Category: Articles

IRS Releases New Form W-4 for 2018

With the new tax law, how much will you owe the IRS when you file your 2018 tax return next April?

Now that most of our clients have their 2017 taxes filed, it is time to start taking action regarding 2018 taxes. The Tax Cuts and Jobs Act or TCJA has an impact on just about every area of tax one can think of in 2018. These changes include increasing the standard deduction, removing the personal exemption, and changing the tax rates and brackets. The impact of these changes will affect both employees and business owners. The first effect you or your employees might notice is that some employees’ take-home pay may have increased due to the adjustment in IRS withholding tables. These larger paychecks are wonderful, but employees should be cautious. An increase in take-home pay might be deceiving because you may actually be under withholding your federal income taxes. If your pay is being under-withheld, it could be a big shock come tax time when you owe the IRS money next April. In order to avoid a surprise tax bill for the 2018 tax year, employees should update their W-4 form. To help individuals deal with 2018 withholding issues, the IRS has recently released a new W-4 Form for 2018 and a Withholding Calculator.

The W-4 form is how employees tell their employers how much money to withhold from their paychecks. All new hires after March 30th, 2018 are required to use the new 2018 W-4 form. However, current employees who have filled out older versions of the W-4 are not required to update their W-4. Even though current employees are not required to update their W-4s the IRS is encouraging all employees to review their withholdings for 2018. The IRS is worried people may have dated withholding calculations based on the previous tax law. In order for employees to better understand how much tax should be withheld from their paychecks for 2018, the IRS has released a new tool called the Withholding Calculator.

The IRS Withholding Calculator is intended to help employees make changes to their W-4 based on their specific financial situation. Having a copy of one’s completed 2017 taxes will help you navigate your way through the questions asked by the IRS Withholding Calculator. The information on your 2017 taxes will help you input accurate estimates for the 2018 tax year. After imputing all the data that the IRS Withholding Calculator requires, the calculator will output the information needed to update one’s W-4. Employers should encourage employees to use the IRS Withholding Calculator. ADP has put out a sample notice employers can provide to your employees informing them be aware of withholding changes and consider filling out a new W-4. (See sample notice below)

As an employee, making sure that you are having the right amount of money withheld from your paychecks is crucial to avoiding a tax bill next April. While the IRS is advising everyone to review their withholdings it is especially important for two-income families, people with two or more jobs at the same time, people who only work part of the year, people with children who claim credits such as the Child Tax Credit, people who itemized deductions in 2017, and people with high incomes and more complex tax returns. These groups of people are specifically affected by the changes in the tax law.

However, everyone should use the IRS Withholding Calculator to estimate their 2018 withholdings. This simple action will save you from a surprise tax bill next April. Contact your tax professional if you need help determining the amount that should be withheld from your paychecks in 2018.

Bill Hesch is a CPA, PFS (Personal Financial Specialist), and attorney licensed in Ohio and Kentucky who helps clients with their financial and estate planning. He also practices elder law, corporate law, Medicaid planning, tax law, and probate in the Greater Cincinnati and Northern Kentucky areas. His practice area includes Hamilton County, Butler County, Warren County, and Clermont County in Ohio, and Campbell County, Kenton County, and Boone County in Kentucky.

(Legal Disclaimer: Bill Hesch submits this blog to provide general information about the firm and its services. Information in this blog is not intended as legal advice, and any person receiving information on this page should not act on it without consulting professional legal counsel. While at times Bill Hesch may render an opinion, Bill Hesch does not offer legal advice through this blog. Bill Hesch does not enter into an attorney-client relationship with any online reader via online contact.)

IRS Withholding Calculator

https://apps.irs.gov/app/withholdingcalculator/

Example Notice to Employees

Re: 2018 Income Tax Withholding

Dear ____________:

You may have noticed lower federal income tax deductions and a corresponding increase in net pay in your recent paychecks.

The recent Tax Cuts and Jobs Act (TCJA) changed federal income tax rates and brackets, among other things, beginning in 2018. New IRS withholding tables were put into effect in late January.

