The inclusion of dividends in taxable income and the related tax calculation.
Dividend income can be more confusing then is seems at first glance. From a reporting standpoint dividends are usually easy to see because they will usually be reported on a Form 1099 Div.
The rules related to the tax rate applied to dividends can be more complex. Dividends are the distribution of revenue from a corporation to the owners, to the shareholders.
C corporations are taxed at the corporate level. In other words, the corporate entity is taxed at the time the money is earned as a corporate entity.
The distribution of income to the owner or shareholder is a dividend and it may also be a taxable event. This is what we call double taxation, tax at the corporate level and then tax on the distribution level. There are many arguments for and against taxing dividend income and most revolve around this concept of double taxation.
The result of the debate on double taxation is a reduced tax rate for qualified dividends. In other words, if the dividend distribution qualifies as a qualified dividend it will not be taxed at individual income tax rates, using tax tables, but at lower rates, usually 0% to 15%.
The real seems fairly straightforward and easy to understand, and it is not too bad, but when we start to think about the income tax calculation we can see that is does add substantial amount of complication. We already have a progressive tax system, taxing income at multiple rates and we now need to break out qualified dividends to tax them at rates outside the progressive system.
For more accounting and tax information see accounting website.
Tax Law changes for 2018 will discuss differences in the tax filing for 2018, filed in 2019, compared to the prior year tax filing for 2017 due in 2018.
For specific tax advice consult a tax professional.
There are many changes to the IRS tax code for 2018 in comparison to the prior year. We will look at an overview of the big IRS tax law changes as an introduction to the topic of taxation.
We will start with a discuss of why we should learn tax and how we can approach the learning of tax law to get the best results.
6:36 Changes to form 1040
We will then discus the changes to form 1040. The form 1040 will look much different in 2018 then 2017, Form 1040 being much shorter in 2018. Forms 1040EZ and 1040A have been eliminated. There are new supporting schedules to the form 1040 however.
10:09 Elimination of Personal & Tax Exemption
We will then discuss the elimination of the personal and dependent exemptions for 2018. Exemptions acted similar to deduction in 2017 and we got an exemption for ourselves, our spouse, and dependents. The elimination of exemptions in 2018 will simplify the tax code and may be offset by the increase in the standard deduction and other changes for many taxpayers.
12:36 Increase in Standard Deduction
There has been a substantial increase in the standard deduction in 2018 tax code as compared to the prior year. Because taxpayers must decide to either take itemize deduction or standard deduction, whichever is larger, the increase in the standard deduction will result in less people itemizing. The elimination of the standard deduction is an attempt to simplify the tax code and will have a positive impact to many lower to middle income people.
15:39 Decrease In Tax Brackets
Tax rates have basically decrease is the simple method of describing the changes to the tax tables. Because we have a progressive tax system our taxes are taxed at multiple rates. Many were hoping we would have less tax brackets to simplify the tax code. We still have a complex tax calculation but we did see a decrease in many rates and positive changes that would lower taxes to most any tax payer if the taxable income was the same. In other words there are two factors for tax liability calculation, taxable income and tax brackets. Given the same taxable income the tax brackets would be less in 2018 then in 2017.
18:34 Child Tax Credit Increase
Child tax credit has increase substantially. The increase in the child tax credit will partially compensate or offset the loss of the exemptions for many tax payers. The child tax credit is up to 2,000 for 2018, up from 1,000 in 2017 and much of it is refundable in the 2018 tax changes.
20:40 Limit on state & local tax deductions
State and local taxes have been capped at 10,000, a very controversial change. State and local taxes are itemized deduction on schedule A and include state income tax or sales tax and property tax. Itemized deduction have already been marginalized with the increase in the standard deduction. The state and local taxes are one of the big factors, along with mortgage interest, that push most people into a point of itemizing instead of taking the standard deduction. This change in the tax law could result in many less people itemizing and could increase taxes for sum, especially those in state that have a high cost of living.
24:58 20% Pass-Through Tax Deduction
The 20% pass-through tax deduction tax law change could have a huge impact on individuals that have small business. The law is complicated however, so may not contribute to the simplification of the law, but could help small business save on their tax bill. Business entity types this law covers includes sole proprietors who report on schedule C, LLCs, S corps, and partnerships.
27:30 New Tax Credit For Other Dependents
There is tax credit up to 500 for non qualifying child dependents. After losing the exemption this credit could help compensate or offset the loss, taxpayers still getting tax savings for supporting a dependent.
29:00 Limitation On Home Mortgage Interest Deduction
The tax law changes have limited the amount of home loan for which the related interest can be deducted to 750,000. Most taxpayers will not have a loan over 750,000 but this change may hurt those who live in high cost of living states. We also loss the ability to write off interest for loans where the the house is used a collateral but the money was not spent on the home.
We will enter a tax entry into our adjusting entry and tax entry Excel worksheet related to the sale of a fixed assets.
Before entering the tax entry we will reverse the adjusting entry into our Excel worksheet. We may be tempted to just enter one entry for the tax adjustment but it is usually easier to reverse the adjusting entry and build the tax entry from the round up.
For more accounting and tax information see accounting website
QuickBooks can be used to track personal bookeeping as well as business bookkeeping.
We can tack personal bookkeeping and generate personal financial statements, balance sheet and profit an loss, by entering data from our bank statement into the QuickBooks file.
Entering bank statement activity will will help us record activity, cash in flows and outflows, income and expenses.
We may also want to add more balance sheet items related to transaction in the past, items like a home, car, or loan.
We will discuss methods for adding balance sheet assets to the personal QuickBooks file.
For more accounting information see accounting website.
New QuickBooks file designed to be used for both business and personal record keeping with the use of QuickBooks class tracing feature.
It is generally recommended to have two QuicKBooks files, one business and one personal, and two bank accounts so that we keep business records as separated as possible. However, some small business owners may want to track personal and business expenses in one QuickBooks files.
We will set up a QuickBooks file designed to track both business and personal expenses and use the class tracking feature to show how such a system could work.
Method to track tax related deductions for charitable contributions, in one QuickBooks file, to make year end tax filing much easier.
It is generally good advice to keep personal transactions completely separate from business transactions, keeping two separate set up books, and having two separate checking accounts.
There are benefits, however, to tracking some personal items using our business account. Once benefit is that it keeps the items we need to track for taxes in one location and tax preparation and compliance if often one of the main goals for small businesses. The business QuickBooks account is often much more organized then the personal records because special focus has been spent on tracking the accounts and on using the bank account for guidance.
If we can use the same QuickBooks account for tax related items we must track it can simplify our lives. We do run the risk, however, of combining business and personal records in a confusing way so we do need to be very careful.
For more accounting and QuickBooks Information see accounting website.
Set up payroll item for health insurance that is employer paid.
payroll items are the driving components to how QuickBooks navigates the system. The payroll items will help QuickBooks process payroll and select the correct accounts to be effected.
We have set up payroll items related to dental insurance and vision insurance in the past. We set these items up to be paid by the employee.
In contrast we will set up this health insurance item to be paid by the employer so that we can then run payroll and examine the differences.
For more accounting and QuickBooks information see accounting instruction website.
Payroll Items are items QuickBooks uses to help run the payroll process and direct the journal entries and accounts that will be effected by processing payroll.
We will add payroll items related to dental insurance. When adding dental insurance payroll item to QuickBooks we will have multiple options. The insurance can be employer paid, employee paid, and if employee paid can be before tax or after tax. We will add dental insurance that is employee paid after taxes in this example and compare it to other insurance options in future videos.
For more accounting and payroll information see accounting website.