Retirement Planning | Savings Rules

Tax-saving opportunities continue for retirement planning due to availability of traditional and Roth IRAs and other retirement savings incentives. Opportunities include traditional IRAs, rollovers, and conversions.
Traditional IRAs: Individuals who are not active participants in an employer pension plan may make deductible contributions to an IRA. For 2018, the annual deductible contribution limit for an IRA is $5,500, and a $1,000 “catch-up” contribution is allowed for taxpayers age 50 or older by the close of the taxable year, making the total limit $6,500 for these individuals.
Individuals who are active participants in an employer pension plan also may make deductible contributions to an IRA, but their contributions are limited depending on their AGI. For 2018, the AGI phase-out range for deductibility of IRA contributions is between $63,000 and $73,000 of modified AGI for single persons (including heads of households), and between $101,000 and $121,000 of modified AGI for married filing jointly. Above these ranges, no deduction is allowed.
In addition, an individual will not be considered an “active participant” in an employer plan simply because the individual’s spouse is an active participant for part of a plan year. Thus, you may be able to take the full deduction for an IRA contribution regardless of whether your spouse is covered by a plan at work, subject to a phase-out if your joint modified AGI is $189,000 to $199,000 ($0-$10,000 if married filing separately) for 2018. Above this range, no deduction is allowed.
IRA Rollovers: For 2018, taxpayers may make only one IRA-to-IRA rollover per year. Direct rollovers from trustee to trustee are not affected. A second attempted rollover will be treated as a withdrawal and taxed at regular rates, plus a possible 10% early withdrawal penalty.
Spousal IRA: If an individual files a joint return and has less compensation than his or her spouse, the IRA contribution is limited to the lesser of $5,500 for 2018 plus age 50 catch-up contributions ($1,000 for 2018), or the total compensation of both spouses reduced by the other spouse’s IRA contributions (traditional and Roth).
Roth IRA: This IRA permits nondeductible contributions of up to $5,500 ($6,500 if making eligible catch-up contribution) for 2018, but no more than an individual’s compensation. Earnings grow tax-free, and distributions are tax-free provided no distributions are made until more than five years after the first contribution and the individual has reached age 59 1/2. Distributions may be made earlier on account of the individual’s disability or death. The maximum contribution is phased out in 2018 for persons with an AGI above certain amounts: $189,000 to $199,000 for married filing jointly, and $120,000 to $135,000 for single taxpayers (including heads of households); and between $0 and $10,000 for married filing separately who lived with the spouse during the year.
Roth IRA Conversion Rule: Funds in a traditional IRA (including SEPs and SIMPLE IRAs), §401(a) qualified retirement plan, §403(b) tax- sheltered annuity, or §457 government plan may be rolled over into a Roth IRA. Such a rollover, however, is treated as a taxable event, and you will pay tax on the amount converted. No penalties will apply if all the requirements for such a transfer are satisfied. If you made a Roth IRA conversion earlier in the tax year, you do not have the option to use recharacterization to undo the conversion. This strategy is not available beginning in 2018. Previously, the strategy could be used for investments that have gone down in value so that if the conversion were accomplished later in the year, taxes owed would be lower.
In addition, for 2018, if the taxpayer’s employer-sponsored §401(k) plan, §403(b) plan, or governmental §457(b) plan has a qualified designated Roth contribution program, a distribution to an employee (or a surviving spouse) from such account under the plan that is not a designated Roth account is permitted to be rolled over into a designated Roth account under the plan for the individual. 401(K) Contribution: The §401(k) elective deferral limit is $18,500 for 2018. If the taxpayer’s § 401(k) plan has been amended to allow for catch-up contributions for 2018 and the taxpayer reaches age 50 by December 31, 2018, an additional $6,000 may be contributed to the §401(k) account, for a total maximum contribution of $24,500 ($18,500 in regular contributions plus $6,000 in catch-up contributions).
SIMPLE Plan Contribution: The SIMPLE plan deferral limit is $12,500 for 2018. If the taxpayer’s SIMPLE plan has been amended to allow for catch-up contributions for 2018 and the taxpayer will be 50 years old by December 31, 2018, an additional $3,000 may be contributed.
Catch-Up Contributions for Other Plans: If the taxpayer will be 50 years old by December 31, 2018, an additional $6,000 can be contributed to a §403(b) plan, SEP, or eligible §457 government plan.
Maximize Retirement Savings: In many cases, employers will require you to set your 2019 retirement contribution levels before January 2019. If you did not elect the maximum 401(k) contribution for 2018, you may be able to increase your amount for the remainder of 2018 to lower your AGI in order to take advantage of some of the tax breaks described above. Maximizing your contribution is generally a good tax-saving move.
We have a team that can guide you in these decisions. Call us to discuss your situation and planning methods that work for you.

