Tax Tips

(Updated 10/15/18)

Reduce W2 Earnings (1) pay for medical and dental insurance with pre-tax dollars; (2) use an employer health spending account to pay all medical costs including over the counter medications; (3) use employer dependent care assistance plan to pay for child care – max $5,000 exclusion; (4) employer 401k savings plan, maximum contribution is $18,500 plus an additional $6,000 catch up contribution if over 50.

Net Investment Tax - 3.8% tax on interest, dividends, rents, capital gains, royalties, and income from other passive activities for some taxpayers (single 200K, married 250K)

Additional Medicare Tax - 0.9% tax on wages and se income for some taxpayers (single > 200K, married > 250K)

Deductions Eliminated – Personal deductions, moving expenses, miscellaneous deductions, alimony (new agreements after 12/31/2018), casualty losses except for federally-declared disaster, domestic production deduction

New Tax Brackets – (see Newsletter)

AMT Tax – exemption raised (single 54,300 to 70,300, married 84,500 to 109,400) Less people will be affected

Child Tax Credit - $2,000 for each child under 17 (phase out begins at 400K married, 200K single)

Other Dependent Credit$500 (phase out begins at 400K married, 200K single)

Teacher Expense Deduction – Increased from $250 to $500 deduction from gross income

Education Tax Credits - American Opportunity Credit – (phase out at 160-180K married, 80-90K single).

$2,500 maximum per eligible student (1st four years), 100% of first $2,000 and 25% of next $2,000

Lifetime Learning – $2,000 (20% of up to $10,000) per family (phase out 112-132K married, 56-66K single)

Education Expenses – up to $4,000 if AGI less than 130K married or 65K single, or up to 2,000 if

AGI less than $160K married or 80K (not renewed for 2017)

Student Loan Interest - $2,500 is deductible (phase out at 135-165K married, 65-80K single)

Energy Tax Credit – limited to $500, equals 10% of energy saving improvements to principal residence, like a new heating system, windows, insulation, doors, central air, and others. Credit reduced by $ taken before. (not renewed)

Sale of Personal Residence

–Married taxpayers can exclude a gain of either $250,000 or $500,000 (single $250,000).

–Seller owned and used home as principal residence for at least 2 of the last 5 years and had no sale of residence during the last 2 years.  There are exceptions allowed for job changes, health, and other reasons.

Capital Gain Rules  12 Months and Less   Greater than 1 YR
Federal Tax Rate (%) 10, 12, 22, 24, 32, 35, 37 zero, 15, also a new 20% rate since 2013 
Mass Tax Rate (%) 12 5.10

Dividend Tax Rates are zero or 15% on most corporate stock if held 60 days, also a new 20% rate

IRAs (please call if you have questions)

Non working spouse or spouse not in a company sponsored retirement plan may be eligible to contribute $5,500 to a deductible Regular Ira. (Phase out at $189,000-$199,000)

–Non deductible contribution of $5,500 to a Roth IRA (phase out at $189,000-$199,000 married, and $120,000-$135,000 single)

–Maximum contribution to Roth Ira or Regular Ira is $5,500. (You must choose.)

–For age 50 and over, additional catch up contribution of $1,000 allowed

Small Business Tips

20% business pass thru deduction (lots of rules)

–100% of Self Employed Health and most of Long Term Care insurance is deductible from Gross Income.

–Business Equipment write off maximum is $1,000,000

100% First Year Bonus Depreciation for first use depreciable assets purchased after 9/27/2017-12/31/2022

–Business Use of Home Office Deduction –rules relaxed, only taxed on depreciation taken when home sold.

–SEP IRA – contribute up to 20% of net business income or

–Profit Sharing and 401k plan – contribute up to 20% of net business income to profit sharing and $18,500 to 401k plan (maximum contribution $55,000) and if over age 50 an additional $6,000 allowed to 401k


State Tax Reminders

–Tax rate stays at 5.10%

–Capital Gain rates (see above)

–Personal deductions: married $8,800, single $4,400, head of house $6,600.  The deduction depends on having health insurance.  Bring your health insurance cards or form MA 1099-C.

–Child care deduction is $4,800 per child (maximum 2 children).

–Children under age 12 deduction is $3,600 per child or parent over 65 (maximum of 2).

–Rental deduction is ½ of rent paid up to $3,000

–Commuter Deduction – maximum $750/person (fast lane and transit passes)

529 Contribution Deduction – married $2,000, single $1,000

–Senior circuit breaker tax credit, maximum $1,100 for 2018 (bring your real estate and water bills).