FAQs About Business and Income Taxes

2018 Tax Cuts & Jobs Act FAQs

 

Corporate / Business Tax Questions

What is the 20% deduction for pass-through entities?

A pass-through entity is a business organized as a sole proprietor, a partnership/LLC, or an S-Corporation. These entities do not pay Federal income tax at the business level rather, the net profit passes through to the owner’s individual income tax return where the income is taxed at the owner’s applicable tax rate. For purposes of determining taxable income, net profit will be reduced by 20%.


 

Individual Income Tax Questions

Can we only deduct $10,000 in State income and property taxes in 2018?

Yes. Beginning in 2018, your itemized deduction for taxes will be limited to $10,000 comprised of any combination of State income and property taxes.

What are some other changes to my itemized deductions?

The biggest change is the elimination of miscellaneous deductions subject to a 2% of AGI limitation. This includes unreimbursed employee expenses (think vehicle mileage), union dues, and investment advisor fees.

Does California conform to the new tax law?

We don’t know the answer yet. It may be possible that you will itemize for State purposes and take the standard deduction on your Federal return.

Are mortgage insurance premiums still deductible?

Yes. Although the provision in the tax code that allowed taxpayers to deduct mortgage interest premiums expired December 31, 2016, new legislation signed on February 9, 2018, extended this deduction for 2017. Because mortgage insurance premiums were no longer deductible, many lenders did not include the amount you paid on your Form 1098 (mortgage interest statement) so you will need to contact your lender and get the amount from them. If you paid premiums in 2016, we will ask you about it, but please be sure and mention to us that you paid mortgage insurance premiums, especially for new or refinanced loans, so we know to include it on your tax return.


 

General Tax Questions

What Tax scams should I watch for?

The threatening phone call – scammers call claiming to be an IRS representative and tell you that if you don’t make a payment, you will be sued, subject to a lien, or even be convicted of a criminal offense.The IRS does not call you about collection issues or a balance due. If you get one of these call, hang up immediately.

The letter with a bill – you will receive an official looking bill for a small amount, less than $200. The hope is you just pay rather than going through the hassle of fighting the bill. Often you will be instructed to make the check payable to the IRS (IRS is easily changed to MRS to which any name is added) rather than the U.S. Treasury and the return address will not match the processing center address posted on the IRS website.

Please contact our office when you receive any notice from the IRS or FTB.