2018 Arizona Tax Credits

Arizona provides two separate nonrefundable tax credits for individuals who make contributions to charitable organizations: Qualifying Charitable Organizations (QCO) and Qualifying Foster Care Charitable Organizations (QFCO). Individuals making cash donations to these charities may claim donations as tax credits up to the allowable amount on their Arizona individual tax returns. Below is a summary of the 2018 Arizona tax credits.

  • Credit for Contributions to Qualifying Charitable Organizations (QCOs) – The allowable credit for contributions remain the same as prior tax years. The credit is up to $400 for single, heads of household, and married filing separate filers and up to $800 for married filing joint filers.
  • Credit for Contributions to Qualifying Foster Care Charitable Organizations (QFCO) –  The allowable credit for contributions remains the same as prior tax years. The credit is up to $500 for single, heads of household, and married filing separate filers and up to $1,000 for married filing joint filers.

Arizona provides two separate nonrefundable tax credits to individuals for contributions made to a Certified School Tuition Organization that provides scholarships for students enrolled in Arizona private schools. Credits are available for donations made by individual taxpayers and corporate taxpayers.

  • Credit for Contributions to Public Schools – The credit is up to $200 for single, heads of household, and married filing separate filers and up to $400 for married filing joint filers.
  • Credit for Contributions to Private School Tuition Organizations – The credit is up to $1,107 for single, heads of household, and married filing separate filers and up to $2,213 for married filing joint filers.

Keep in mind that any Arizona tax credit contributions made after August 27, 2018, are no longer deductible for federal income tax purposes.
See the Arizona Department of Revenue’s website for a list of School Tuition Organizations.
For questions regarding these credits, check with your tax advisor.

