U.S. Tax Preparation Worldwide James Maertin CPA
Tax Guide
Capital Gains, Interest and Dividends
Education Credits, Scholarships
Social Security, Medicare, Self Employment Tax
Tax Deadlines, Extensions, Late Payments, Estimated Tax
Tax Resident, Nonresident, Dual Status
Information on this website is not intended to be written advice concerning tax
matters, but is for general information purposes only and based on tax laws that
are subject to change. Applicability of the information to specific
situations should be determined through consultation.
IRS Tax Law Changes
2023 Tax Changes
Credits for New Clean Vehicles
Used
Clean Vehicle Credit
Energy Efficient Home Improvement Credit. For personal residences in
the U.S. (not properties you rent out). The credit increases from a $500
lifetime credit (through 2022) to a maximum annual credit of $1,200 for
qualified property placed in service on or after January 1, 2023.
However, qualified electric or natural gas heat pump water heaters, electric or
natural gas heat pumps, and biomass stoves and biomass boilers have a separate
aggregate yearly credit limit, 30% of the cost, up to $2,000. Thus, the maximum total yearly energy
efficient home improvement credit amount may be up to $3,200.
Qualified solar property has a 30% credit.
2022 Tax Changes
Reporting rules changed for Form 1099-K. Taxpayers
should receive Form
1099-K, Payment Card and Third Party Network Transactions,
by January 31, 2023, if they received third party payments in tax year 2022 for
goods and services that exceeded $600 (previously $20,000 with over 200
transactions).
Some tax credits return to 2019 levels. This
means that affected taxpayers will likely receive a significantly smaller refund
compared with the previous tax year. Changes include amounts for the Child Tax
Credit (CTC), Earned Income Tax Credit (EITC) and Child and Dependent Care
Credit.
No above-the-line charitable deductions. During COVID, taxpayers could take up to a $600 charitable donation tax deduction on their tax returns. However, in 2022, those who take a standard deduction may not take an above-the-line deduction for charitable donations.
More people may be eligible for the Premium Tax Credit. For tax year 2022, taxpayers may still qualify for temporarily expanded eligibility for the premium tax credit.
Eligibility rules changed to claim a tax credit for clean vehicles. Review the changes under the Inflation Reduction Act of 2022 to qualify for a Clean Vehicle Credit.
2021 Tax Changes
The American Rescue Plan Act
of 2021 expanded the following for 2021 returns.
1.
Child Tax Credit
for 2021 increased. The maximum credit increased from $2,000 per child in 2020 to $3,600 for each child under
age 6. For each child ages 6 to 16, it’s increased from $2,000 to $3,000. It
also makes 17-year-olds eligible for the $3,000 credit. See
Dependents.
2.
Dependent Care Credit
increased. You
may claim the credit on qualifying employment-related expenses of up to $8,000
(previously $3,000) if you had one qualifying person, or $16,000 (previously
$6,000) if you had two or more qualifying persons. The maximum credit in 2021
increases to 50% of your employment-related expenses, which equals a maximum
credit of $4,000 if you had one qualifying person (50% of $8,000), or $8,000
(50% of $16,000) if you had two or more qualifying persons. The more a taxpayer
earns, the lower the percentage of employment-related expenses that are
considered in determining the credit.
See
Dependents.
3.
Dependent Care FSA.
Workers can set aside more in dependent care FSA. For 2021, the maximum
amount of tax-free employer-provided dependent care benefits increased to
$10,500. This means an employee can set aside $10,500 in a dependent care
flexible spending account, instead of the usual $5,000.
4.
Earned Income Tax Credit
expansion. For 2021 only, more workers without qualifying children can
qualify for the earned income tax credit, a fully refundable tax benefit that
helps many low- and moderate-income workers and working families. That's because
the maximum credit is nearly tripled for these taxpayers and is, for the first
time, available to younger workers and now has no age limit cap.
