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March 22, 2019
NewsSection 355(a)(1) provides that, if certain requirements are met, a corporation may distribute stock and securities of a controlled corporation to its shareholders and security holders without recognition of gain or loss or income to the recipient shareholders or security holders. Among those requirements, both the distributing corporation and the controlled corporation must be engaged in an active trade or business (ATB) immediately after the distribution. Sections 355(a)(1)(C) and (b), and Reg. Sec. 1.355-3(a)(1)(i). Each trade or business must have been actively conducted throughout the five-year period ending on the date of the distribution. Revenue Ruling 2019-09 (IRB 2019-14) suspends Rev. Rul. 57-464 and Rev. Rul. 57-492, pending the completion of a study by the Department of the Treasury and the Internal Revenue Service (Service) regarding the ATB requirement under Sections 355(a)(1)(C) and (b) of the Code.
Tip of the DaySchedule C and material participation . . . Schedule C of Form 1040 contains a question (G, just above Part I) asking whether or not you materially participated in the business in 2018? You've got to check either the yes or no box. For most sole proprietors, the question is an easy yes or no. If this is your sole source of income, the answer is probably yes, but check the definition of material participation on page C-4 of the instructions to Schedule C. If the business was managed by someone else and you participated 500 hours or less during the year, chances are you did not materially participate. But you may qualify under one of the other definitions so check the instructions. Time your spouse spent working in the business counts, even if its your business. This can be a tricky area and the consequences are significant. If you didn't materially participate and you have a loss, the loss will be one from a passive activity and you won't be able to deduct it currently.
March 21, 2019
NewsWhen sending out a notice of deficiency the IRS's responsibility is limited to sending it to the taxpayer's last known address. That's important because the mailing of the notice starts the time period you have for challenging the deficiency and for other purposes. In Damian K. Gregory and Shayla A. Gregory (152 T.C. No. 7) the taxpayerss moved. After they moved, they filed their joint 2014 Federal income tax return using their old address. During an examination of their 2014 return, the taxpayers submitted Forms 2848, Power of Attorney and Declaration of Representative, showing their new address. While the examination was ongoing, the taxpayers submitted a Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return, also showing their new address. The IRS mailed a notice of deficiency to them at their old address. They filed an untimely petition. The IRS moved to dismiss the petition for lack of jurisdiction, arguing that they their filing was not timely. They moved to dismiss for lack of jurisdiction, arguing that the IRS failed to send the notice of deficiency to their last known address. The Court noted that a notice of deficiency provides sufficient notice if sent to the taxpayer's last known address. A taxpayer's last known address is the address shown on the most recently filed and properly processed return unless updated by clear and concise notification of a different address. The Court held that Form 2848 does not constitute a return for purposes of updating a taxpayer's last known address and that it does not constitute clear and concise notification of a different address. Similarly, the Court held that Form 4868 does not constitute a return for purposes of updating a taxpayer's last known address and Form 4868 does not constitute clear and concise notification of a different address. The Court held that the IRS's notice of deficiency was sufficient because it was sent to the taxpayers' last known address. (To be on the safe side, use Form 8822, Change of Address, or, for a business, Form 8822-B, Change of Address or Respoonsible Pary-Business)
Tip of the DayGain on tax-exempt bonds not tax exempt . . . The interest income on municipal bonds is generally tax exempt for federal purposes. (Whether or not it's taxable for state purposes depends on the rules in your state and who issued the bonds.) But any gain on the sale or redemption of the bonds is fully taxable. Likewise, any loss is deductible, the same as other short or long-term capital losses.
March 20, 2019
NewsThere was a drafting error in the Tax Cuts and Jobs Act that resulted in the loss of the rapid writeoff for qualified improvement property (QIP). Under the new law improving the interior of a retail store or restaurant, modernizing common areas in office buiildings, etc. must now be depreciated over 39 years. A bipartisan bill has been introduced that, if passed, will remedy the situation.
