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Information on Updated Tax Laws

The new tax law has plenty of breaks for businesses. We are focusing on changes to depreciation. 100% bonus depreciation has returned, only if, Firms are now able to write off the entire cost of qualifying assets that they purchase and place in service after 9/27/2017. It typically lasts until 2022 and then will begin phasing out by 20% the fallowing years. Assets purchased prior to 9/28/2017 but will be used at a later date are still subject to the previous rules. The break is applicable to new and used assets with life spans of 20 years or less. The cost of approved film, television or theater productions are acceptable as well.

The cap on expensing business assets has been risen. The highest amount a taxpayer a can expense for new or used business assets in place of depreciating them is $1,000,00. This limitation will phase out dollar for dollar once over $2,500,00 of assets are put into service throughout the course of the year. These higher expensing limits apply to tax years stating after 2017 and will be indexed year for inflation.

Property eligible for expensing was expanded slightly under the new law. Included currently are depreciable personal assets used primarily for furnishing lodgings such as beds, refrigerators, and stoves for use in hotels, apartments, student housing, and other such establishments. Certain improvements for commercial buildings are also now eligible for expensing: Roofs, HVAC equipment, fire protection and alarms.

Buyers of business vehicles obtain many hearty tax breaks under the new law. The annual depreciation caps for passengers of vehicles are rising. For automobiles placed in service after 2017 for which 100% extra depreciation is not claimed, the first-year ceiling is $10,000. The fallowing 2nd and 3rd year caps are $16,000 and $9,600 respectfully. These figures shall be adjusted according to inflation. If bonus depreciation is claimed, the ceiling inflates to $18,000 in the 1st year.

Buyers of heavy SUVs that are used for business purposes are able to be written off up to 100% of the cost due to bonus depreciation. SUVs must have gross weight rating above 6,000 pounds to qualify. It makes no difference is the SUV is new or used and is able to be expensed up to 100% of cost of heavy pickup trucks if the cargo bed is minimum of 6 feet.

Unique rules for restaurant, retail and leasehold improvements are no longer applied. They have been consolidated under the grouping of qualified improvement property, which is an improvement to interior of a commercial building made post the date that the building was put into service. This does not include escalators, elevators, or upgrades on the buildings internal framework or expansions. QIP is eligible for expensing, however it is not yet clear whether it is eligible for bonus depreciation.

New farm equipment is able to be depreciated over 5 years substituting the previous 7 years. This won’t cover grain bins, cotton ginning assets, fences or land upgrades.

The law keeps the current depreciable recovery times for real estate… 27.5 years for residential rentals and 39 years for commercial property.

The new tax law will cause greater risks when converting a traditional IRA to a Roth IRA. In the past, the deadline was October 15th of the following year to undo the switch and eliminate the tax bill by moving the funds back to the traditional IRA. The process is called recharacterization and may make sense if the Roth IRA had acquired a loss. Congress eliminated this process. Conversions completed after 2017 are permanent. The ability to convert your traditional IRA to a Roth will remain, however reversing the switch will not be permitted. You have time to reverse a 2017 conversion if need be. Roth conversions are able to be recharacterized until October 15, 2018.

Unearned income of children is no longer taxed at the parent’s rates. It is taxed at rates that apply to trusts. This starts with 2018 income. Similar to the pre 2018 rules, the first $1050 of net unearned income of a child typically someone under age of 19 or under 24 if a full-time student is tax free. Everything after that point will be taxed at the child’s rate. Any unearned income exceeding $2100 is now taxed at the regular income and capital gains rates that apply to trusts. Earned income of children is taxed at the individual tax rate for single filers.

The rates for long-term capital gains and approved dividends have not been impacted. They have been altered and now are based upon income thresholds. For 2018 the 0% rate will apply for trusts with taxable incomes up to $2600. The 20% rate begins after income exceeds $12700. The 15% rate applies to incomes in between the amounts previously listed. The 3.8% surtax on net investment income applies over $ 12,500.

The year-end tax changes brought an end to a popular business tax break known as the domestic production deduction. The write-off for 9% of income derived from U.S. production activities. Lobbying groups and tax professionals who were counting on a 2 or 3 year phase out program were unable to obtain what they desired. Repeal is effective on taxes starting after 2017.

States, Congress and retailers are diligently fallowing a Supreme Court case that may lead to more online purchases being taxed. E-commerce currently escapes sales tax because 1992 high court decision shields out of state sellers with no physical presence in the buyer’s home state from having to collect sales tax from the buyer. Due to inaction of congress many states enacted their own sales tax on E-commerce. One state even enacted a law that directly conflicts with 1992 ruling. This law was blocked by the state’s highest court, however was appealed to the Supreme Court and they have agreed to hear the case. Arguments have already been presented and we can expect a verdict by late June.

N.Y. is serious about reforms to mitigate the effect of the new tax law. The stat has been looking into options to get around the $10000 cap on the deduction of state and local tax payments on federal returns. A new report from the N.Y. Department of taxation and finance outlines a series of tax-related proposals. They are working on an option to donate to state operated charities in exchange for credit on their individual income tax liability. Another option to be presented is decreasing personal income taxes and increasing employer payroll taxes.

