Hunterdon/Somerset Association of Realtors - Taxes for Realtors Gail Rosen, CPA February 16, 2018

Value of a Deduction Sales Less: Deductible expenses Realtors pay taxes on: Sales Less: Deductible expenses Net taxable income (or loss)

Tax Brackets Taxes on the net income are paid as follows and therefore, keeping track of deductible expenses are very important: ** Social security tax is paid on a maximum self-employment income of $127,200 in 2017 and $128,400 in 2018 2017 2018 Low High Federal 10.00% 39.60% 10% 37% NJ 1.4 8.97 Social Security ** 12.4 Medicare 2.9 Total Combined Rate 26.70% 63.87% 61.27%

Tax Estimate Due Dates April 15th June 15th September 15th January 15th Required to pay throughout the year the lower of: - 90% to federal (80% to NJ) of your actual tax for the year. - 100% of last year’s tax (or 110% of last year’s tax if last year’s AGI was over $150,000 or $75,000 married filing separate).

Deductions to Consider Accounting Fees – business % Advertising Assistant salary (payroll) Auto – business % of actual expenses or standard 53.5 cents per business mile in 2017 (54.5 cents in 2018) plus business tolls and parking. Business cards Computer – business % Conventions Dues and subscriptions Entertainment Professional insurance Medical insurance (deduction on page 1) Gifts <= $25 each Internet Fees Licenses

Deductions to Consider (continued) Lock boxes Multiple Listing Services Office Open houses Postage Printing Repairs Retirement plans (deduction from AGI) Seminars Signs Software Staging a House Supplies Telephone Travel Website Fees

Change in Overall Rates Tax Year 2017 Taxable Income Ordinary Income Tax Rates Single Married Filing Jointly Head of Household $ - 10% $ 9,325 $ 18,650 $ 13,350 15% $ 37,950 $ 75,900 $ 50,800 25% $ 91,900 $ 153,100 $ 131,200 28% $ 191,650 $ 233,350 $ 212,500 33% $ 416,700 35% $ 418,400 $ 470,700 $ 444,500 39.6% Tax Cuts and Jobs Act (Tax Years 2018 - 2025) Taxable Income Ordinary Income Tax Rates Single Married Filing Jointly Head of Household $ - 10% $ 9,525 $ 19,050 $ 13,600 12% $ 38,700 $ 77,400 $ 51,800 22% $ 82,500 $ 165,000 24% $ 157,500 $ 315,000 32% $ 200,000 $ 400,000 35% $ 500,000 $ 600,000 37%

Retains Preferential Capital Gains Rates Long term capital gains Qualified dividends If Your Regular Marginal Tax Rate Is… Your Long Term Capital Gains Tax Rate is… 2017 2018 – 2025 10% 0% 15% 12% 25% 22% 28% 24% 33% 32% 35% 39.6% 37% 20%

Changes to AMT Exemptions increased to $109,400 for married filing joint taxpayers (up from $84,500) and $70,300 for all other taxpayers (up from $54,300) Exemption phase outs increased to $1,000,000 for married filing joint taxpayers and $500,000 for all other taxpayers Sunsets after tax year 2025

Change in Standard Deduction Filing Status 2017 2018 – 2025 Single 6,350 12,000 Married Joint/ Surviving Spouse 12,700 24,000 Married Separate Head of Household 9,350 18,000 Personal Exemption 4,050 Repealed Additional deduction for elderly/blind remains

Change in Tax Deduction: Mortgage Interest 2017: - Interest allowed on mortgages up to $1,000,000 plus home equity debt up to $100,000 - Primary home and one additional home 2018 – 2025: - Interest deduction is allowed for “acquisition indebtedness” (debt incurred to acquire, construct or improve a qualified residence) up to $750,000 ($375,000 married filing separately) on your primary home and a second home. - Home equity debt does not qualify unless it is used to substantially improve a qualified residence. - For mortgages incurred before December 15, 2017, this limitation is $1,000,000 - After December 31, 2025, cap goes back up to $1,000,000 regardless of when indebtedness was incurred

Change in Tax Deduction: State & Local Income Taxes 2017: State and local income taxes paid are deductible as an itemized deduction 2018 – 2025: State and local income tax deduction will be capped at $10,000 and can be combination of income or sales tax and property taxes ($5,000 for married taxpayers filing a separate return)

Change in Tax Deduction: Real Estate Taxes 2017: Real estate taxes are deductible as an itemized deduction 2018 – 2025: Real estate tax deduction will be capped at $10,000 and can be combination of income or sales tax and property taxes ($5,000 for married taxpayers filing a separate return)