5. Economic Impact Payment. Under the American Rescue Plan, eligible people filing as single making less than $75,000, a head of household making less than $112,500, or as married couple filing jointly making less than $150,000 qualify for an Economic Impact Payment of $1,400 per person each plus $1,400 for each qualifying dependent, including kids, college students, and seniors claimed as dependents.
6.
Charitable Contributions.
For taxpayers who do
not itemize, the deduction of up to $300 in cash contributions to public
charities has been extended and increases the deduction for joint filers in 2021
to $600. And for taxpayers that do itemize,
the ability to deduct up to 100% of adjusted gross income (AGI) for all cash
contributions to public charities has also been extended. (Note: Contributions
to private foundations, supporting organizations and donor-advised funds, or
DAFs, do not qualify for these benefits.)
Coronavirus Aid, Relief, and Economic Security (CARES) Act and the COVID-related
Tax Relief Act.
Economic Impact Payments (EIPs)
Economic Impact Payment 1: Up to
$1,200 ($2,400 if married filing jointly for 2020) plus $500 for each qualifying
child you
had in 2020.
Economic Impact Payment 2: Up to
$600 ($1,200 if married filing jointly for 2020) plus $600 for each qualifying
child you had in 2020.
Generally, you are eligible to claim the Recovery Rebate Credit if you were a U.S. citizen or U.S. resident alien in 2020, cannot be claimed as a dependent of another taxpayer for tax year 2020, and have a Social Security number valid for employment that is issued before the due date of your 2020 tax return (including extensions).
Taxpayers will receive a reduced payment if their adjusted gross income is between:
Most eligible taxpayers will have received their impact payment by direct
deposit or check.
Recovery Rebate Credit:
If you were eligible for a payment but did not receive
it, you can claim a credit on your 2020 tax return.
* Eligible taxpayers who received a
smaller-than-expected EIP may qualify to receive an
additional amount when they file their 2020 federal income tax return.
* If eligible, taxpayers may claim an additional credit on their 2020 tax
return, for example, if a child was born, adopted, or placed into foster care in
2020.
* The EIP will not reduce a taxpayer’s refund or increase the amount they owe
when they file a tax return. It is also not taxable and therefore should not be
included in income on a 2020 return.
Foreign Earned Income Exclusion
For 2020, the maximum foreign earned
income exclusion is $107,600.
Note: The Internal Revenue Service is providing a waiver
of the time requirements related to the foreign earned income exclusion, if, due
to the COVID-19 emergency, the taxpayer was required to leave:
• The People’s Republic of China (excluding Hong Kong and Macau) on or after December 1, 2019, but
on or before July 15, 2020; or
• Another foreign country on or after February 1, 2020, but
on or before July 15, 2020;
In this case,
the taxpayer may still be able to meet requirements of the bona fide residence
or physical presence test for 2019 or 2020 for purposes of determining the
foreign earned income exclusion. For more information and examples see
Revenue Procedure
2020-27.
Paycheck Protection Plan (PPP) loan forgiveness. Taxpayers may exclude
from gross income any covered loan forgiveness.
Special rules for use of retirement funds. Individuals eligible for coronavirus-related relief may be able to withdraw up to $100,000 penalty-free from IRAs or workplace retirement plans before December 31, 2020. Click on 2020 Tax Changes above for additional information.
Temporary waiver of required minimum distribution rules for certain retirement plans and accounts – waives the required minimum distribution rules for certain defined contribution plans and IRAs for calendar year 2020.
Allowance of partial above-the-line deduction for charitable contributions – permits taxpayers who do not itemize deductions to deduct up to $300 of cash contributions to charitable organizations per return. This provision applies to tax year 2020.
Modification of limitations on charitable contributions during 2020 – increases the limitations on deductions for charitable cash contributions by individuals who itemize. For individuals, the 60% of adjusted gross income limitation is suspended for 2020.
Deferred payment of the employer share of the Social Security tax – allows self-employed individuals to defer payment of the employer share of Social Security tax. Half of the deferred amount is due by December 31, 2021 and the other half by December 31, 2022.
