2018 Year-End Tax Planning – For Individuals

Dear Friends,

Nearly one year later, tax reform is still making headlines and we continue to learn more about its broad implications. Whether your previous tax filing posture was straightforward or complex, you will be impacted by the myriad of changes to the tax code. Now more than ever, it is imperative to thoughtfully consider year-end tax planning opportunities and ensure you are positioned to be in compliance with the new rules.
2018 year-end tax planning begins with a projection of your estimated income, deductions and tax liabilities for 2018 and 2019. You should review actual amounts from 2017 to assist you with these projections. There may be opportunities to accelerate or defer income or deductions to optimize your total tax liability. This Year-End Tax Planning for Individuals Letter (Tax Letter) is written to help you do just that.
We have outlined the key topics impacting individual taxpayers in the below Tax Letter. Tax planning for individuals also requires consideration of the tax consequences from any businesses conducted directly or indirectly by individual owners. For information on those areas, we encourage you to read our Year-End Tax Planning for Businesses Letter.
Finally, this Tax Letter focuses on planning for federal income taxes, however, state taxes should also be considered.
We hope you enjoy this edition of the GJC Advisor. As always, if you have any questions, feel free to contact us.
George Johnson & Company
On December 22, 2017, President Trump signed sweeping federal tax reform into law. Tax reform has significantly changed the U.S. tax system for both individuals and businesses. Some of the most impactful measures from tax reform affecting individuals include:
  • The suspension of most itemized deductions
  • The near-doubling of the standard deduction
  • The $10,000 cap on the state and local income and property tax deduction
  • The suspension of personal exemptions
  • The Section 199A deduction for pass-through business owners
  • The increase of alternative minimum tax (AMT) exemptions for individuals
  • The new individual income tax rates and brackets
2018 Versus 2019 Marginal Tax Rates
Whether you should defer or accelerate income and deductions between 2018 and 2019 depends to a great extent on your projected marginal (highest) tax rate for each year. With the compression of income tax rates starting in 2018, you should analyze your anticipated marginal tax rates for 2018 and 2019.
The highest marginal tax rate for 2018 is 37 percent, with an additional 3.8 percent tax on the net-investment income of high-income taxpayers. The tax rates for 2018 are included in this Tax Letter. At the time of publication, 2019 inflation rates have not been made available. Projections of your 2018 and 2019 income and deductions are necessary to estimate your marginal tax rate for each year.
Shifting Income and Deductions into the Most Advantageous Year
You can shift taxable income between 2018 and 2019 by controlling the receipt of income and the payment of deductions. Generally, income should be received in the year with the lower marginal tax rate, while deductible expenses should be paid in the year with the higher marginal rate.
Tax-Free Rollover into Specialized Small Business Investment Companies
 An individual may elect to avoid tax on gains from sales of publicly traded securities to the extent the sales proceeds are used to purchase common stock or a partnership interest in a specialized small business investment company licensed by the Small Business Administration under the 1958 Small Business Investment Act. The rollover of sale proceeds must occur within 60 days of the sale.
The maximum gain that may be avoided annually for a single individual or a married couple filing jointly is the lesser of (i) $50,000 or (ii) $500,000 reduced by any gain avoided in previous years. The limits for married individuals filing separate returns are one-half of these amounts.
Sale of Principal Residence
For sales of a principal residence, up to $500,000 of gain on a joint return ($250,000 on a single or separate return) can be excluded. To be eligible for the exclusion, the residence must have been owned and occupied as your principal residence for at least two of the five years preceding the sale.
Installment Sales of Depreciable Property by Non-Dealers
 A sale of depreciable personal property at a gain generates ordinary income to the extent of any depreciation recapture. This ordinary income is fully taxable in the year of sale even if no sales proceeds are received in that year.
Retirement Plan Distributions
Retirement plans have many requirements regarding distributions, but taxpayers can exercise some authority over plan distributions that might facilitate income tax planning.
Roth IRAs and Education IRAs
Roth IRAs
Taxpayers with income under certain income limits are permitted to make contributions to a Roth IRA. Unlike regular IRAs, where contributions are deductible and later distributions are taxable, contributions to Roth IRAs are not deductible and later “qualified” distributions are not taxable.
Moving Expenses
Individuals were previously allowed to deduct qualified moving expenses paid or incurred in connection with starting work in a new location if specific distance and length of service requirements were met that were not reimbursed by an employer.
Interest Expense
Personal Interest
Interest is not deductible on tax deficiencies, car loans, personal credit card balances, student loans (except for taxpayers eligible for the above-the-line deduction for interest paid on qualified education loans), or other personal debts.
Miscellaneous Deductions
The 2017 tax reform suspended most miscellaneous itemized deductions for tax years 2018 through 2025, including:
  • Deductions for employee business expenses
  • Tax preparation fees
  • Investment expenses, including investment management fees
  • Employment related educational expenses
  • Job search expenses
  • Hobby losses
  • Safe deposit box fees
  • Investment expenses from pass-through entities
Previously, unreimbursed employee business expenses, investment expenses, personal tax advice and preparation fees, and most other miscellaneous itemized deductions, were deductible only if they exceed 2 percent of AGI.
Business Meals and Entertainment
Beginning in 2018, the tax act eliminated the deduction for unreimbursed employee expenses. Therefore, it is important for employees to comply with their employer’s documentation and other policies in order to receive reimbursement of expenses incurred for all business expenses included meals and entertainment.
Leased Automobiles
In prior years, the Service permitted salaried employees with unreimbursed business expenses as well as self-employed sole proprietors, partners, and S corporation shareholders to deduct only actual expenses incurred with respect to leased automobiles. Now, the Service allows taxpayers, beginning in the first year a leased automobile is placed in service, to use the standard mileage rate for business activity (54.5 cents per mile for travel during 2018).
Planning Suggestion: Consider claiming the standard mileage rate for leased automobiles. There is less recordkeeping, and the standard mileage rate may result in a larger deduction.
Alimony Provision
For divorce or separation agreements entered into after December 31, 2018, the deduction for alimony or separate maintenance payments is repealed. When the divorce needs to be executed by for the alimony deduction depends on state law, individuals should consult their attorneys.
Foreign Earned Income Exclusion and Housing Allowance
For United States citizens working abroad, beginning in 2006, there were three changes made to the foreign earned income exclusion and housing allowance.
State and Local Deduction
Tax reform introduced a $10,000 cap on the itemized deduction for state and local, sales, income or property taxes for tax years beginning in 2018 and before 2026. While the limitation impacts all individual taxpayers, it will especially impact taxpayers who will file returns in states with high income and property taxes, including New York, New Jersey, Connecticut, California, Maryland, and Oregon, and on married couples (regardless of whether they file jointly or separately).
The cap limits taxpayers’ SALT deductions to $10,000 per return, and married taxpayers who file separately can only deduct up to $5,000 each, for itemized deductions. The cap does not apply to deductions resulting from a trade or business.
Standard Deduction
A significant change for individuals resulting from tax reform was the near doubling of the standard deduction amounts. However, individual tax reform is temporary and is scheduled to sunset in 2026. Your advisor can assist you in adapting to the temporary changes based on your individual circumstances.
Personal Exemptions
The deduction for personal exemptions is suspended through 2025; however, the $100 and $300 exemptions for complex and simple trusts, respectively, were retained.
The $4,150 exemption for qualified disability trusts was also retained but is to be adjusted for inflation in future years.
Passive Activities, Rental and Vacation Homes
Losses from passive activities (which, as discussed below, generally include the rental of real estate) are deductible only against passive income. Passive losses cannot be used to reduce non-passive income, such as compensation, dividends, or interest. Similarly, credits from passive activities can be used only to offset the regular tax liability allocable to passive activities.
Excess Business Loss Limitation
Introduced in the 2017 tax reform under Section 461(l), a taxpayer will only be able to deduct net business losses of up to $250,000 ($500,000 in the case of a joint return) for taxable years beginning after December 31, 2017, and before January 1, 2026. Excess business losses are disallowed and added to the taxpayer’s NOL carryforward. Previously, suspended passive activity losses were allowed in full upon the taxable disposition of the passive activity.
Additionally, non-corporate NOL rules now limit deductible NOL carryforwards to the lesser of the carryforward amount or 80-percent of taxable income. Taxpayers are no longer permitted to carry back their NOLs to the previous two taxable years, but they may carryforward their NOLs indefinitely.
Section 199A
Tax reform lowered the corporate tax rate to a flat rate of 21 percent. In turn, under the new law (under Section 199A), for taxable years beginning after December 31, 2017, taxpayers other than C corporations with taxable income (before computing the Qualified Business Income (QBI)) at or below the threshold amount, are entitled to a deduction equal to the lesser of:
Alternative Minimum Tax
A taxpayer must pay either the regular income tax or the AMT, whichever is higher. The AMT tax system is parallel to the regular tax, but it treats some items of income and deduction differently.