Vt. Aims to profit off the digital currency extravaganza. A bill submitted to the state legislature allows digital currency systems to operate in the state through special LLCs. With this proposal would then charge these LLCs a one cent transaction tax for each unit of currency mined and on all sales or other transfers.

Taking your C corporation losses on the individual return is not allowed. A pair of brothers who were the only shareholders in a regular C corporation that operated a cattle business deducted the firm’s losses on their 1040 returns. The brothers who owned the livestock, claimed that the firm acted as their agent, however it is overall business purpose was to manage and run the operation. It hired and paid employees, took out workers’ comp and other insurances, purchased equipment and feed, bought and sold cattle in its own name. The losses were held by the corporation and not its stockholders.

Infrequent sales of real estate costs a typical taxpayer an ordinary loss. The seller who was the real estate professional, first sought to develop the land that he owned. After development activities stalled and did not make any progress beyond the planning stage, he put the land in a conservation program and sold it a few years later for a large loss. The loss is taxed as capital loss. The property was not held for sale in the ordinary course of taxpayer’s business. He did not advertise the land for sale, nor make any major improvements to it. This was the only land he sold over an 8 year period.

A trust gets a limited tax benefit from donations of appreciated realty to charity. The trust owned 99% of a partnership that operated retail craft stores. The trust paid taxes on its share of the firm’s income. It also bought land and buildings by using the distributions from the partnership. It held the land over a year and then donated them to charity. IRS argued the trust’s charitable deduction was limited to its basis in the assets under the applied federal tax statute. Appeals to the court agreed with the service and reversed a 2015 district court decision, which allowed a fair market value charitable write off.

Charity insiders that apply funds for personal use can draw a giant tax penalty. The founder and chief executive officer of a 501c3 used money in the group’s checking account to pay for a host of personal expenses such as groceries, store purchases for personal use, home repair, and their child’s tuition. The founder here was charged a 25% excise tax on the complete amount of funds that were used improperly. The founder claimed the expenses were compensation due to a lack of drawing of a salary for her services to charity. The IRS and Tax Court said the payments violated the excess benefit rules. There was another charge of a 200% excise tax because she did not repay the charity in a timely manner.

A settlement from a tax accounting firm for malpractice is not taxable, as far as the Tax Court is concerned. The firm advised a man to restructure his business as an ESOP-owned S corporation, and the taxpayer continued through with the procedure. The accountants made numerous errors, such as not forming the ESOP and not filing the S election. The transaction later turned out to be a tax shelter, triggering a large tax bill from the IRS. The man sued the accounting firm for malpractice and parties would settle the case for much less than what he paid to the service. The settlement proceeds were nontaxable, due to the compensation was partly for the taxes that he had paid as a result of the malpractice.

An innocent spouse gets relief from a guilty spouse in this case. A couple who in the future became divorced failed to report on their jointly filed return taxable payouts from the wife’s retirement account, a part of which was deposited into a joint checking account. She claimed on audit that her ex-husband should be liable for half of the deficiency. The IRS and Tax Court let him off because, although all sides agreed that he should have known about the distribution, there was no evidence that he had knowledge of this.

2 Obama care taxes are delayed or on a temporary moratorium: 40% of excise tax on employer-sponsored “Cadillac” health plans will now start in 2022. This is 2 years after the proposed start date of 2020. The 2.3% tax on medical device sales is suspended until 2019. Both of these taxes are put off for 2 years in 2015’s year-end tax deal. They were again delayed by Congress as part of the plan to reopen the federal government.

The private debt-collection program is off to a rough start. There was a law in 2015 that called for the agency to turn over numerous not active tax receivables to private debt collectors in an effort to recover overdue taxes owed by taxpayers. IRS began the program last spring and is receiving a huge amount of criticism. A report by Taxpayer Advocate claims IRS is spending more funds to run the program that it receives in overdue taxes collected by the program. Debt Collectors are targeting low-income tax payers.

IRS will not be tapping into military retirement payments of low-incomers for unpaid taxes. The IRS is able to impose continuous levies up to 15% of monthly military retirement benefits to collect past-due taxes. After Congress informed them that low-income retirees were being aggressively impacted by these levies the IRS agreed to filter our low income military retirement levies that are 250% below the federal poverty level. Due to budgetary reasons the change will not take effect until autumn.

The State Department is able to deny or revoke U.S. passports with federal tax debts above $51,000 and a lien has been filed or a levy has been placed. This is not including individuals that are under installment agreements, bankruptcies, or people in federally declared disaster areas. If your tax debt has been declared uncollectable due to hardships you will be excluded from this as well.

IRS will inform the State Department of all individuals that are excluded. Individuals that fall under this category will also receive notices informing them that their names have been submitted. Before enacting this policy the stat will give people 90 days to resolve the delinquent taxes by paying them in full or agreeing to a payment plan.

IRS has tips for hiring cyber security professionals. Consult with your preparer about various cyber security providers and tools such as ransomware protection, data back up options, remote access tools, and data encryption.

Tax Pros who call IRS’s toll-free lines are required to provide more personal information about who they are to help customer service reps confirm their Identity. They will be required to provide their Social Security Number and date of birth. This is in addition to their name and Centralized Authorization File Number. These changes are applied to Practitioner Priority Services line and toll-free numbers.