2018 Tax Wrap-Up

The tax reform passed in 2017 is complicated and about 70,000 words. We can look forward to more guidance and clarifications. For now, here are summaries of some key provisions.
Key Changes for Individuals
Standard Deduction Amount Increased. For 2018, the standard deduction amount significantly increased for all filers, as noted below. Some taxpayers who previously itemized their deductions may no longer find that necessary.
+ Single or married filing separately: $12,000.
+ Married filing jointly or qualifying widow(er): $24,000.
+ Head of household: $18,000.
Deduction for Personal Exemptions Suspended. For 2018, you cannot claim a personal exemption deduction for yourself, spouse, or dependents.
Changes to Deductions. Those still itemizing should note the following changes and plan accordingly:
+ Your itemized deductions are no longer limited if your adjusted gross income is over a certain amount.
+ You can deduct the part of your medical and dental expenses that is more than 7.5 percent of your AGI.
+ Your deduction of state and local income, sales and property taxes is limited to a combined total of $10,000 ($5,000 if married filing separately).
+ You can no longer deduct job-related expenses or other miscellaneous itemized deductions that were subject to the 2 percent of your AGI floor. You may still deduct certain other items on Schedule A, such  as gambling losses.
+ No more deductions for tax preparation fees or investment expenses, including investment management fees.
+ For indebtedness incurred after December 15, 2017, the deduction for home mortgage interest is limited to interest on up to $750,000 of home acquisition indebtedness. This new limit does not apply if you    had a binding contract to close on a home after December 15, 2017, and closed on or before April 1, 2018, and the prior limit would apply.
+  You can no longer deduct interest on home equity indebtedness, which means indebtedness not incurred for the purpose of buying, building or substantially improving the qualified residence secured by the  indebtedness.
+  The limit on charitable contributions of cash has increased from 50 percent to 60 percent of your AGI.
Lifetime Estate and Gift Tax Exemption. The Lifetime and Gift Tax Exemption has doubled to $11,180,000 and the tax rate remains at 40%.
Children and dependents. The law made some significant changes.
Kiddie Tax. The Kiddie Tax changed unearned income of children under the age of 18 to tax rates applicable to estates and trusts instead of the parents’ marginal tax rate.
Child Tax Credit and Additional Child Tax Credit. For 2018, the maximum credit increased to $2,000 per qualifying child. Up to $1,400 is now refundable to lower-income taxpayers. In addition, the income threshold at which the credit begins to phase out is increased to $200,000 ($400,000 if married filing jointly).
Credit for Other Dependents. A new credit of up to $500 is available for each dependent that does not qualify for the child tax credit. In addition, the maximum income threshold at which the credit begins to phase out is increased to $200,000 ($400,000 if married filing jointly).
Section 529 College Savings Plans. Section 529 College Savings Plans have been enhanced to provide annual distributions up to $10,000 per student to pay for qualified tuition expenses for elementary and secondary education.
Marriage. Alimony and separate maintenance payments are no longer deductible for any agreement executed or modified after December 31, 2018.
What is Not Changing. The IRS has noted that the following provisions and numbers remain the same for tax year 2018:
+ The annual exclusion for gifts is $15,000.
+ The monthly limitation for the qualified transportation fringe benefit is $260, as is the monthly limitation for qualified parking.
+ The AGI amount used by joint filers to determine the reduction in the Lifetime Learning Credit is $114,000.
Social Security. Not related to tax reform changes, but still important to individuals and businesses, is the decision to give Social Security recipients a 2.8 percent cost-of-living raise in 2019. Also changed is the maximum taxable amount subject to Social Security tax. This number will increase to $132,900 from $128,400. The tax rate itself is unchanged: 7.65 percent each for employees and employers and 15.30 percent for those who are self-employed.
Key Changes for Businesses
Based on your business, you may see significant changes under the new law.
Pass-through Provisions. Many owners of sole proprietorships, partnerships, trusts and S corporations may be eligible for a new deduction, referred to as the Qualified Business Income Deduction, allowing them to deduct up to 20 percent of their qualified business income.
Net Operating Losses. Net Operating Losses can no longer be carried back and are carried forward indefinitely. However, the new tax law limits the net operating loss deduction to 80 percent of taxable income.
C Corporations. The income tax rates for C corporations have been reduced from a top rate of 35 percent to a flat 21 percent rate.
Alternative Minimum Tax. The new law retains the alternative minimum tax for individuals but with much higher exemption amounts. However, the alternative minimum tax is completely repealed for C corporations.
Meals and Entertainment. The new law generally eliminated the deduction for any expenses related to activities considered entertainment, amusement, or recreation. However, under the new law, taxpayers can continue to deduct 50 percent of the cost of business meals if the taxpayer, or an employee of the taxpayer, is present and the food or beverages are not considered extravagant.
Moving Expenses. The above the line deduction for qualified moving expenses is completely repealed.
Temporary 100 Percent Expensing. The new law temporarily allows 100 percent expensing for business property acquired and placed in service after September 27, 2017, and before January 1, 2023. The 100 percent allowance generally decreases by 20 percent per year in taxable years beginning after 2022 and expires January 1, 2027.
Expensing Depreciable Business Assets. The maximum deduction was increased to $1 million and the phase-out threshold increased to $2.5 million. The new law also modifies the definition of section 179 property to allow the taxpayer to elect certain improvements to nonresidential real property.
New Employer Credit for Paid Family and Medical Leave. A new tax credit was added for employers that offers paid family and medical leave to their employees. The credit applies to wages paid in taxable years beginning after December 31, 2017, and before January 1, 2020.
Opportunity Zones. Investments in Opportunity Zones provide tax benefits to investors. Investors can elect to temporarily defer tax on capital gains that are reinvested in a Qualified Opportunity Fund (QOF). The tax on the gain can be deferred until the earlier of the date on which the QOF investment is sold or exchanged, or December 31, 2026.
Sexual Harassment. This provision did not get a lot of attention, but the new law makes it clear that no deduction is allowed for certain payments made in sexual harassment or sexual abuse cases.
Bottom Line. Of course, this is not everything and there are a lot more details. The key is to be proactive and speak to us about withholding adjustments and other tax planning issues in the new year.

