Year-End Tax Topics
We continue in the theme of updating you on the particulars of the new tax law that are in effect in 2018, as well as, cover some of the more frequent questions we receive from you, the member.
Equipment Expensing, Unlimited or Not?
Pardon the repetition on this topic, but many of the questions we receive involve some element of confusion over equipment expensing. Specifically, are there caps on equipment expensing, and why the need for Sec. 179 when bonus depreciation is unlimited?
Sec 179 and bonus depreciation are like fraternal twins: alike but different. Historically, these two worked in tandem to create the overall equipment write -off. One picked up where the other left off.
However, starting in 2018 and going forward, the differences aren’t as important with one notable exception regarding real property enhancements, which we’ll discuss below.
Bonus Depreciation
Prior to 2018, bonus depreciation was capped at 50% and could only be used on brand new (original use) equipment. The new law truly simplified equipment expensing for all of us when it expanded bonus depreciation to include both new and used business equipment AND increased the write-off to 100% of the cost of the equipment. Now, with unlimited equipment deductions in place, there is almost no need to use Sec. 179, except…...
Sec. 179 Still Has a Use
Due to a glitch in the new tax law, as of this writing, bonus depreciation does not apply to certain real property enhancements. Fortunately, Sec. 179 expensing does.
Therefore, Sec. 179 is still useful to deduct the real property enhancements that bonus depreciation can’t handle and comes with an increased cap of $1,000,000, which is double the amount in 2017.
Equipment expensing is not the only thing to work in tandem, as estate and gift tax exemptions as well as the capital gain and loss rules also work together.
Year End Gifts
We receive this question often. Can I only give away $15,000 in total? No. In 2018 you can give away $15,000 each to as many different people as you like. And, if your wife joins in it doubles to $30,000 per person. It’s called gift-splitting.
What If I Give Away More Than $15,000 To Someone?
The annual limit doesn’t mean you are prevented from gifting more than that amount. It also doesn’t mean you pay gift tax on the transfer. Any excess lowers the amount you can shield from estate and gift tax, but with the lifetime exclusion now over $11 million per person, it may not matter. Excess gifts require filing gift tax returns.
Capital Gains and Losses
Anything different on capital gains and losses? The new law didn’t make any significant changes in this area as the maximum net long-term capital gain tax rates, for most people, stayed the same, which is 15%. High earners will have a maximum rate of 20%. Long-term is defined as owning the stock or security for over a year.
What If My Net Capital Gains Are Short-Term?
When you have net short-term gains, you pay tax on the net gain at the same ordinary income tax rates you pay on most of your other income, such as your wages.
What If I Have Net Capital Losses?
Keep in mind that overall net capital losses are limited to $3,000 deduction per year and excess losses carry to the following year to be used again in the netting process.
Alimony Payments
Are alimony payments still deductible? Depends. Payments made under separation agreements entered into after 2018 will no longer be deductible and is not income to the recipient. It’s business-as-usual for future payments related to pre-2019 agreements.
The information contained herein is general in nature and is not intended as legal, accounting or tax advice or opinion as provided by National Write Your Congressman. The reader should seek professional guidance prior to taking any action based upon this information. National Write Your Congressman shall have no obligation to inform the reader of any changes in tax laws or other which may affect the information provided.
