Now that the 2017 tax filing season is over, it’s time to start adapting to some of the momentous tax changes passed last year. This issue provides an update on the latest news affecting 2018 taxes, as well as a guide to the (still intact) IRS penalties for gaps in health care coverage. There’s an article about managing money with your significant other, and also an update about the latest identity theft “port-out” scam.
If you wish to review your situation, call at any time. Also feel free to forward this newsletter to someone who may benefit.
Tax Cuts and Jobs Act Update
The Tax Cuts and Jobs Act (TCJA) was passed by Congress in a hurry late last year, and the IRS has been working to implement the changes for 2018. Here are the latest answers to some of the most common questions about the tax overhaul:
|The TCJA effectively writes the concept of home equity indebtedness out of the tax code. Now you can only deduct interest on “acquisition indebtedness,” meaning a loan used to buy, build or substantially improve a residence. If you took out a home equity loan pre-2018 and used it for any other purpose, interest on it is no longer deductible.|
|I’m a small business owner. How do I use the new 20 percent qualified business expense deduction?
Short answer: It’s complicated and you should get help.
Certain small businesses structured as sole proprietors, S corporations and partnerships can deduct up to 20 percent of their qualified business income. But that percentage can be reduced after your taxable income reaches $157,500 (or $315,000 as a married couple filing jointly).
The amount of the reduction depends partly on the amount of wages paid and property acquired by your business during the year. Another complicating factor is that certain service industries including health, law, consulting, athletics, financial services and accounting are treated differently.
The IRS is expected to issue more clarification on how these rules are applied, such as when your business is a mix of one of those service industries and some other kind of business.
|What are the new rules about dependents and caregiving?There are a few things that have changed regarding dependents and caregiving:
Stay tuned for more guidance from the IRS on the new tax laws, and reach out if you’d like to set up a tax planning consultation for your 2018 tax year.
Handling Health Care Coverage Gaps
Health care coverage gaps happen. Whether because of job loss or an extended sabbatical between gigs, you may find yourself without health care for a period of time. Here are some tax consequences you should know about, as well as tips to fix a coverage gap.
|Coverage gap tax issues
You will have to pay a penalty in 2018 if you don’t have health care coverage for three consecutive months or more. Last year the penalty for a full uncovered year was equal to 2.5 percent of your household income or $695 per adult (and $347.50 per child), whichever is higher. The 2018 amounts will be slightly higher to adjust for inflation.
Example: Susan lost her job-based health insurance on Dec. 31, 2016, and applied for a plan through her state’s insurance marketplace program that went into effect on April 1. Because she was without coverage for three months, she’ll owe a fourth of the penalty on her 2017 tax return (three of 12 months uncovered, or 1/4th of the year).
While the penalty is still in place for tax years 2018 and earlier, it is eliminated starting in the 2019 tax year by the Tax Cuts and Jobs Act.
Three ways to handle a gap
There are three main ways to handle a gap in health care coverage:
|COBRA. If you’re in a coverage gap because you’ve left a job, you may be able to keep your previous employer’s health care coverage for up to 18 months through the federal COBRA program. One downside to this is that you’ll have to pay the full premium yourself.|
|Marketplace. You can buy an insurance marketplace health care plan through Healthcare.gov or your state’s online portal. Typically, you can only sign up for or change a Marketplace plan once a year. But you can qualify for a 60-day special enrollment period after a major life event, such as losing a job, moving to a new home or getting married.|
|Applying for an exemption. If you are without health care coverage for an extended period, you may still avoid the penalty by qualifying for an exemption. Valid exemptions include unaffordability (you must prove the cheapest health insurance plan costs more than 8.16 percent of your household income), income below the tax filing threshold (which was $10,400 for a single filer below age 65 for 2017), ability to demonstrate certain financial hardships, or membership in certain tribal groups or religious associations.|
Protect Yourself From Port-Out Scams
|Mobile phones not only contain our personal details and information about everyone we know; they are used to verify our identities and unlock access to our financial accounts.
Now scammers are using a process called a “port-out” to hack into our phones to change our passwords, steal our personal data and even empty our bank accounts.
|Basics of the Port-Out Scam
A port-out scam starts by manipulating the legitimate process you can use to move your mobile phone number from one carrier to another. A scammer calls a carrier and impersonates you to request that your mobile phone number and SIM card data be transferred to a new carrier and device owned by the scammer.
Once the scammer successfully ports out your number in this way, they are often able to use it as leverage to gain access to your bank accounts. That’s because like other online accounts, banks will respond to requests to change your password by sending the new password or a PIN to your phone.
|Once the scammer uses a ported-out phone to change your passwords, not only are you locked out from accessing your accounts, but the scammer can now begin emptying them.
How to Protect Yourself
The key security vulnerability of the port-out scam is with the mobile phone carrier. When a customer calls to request changing their phone number to another carrier and device, the carrier will ask them to provide a PIN number. For some U.S. carriers including T-Mobile, the default PIN has been the last four digits of the customer’s Social Security number.
You may have heard that last year more than 143 million Americans had their data exposed in a hacking security breach at the credit reporting agency Equifax. The information exposed included names linked with phone numbers and Social Security numbers. In other words, everything a hacker would need to try a port-out scam.
Recently, T-Mobile sent text messages to customers warning them to change their PINs. It also set up a port-out protection page.
No matter what carrier you use, it’s worthwhile updating your security information and PIN. It can take only minutes and it may avoid the devastating consequences of this scam. Make sure that the new PIN you choose is different from your carrier account password.
Here are the pin protection links at the other three major U.S. carriers:
Managing Money Tips for Couples
Couples consistently report finances as the leading cause of stress in their relationship. Here are a few tips to avoid conflict with your long-term partner or spouse:
|Be transparent. Be honest with each other about your financial status. As you enter a committed relationship, each partner should learn about the status of the other person’s debts, income and assets. Any surprises down the road may feel like dishonesty and lead to conflict.|
|Discuss future plans often. The closer you are with your partner, the more you’ll want to know about the other person’s future plans. Kids, planned career changes, travel, hobbies, retirement expectations — all of these will depend upon money and shared resources. So, discuss these plans and create the financial roadmap to go with them. Remember that even people in a long-term marriage may be caught unaware if they fail to keep up communication and find out their spouse’s priorities have changed over time.|
|Know your comfort levels. As you discuss your future plans, bring up hypotheticals: How much debt is too much? What level of spending versus savings is acceptable? How much would you spend on a car, home or vacation? You may be surprised to learn that your assumptions about these things fall outside your partner’s comfort zone.|
|Divide responsibilities; combine forces. Try to divide financial tasks such as paying certain bills, updating a budget, contributing to savings and making appointments with tax and financial advisors. Then periodically trade responsibilities over time. Even if one person tends to be better at numbers, it’s best to have both members participating. By having a hand in budgeting, planning and spending decisions, you will be constantly reminded how what you are doing financially contributes to the strength of your relationship.|
|Learn to love compromise. No two people have the same priorities or personalities, so differences of opinion are going to happen. One person is going to want to spend, while the other wants to save. Vacation may be on your spouse’s mind, while you want to put money aside for a new car. By acknowledging that these differences of opinion will happen, you’ll be less frustrated when they do. Treat any problems as opportunities to negotiate and compromise. Instead of looking at the outcome as “I didn’t get everything I wanted,” think of it as “We both made sacrifices out of love for each other.”|
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