The TCJA generally reduced federal income taxes for most people. However, depending on your specific tax situation, you might owe additional tax when you file your 2018 income tax return, even if you normally receive a tax refund from the IRS at year-end.

You may want to consider updating your withholding allowances at this time. The IRS recently released the 2018 Form W-4, (Employee’s Withholding Allowance Certificate), and related instructions, which you can find at www.irs.gov/W4.

The IRS also offers an online “W-4 Calculator,” at https://www.irs.gov/individuals/irs-withholding-calculator. This calculator may help you determine the correct number of withholding allowances to claim.

The IRS will not require all employees to file a new Form W-4 for 2018. However, for some people it may be advisable. The TCJA made many other changes that could affect your 2018 income taxes. For questions regarding your personal tax situation, talk with your tax advisor, or visit www.IRS.gov.

Inherited IRA Options for the Non-Spouse Beneficiary

Did you know that when you inherit an IRA you can limit your income tax liability by deciding how distributions are made to you?  Unfortunately, many IRA beneficiaries don’t know they have options and so they cash in their inherited IRA and expose themselves to significant income tax liabilities.  The options available to IRA beneficiaries vary depending on if the beneficiary is a spouse or non-spouse, so this article will focus on the three distribution options non-spouse IRA beneficiaries typically have to limit their tax liabilities. Not all distribution options work best for every situation, so IRA beneficiaries are encouraged to consult with their CPA and attorney to find out which option works best for them.

Option 1: Rollover IRA with Five Year Distribution

If an IRA owner dies and designates a non-spouse beneficiary, such as a child, parent, sibling, or friend, the beneficiary can choose to rollover the IRA into their name, but the entire IRA must be distributed to the beneficiary within five years of December 31 of the year following the IRA owner’s date of death.  This option gives the non-spouse beneficiary access to money relatively soon and spreads out the tax liability over a five year period, rather than in one year if a lump sum distribution is taken.

Option 2: Stretch IRA

The second option for a non-spouse beneficiary is a stretch IRA.  With a stretch IRA, the non-spouse beneficiary receives the IRA’s annual required minimum distributions (RMD) over the beneficiary’s remaining life expectancy. The beneficiary’s remaining life expectancy is determined by the beneficiary’s age in the calendar year following the year of death and reevaluated each year.  For example, if the IRA owner dies and his 50-year-old daughter is the sole beneficiary, the daughter may choose to stretch out the IRA over her remaining life expectancy and will only receive the RMD each year.  Beneficiaries who elect this option are only responsible for paying income taxes on the RMD they receive each year.  This option has more favorable tax rules but limits the amount of money available to the beneficiary on an annual basis.

Beneficiaries who choose a stretch IRA need to be aware that ownership of the IRA must stay in the decedent-owner’s name, for the benefit of the beneficiary.  If the beneficiary has already transferred the IRA ownership into their name, the IRA will be subject to the IRA Rollover rules over a 5 year period.

Option 3: Lump Sum Distribution

A non-spouse beneficiary also has the option to completely cash in the IRA and take a lump sum distribution. The beneficiary will be responsible for paying income taxes on the distribution in the year the distribution is made.  This option gives the beneficiary immediate access to money but can potentially subject the IRA income to higher tax rates.

The IRA distribution rules and options for a non-spouse beneficiary are complicated. If you are the beneficiary of an inherited IRA, meet with your CPA or tax attorney to decide what option will work the best minimize your taxes.

 

Bill Hesch is a CPA, PFS (Personal Financial Specialist), and attorney licensed in Ohio and Kentucky who helps clients with their financial and estate planning.  He also practices elder law, corporate law, Medicaid planning, tax law, and probate in the Greater Cincinnati and Northern Kentucky areas.  His practice area includes Hamilton County, Butler County, Warren County, and Clermont County in Ohio, and Campbell County, Kenton County, and Boone County in Kentucky.

(Legal Disclaimer:  Bill Hesch submits this blog to provide general information about the firm and its services.  Information in this blog is not intended as legal advice, and any person receiving information on this page should not act on it without consulting professional legal counsel.  While at times Bill Hesch may render an opinion, Bill Hesch does not offer legal advice through this blog.  Bill Hesch does not enter into an attorney-client relationship with any online reader via online contact.)

