2019 Q1 tax calendar: Key deadlines for businesses and other employers
Here are some of the key tax-related deadlines affecting businesses and other employers during the first quarter of 2019.
News & Tech Tips
Does prepaying property taxes make sense anymore?
Prepaying property taxes related to the current year but due the following year has long been one of the most popular and effective year-end tax-planning strategies. But does it still make sense in 2018?
The answer, for some people, is yes — accelerating this expense will increase their itemized deductions, reducing their tax bills. But for many, particularly those in high-tax states, changes made by the Tax Cuts and Jobs Act (TCJA) eliminate the benefits.
What’s changed?
The TCJA made two changes that affect the viability of this strategy. First, it nearly doubled the standard deduction to $24,000 for married couples filing jointly, $18,000 for heads of household, and $12,000 for singles and married couples filing separately, so fewer taxpayers will itemize. Second, it placed a $10,000 cap on state and local tax (SALT) deductions, including property taxes plus income or sales taxes.
For property tax prepayment to make sense, two things must happen:
- You must itemize (that is, your itemized deductions must exceed the standard deduction), and
- Your other SALT expenses for the year must be less than $10,000.
If you don’t itemize, or you’ve already used up your $10,000 limit (on income or sales taxes or on previous property tax installments), accelerating your next property tax installment will provide no benefit.
Example
Joe and Mary, a married couple filing jointly, have incurred $5,000 in state income taxes, $5,000 in property taxes, $18,000 in qualified mortgage interest, and $4,000 in charitable donations, for itemized deductions totaling $32,000. Their next installment of 2018 property taxes, $5,000, is due in the spring of 2019. They’ve already reached the $10,000 SALT limit, so prepaying property taxes won’t reduce their tax bill.
Now suppose they live in a state with no income tax. In that case, prepayment would potentially make sense because it would be within the SALT limit and would increase their 2018 itemized deductions.
Look before you leap
Before you prepay property taxes, review your situation carefully to be sure it will provide a tax benefit. And keep in mind that, just because prepayment will increase your 2018 itemized deductions, it doesn’t necessarily mean that’s the best strategy. For example, if you expect to be in a higher tax bracket in 2019, paying property taxes when due will likely produce a greater benefit over the two-year period.
For help determining whether prepaying property taxes makes sense for you this year, contact us. We can also suggest other year-end tips for reducing your taxes.
Mutual funds: Handle with care at year end
As we approach the end of 2018, it’s a good idea to review the mutual fund holdings in your taxable accounts and take steps to avoid potential tax traps. Here are some tips.
We’ve expanded our staff!
The Whalen team is pleased to announce that we have added the following individuals to our staff recently:
John Calanog, CPA – Senior Staff, Tax Services
John specializes in tax services and holds a Masters degree in Tax. He has more than 18 years of progressive experience focusing in federal, state, and international tax compliance, research, and consulting. In addition, he has cumulative experiences beginning in industry, working in corporate tax departments, and continuing in public accounting, working at local, regional, and Big 4 firms.
At Whalen & Company, CPAs, John is focused on tax compliance and consulting for C corporations, partnerships, S corporations, and individual taxpayers.
Lee Atwell, MBA, MAcc – Senior Staff, Tax Services
Lee has held roles including auditor, corporate accountant, financial controller, senior accountant, and has joined the Whalen team as a member of our tax department as a consultant.
He is currently pursuing the CPA exam (expected summer 2019) and has been teaching at Columbus State since October 2014 in the Accounting Department.
In addition, he was honorably discharged from the Marine Corps & Army and has received the following degrees:
- B.S. degree in Accounting with a concentration in Applied Leadership
- Master’s in Business Administration with a concentration in Finance
- Master’s in Accounting with a concentration in Taxation
Nathan D’Aurelio – Staff, Assurance and Accounting Services
Nathan is a recent graduate of Ohio University and received a bachelor’s degree in accounting. He has joined the Whalen team as part of our Accounting & Assurance team.
He has previously worked alongside our staff as an intern, and we are pleased to welcome him back as a full-time staff member.
In addition, he is currently pursuing his CPA certification.
Consider all the tax consequences before making gifts to loved ones
Many people choose to pass assets to the next generation during life, whether to reduce the size of their taxable estate, to help out family members, or simply to see their loved ones enjoy the gifts. If you’re considering lifetime gifts, be aware that which assets you give can produce substantially different tax consequences.
Multiple types of taxes
Federal gift and estate taxes generally apply at a rate of 40% to transfers in excess of your available gift and estate tax exemption. Under the Tax Cuts and Jobs Act, the exemption has approximately doubled through 2025. For 2018, it’s $11.18 million (twice that for married couples with proper estate planning strategies in place).
Even if your estate isn’t large enough for gift and estate taxes to currently be a concern, there are income tax consequences to consider. Plus, the gift and estate tax exemption is scheduled to drop back to an inflation-adjusted $5 million in 2026.
Minimizing estate tax
If your estate is large enough that estate tax is a concern, consider gifting property with the greatest future appreciation potential. You’ll remove that future appreciation from your taxable estate.
If estate tax isn’t a concern, your family may be better off tax-wise if you hold on to the property and let it appreciate in your hands. At your death, the property’s value for income tax purposes will be “stepped up” to fair market value. This means that, if your heirs sell the property, they won’t have to pay any income tax on the appreciation that occurred during your life.
Even if estate tax is a concern, you should compare the potential estate tax savings from gifting the property now to the potential income tax savings for your heirs if you hold on to the property.
Minimizing your beneficiary’s income tax
You can save income tax for your heirs by gifting property that hasn’t appreciated significantly while you’ve owned it. The beneficiary can sell the property at a minimal income tax cost.
On the other hand, hold on to property that has already appreciated significantly so that your heirs can enjoy the step-up in basis at your death. If they sell the property shortly after your death, before it’s had time to appreciate much more, they’ll owe no or minimal income tax on the sale.
Minimizing your own income tax
Don’t gift property that’s declined in value. A better option is generally to sell the property so you can take the tax loss. You can then gift the sale proceeds.
Capital losses can offset capital gains, and up to $3,000 of losses can offset other types of income, such as from salary, bonuses or retirement plan distributions. Excess losses can be carried forward until death.
Choose gifts wisely
No matter your current net worth, it’s important to choose gifts wisely. Please contact us to discuss the gift, estate and income tax consequences of any gifts you’d like to make.