The Tax Cuts and Jobs Act of 2017 introduced Sec. 199A, which provides individuals with a new tax deduction for qualified business income. Section 199A provides a deduction of up to 20 percent for an individual’s domestic qualified business income from their taxable income. The IRS estimates that almost 23.7 million taxpayers may be eligible to claim the deduction. In addition, the Joint Committee on Taxation estimates a reduction in tax from this provision of $27.7 billion in Fiscal Year 2018 and $47.1 billion in Fiscal Year 2019, and totaling $414.5 billion over Fiscal Years 2018 through 2027. The Treasury Inspector General for Tax Administration (TIGTA) performed a review as part of its overall audit strategy assessing the IRS’s implementation of the Tax Cuts and Jobs Act. TIGTA performed this separate review of the IRS’s implementation of the Section 199A Qualified Business Income Deduction because of its complexities and impact on taxpayers. TIGTA found the IRS took proactive steps to implement the Qualified Business Income Deduction including establishing an implementation team, creating an action plan, and developing a communication strategy. However, IRS management indicated that due to the timing of the release of guidance, the IRS was unable to develop a tax form for the deduction. IRS management indicated that delaying the development of a tax form until Tax Year 2019 allowed the IRS to receive comments on the guidance, consider those comments before finalizing the guidance, and gain some experience with the first filing season. As an alternative, the IRS developed a worksheet to assist taxpayers with calculating the Qualified Business Income Deduction. TIGTA's report can be seen at www.treasury.gov/tigta/auditreports/2019reports/201944022fr.pdf.
In a 2018 decision, Norma L. Slone, et al. (U.S. Court of Appeals, Ninth Circuit), the Court held the former shareholders of a corporation knew that the buyers had no intention of paying the taxes and that the transaction lacked economic substance. The Court found that under state law the transfer was fraudulent and the shareholders were responsible for the tax. The U.S. Supreme Court has denied the petitioner's petition for certiorari, letting the Court of Appeals decision stand.
Tip of the DayFederal/state differences . . . Interest income from federal obligations such as U.S. Treasury bonds are fully taxable for federal purposes, but exempt for state purposes. On the other hand, municipal bond interest is generally exempt for federal purposes, but may or may not be taxable for state purposes. Interest on bonds of your home state are usually exempt; those of other states, aren't. Interest on bonds of the Commonwealth of Puerto Rico are generally exempt at the state level. The theory here is straightforward. The actual mechanics may not be. If you invested in a tax exempt mutual fund, the fund will have to give you the percentage of income for the year that is tax exempt in your state. That may be included the mailing from the fund or broker. If it isn't, you'll have to do some digging by calling or going to the fund's website. Then be careful how you enter the data in your tax software.
March 19, 2019
NewsThe Federal Insurance Contributions Act tax is imposed on both employees and employers to fund Social Security and Medicare. Most employers withhold the Social Security tax from employees’ wages and pay it to the IRS on the employees’ behalf. Individuals with more than one employer and whose combined Social Security tax withholding from all employers exceeds the maximum annual withholding amount may claim the excess amount of Social Security tax withheld as a refundable credit. As of December 28, 2017, the IRS received more than 1.5 million Tax Year 2016 tax returns claiming the Excess Social Security Tax Credit. These taxpayers received credits totaling more than $3.1 billion. The Treasury Inspector General for Tax Administration (TIGTA) initiated an audit to follow up on TIGTA’s previous audit recommendations and to evaluate the IRS’s efforts to detect and prevent erroneous Excess Social Security Tax Credit claims. TIGTA’s analysis of more than 2.5 million tax returns e-filed in Processing Years 2017 and 2018 with an Excess Social Security Tax Credit claim found that processes implemented in response to TIGTA's prior audit have improved the IRS’s identification of questionable claims. However, the IRS paid more than $74 million in potentially erroneous Excess Social Security Tax Credits as a result of incomplete Social Security tax credit selection criteria, insufficient procedures, and tax examiner processing errors. In addition, incorrect return selection criteria resulted in the IRS unnecessarily expending approximately $1.1 million to manually review 737,735 valid Social Security Tax Credit claims filed during Processing Years 2017 and 2018. Finally, the majority of potentially erroneous Excess Social Security Tax Credit claims identified by its post-processing income matching program continue to not be addressed. To see the full report, go to www.treasury.gov/tigta/auditreports/2019reports/201940026fr.pdf.
In Levon Johnson (152 T.C. No. 6) the taxpayer received $4,460 in 2014 in monthly advance payments of the premium tax credit (PTC) under the Affordable Care Act. His reported modified adjusted gross income (MAGI) was within the amount needed to qualify him for the PTC. He did not include in his MAGI all Social Security benefits received during 2014, which included a lump sum attributable to 2013. In his amended 2014 Federal income tax return he made an Sec. 86(e) election to exclude a portion of the 2013 Social Security benefits received during 2014 from his gross income. His amended return showed $1,250 of excess advance payments of the PTC. The IRS determined that the taxpayer's excess PTC was the entire $4,460 because, under Sec. 36B, all of his Social Security benefits received during 2014 (including those relating to 2013) must be included in computing whether he was entitled to the PTC. The inclusion of all Social Security benefits would result in the taxpayer having MAGI outside of the range for entitlement to the PTC. The Tax Court held that for purposes of determining a taxpayer's eligibility for a PTC under Sec. 36B, MAGI includes all Social Security benefits received during the taxable year irrespective of any Sec. 86(e) election. The Court sustained the IRS's determination.
