciation (now including vines and fruit trees)
• Section 179 depreciation
• IRA donations directly made to charities
• Child tax credit
• Educator’s deduction
• American Opportunity tax credit (for education)
• Research & Development tax credit
ID Theft & Fraud Protection – Recommended Action
• The IRS will not contact you by email. Disregard any email purporting to be from the IRS
• Never pay the IRS with a prepaid debit card nor fall for any type of pressure tactics for payment without first contacting your firm CPA (the IRS oddly issues refunds this way and it is a significant problem)
• We consider email (even with encryption) a potentially insecure method of transferring information and recommend use of our client portals for electronic transfer of documents
• Physically secure your sensitive personal & financial information
• Shred documents no longer needed that may contain sensitive personal or financial information
• Filing your income tax return early may protect you from fraudulent return filing
• Only give out your Social Security number when it is absolutely required. Do not share your personal information on Social Media (no birthdays on Facebook)
• If you have indication you have become a victim of ID theft, act quickly to resolve any issues
• Consider freezing you credit reports (this can be a very effective tool to avoid ID theft)
• Review your credit reports annually
• Review your Social Security earnings history annually
• Encrypt all sensitive personal and financial information stored on computers and other devices
• Use secure passwords and long usernames and do not use the same passwords and usernames
• If you are using online financial accounts confirm you are complying with each financial institution’s user responsibilities
These are a few of the recommendations that can help to protect you from ID theft. There is risk regardless of actions taken but we, as your CPA firm, take many precautions to protect your data. From an internally developed multi-stage backup procedure to external security reviews, the protection of your data is one of our firm’s top priorities.