Read more…

Stock Options
Incentive Stock Options
An incentive stock option (ISO) is an option issued to an employee that allows all increases in value to be subject to long-term capital gain treatment if the taxpayer disposes of the option shares more than two years after the date the option is granted and more than one year after the date the option shares are purchased.
Children’s Taxes (Kiddie Tax)
Beginning in 2018, unearned income of a child under age 18 is taxed at ordinary income and preferential rates applied to trusts and estates. Earned (compensation) income received by a child under age 18 is taxed at the rates applied to single filers.
Adoption Expenses
Up to $13,810 for 2018 of eligible adoption expenses are allowed to be claimed as a nonrefundable credit. The credit limitation is the same for special-needs children (children that cannot or should not be returned to the home of the birth parents because of specific factors, or who could not otherwise be adopted because of certain conditions). The credit is per adoption, not per year.
Thus, if a person adopts two children in 2018 and incurs $30,000 of qualified expenses, the credit limitation is $27,620. In 2018, the adoption credit is phased out for higher income individuals with modified AGI between $207,140 and $247,140. Unused adoption credit can be carried forward for up to five years.
Nanny Tax Reporting
During 2018, if you paid $2,100 or more to a person 18 or over for household services, you are required to report his or her social security and federal unemployment taxes on your personal tax return. These amounts are reported on Schedule H.