Tip of the DaySelf-employment income . . . The threshold for reporting income from a side business is zero. That is, you've got to report all income from a side business or full-time business that is just starting up. For example, Fred is a licensed plumber normally working only for a contractor who pays him a salary. However, last year he made $450 from two small jobs he did outside of his regular job. The $450 has to be reported as gross income on Schedule C. He bought $60 worth of parts. (Don't net any deductions against income before reporting the income.) He can deduct the parts expense on Schedule C, reducing his net earnings to $390. There is a break here. Because his net earnings from self-employment were no more than $400, he doesn't have to report the $390 ans self-employment income for FICA purposes (Schedule SE).
March 18, 2019
NewsThe threshold for the underpayment penalty is usually 90 percent. The IRS has already dropped that to 85 percent to ease the pain for the taxpayers who owe an unexpected amount of tax this year. Congress is urging even more relief and Treasury Secretary Mnuchin has indicated that the threshold could be dropped to 80 percent.
You have two options if you want to contest the IRS's action in court. Don't pay the tax and go to Tax Court or pay the tax and sue for a refund in district court or Federal Court of Claims. In Lawrence Danduran (U.S. District Court, D. North Dakota) the petitioner sought a refund of tax penalties for failure to pay over withheld taxes. The Court noted the petitioner was involved in the day-to-day operations of the partnership, was a 50-percent partner, and could hire and fire employees. The Court reasoned that qualified him as a responsible person and sustained the IRS penalties.
Tip of the DayRequired minimum distributions . . . You're required to take required minimum distributions from traditional IRAs after you reach age 70-1/2. In the year you reach age 70-1/2 you can take the distribution as late as April 1 of the following year. For example, if you reached age 70-1/2 September 15, 2018. You must take your first distribution by April 1 of this year. Subsequent distributions must be taken by December 31. Continuing the example, you must take your required distribution for 2019 by December 31 of this year. Keep in mind that the distribution must come from a traditional IRA account. Taking a distribution from a Roth doesn't count. If you have multiple traditional IRAs you can take all of your distribution out of one. That's not true for other plans. Required minimum distributions must be taken out of each plan. And special rules apply to individual retirement annuities.
March 15, 2019
NewsThe filing deadline for corporate and partnership tax returns (for companies on a calendar year) is March 15. Most states have the same deadline. You can file and extension, but, like for individual taxpayers, you must pay any liability no later than the due date.
The IRS has a correction program that permits any size business or organization that sponsors a retirement plan (including SEP and SIMPLE IRA plans) to identify and correct problems they find. This correction program, the Employee Plans Compliance Resolution System (EPCRS), is outlined in Revenue Procedure 2018-52. The Voluntary Correction Program (VCP) works for mistakes that are not eligible for self-correction or if you want IRS assurance about how you corrected a mistake. The IRS is reminding businesses that Beginning April 1, 2019, you must make all VCP submissions electronically through Pay.gov. Any paper VCP submissions sent to the IRS with a postmark after March 31, 2019, will be returned to the applicant. For more information, check out this IRS video and review Updated Retirement Plan Correction Procedures that discuss the VCP submission process.
As long as you mail your petition to the Tax Court on time, it's considered filed on time. In Teri Jordan (T.C. Memo. 2019-15) the Court dismissed the petition for lack of jurisdiction. The postmark dates (there were three--two by the USPS and one a private postmark) was some 90 days after the last date for filing.
Tip of the DayBasis adjustments . . . The term basis is used to describe your "cost" in an asset. If you simply buy, hold, and sell securities, that's often what you paid for the stock. But sometimes it's not that simple. Reinvest the dividends through a dividend reinvestment plan? Those purchases increase your basis. Get a nondividend distribution? It's not taxable, but it reduces your basis in the stock. Sell stock or a mutual fund at a loss and repurchase shares within 30 days, the loss will be disallowed but can be added to the basis in the shares purchased. Stock acquired by inheritance has a basis equal to fair market value at the date of death of the decedent. Shares acquired from a spouse incident to a divorce has the same basis as in the hands of the original holding spouse. Shares acquired by gift take on the donor's basis--but some special rules apply. There are some other special situations. Best approach? Discuss the situation with your tax advisor.