Exclusion for certain employer payments of student loans – enables employers to provide a student loan repayment benefit to employees on a tax-free basis.
Higher education emergency financial aid grants – Emergency financial aid grants under the CARES Act for unexpected expenses, unmet financial need, or expenses related to the disruption of campus operations due to the COVID-19 situation, such as unexpected expenses for food, housing, course materials, technology, health care, or childcare, are qualified disaster relief payments under section 139 of the Internal Revenue Code. This grant is not includible in gross income. Because the emergency financial aid grant is not includible in gross income, taxpayers cannot claim any deduction or credit for expenses paid with the grant including the tuition and fees deduction, the American opportunity credit, or the lifetime learning credit.
Estimated tax payments for 2020 normally due on April 15, 2020 and June 15, 2020 are treated as timely if made by July 15, 2020.
Changes to
Tax Forms:
* Non-employee compensation for self employed individuals will be reported
on Form 1099-NEC rather than 1099-MISC.
* Form 7202 can be used by self employed individuals to claim a credit for
sick leave and family leave due to coronavirus related care you required, or that
you provided to another.
* An amended tax return (1040-X) can be filed electronically starting with
tax year 2019.
SECURE Act of 2019:
* Individuals can contribute to a traditional IRA after age
70 ½.
* Beginning in 2020, an IRA
owner or a participant in a workplace defined contribution plan, such as a
401(k) or 403(b) plan, can withdraw up to $5,000 for the birth or adoption of a
child without incurring the usual 10% additional tax on early distributions. The
distribution must be made within one year after the child is born or the
adoption is finalized and cannot be from a defined benefit plan. Any time after
receiving the distribution, the IRA owner or plan participant may generally
recontribute any portion of the distribution as a rollover contribution to an
eligible retirement plan, including an IRA.
* Required minimum distributions (RMDs) – The required minimum distribution (RMD)
age increased from 70 ½ to 72 for taxpayers turning 70 ½ after December 31,
2019. In other words, if a taxpayer’s 70th birthday is July 1, 2019 or later,
they do not have to take withdrawals until reaching age 72.
* More expenses now qualify for tax-free and penalty-free withdrawals from a
qualified tuition program, also known as a 529 plan.
Other:
* The Further Consolidated Appropriations Act, 2020 reverts the “kiddie
tax” to pre-2018 law with a child’s unearned income taxed at the parents’
top marginal rates. Previously, this was in scope when the unearned income for
certain children was taxed using the brackets and rates for estates and trusts,
which was a simpler calculation. The change is effective for taxable years
beginning after December 31, 2019, with the option to use the estates and trusts
rates for 2019 and 2018.
* Reinstated residential energy credit on Form 5695. Can amend 2018
and 2019 to claim the credit (maximum $500 lifetime limit).
* Reinstated tuition and fees deduction. Can amend 2018 and 2019 to
claim the deduction.
* Reduction in the medical expense deduction floor to 7.5%
2019 Tax Changes
* Federal mandate to be covered by health insurance is eliminated. Therefore, there is no federal penalty for being uninsured. If, however, you live in Massachusetts, New Jersey or Washington DC, you are required to by state law to be covered by health insurance.
* Increase in IRA contribution limits. For 2019 and 2020, the limit
is $6,000 (or $7,000 if you are age 50 or older).
*
Beginning Jan. 1, 2019, alimony or
separate maintenance payments are not deductible from the income of the payer
spouse, or includable in the income of the receiving spouse, if made under a
divorce or separation agreement executed after Dec. 31, 2018. This also applies to a divorce or separation agreement executed
on or before Dec. 31, 2018, and modified after December 31, 2018, as long as the
modification:
states that the alimony or separate maintenance payments are not deductible by the payer spouse or includable in the income of the receiving spouse.