Change in Tax Deduction: Cash Charitable Contributions 2017: Cash contributions are deductible as an itemized deduction up to 50% of AGI 2018 – 2025: Cash contributions are deductible as an itemized deduction up to 60% of AGI, carryforward remains at 5 years Planning Point: Use a “bunching” strategy with respect to charitable giving

Change in Tax Deduction: Medical Expenses 2016: Medical expenses in excess of 10% of AGI are deductible (7.5% for taxpayers age 65 and older) 2017 – 2018: Medical expenses in excess of 7.5% of AGI are deductible regardless of age Effective for taxable years after December 31, 2016 through December 31, 2018

Change in Tax Deduction: Miscellaneous Itemized Deductions 2017: Includes unreimbursed employee business expenses, investment expenses, tax preparation fees, etc., however subject to a 2% floor 2018 – 2025: Miscellaneous itemized deductions are suspended.

Overall Limitation on Itemized Deductions 2017: Total of otherwise allowable itemized deductions is limited for high income taxpayers (3% PEASE limitation) 2018 – 2025: PEASE limitation repealed

Alimony Deduction 2017 – 2018: Alimony paid is deductible in arriving at adjusted gross income and alimony received is includable by the recipient in taxable income. 2019 on: Alimony payments are not deductible by the payor spouse and alimony received is not included in taxable income. Effective for agreements executed after December 31, 2018. (Prior agreements grandfathered unless modified after December 31, 2018 and modification expressly references this provision.)

Enhanced Child Tax Credit Filing Status 2017 Credit 2017 Phase Out 2018 Credit 2018 Phase Out Single and other unmarried individuals $1,000 qualifying child/ $0 other dependent 75,000 $2,000 qualifying child/ $500 other dependent Up to $1,400 per qualifying child refundable 200,000 Married Joint 110,000 400,000

“Kiddie Tax” Changes “Kiddie tax” applies to the net unearned income of any child who is: Under age 19 by the close of the tax year, or a full-time student under age 24 Has at least one living parent at the close of the tax year Has unearned income of more than $2,100 (for 2017) Doesn’t file a joint return For children over age 17, the kiddie tax applies only to children whose earned income doesn’t exceed one-half of the amount of their support

“Kiddie Tax” Changes Tax Cuts and Jobs Act modifies the kiddie tax to apply the estate and trust ordinary and capital gains rates to the net unearned income of a child The child’s earned income is taxed according to an unmarried taxpayer’s brackets and rates No longer tied to parents and siblings tax situation Higher overall tax on unearned income of children – 37% bracket applies to an estate or trust at $12,500 (compared to $600,000 for a married taxpayer)

Qualified Income Business Deduction Available to noncorporate taxpayers Deduction of up to 20% of qualified business income. Income must come from a qualified trade or business

Qualified Trade or Business Any trade or business other than specified service trades or businesses and performing services as an employee Specified service trades or businesses are: Health, Law, Accounting, Actuarial Science, Consulting, Performing Arts, Financial Services, Brokerage Services, and any trade or business where the principal asset is the reputation or skill of 1 or more of its employees/owners, or any trade or business which involves performance of services that consist or investing and investment management Real estate?

Exception for Small Service Businesses Taxpayers income does not exceed threshold amount plus $50,000 ($100,000 MFJ) Threshold amount - $157,500 ($315,000 MFJ) For any year this applies specified service businesses will be entitled to the deduction subject to phase-in Amount is indexed for inflation after 2018

Qualified Business Income Amount Deduction is limited to the lesser of: 20% of the taxpayer’s qualified business income or The greater of 50% of the W-2 wages of the qualified trade or business or The sum of 25% of W-2 Wages plus 2.5% of unadjusted basis of qualified property Plus 20% of qualified REIT dividend and PTP income Deduction is calculated for each trade/business of the taxpayer

Exception to the Wage Limitation Taxpayers whose taxable income does not exceed the threshold amount Threshold amount - $157,500 ($315,000 MFJ) Amount is indexed for inflation after 2018 Phase-in of limit for taxpayers whose taxable income does not exceed threshold amount by more the $50,000 ($100,000 MFJ)

Taxable Income Limitation Deduction is limited to the sum of: The lesser of The combined qualified business income amount or 20 percent of the excess of taxable income over net capital gain 20 percent of qualified cooperative dividends or Taxable income

Entertainment Expenses Expenses are no longer deducible effective January 1, 2018 Expenses include: An activity generally considered to be entertainment, amusement or recreation Membership dues for any club organized for business, pleasure, recreation or social purposes A facility used in connection with either of the above

Questions?

Thank You! Gail Rosen, CPA Principal 732.469.4202 grosen@wgcpas.com