Sara B. Nance, CPA | 2019 Arizona Business Leader

Sara B. Nance has been recognized as one of the most influential leaders in accounting and Arizona’s business community. Selected from a pool of over 5,000 business leaders, Sara is profiled alongside the most high-profiled and prominent people in Arizona. Sara develops tax strategies for sole proprietorships, partnerships, S corporations, and limited liability companies in Chandler, Scottsdale, and throughout Arizona. See Sara’s full profile in AzBusiness Leaders magazine, on page 158.


Top Finisher – Phoenix Fit Company Challenge

Wallace, Plese + Dreher (WP+D) placed first in this year’s Phoenix Fit Company Challenge. For the last three years, teams of 3-4 participants of all ages and fitness levels competed in a variety of courses against other companies in Arizona. Courses included bodyweight exercises, team relays, and walk/run laps within a defined time limit.
This year’s teams included:
Team 1: Jonathan Smith, Lindsay Erickson, Scott Bromley, and Corey Ng
Team 2: Adam Ortega, Kate St. Sauveur, and Randy Brammer
Team 3: Amro Hussien, Lisa Schabloski, Loren Pruzin, and Scott Wallace
Team 4: Christy Kaiser, Jordan Zwick, Sarah Gryp, and Josh Blom
Team 5: Debbie Weidner, Jake Klein, and Pat Rae

2018 Fastest-Growing Firms

Wallace, Plese + Dreher (WP+D) was named by Inside Public Accounting (IPA) to the 2018 Fastest All-Growth Firms, ranking 6 out of 10 with 36.5 percent growth, and named to the 2018 Regional Fastest All-Growth Firms in the West region, ranking 3 out of 5.

2018 Governor’s Celebration of Innovation

As annual sponsors, Wallace, Plese + Dreher (WP+D) exhibited at the Governor’s Celebration of Innovation (GCOI) on November 8, 2018. GCOI was hosted by the Arizona Technology Council (AZTC) in partnership with the Arizona Commerce Authority (ACA). The annual awards gala honors technology leaders and innovators from across Arizona and attracts over 800 attendees for a night of networking, food, and entertainment. 2018 marks the 15th year of this prestigious event.
Attendees from WP+D included:
Patrick H. Rae, CPA, CCIFP – Audit Supervisor
Leslie Prichard, CPA – Audit Senior Manager
Jonathan L. Smith – Audit Senior
Scott M. Bromley, CPA – Tax Senior Manager