March 14, 2019
NewsRevenue Ruling 2019-06 (IRB 2019-14) provides tables of covered compensation under Sec. 401(l)(5)(E) of the Code and related regulations for the 2019 plan year. For this purpose, covered compensation is average of the contribution and benefit bases in effect under section 230 of the Social Security Act for each year in the 35 year period ending with the year in which an employee attains social security retirement age.
The IRS has announced Publication 1345, Handbook for Authorized IRS e-file Providers of Individual Income Tax Returns has been updated. This edition of Publication 1345 replaces the previous edition revised April 2018. This publication continues to address only the rules and requirements for participation in IRS e-file by Authorized IRS e-file Providers (Providers) filing individual income tax returns and related forms and schedules. The IRS has noticed a steep jump in the number of thefts of taxpayer data from tax practitioner officers. A sections was added concerning disposal of taxpayer information and one on reporting of potential identity theft refund fraud activity that requires providers that transmit more than 2,000 returns to provide certain information regarding fraud schemes to the IRS. (Publication 1345 is only available online.)
Tip of the DayRefunds expire soon . . . The IRS announced that unclaimed income tax refunds totaling almost $1.4 billion may be waiting for an estimated 1.2 million taxpayers who did not file a 2015 Form 1040 federal income tax return, according to the Internal Revenue Service. To collect the money, these taxpayers must file their 2015 tax returns with the IRS no later than this year's tax deadline, Monday, April 15, except for taxpayers in Maine and Massachusetts, who have until April 17. In cases where a federal income tax return was not filed, the law provides most taxpayers with a three-year window of opportunity to claim a tax refund. If they do not file a tax return within three years, the money becomes the property of the U.S. Treasury. For 2015 tax returns, the window closes April 15, 2019, for most taxpayers. The law requires taxpayers to properly address, mail and ensure the tax return is postmarked by that date. If you haven't filed for 2016 and/or 2017 your refund may be held. Even if you don't think you are due a refund, you should check. Many low-income taxpayers who work can get the earned income credit which is refundable. That is, you could get money from the government even if you are not due a refund for income taxes. You should also keep in mind, that if you don't file a return, and should have, the IRS there is no statute of limitations.
March 13, 2019
NewsThe president's proposed budget for the upcoming fiscal year calls for an increase in base funding for the IRS from $11.2 billion to $11.5 billion. Some $290 million for that amount would be earmarked for information technology upgrades. Go to www.whitehouse.gov/omb/budget for additional information.
If you receive an advance premium credit when purchasing insurance in the marketplace, you've got to account for that on your tax return. If your income is higher than originally projected or the credit was more than allowed, you'll have to pay back some of the credit. In <Denine Kerns and Bryan Kerns (T.C. Memo. 2019-14) the taxpayers failed to reconcile their income with the amount of allowed premium credit. Their income was high enough that they did not qualify for any credit. The taxpayers argued they relied on the insurance provider to provide guidance and they should not be liable for the insurer's alleged malfeasance. The Court rejected the argument and sustained the assessment.
Tip of the DayState credits . . . They vary widely, can be very strange, and are often aimed at state issues. For example, Maryland offers credits for job creation, disability employment, enterprise zone, research and development, clean energy and hiring qualified veterans. Those are far from unique. But it also offers credits for oyster shell recyclying, wineries and vineyards, employer provided long-term insurance, security clearance cost, and energy storage systems. New York offers credits for rehabilitating a historic property, film production, farmer's school taxes, and automatic external defribillator. These credits are often easy to miss and there's a good chance your software may not pick them up automatically.
March 12, 2019
NewsThe IRS and the Treasury Department have released Federal Tax Provisions expired in 2017 and 2018 and Expiring in 2019. The publication discusses the effects of the uncertainty of temporary tax policy (the extension of temporary provisions in the law) and in particularly those related to energy, cost recovery, excise taxes on beer, wine and distilled spirits, and certain miscellaneous provisions including the new markets tax credit, work opportunity tax credit, premiums for mortgage insurance, exclusion of discharge of indebtedness income on principal residence, and the above the line deduction for qualified tuition and related expenses.
