Friday, September 14, 2018

90th Anniversary - The 1928 Individual Income Tax Return

LWH CPAs is a public accounting firm with four locations, including Paris, Casey, and Tuscola, Illinois and Terre Haute, Indiana.  We seek to be our clients’ most trusted advisor and provide innovative solutions, while focusing on client needs, quality, and timeliness. We provide a wide range of services, from tax planning and compliance to auditing, accounting, payroll, and business valuation services.  Clients range from individuals with small businesses to multi-state corporations.  

This year, LWH is celebrating its 90th anniversary.  To celebrate our anniversary, we are hosting events in each city related to common QuickBooks mistakes and the effects of the Tax Cuts and Jobs Act.  Please contact us for details if you are interested in attending any of our presentations.

LWH was founded in 1928 and many things have changed over the decades.  One drastic change is the length of the individual income tax packet.  In 1928, the individual income tax return packet was only three pages!  The main form, schedules, and instructions were each one page in length.  See below for a look at the 1928 tax return packet. 

Today, the process is significantly more involved.  The 2017 1040 is only two pages.  However, this does not include countless schedules and forms that are required to be attached to the main form.  The instructions alone for the form are 107 pages.

Nothing is as simple as it used to be, but the IRS has been working on significant changes to the 2018 form to help shorten it. Although the 2018 Form 1040 has been condensed based on the drafts released, it will still include countless additional schedules that may need to be attached.  We are unlikely to have a tax form as simple as the one below again.

LWH looks forward to another 90 years of providing quality services to the communities we serve.


Wednesday, September 5, 2018

Alimony Tax Treatment Changes from the Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act (TCJA) has made changes to the tax treatment of alimony that you may be interested in. These changes take effect for divorces and legal separations after 2018.

Under the current rules, an individual who pays alimony may deduct an amount equal to the alimony or separate maintenance payments paid during the year as an "above-the-line" deduction. (An "above-the-line" deduction, i.e., a deduction that a taxpayer need not itemize deductions to claim, is more valuable for the taxpayer than an itemized deduction.)

Also under current rules, alimony and separate maintenance payments are taxable to the recipient spouse (includible in that spouse's gross income).

Please note that the tax rules for child support – i.e., that payers of child support don't get a deduction, and recipients of child support don't have to pay tax on those amounts – is unchanged.

Under the new TCJA rules, there is no deduction for alimony for the payer. Furthermore, alimony is not gross income to the recipient. So for divorces and legal separations that are executed (i.e., that come into legal existence due to a court order) after 2018, the alimony-paying spouse won't be able to deduct the payments, and the alimony-receiving spouse doesn't include them in gross income or pay federal income tax on them.

The current rules continue to apply to already-existing divorces and separations, as well as divorces and separations that are executed before 2019.

Under a special rule, if taxpayers have an existing (pre-2019) divorce or separation decree, and they have that agreement legally modified, then the new rules don't apply to that modified decree, unless the modification expressly provides that the TCJA rules are to apply. There may be situations where applying the TCJA rules voluntarily is beneficial for the taxpayers, such as a change in the income levels of the alimony payer or the alimony recipient.

If you wish to discuss the impact of these rules on your particular situation, please contact us.