On the other hand, generally alimony or separate maintenance payments are deductible from the income of the payer spouse and includable in the income of the receiving spouse, if made under a divorce or separation agreement executed on or before Dec. 31, 2018, even if the agreement was modified after December 31, 2018, so long as the modification is not one described in the preceding paragraph.
* Standard deduction increased to $12,200 for singles (up from $12,000 in
2018) and $24,400 for married joint filers (up from $24,000 in 2018).
* Layout of Form 1040 changed again. There is no longer Form 1040A or 1040-EZ.
2018 Tax Changes
Major changes for tax year 2018. Please also refer to IRS Publication 5307. More taxpayers will be better off claiming the standard deduction rather than itemizing deductions. Note: Nonresident aliens filing Form 1040NR generally cannot claim the standard deduction. They may claim itemized deductions, but these are usually limited to state & local income taxes, U.S. charity and some miscellaneous deductions. Nonresidents cannot claim medical expenses, mortgage or investment interest, or property taxes.
Tax law for 2017 versus 2018 tax returns
|
2017 Tax Return |
2018 Tax Return |
|
Standard Deduction |
Standard Deduction |
|
Single $6,350 Married Filing Jointly $12,700 Married Filing Separately $6,350 Head of Household $9,350 (Note: The standard deduction is higher for people born before January 2, 1953). |
Single $12,000 Married Filing Jointly $24,000 Married Filing Separately $12,000 Head of Household $18,000 |
|
Deduction for Personal Exemption A deduction reduces your income, not your tax.
Taxpayer, spouse and dependent can claim $4,050 each, subject to the
following phase-outs in adjusted gross income:
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Deduction for Personal Exemption Suspended
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2017 Itemized Deductions |
2018 Itemized Deductions |
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Home Acquisition Debt (primary plus second home): Deduct interest paid on mortgages up to $1,000,000. However, if the loan exceeds $1 million, the next $100,000 of that debt can be treated as home equity debt. In other words, the $1,000,000 limit is really $1,100,000.
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Home Acquisition Debt (primary plus second home): Loans secured before 12/16/17: Deduct interest paid on mortgages up to $1,000,000 Loans secured after 12/15/17: Deduct interest paid on mortgage debt up to $750,000
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Home Equity Debt: Deduct interest paid on loans up to $100,000. The loan can have been used to pay for anything.
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Home Equity Debt: You can only deduct interest paid on home equity debt if the debt was used to buy, build or substantially improve the taxpayer's home that secures the loan. The total of the home equity debt plus home acquisition debt cannot exceed $750,000. You cannot deduct interest from home equity debt for a second home if the loan is secured by the main home and not the second home. |
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Property Tax Deduction: Unlimited. Deduct real estate taxes paid (state, local or foreign) on real property, including vacant land.
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Property Tax Deduction: No deduction for foreign property taxes. Your deduction of state and local income, sales, and property taxes is limited to a combined, total deduction of $10,000 ($5,000 if married filing separately). |
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State and Local Taxes: Deduct state and local income taxes paid during 2017.
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State and Local Taxes Your deduction of state and local income, sales, and property taxes is limited to a combined, total deduction of $10,000 ($5,000 if married filing separately). |
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Medical Expenses. Can only claim the portion of the out-of –pocket medical expenses that exceed 7.5% of your adjusted gross income.
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Medical Expenses. No change. After 2018, you can only claim the portion of the out-of –pocket medical expenses that exceed 10% of your adjusted gross income. |
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Charitable Donations: Cash and non-cash gifts to qualified charities are deductible.
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Charitable Donations: No change. |
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Job Expenses and Miscellaneous Itemized Deductions Subject to 2% of AGI Floor Can claim the portion that of the total expenses that exceed 2% of your adjusted gross income. Includes unreimbursed employee business expenses, investment advisory fees, safe deposit box fees, tax prep fees, and more.
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Job Expenses and Miscellaneous Itemized Deductions Subject to 2% of AGI Floor Eliminated.
