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2018 4th Quarter tax developments

Posted by Admin Posted on Jan 11 2019

The following is a summary of important tax developments that occurred in October, November, and December of 2018 that may affect you, your family, your investments, and your livelihood. Please call us for more information about any of these developments and what steps you should implement to take advantage of favorable developments and to minimize the impact of those that are unfavorable.

Business meals. One of the provisions of the Tax Cuts and Jobs Act (TCJA) disallows a deduction for any item with respect to an activity that is of a type generally considered to constitute entertainment, amusement, or recreation. However, the TCJA did not address the circumstances in which the provision of food and beverages might constitute entertainment. The new guidance clarifies that, as in the past, taxpayers generally may continue to deduct 50% of otherwise allowable business meal expenses if:

a.            The expense is an ordinary and necessary expense paid or incurred during the tax year in carrying on any trade or business;

b.            The expense is not lavish or extravagant under the circumstances;

c.            The taxpayer, or an employee of the taxpayer, is present at the furnishing of the food or beverages;

d.            The food and beverages are provided to a current or potential business customer, client, consultant, or similar business contact; and

e.            In the case of food and beverages provided during or at an entertainment activity, the food and beverages are purchased separately from the entertainment, or the cost of the food and beverages is stated separately from the cost of the entertainment on one or more bills, invoices, or receipts.

Convenience of the employer. IRS provided new guidance under the Code provision allowing for the exclusion of the value of any meals furnished by or on behalf of an individual's employer if the meals are furnished on the employer's business premises for the convenience of the employer. IRS determined that the "Kowalski test" — which provides that the exclusion applies to employer-provided meals only if the meals are necessary for the employee to properly perform his or her duties — still applies. Under this test, the carrying out of the employee's duties in compliance with employer policies for that employee's position must require that the employer provide the employee meals in order for the employee to properly discharge such duties in order to be "for the convenience of the employer". While IRS is precluded from substituting its judgment for the business decisions of a taxpayer as to its business needs and concerns and what specific business policies or practices are best suited to addressing such, IRS can determine whether an employer actually follows and enforces its stated business policies and practices, and whether these policies and practices, and the needs and concerns they address, necessitate the provision of meals so that there is a substantial noncompensatory business reason for furnishing meals to employees.

Depreciation and expensing. IRS provided guidance on deducting expenses under Code Sec. 179(a) and depreciation under the alternate depreciation system (ADS) of Code Sec. 168(g), as amended by the TCJA. The guidance explains how taxpayers can elect to treat qualified real property, as defined under the TCJA, as property eligible for the expense election. The TCJA amended the definition of qualified real property to mean qualified improvement property and some improvements to nonresidential real property, such as: roofs; heating, ventilation and air-conditioning property; fire protection and alarm systems; and security systems. The guidance also explains how real property trades or businesses or farming businesses, electing out of the TCJA interest deduction limitations, can change to the ADS for property placed in service before 2018, and provides that such is not a change in accounting method. In addition, the guidance provides an optional depreciation table for residential rental property depreciated under the ADS with a 30-year recovery period.

Partnerships. IRS issued final regulations implementing the new centralized partnership audit regime, which is generally effective for tax years beginning after Dec. 31, 2017 (although partnerships could have elected to have its provisions apply earlier). Under the new rules, adjustments to partnership-related items are determined at the partnership level. The final regulations clarify that items or amounts relating to transactions of the partnership are partnership-related items only if those items or amounts are shown, or required to be shown, on the partnership return or are required to be maintained in the partnership's books and records. A partner must, on his or her own return, treat a partnership item in a manner that's consistent with the treatment of that item on the partnership's return. The regulations clarify that so long as a partner notifies the IRS of an inconsistent treatment, in the form and manner prescribed by the IRS, by attaching a statement to the partner's return (including an amended return) on which the partnership-related item is treated inconsistently, this consistency requirement is met, and the effect of inconsistent treatment does not apply to that partnership-related item. If IRS adjusts any partnership-related items, the partnership, rather than the partners, is subject to the liability for any imputed underpayment and will take any other adjustments into account in the adjustment year. As an alternative to the general rule that the partnership must pay the imputed underpayment, a partnership may elect to "push out" the adjustments, that is, elect to have its reviewed year partners take into account the adjustments made by the IRS and pay any tax due as a result of these adjustments.

