2018 Individual Estimated Payments and the Tax Cuts and Jobs Act

Taxpayers who will have business income that they will report on Schedule C, E or F on their 2018 federal income tax return and therefore may need to make 2018 estimated tax payments will need to take into account the following changes that go into effect in 2018 due to the recently passed Tax Cuts and Jobs Act.

20% Deduction for Pass-Through Income
Sole proprietors that are filing Schedules C, E or F for 2018 will need to be sure that they take into account the new 20% deduction for pass-through income that was included in the Tax Cuts and Jobs Act.

Generally for individual’s that have income from a Schedule C, E or F and their taxable income is below $157,500 ($315,000 for joint filers), they may take a deduction of the lesser of (1)20% of the income from their business or (2) 20% of their taxable income excluding capital gains.

If their taxable income exceeds $157,500 ($315,000 for joint filers) then the deduction will be limited as follows:

• For “specified service businesses” the deduction begins to be phased out.
• For all other businesses the deduction is limited to:
• 50% of the W-2 wages paid by the business or
• 25% of the W-2 wages paid by the business plus 2.5% of the unadjusted basis of all qualified property

A specified service trade or business is a business in the fields of:

• Accounting, health, law, consulting, athletics, financial services, brokerage services or any business where the principal asset of the business is the reputation or skill of one or more of its employees.
• Or which involves the performance of services that consist of investing and investment management trading, or dealing in securities, partnership interest, or commodities.

The IRS will need to provide further guidance on this deduction so that taxpayers that may qualify for it can calculate it correctly in all situations which is the reason the 2018 Form 1040-ES has not been released yet.

Entertainment Expenses
A deduction for entertainment expenses is no longer allowed on Schedule C beginning in 2018.

Bonus Depreciation and Increased Section 179 Expense

• Qualifying assets new and used assets placed in service during 2018 will qualify for 100% bonus depreciation.
• The Section 179 expense deduction has been increased to $1,000,000 beginning for assets purchased in 2018.

Depreciation Limits for Luxury Automobiles and Personal Use Property (Listed Property)
The yearly limitations for passenger autos placed in service after December 31, 2017 have been increased as follows:

• $10,000 for year placed in service
• $16,000 for second year
• $9,600 for the third year
• $5,760 for fourth and later years

For other Tax Cuts and Jobs Act provisions that that may affect the calculation of an individual’s 2018 estimated tax payments see the New Federal Tax Law Changes Included in the Tax Cuts and Jobs Act page in the Tax Resource Center on the Crosslinktax website.

Recent Tax Updates

2018 Depreciation Changes
October 18, 2018

2018 Tax Law Changes that are Directly Reported on Form 1040
October 3, 2018

IRS Tax Transcripts Changes
September 27, 2018

Revised 2018 Schedule A due to Tax Cuts and Jobs Act Changes to Itemized Deductions
August 29, 2018

2018 Expansion of Preparer Due Diligence Requirements
August 8, 2018

IRS Accepting Renewal Applications for ITINs Expiring at End of 2018
July 25, 2018