Tax Musings of a Burbank CPA: Tax Reform Creates Desire for the C Corporation

(Copyright 2018, Bradford Tax Institute – thanks for the article on S Corp vs C Corp Debate in 2018.) When you first see that 21 percent tax rate for the C corporation, you have to think that this could be the choice of entity for your business operation. Further, when you find yourself in the out-of-favor group for the 20 percent deduction authorized by new tax code Section 199A, you naturally gravitate to thinking about the C corporation, perhaps as a means of getting even. The table below gives you a good look at how you would pay taxes on your profits, depending on your Form 1040 tax bracket. In the S corporation column, we listed the tax rates by the brackets that apply to individuals. To see exactly how this table works, let’s say that you are in the 34 percent tax bracket and have $100,000 in profits. If you operate as an S corporation, the profits come to you on a K-1 and you pay your Form 1040 taxes at the 34 percent rate, for a total tax of $34,000 on your S corporation profits. If you operate as a C corporation, the profits are first taxed at the C corporation level at a rate [...]

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Tax Musings of a CPA: Retirement Plan Contribution Limits for 2018

In 2018, various retirement plan contribution limits have changed.  Here are the new limits for amounts and income levels for the following: Traditional IRAs: The maximum contribution for 2018 stays at $5,500.00 if you are under age 50. The catch-up contribution for those who are 50 or older also stays at $1,000.00. If you are in a qualified plan, the maximum income you can make if single and still make a full traditional IRA contribution starts at $63,000.00 Adjusted Gross Income (AGI) and phases out the contribution if you make over $73,000.00.  If you are married filing jointly, the phaseout starts at AGI of $101,000.00 and phases out at $121,000.00. If you file married separately, the contribution starts  phasing out immediately and at $10,000.00 AGI the contribution is phased out entirely (Boo!) Roth IRAs: The maximum contribution for 2018 stays at $5,500.00 if you are under age 50. The catch-up contribution for those who are 50 or older also stays at $1,000.00. You have an income limitation to contribute to a Roth IRA, whether or not you are in a qualified plan at work. The maximum income you can make if single and still make a full Roth IRA contribution starts at [...]

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Tax Musings of a Burbank CPA: Tax Reform Allows Bigger, Faster Business Car Deductions

(Copyright 2018, Bradford Tax Institute – thanks for the article on new automobile deductions in 2018.) Finally, lawmakers did the right thing by increasing the luxury auto depreciation limits on business cars. The old luxury limits were unrealistic, punitive, unfair, and discriminatory against any car that cost more than $15,800. The new limits don’t create parity in all respects, but they are a big improvement. If you bought a car in 2017 and paid more than $15,800, you were driving a luxury car that lawmakers punished you for by putting a lid on your depreciation. For example, say in 2017 you bought a $40,000 car and drove it 100 percent for business. Your maximum depreciation deductions for the first five years would total only $15,060. To fully depreciate this car under the old rules would have taken 19 years.  It was ridiculous to take 19 years to depreciate that $40,000 car. And now, finally, lawmakers have fixed a big part of what the tax code calls luxury automobile limits.  Under the new law, this $40,000 vehicle is fully depreciated in six years. Think about that. Old law: 19 years. New law: six years.  Essentially, the new law sets the so-called [...]

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