State & local taxes. IRS has provided safe harbors allowing a deduction for certain payments made by a C corporation or a "specified pass-through entity" to or for the use of a charitable organization if, in return for such payment, they receive or expect to receive a state or local tax credit that reduces a state or local tax imposed on the entity. Such payment is treated as meeting the requirements of an ordinary and necessary business expense. For tax years beginning after Dec. 31, 2017, the TCJA limits an individual's deduction to $10,000 ($5,000 in the case of a married individual filing a separate return) for the aggregate amount of the following state and local taxes paid during the calendar year:

1.            Real property taxes;

2.            Personal property taxes;

3.            Income, war profits, and excess profits taxes, and

4.            General sales taxes.

This limitation does not apply to certain taxes that are paid and incurred in carrying on a trade or business or a for-profit activity. An entity will be considered a specified pass-through entity only if:

1.            The entity is a business entity other than a C corporation that is regarded for all federal income tax purposes as separate from its owners;

2.            The entity operates a trade or business;

3.            The entity is subject to a state or local tax incurred in carrying on its trade or business that is imposed directly on the entity; and

4.            In return for a payment to a charitable organization, the entity receives or expects to receive a state or local tax credit that the entity applies or expects to apply to offset a state or local tax described in (3), above, other than a state or local income tax.

Personal exemption suspension. IRS provided guidance clarifying how the suspension of the personal exemption deduction from 2018 through 2025 under the TCJA applies to certain rules that referenced that provision and were not also suspended. These include rules dealing with the premium tax credit and, for 2018, the individual shared responsibility provision (also known as the individual mandate). Under the TCJA, for purposes of any other provision, the suspension of the personal exemption (by reducing the exemption amount to zero) is not be taken into account in determining whether a deduction is allowed or allowable, or whether a taxpayer is entitled to a deduction.

Obamacare hardship exemptions. IRS guidance identified additional hardship exemptions from the individual shared responsibility payment (also known as the individual mandate) which a taxpayer may claim on a Federal income tax return without obtaining a hardship exemption certification from the Health Insurance Marketplace (Marketplace). Under the Affordable Care Act (ACA, or Obamacare), if a taxpayer or an individual for whom the taxpayer is liable isn't covered under minimum essential coverage for one or more months before 2019, then, unless an exemption applies, the taxpayer is liable for the individual shared responsibility payment. Under the guidance, a person is eligible for a hardship exemption if the Marketplace determines that:

i.             He or she experienced financial or domestic circumstances, including an unexpected natural or human-caused event, such that he or she had a significant, unexpected increase in essential expenses that prevented him or her from obtaining coverage under a qualified health plan;

ii.            The expense of purchasing a qualified health plan would have caused him or her to experience serious deprivation of food, shelter, clothing, or other necessities; or

iii.           He or she has experienced other circumstances that prevented him or her from obtaining coverage under a qualified health plan.

Certain Obamacare due dates extended. IRS has extended one of the due dates for the 2018 information reporting requirements under the ACA for insurers, self-insuring employers, and certain other providers of minimum essential coverage, and the information reporting requirements for applicable large employers (ALEs). Specifically, the due date for furnishing to individuals the 2018 Form 1095-B (Health Coverage) and the 2018 Form 1095-C (Employer-Provided Health Insurance Offer and Coverage) is extended to Mar. 4, 2019. Good-faith transition relief from certain penalties for 2018 information reporting requirements is also extended.

Limitation on deducting business interest expense. IRS has provided a safe harbor that allows taxpayers to treat certain infrastructure trades or businesses (such as airports, ports, mass commuting facilities, and sewage and waste disposal facilities) as real property trades or businesses solely for purposes of qualifying as an electing real property trade or business. For tax years beginning after Dec. 31, 2017, the TCJA provides that a deduction allowed for business interest for any tax year can't exceed the sum of:

1.            The taxpayer's business interest income for the tax year;

2.            30% of the taxpayer's adjusted taxable income for the tax year; plus

3.            The taxpayer's floor plan financing interest (certain interest paid by vehicle dealers) for the tax year.

The term "business interest" generally means any interest properly allocable to a trade or business, but for purposes of the limitation on the deduction for business interest, it doesn't include interest properly allocable to an "electing real property trade or business". Thus, interest expense that is properly allocable to an electing real property trade or business is not properly allocable to a trade or business and is not business interest expense that is subject to the interest limitation.