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Casualty and Theft Losses For victims of fire, flood, burglary or similar event. You can only claim the portion that exceeds 10% of your adjusted gross income. .
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Casualty and Theft Losses Same rules but you can only claim the losses if the event was declared a disaster by the president. The loss may be claimed in addition to the standard deduction.
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Itemized Deduction Limitation Your itemized deductions may be limited
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Itemized Deduction Limitation The overall limit on itemized deductions is suspended for tax years 2018-2025.
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| 2017 Tax Return | 2018 Tax Return |
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Child Tax Credit A credit reduces your tax, not your income. $1,000, subject to phase-out beginning with modified adjusted gross income of: Single ($75,000), married joint ($110,000). For each $1,000 of income above the threshold, your available child tax credit is reduced by $50. The child can have a SSN or ITIN.
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Child Tax Credit A credit reduces your tax, not your income. $2,000, subject to phase-out beginning with in modified adjusted gross income of: Single ($200,000), married filing jointly ($400,000).
The child must have a SSN.
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Credit for Other Dependents There is a new $500 nonrefundable tax credit for each eligible dependent who can't be claimed for the child tax credit. |
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Moving Expenses You can claim moving expenses as long as the new workplace is at least 50 miles farther from the old home than the old job location was from the old home.
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Moving Expenses Eliminated (with some exceptions for members of the armed services).
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529 Plans You can withdraw the money that you contributed tax-free to pay for higher education expenses (i.e., college/university).
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529 Plans In addition to paying for higher education, you can also withdraw up to $10,000 each year, per child, to pay for private or religious school, or if you home-school.
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Pass-Through Business Income Pass through ordinary income is taxed at normal individual tax rates.
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Pass-Through Business Income You may be able to deduct up to 20% of your qualified business income from your qualified trade or business, plus 20% of your qualified REIT dividends and qualified PTP income. There are limits, including a phaseout for the deduction.
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2017 Individual
Income Tax Brackets
Single · 10%: $0 to $9,325 · 15%: $9,325 to $37,950 · 25%: $37,951 to $91,900 · 28%: $91,901 to $191,650 · 33%: $191,651 to $416,700 · 35%: $416,701 to $418,400 · 39.6%: over $418,400
· 10%: $0 to $18,650 · 15%: $18,651 to $75,900 · 25%: $75,901 to $153,100 · 28%: $153,101 to $233,350 · 33%: $233,351 to $416,700 · 35%: $416,701 to $470,700 · 39.6%: over $470,700
|
2018 Individual
Income Tax Brackets
Single · 10%: $0 to $9,525 · 12%: $9,526 to $38,700 · 22%: $38,701 to $82,500 · 24%: $82,501 to $157,500 · 32%: $157,501 to 200,000 · 35%: $200,001 to $500,000
·
37%: over $500,000 Married · 10%: $0 to $19,050 · 12%: $19,051 to $77,400 · 22%: $77,401 to $165,000 · 24%: $165,001 to $315,000 · 32%: $315,001 to $400,000 · 35%: $400,001 to $600,000 37%: over $600,000
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AMT Exemption Single ($54,300), married joint ($84,500) Alternative Minimum Tax Exemption Phaseout Threshold Single ($120,700), married joint ($160,900)
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AMT Exemption Single ($70,300), married joint ($109,400) Alternative Minimum Tax Exemption Phaseout Threshold Single ($500,000); married joint ($1,000,000)
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Individual Health Insurance Mandate Fee for not having insurance is the higher of: (1) 2.5% of household income (to maximum of total yearly premium of national average of Bronze plan) or (2) $695 per adult, $347.5 per child under 18 (to maximum of $2,085).
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Individual Health Insurance Mandate Fee is similar to 2017, but the mandate is eliminated in 2019.
