Taxing Lessons

Lesson — Roundup time

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Image source: Charles Marion Russell [Public domain], via Wikimedia Commons

Saddle up! Time to put a rope around a few last minute tax rules.

 

1

In Notice 2018-3, the IRS announced the 2018 standard mileage rates. Do you know how much of the business standard mileage rate is treated as depreciation for 2018?

or

 

2

The recently passed Tax Cuts and Jobs Act reduced the rate of backup withholding for 2018.

or

 

3

The annual exclusion for gifts will increase on January 1, 2018.

or

 

4

Beginning in 2018, the Tax Cuts and Jobs Act allows withdrawals from section 529 plans of up to $10,000 for primary and secondary education.

or

 

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Note: Taxing Lessons provides a summarized version of sometimes lengthy legislation and IRS informational materials. The full source material may include facts and issues not presented here. Please use the link provided in the post to read the entire material.

This information should not be considered legal, investment, or tax advice. Taxing Lessons and Top Drawer Ink Corp. do not provide legal, investment, or tax advice. Always consult your legal, investment, and/or tax advisor regarding your personal situation.

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Right answer!

For automobiles a taxpayer uses for business purposes, the portion of the business standard mileage rate treated as depreciation is 25 cents per mile for 2018. The depreciation portion was 22 cents per mile for 2014, 24 cents per mile for 2015, 24 cents per mile for 2016, and 25 cents per mile for 2017.

The optional mileage allowance for owned or leased autos (including vans, pickups or panel trucks) is 54.5¢ per mile for business travel after 2017. The standard mileage rate for charitable driving is 14 cents per mile in 2018, and the rate for medical care or moving is 18 cents per mile.

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The backup withholding rate will decrease from 28% to 24%, effective January 1, 2018.

The backup withholding rate under internal revenue code section 3406(a)(1) is the fourth lowest rate of tax for single individuals. Under the Tax Cuts and Jobs Act, the rate is reduced to 24%.

Payors must deduct backup withholding on certain payments when the taxpayer identification number is missing or an incorrect. Payments that may be subject to backup withholding include commissions, fees, or other payments for work performed as an independent contractor, and interest and dividends.

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In 2018, the annual exclusion for gifts is $15,000. Prior year annual exclusions were: $11,000 (2004-2005), $12,000 (2006-2008), $13,000 (2009-2012) and $14,000 (2013-2017).

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The act modifies section 529 plans to allow such plans to distribute not more than $10,000 in expenses for tuition incurred during the taxable year in connection with the enrollment or attendance of the designated beneficiary at a public, private or religious elementary or secondary school.

This limitation applies on a per-student basis, rather than a per-account basis. Thus, under the provision, although an individual may be the designated beneficiary of multiple accounts, that individual may receive a maximum of $10,000 in distributions free of tax, regardless of whether the funds are distributed from multiple accounts. Any excess distributions received by the individual would be treated as a distribution subject to tax under the general rules of section 529.

The provision also modifies the definition of higher education expenses to include certain expenses incurred in connection with a homeschool. Those expenses are (1) curriculum and curricular materials; (2) books or other instructional materials; (3) online educational materials;(4) tuition for tutoring or educational classes outside of the home (but only if the tutor or instructor is not related to the student); (5) dual enrollment in an institution of higher education; and (6) educational therapies for students with disabilities.

The provision applies to distributions made after December 31, 2017.

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