Avoiding penalties. IRS has identified the circumstances under which the disclosure on a taxpayer's income tax return with respect to an item or position is adequate for the purpose of reducing the understatement of income tax under the substantial understatement accuracy-related penalty for 2018 income tax returns. The guidance provides specific descriptions of the information that must be provided for itemized deductions on Form 1040 (Schedule A); certain trade or business expenses; differences in book and income tax reporting; and certain foreign tax and other items. The guidance notes that money amounts entered on a form must be verifiable, and the information on the return must be disclosed in the manner set out in the guidance. An amount is verifiable if, on audit, the taxpayer can prove the origin of the amount (even if that number is not ultimately accepted by the IRS) and the taxpayer can show good faith in entering that number on the applicable form. If the amount of an item is shown on a line of a return that does not have a preprinted description identifying that item (such as on an unnamed line under an "Other Expense" category), the taxpayer must clearly identify the item by including the description on that line. If an item is not covered by this guidance, disclosure is adequate with respect to that item only if made on a properly completed Form 8275 (Disclosure Statement) or 8275-R (Regulation Disclosure Statement), as appropriate, attached to the return for the year or to a qualified amended return.

Business expense deduction for meals and entertainment

Posted by Admin Posted on Oct 04 2018

With the passage of the Tax Cuts and Jobs Act, known as TCJA, you may have heard about some changes to the deductability of some business expenses such as meals and entertainment. 

In general, the new law has eliminated the deduction for entertainment, while leaving the deduction for the business meals.  In the latest news release, the IRS has provided taxpayers with additional guidance on the law changes. 

Click here to read more about the changes to the business expense deductions for meals and entertainment 

Reminder about tax scams and phishing

Posted by Admin Posted on Sept 20 2018

In wake of Hurricane Florence, the Internal Revenue Service is reminding everyone that criminals are once again trying to take advantage of those trying to help out people in need. Please read the following news release to avoid various scams and schemes:

IRS news release on Natural Disasters scams

We also would like to take this time to remind you that tax scammers are continuing making phone calls and sending emails impersonating IRS and at times tax practitioners.  Per IRS:

Telltale signs of a scam

The IRS (and its authorized private collection agencies) will never:

  • Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer. The IRS does not use these methods for tax payments. Generally, the IRS will first mail a bill to any taxpayer who owes taxes. All tax payments should only be made payable to the U.S. Treasury and checks should never be made payable to third parties.
  • Threaten to immediately bring in local police or other law-enforcement groups to have the taxpayer arrested for not paying.
  • Demand that taxes be paid without giving the taxpayer the opportunity to question or appeal the amount owed.
  • Ask for credit or debit card numbers over the phone.

If you receive an email that seems strange, please call our office to verify its validity.  We are always here to answer your questions. 

Scam Alert

Posted by Admin Posted on Feb 13 2018

Please read this important Scam Alert from the IRS pertaining to erroneous tax refunds: 

IRS Scam Alert

As always, when in doubt, call our office with any questions. Do not send money to anyone without speaking to us. IRS does not demand money over the phone and always sends you a correspondence.

IRS letters and notices

Posted by Admin Posted on July 10 2017

Receiving an envelope from an IRS may seem daunting, however you must always take that first step and make sure to open the envelope to look at its contents.  If you have received an IRS notice, timely response is always important, and we can always help you with that process. Please read below these helpful tips on how to handle an IRS notice or a letter.  Remember to always contact us for assistance and sucessful resolution.

IRS Summertime Tax Tip - IRS Notice or Letter

IRS cautions taxpayers about an increase in tax scams

Posted by Admin Posted on June 26 2017

Next time your phone rings, and you see an unfamiliar number, pause before answering your phone, especially if the number on your display is not a local number. Tax scam is on the rise, and in the latest IRS bulletin, you will find a listing of the latest scams going around. Read below for more, and if you ever get contacted by the IRS, please make sure to let us know.