Read more…

Estate and Gift Taxes
Tax reform increased the applicable estate and gift exemption for individual taxpayers and doubled the generation-skipping transfer tax exemption amounts to $11,180,000 ($22,360,000 for married couples), for tax years beginning after December 31, 2017, and before January 1, 2026.

Read more…

Estimated Taxes
Generally, all individuals must make quarterly estimated tax payments if they have income that is not subject to withholding. This includes individuals who are self-employed or retired or who have investment income, such as interest, dividends, and capital gains. It also includes partners and S corporation shareholders.
Year-end and Other Gifts; Portability
The end of the year is the traditional time for making gifts. For 2018 you may give up to $15,000 to a person without incurring any federal gift tax liability. The $15,000 annual limit applies to each donee. Thus, you may make $15,000 gifts to as many people as you like.
Opportunity Zone Program
The opportunity zone program was created under tax reform to promote investment in economically distressed communities. There are now over 8,700 certified QOZs in all 50 states, the District of Columbia, Puerto Rico and the Virgin Islands. Investors must invest in a qualified opportunity fund (QOF) within 180 days after the sale or exchange of a capital asset.
Like an annual physical examination is important for maintaining good health, an annual financial examination that includes year-end tax planning can enhance your financial well-being. Your advisor is available to help you achieve your tax and financial objectives.

Long-term Capital Gains and Qualified Dividends
Long-term capital gains and qualified dividends tax rates remain unchanged. The following rates are applied, based on the taxpayer’s taxable income:


George Johnson & Company is pleased to announce the promotion of  David Esshaki to Senior Manager, and Ben Wicks to Senior Accountant!
Their hard work, initiative and level of commitment to their work and serving our clients, make them deserving of their promotions. Please join us in congratulating David and Ben!
Let’s get to know more about our new newly promoted team members with a little Q&A!
Name/Title:  David Esshaki,  Senior Manager

Hometown: Livonia, MI

1. How long have you been with George Johnson & Company?
Since January 2014

2. What drew you to a career in the accounting field?
I took some accounting classes in high school and did very well. I enjoyed the courses as well and when I saw that I could have a bright future as a CPA, I pursued a career in accounting.

3. What do you find most rewarding about your work?
I enjoy working with many different clients and the constant change in the work. There is always something unique and interesting happening. I also enjoy solving problems encountered by clients.

4. What’s the best part of being a member of the GJC team?
Everyone is always interested in learning. We have a lot of opportunities to take on assignments that we wouldn’t have the chance to if we worked at a larger CPA firm.

5. Name one item on your “bucket list”:
Vacation in Hawaii

6. What is your favorite restaurant in Metro Detroit?
Pegasus in Greektown

7. Favorite sports team:
Detroit Red Wings

David Esshaki
Senior Manager,
Ben Wicks to Senior Accountant!

David Esshaki

Name/Title :  B en Wicks,  Senior Accountant
Hometown:  Allen Park, MI
1. How long have you been with George Johnson & Company?
I have been with GJC (George Johnson & Company) since February 23, 2016.

2. What drew you to a career in the accounting field?
As a young kid, the subjects I enjoyed most were always Math and Science. I suppose that that early inclination took up permanent residence and evolved into a career in accounting.

3. What do you find most rewarding about your work?
Being able to travel to different clients, interact with high ranking executives, and tackle what is generally considered to be difficult work provides great reward to me.
4. What’s the best part of being a member of the GJC team?
To me, the best part of being a GJC team member is the people. I am surrounded by a network of colleagues who maintain competence and professionalism that have not sacrificed their sense of humor and friendliness.

5. Name one item on your “bucket list”:
I would love to take a trip to a tropical island.

6. What is your favorite restaurant in Metro Detroit?
My favorite restaurant near Detroit is an Italian establishment called Magdaleno in Wyandotte, MI.

7. Favorite sports team:
Despite their history of misery, I’ve always been an avid Detroit Lions fan.

Ben Wicks 

Senior Accountant

Ben Wicks


2018 America’s Thanksgiving Day Parade

On November 22nd, The Parade Company’s annual festivities of the America’s Thanksgiving Day Parade began with the early morning Turkey Trot 10K Race through historic downtown Detroit. This year marked the 35th year of the race. It was sponsored by Strategic Staffing Solutions.

This is the second consecutive year that our principal, Gloria Zhao has run the race. Previously, Gloria served as a Distinguished Clown Corps. member for seven years!
Below is a capture from 2014 with George and Gloria clowning around!

During the America’s Thanksgiving Day Parade, over 2,000 members of the Distinguished Clown Corps lined the streets waving and passing out goodies to children of all ages! This year, our team member Diamond Reynolds dressed up as an Emoji Clown! As you can imagine, her costume was a hit amongst the children! This is Diamond’s second year volunteering as a Distinguished Clown Corps. member.

Parade co logo