Amy E. Pennekamp-Ohio Super Lawyers Rising Star 2016

William E. Hesch Law Firm, LLC is pleased to announce that attorney Amy E. Pennekamp has been named a 2016 Ohio Super Lawyers® Rising Star.  Attorneys are chosen through the independent research of the publishers at Super Lawyers®, a Thomson Reuters business.

Rising Stars are age 40 or younger or have been practicing law for 10 years or less, and represent the top up-and-coming attorneys in the state. Less than 2.5 percent of lawyers are selected for Rising Star status. Super Lawyers®, a Thomson Reuters business, is a rating service of outstanding lawyers from more than 70 practice areas who have attained a high degree of peer recognition and professional achievement. The annual selections are made using a rigorous multi-phased process that includes a statewide survey of lawyers, an independent research evaluation of candidates, and peer reviews by practice area.

Learn more about Amy and find her contact information, here.

Peace of Mind

Submitted by: Chris Allen, President – The Business Spotlight, Inc. and Committee Member of Emerging 30

The William E. Hesch Law Firm, headquartered in Cincinnati, OH, is owned and operated by Bill Hesch, Owner/CEO. His company, founded in 1993, focuses on providing great legal, tax & financial advice (licensed attorney, CPA & Personal Financial Specialist [PFS]) for business owners and high net worth individuals (Estate, Elder Law & Medicaid Planning). Website: www.heschlaw.com
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Affordable Care Act Changes

Under the Affordable Care Act, there are new reporting requirements for the employer to report the cost of coverage under an employer-sponsored group health plan. For years after 2011, employers generally are required to report the cost of health benefits provided on the Form W-2. All employers that provide “applicable employer-sponsored coverage” under a group health plan are subject to the reporting requirement.
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Top 5 Problems with your Estate Plan

Top 5 problems that arise when you leave money to your family upon your death and the unexpected consequences that would cause you to roll over in your grave

1. Heirs recklessly spend their inheritance: Failure to leave your estate to your heirs in a trust means that your family “wins the lottery” upon your death. Your spouse and/or children may recklessly spend their inheritance within months or years, which is what most lottery winners do. A trust can control what distributions are made to your surviving spouse and/or children after your death and also delay the distributions over a number of years.
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2012 Expiring Tax Incentives

Tax | Estate Law Planning – Articles

2012 Expiring Incentives

2012 began with great uncertainty over federal tax policy and now, with the end of the year approaching, that uncertainty appears to be far from any long-term resolution. A host of reduced tax rates, credits, deductions, and other incentives (collectively called the “Bush-era” tax cuts) are scheduled to expire after December 31, 2012. To further complicate planning, over 50 tax extenders are up for renewal, either having expired at the end of 2011 or scheduled to expire after 2012. At the same time, the federal government will be under sequestration, which imposes across-the-board spending cuts after 2012. The combination of all these events has many referring to 2013 as “Taxmeggedon.”
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Ohio is Cracking Down on Unpaid Use Tax

Unpaid Use Tax

The State of Ohio is aggressively looking for businesses that may owe Ohio Use taxes. In addition to pursing out-of -state businesses who should be collecting and remitting Use Tax to the State of Ohio, the Department of Taxation is now looking for Ohio businesses that may not have paid use tax on purchases of property used in Ohio.

Use Tax is a tax on the storage, use or other consumption of tangible personal property in Ohio. The tax is a compliment to the Ohio Sales Tax. In general if you have paid Ohio Sales Tax on a purchase you would not owe Use Tax on the purchase.
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Aging Parents, Children Avoiding Critical Talk About Money

Holidays can present ideal opportunity to jumpstart financial conversations.

Only a quarter of U.S. adults with children talk regularly with their own parents about financial matters according to a recent survey conducted by Harris Interactive for the American Institute of CPAs. Thirteen percent never have the conversation and 45 percent talk about finances only annually or less often.
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