2019 Social Security Benefits

According to the Social Security Administration (SSA), Social Security and Supplemental Security Income benefits for more than 67 million Americans will increase 2.8 percent in 2019. Increased payments to more than 8 million SSI beneficiaries will begin on December 31, 2018. The Social Security Act ties the annual cost-of-living adjustment to increases in the Consumer Price Index.
According to the Society for Human Resource Management, this is the biggest increase in seven years.
Another change is the maximum taxable amount subject to Social Security tax. This number will increase to $132,900 from $128,400. The SSA bases this change on increases in average wages. This change affects only the Social Security portion of the tax. The Medicare portion continues to have no upper limit.
The tax rate itself is unchanged: 7.65 percent each for employees and employers, and 15.30 percent for self-employed.
There are other changes as well, such as disability thresholds, available in an SSA Fact Sheet.
The SSA notes that Social Security and SSI beneficiaries are normally notified by mail in early December about their new benefit amounts. This year, for the first time, most people who receive Social Security payments will be able to view their COLA notice online through their My Social Security account. People may create or access their My Social Security account online at
Information about Medicare changes for 2019, when announced, will be available at For Social Security beneficiaries receiving Medicare, Social Security will not be able to compute their new benefit amounts until after the Medicare premium amounts for 2019 are announced. Final 2019 benefit amounts will be communicated to beneficiaries in December through the mailed COLA notice and the My Social Security Message Center.

More Guidance | Meals and Entertainment Deductions

The Internal Revenue Service (IRS) issued additional guidance on the business expense deduction for meals and entertainment following law changes in the Tax Cuts and Jobs Act (TCJA). The 2017 TCJA eliminated the deduction for any expenses related to activities generally considered entertainment, amusement, or recreation.
Taxpayers may continue to deduct 50 percent of the cost of business meals if the taxpayer, or an employee of the taxpayer, is present and the food or beverages are not considered lavish or extravagant. Meals may be provided to a current or potential business customer, client, consultant, or similar business contact.
If purchased separately from the event, food and beverages that are provided during entertainment events will not be considered entertainment.
Prior to 2018, a business could deduct up to 50 percent of entertainment expenses directly related to the active conduct of a trade or business or, if incurred immediately before or after a bona fide business discussion, associated with the active conduct of a trade or business.
The Department of the Treasury and the IRS expect to publish proposed regulations clarifying when business meal expenses are deductible and what constitutes entertainment. Taxpayers are encouraged to contact us to ensure the latest guidance is being followed.

Have You Outgrown Your Accounting Firm?

Collaboration with your Arizona accounting firm should be a part of your process when making business decisions. You should feel your accounting firm listens and helps you make strategic moves to grow your company. Your firm should have insights into expanding your business and guidance for avoiding obstacles. Only an accounting firm with experience directing other growing companies can help your company.
Signs You Have Outgrown Your Accounting Firm
The following signs may mean you have outgrown your accounting firm:
+ You need more help in many business areas to be better positioned to grow.
+ You feel you can improve efficiency and security.
+ You have problems consolidating information.
+ You have difficulty accessing data from anywhere at any time.
+ You need help getting your systems to talk to each other.
+ You do not mind paying more for knowledge and guidance.
+ You need additional help beyond administrative tasks.
+ You are concerned your current firm is keeping you looking backward, instead of aiding in your company’s growth.
Your accounting firm should identify strategies for achieving your goals and invigorate your desire for success. Does your current firm mention spending the majority of their time managing the sheer volume of paperwork that flows in and out of its practice on a daily basis, such as payables, receivables, and employee payroll? Perhaps, you have heard your accountants refer to themselves as a crossing guard directing traffic, hoping everyone makes it across safe and sound. You see this scenario as a call for help, but what you need is a firm that automates management of running its business so it can spend more time serving your company. You want a partner that focuses on helping your company reach new levels.
What is Your Plan?
Consider the following features a new accounting firm may offer:
+ An integrated approach to working with your company so you can be more efficient.
+ Less reliance on paper billing to balance money coming in and going out.
+ Intuitive platforms that automate processes with payment scheduling.
+ A full line of services to deal with financial complexity.
+ Document management, smart archiving of records, and digitizing forms.
+ Greater security and faster retrieval of documents.
+ Applications that are user-friendly.
Are you ready to create an action plan for your company’s strategy? Contact us today to discuss your next steps.