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2017 Kiddie Tax Net unearned income of a child (for 2017, unearned income over $2,100) is taxed at the parents’ tax rates if the parents’ tax rates are higher than the tax rates of the child. The remainder of a child’s taxable income (i.e., earned income, plus unearned income up to $2,100 (for 2017), less the child’s standard deduction) is taxed at the child’s rates, regardless of whether the kiddie tax applies to the child. In general, a child is eligible to use the preferential tax rates for qualified dividends and capital gains. |
2018 Kiddie Tax Taxable income attributable to net unearned income is taxed according to the brackets applicable to trusts and estates. Taxable income attributable to earned income is taxed according to an unmarried taxpayers’ brackets and rates. A child is eligible to use the preferential tax rates for qualified dividends and long term capital gains at the brackets applicable to trusts and estates.
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Section 965 deferred foreign income. If you own (directly or indirectly) certain foreign corporations, you may have to include on your return certain deferred foreign income. You may pay the entire amount of tax due with respect to this deferred foreign income this year or elect to make payment in eight installments or, in the case of certain stock owned through an S corporation, elect to defer payment until the occurrence of a triggering event. See the instructions for Line 11a; Schedule 1, line 21; Schedule 5, line 74; Form 965; Form 965-A; and Pub. 5292 for more information.
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Global intangible low-taxed income (GILTI) under section 951A. If you are a
U.S. shareholder of a controlled foreign corporation (owning
at least 10 percent of the value or voting rights in one or more CFCs),
you must include your GILTI in your income. If you own an interest in a
domestic pass-through entity that is a U.S. shareholder of a controlled
foreign corporation, you may have a GILTI inclusion related to that
interest, even if you are not a U.S. shareholder of the controlled
foreign corporation. See IRS Form 8992 and its instructions for the
latest information regarding GILTI and domestic pass-through entities. |
|
Estate Tax Unified Credit Equivalent $5.49 Million |
Estate Tax Unified Credit Equivalent $11.18 Million |
|
IRC Section 179 Depreciation $510,000 |
IRC Section 179 Depreciation $1,000,000 |
..
2015, 2016 and 2017 Tax Changes
No major income tax changes for 2015, 2016 and 2017.
2014 Tax Changes
The Affordable Care Act requires that U.S. tax residents (with some exceptions) have health insurance starting in 2014. If you are not insured, you may have to pay a health care tax penalty on your 2014 tax return (filed in 2015). U.S. expatriates who claim a foreign earned income exclusion under the bona fide resident test or the physical presence test are exempt from this requirement. The mandate for this ends as of tax year 2019.
2013 Tax Changes
(FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR) replaces Form TDF 90-22 and must be filed electronically through FinCEN’s BSA E-Filing System.
Medical Expense Limitation. Only the amount of your unreimbursed qualified medical expenses that is over 10% of your adjusted gross income can be deducted (it stays at 7.5% if you’re 65 or older).
Same-sex couples who are legally married will for the most part have to choose married filing jointly or married filing separately on their tax returns. That’s even if they live in a state that does not recognize gay marriage.
Self-Employment / Payroll Tax Increase. Self-employment tax (Social Security and Medicare tax) returns to 2010 levels ending the 2% tax holiday.
Additional Medicare Tax of 0.9% on wages, compensation and self-employment income if your earned income was over $200,000 (single), $250,000 (married filing jointly).
Net Investment Income Tax (Medicare surtax) of 3.8% on interest, dividends, capital gains, etc. Applies if your modified adjusted gross income (MAGI) was over $200,000 (single) $250,000 (married filing jointly). Modified AGI is your AGI plus adding back certain deductions including the foreign earned income exclusion and deductions for IRA contributions.
Itemized deductions and personal exemptions are subject to phase-out. Applies if your adjusted gross income (AGI) over $250,000 (single), $300,000 (married filing jointly).
New 39.6% top marginal income tax rate. Also, tax on dividend and long term capital gains may increase to 20%-23.8% if the Medicare surtax on net investment income applies. Applies if your taxable income is over $400,000 (single), $450,000 (married filing jointly). Note, taxable income is AGI minus personal exemptions and itemized deductions.