2019 Tax information Walter W Ivie, CPA

What you will learn: The system of progressive taxation within the US (Taxes 101) The ways in which different types of income are taxed Differences between tax filing statuses Common IRS forms used for reporting and paying taxes Prepayment of taxes Changes in deduction for tax year 2018 Strategies for reducing taxable income

The American Legion The American Legion was chartered and incorporated by Congress in 1919 as a patriotic veterans organization devoted to mutual helpfulness. It is the nation’s largest wartime veterans service organization, committed to mentoring youth and sponsorship of wholesome programs in our communities, advocating patriotism and honor, promoting strong national security, and continued devotion to our fellow servicemembers and veterans.

The American Legion The American Legion is a nonpartisan, not-for- profit organization with great political influence perpetuated by its grass-roots involvement in the legislation process from local districts to Capitol Hill. Legionnaires’ sense of obligation to community, state and nation drives an honest advocacy for veterans in Washington. The Legion stands behind the issues most important to the nation's veterans community, backed by resolutions passed by volunteer leadership.

What you must Report As an American, you are required to report any income you receive during the tax year, regardless of how it is obtained and regardless of where in the world it is obtained.

Sources of taxable income Wages from W2 Pension and Annuity income Capital Gains Retirement Plan income Self-employment income Social Security benefits (if you have other income) Alimony Cashed-out vacation or sick time Bartering income Rental income Cancelled or forgiven debt And many, many more… Gambling

IMPORTANT! The IRS expects you to pay taxes as they are earned. This is not a problem for income reported on W-2, because taxes are withheld. It does become a problem when taxes are not withheld from your income before you are paid. Failure to pay taxes on money as you earn it subjects your to penalties and interest charges.

Taxable Income = (Total income) - (Non-taxable income) – (Total deductions) Example: Total Income $100,000 Non-taxable Disability ($10,000) Total deductions ($40,000) Taxable Income: $50,000

Marginal Tax Rates Marginal Rate: The amount paid on the next dollar of income 10% $0-$9,525 12% $9,526-$38,700 22% $38,701-$82,500 24% $82,501-$157,500 32% $157,501-$200,000 35% $200,001-$500,000 37% $500,001+

Marginal Tax Rates Ellen, who is single, had Gross Income of $220,00 and Taxable Income of $175,000. How much will she pay in income tax? .10 * $9,525 = $952.50 .12 * $29,175 = $3,501 .22 * $43,800 = $9,636 .24 * $75,000 = $18,000 .32 * $17,500 = $5,600 Total= $37,689.50 Effective Tax Rate = 17.13%

Other Taxes Social Security Tax: 12.4% on wages up to $128,400 Medicaid: 2.9% on all wages Split between employee and employer unless self-employed. FUTA and SUTA: Paid by employer on behalf of any employee with wages more than $1,500.

Capital Gains Capital Gains are incurred when an asset is sold for more than what was paid for it. This includes stocks, bonds, and real estate, including houses. Short-term capital gains (asset held for < 1 year) are taxed as regular income. Long-term capital gains (held for > 1 year) are taxed at a special capital gains tax rate, which is usually lower than the income tax rate. Capital Gains are not taxable until they are realized, meaning that they have actually been cashed-out. Until then, they are considered unrealized capital gains. Capital Gains are the difference between the Sales Price and the Cost Basis (original cost plus other adjustments). Taxes must be paid on any gain.

Tax Forms W-4: Prepared by you at request of employer in order to obtain your taxpayer ID and withholdings preferences W-2: Prepared by employer and reports all wages and withholdings for the tax year. Form1099: Reports income to non-employees. No withholdings made. 1040: Individual Income Tax Return (1040A or 1040EZ eliminated) Schedule C: Profit and Loss from Business Form 2210: Underpayment of Estimated Tax

Tax Reform Changes for 2018 Standard Deduction: Single and Married Filing Separately: $ 12,000 Married Filing Jointly: 24,000 Head of Household: 18,000 Additional Amount for each person over 65 or Blind: $ 1,300 ($ 2,600 Joint) Married Individuals over 65 and Blind get additional $ 5,200 Single Individuals get additional $1,600

Tax Changes (Cont.) Personal Exemptions have been eliminated. The Child Tax Credit increases in from $1,000 to $2,000. The tax reform bill also introduces a new $500 credit for non-child dependents. Taxpayers can deduct up to $10,000 in State and local taxes ($5,000 for Married Filing Separately) Penalties for uninsured are eliminated after 2018.

Tax Changes (Cont) Individuals can only deduct interest on $ 750,000 in new mortgage debt incurred after 12-15-2017. The interest deduction on home-equity loans is eliminated. Moving Expenses are not allowed for tax years 2018 to 2025.  Employee Business Expenses (formerly Form 2106) have been eliminated.

Tax Changes (Cont.) All Miscellaneous itemized Deductions subject to the 2% floor have been eliminated. Miscellaneous itemized deductions not subject to 2% floor are still allowed. Casualty and Theft Losses are limited to areas where a natural disaster is declared. Capital Gains Threshold for 15% Rate: Single $38,600 MFS $38,600 HH $51,700 MFJ $ 77,200 Capital Gains Threshold for 20% Rate: Single $425,800 MFS $239,500 HH $452,400 MFJ $ 479,000

Married Filing Separately Married Filing Jointly Individuals Married Filing Separately Head of Household Married Filing Jointly 10% $ 0 – 9,525 $ 0 – 13,600 0 – 19,050 12% 9,526 – 38,700 9526 – 38,700 13,601 – 51,800 19,051 – 77,400 22% 38,701 – 82,500 51,801 – 82,500 77,401 – 165,000 24% 82,501 – 157,500 82,500 – 157,500 165,000 – 315,000 32% 157,501 – 200,000 315,000 – 400,000 35% 201,0001 – 500,000 201,0001 – 300,000 401,000 – 600,000 37% over 500,000 over 300,000 over 600,000

Strategies