December 2018 Tax Snacks

December 2018 tax snacksTax Snacks: Bite-size tax news and information on the fly

Holiday Greetings from BNN

Somehow we have reached the end of another year, and it, like others, has gone by much too fast. It seems like just a few weeks ago that we took our lawnmowers out of mothballs, and now here we are, on the front end of another season fighting with snow-blowers that we speculate were secretly programmed to work against us. We truly appreciate your interest in our newsletter articles throughout 2018, and trust you have enjoyed them and found them useful. BNN’s authors and the entire firm wish you and your families a safe holiday season, including a Merry Christmas and Happy New Year!

The Tax Act descends on its first full filing season

Last year’s Tax Cuts and Jobs Act has been the subject of numerous articles, seminars, and discussions since its introduction a year ago, but because it primarily took effect 1/1/18, most of its features have not yet appeared in actual tax returns. That is about to change. Material that we send to our clients each January will include a copy of the letter reproduced below, explaining the significant impact this tax overhaul will have on the filing season just ahead of us.

Dates to remember

January 15:

  • Fourth quarter 2018 estimated tax payments are due for individuals, and calendar year estates and trusts

January 31:

  • W-2s are due to employees and to the IRS
  • Most forms in the 1099 series are due to payment recipients
  • Form 1099-MISC is due to IRS if Box 7 (nonemployee compensation) is populated

February 15:

  • Forms 1099-B and 1099-S are due to recipients

February 28:

  • Forms 1099 are due to the IRS, if filing on paper (the deadline is April 1 if filed electronically)

Required minimum distributions

Retirees who hold IRAs and similar pension plans are required to withdraw certain amounts each year beginning shortly after they turn age 70 ½. These amounts, called required minimum distributions (RMDs), are based on life expectancy and are required because Congress is more eager than a 5-year old child at Christmas time to collect tax that has been deferred on these holdings. (Congress is so eager, in fact, that it imposes a Grinch-like 50% penalty on those who fail to withdraw RMDs on time – a penalty assessed on top of the applicable tax.) Generally each year’s RMD must be withdrawn by December 31 of that year, but a one-time delay is allowed for the first (and only the first) withdrawal following the age 70 ½.

This grace period is relevant currently for recipients who have not yet begun drawing RMDs, and who were born after June 30, 1947 and before July 1, 1948. Those individuals may delay their initial withdrawal until April 1, 2019. Each year thereafter, it must be withdrawn by December 31. Note that those who take advantage of this deferral will be forced to “double up” in their second year. For example, those with birthdates in the range shown above can take their first RMD either in December of 2018 or by April 1 of 2019 – but in either case another one must be withdrawn no later than December of 2019. Those who plan to delay should be aware of the potential that the doubling-up in 2019 could nudge them into a higher tax bracket.

Tax legislation update

Almost exactly a year ago, Congress passed the Tax Cuts and Jobs Act, which made dramatic changes to federal tax laws – most of them retroactive to the beginning of a year nearly ended. This year, it appears we are in for no such shenanigans. There has been plenty of discussion off and on about additional tax legislation (“Tax Reform 2.0”), but it appears to have fizzled out. A bill introduced in the House last month contained a number of provisions that were not well-received by many Democrats or Republicans, so it fell to the cutting room floor in favor of a new proposal that has significantly less reach. The new version drops many so-called “extenders” (proposals that would extend soon-to-be expired provisions). These routine extenders instead may be introduced as part of an ongoing funding effort. In short, we expect no bombshells on the tax law change front in the near future.

While practitioners and taxpayers should be grateful for a relatively stable tax landscape as we close out the year, we are, however, awaiting a number of Treasury Regulations that will clarify numerous questions that remain regarding how to implement last year’s legislation. That is the subject of a client letter that is included elsewhere in this issue of the BNN Briefing.

Disclaimer of Liability: This publication is intended to provide general information to our clients and friends. It does not constitute accounting, tax, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.