IRS Bulletin

Reduction in Commercial Leases in Florida in 2018

Posted by Admin Posted on May 31 2017

On May 25, 2017 Governor Rick Scott signed House Bill 7109, which is supposed to reduce the state sales tax rate on commercial leases from 6% to 5.8% starting 1/1/18. This rate decrease will be applicable to new leases. In addition, there is no change to the local surtax, which for Sarasota county is currently 1%. As a result, effective rate in Sarasota County for leases starting on or after January 1, 2018, would be 6.8%. 

Be extremely cautious of the new W-2 Phishing scam

Posted by Admin Posted on Feb 07 2017

IRS has issued a very urgent alert to employers about a W-2 phishing scam that is being distributed via email.  Everyone should be on alert and question any request that comes in for a W-2 information from a superior.  Please read this alert below and feel free to contact our office with any questions.

Dangerous W-2 Phishing Scam

What to do before the year is over

Posted by Admin Posted on Dec 14 2016

The end of the year is upon us, but you can still do a few things before the year is over.  Here are a few tips from the IRS:

- Deductible donations can be charged to a credit card now and paid in 2017, as well as checks can be mailed before the end of the year in order for them to be counted as 2016 donations.

- Retired taxpayers who reach the age of 70 1/2 during 2016 can wait to take their first RMD from their IRA or workplace retirement until April 1, 2017. In turn, individuals have until April 18, 2017 to contribute to an IRA account and receive a deduction for their contribution (check with us to make sure you qualify).

- Notify the IRS, employers and the postal service of any changes in your address.

- If your name changes, you must notify the Social Security Administration in order for them to match your name with the IRS records. 

- Taxpayers who file returns using ITINs may be subject to having to renew their numbers. If you did not use your ITIN at least once in the last three years, it will not be valid. Also, ITINs with middle digits 78 or 79 are also subject to expiration. Call our office if you are not sure about your ITIN number, or you received a notice of expiration.

- Always keep copies of your tax returns. 

Please call our office with any questions or if you require any year-end planning. 

Click here to read full text

Announcement of 2017 standard mileage rates

Posted by Admin Posted on Dec 14 2016

In a recently announced Notice 2016-79 the IRS has issued 2017 standard mileage rates  to compute deductions for costs to operate vehicles for business, medical, moving and charitable purposes during 2017 tax year.  The 2017 tax rates are as follows:

- 53.5 cents per mile for business purpose

- 17 cents per mile for medical and moving purpose

- 14 cents per mile for charitable purpose

The full text of the IRS notice is available in the link above. Should you have any questions regarding this announcement, please call our office.

 

Tax Scam warnings from the IRS

Posted by Admin Posted on Dec 08 2016

Should you ever receive an email, a phone call or a pop-up online informing you that you owe money to the IRS, this is a sign of a scam.  The IRS never calls you or emails you or reaches you online, and the IRS never demands that you make any payments over the phone.  If you ever receive any communication from the IRS, please contact our office.

Please click here to read a very important IRS Newswire   

Overtime rules - current development

Posted by Admin Posted on Dec 07 2016

As you may have heard, there was a change in the overtime regulations of the Fair Labor Standards Act, and effective December 1, 2016, there should have been an increase in salary threshold for eligible workers (from $455/week to $913/week), in addition to a few other changes. Due to a litigation in the U.S. District Court of Eastern District of Texas, there is a hold in implementing of these new regulations, and the Department of Labor has filed a note to appeal the preliminary injunction to the US Circuit Court of Appeals.  We will continue watching this issue, and we will update you as more information becomes available. For more detail, please click below to go to the Department of Labor website. 

Click here to go to the Department of Labor website

Tax records - how long should you keep them?

Posted by Admin Posted on Dec 07 2016

New tax season is almost upon us, but what do we do with our prior documents and tax returns? According to the IRS, you should keep copies of your tax returns and supporting documentation for at least three years.  Certain documents should be kept for 7 years should you need to amend your return.  Documents pertaining to the sale of real estate should also be kept for 7 years. For more information, and full text of this informative IRS Newswire, please see the link below.  As always, feel free to call our office with any questions. 

Click here to see full text of the IRS Newswire

Welcome to Our Blog!

Posted by Admin Posted on June 30 2016
This is the home of our new blog. Check back often for updates!