In High Desert Relief, Inc. (U.S. Court of Appeals, Tenth Circuit) the IRS was investigating the tax liability of High Desert Relief, Inc. (“HDR”), a medical marijuana dispensary in New Mexico. The IRS began an investigation into whether HDR had improperly paid its taxes, and specifically whether it had improperly taken deductions for business expenses that arose from a “trade or business” that “consists of trafficking in controlled substances.” under Sec. 280E. Because HDR refused to furnish the IRS with requested audit information, the IRS issued four summonses to third parties in an attempt to obtain the relevant materials by other means. HDR filed separate petitions to quash these third-party summonses in federal district court in the District of New Mexico, and the government filed corresponding counterclaims seeking enforcement of the summonses. HDR argued that the summonses were issued for an improper purpose—specifically, that the IRS, in seeking to determine the applicability of Sec. 280E, was mounting a de facto criminal investigation pursuant to the Controlled Substances Act (“CSA”). The Court concluded that the IRS had demonstrated good faith under Powell and let stand the District Court holdings that the summonses are valid.
Tip of the DayCheck your K-1 carefully . . . Whether it's from an S corporation or a partnership, K-1s have increased in complexity over the years. And this year there's another jump. Make sure you check the right box on your return for passive or nonpassive, pick up any charitable contributions and items that affect your basis, and, most importantly, Sec. 199A income, wages, and unadjusted basis so that you can take the 20 percent deduction for qualified business income.
March 11, 2019
NewsThe IRS announced that the government shutdown has delayed the annual revision of the Special Enrollment Examination (SEE). The examination to be administered starting on May 1, 2019, has not yet been updated and reflects tax law for the calendar year 2017. A revised examination will be released on July 1, 2019, and will be based on tax law for the calendar year 2018. To ensure that the SEE accurately incorporates the changes resulting from the Tax Cuts and Jobs Act and continues to reflect the skills and knowledge necessary to be an enrolled agent, the IRS commissioned a review and update of the SEE test specifications. Enrolled agents from the private sector and subject matter experts from the IRS participated in updating the test content. As a result, there were changes to the test specifications affecting test content topics for the SEE to be administered beginning July 1, 2019. To review the revised test specifications, visit www.prometric.com/see and choose Step 3, Review Exam Content Outlines.
The IRS kicked off its annual “Dirty Dozen” list of common tax scams this week and warned of the ongoing threat of internet phishing scams that lead to tax-related fraud and identity theft. Visit IR-2019-26 to review all of the 2019 “Dirty Dozen” scams.
In testimony before a House panel on March 7, National Taxpayer Advocate Nina Olson said the percentage of taxpayers receiving refunds is comparable to prior years. She also reported that, to date, the IRS has reported a “Level of Service” (LOS) of 57 percent on its Accounts Management telephone lines and assistors have answered only 18 percent of taxpayer calls--both substantially below last year’s levels. During the first week after the shutdown, the Installment Agreement/Balance Due line experienced an LOS of 6.7 percent--meaning 93.3 percent of the calls from taxpayers trying to make payment arrangements were not answered. The IRS is also facing significantly larger correspondence backlogs than at this point last year. The IRS has generally been answering tax law questions only during filing season. This year, because of the significant tax law changes made by the TCJA, the IRS indicated it would answer questions about the new law year round. Tax Advocate Service testers calling the toll-free lines with sample questions have received inconsistent service and inaccurate information. To read the complete report, go to Statement of Nina E. Olson National Taxpayer Advocate
. Tip of the DayCost of professional tax help . . . If you expected your tax preparer to cut his fee in half this year because completing the 1040 has been advertised as simpler, you could be in for a surprise. It is true that for some taxpayers with a simple return who will no longer itemize the new return is less work. But for anyone with children in college, those who have a mortgage and will itemize, and particularly for taxpayers who own or have an interest in a business, not much has changed--and for business owners, things have actually gotten more complex. Add to that first-year with the new system issues and the fact that your state return may not have gotten any simpler and you could find your tax preparation bill may actually increase. And this could be a particularly bad year to wait till April 13 to set up an appointment with your preparer. Even preparing a estimate to be able to file an extension is likely to take more time.
March 7, 2019
NewsThe IRS has announced (IR-2019-31) that victims of Sunday’s tornadoes and severe storms in Alabama have until July 31, 2019, to file certain individual and business tax returns and make certain tax payments. The IRS is offering this relief to any Major Disaster Declaration area designated by the Federal Emergency Management Agency (FEMA) as qualifying for individual assistance. Currently, this only includes Lee County, Alabama, but taxpayers in localities added later to the disaster area, including those in other states, will automatically receive the same filing and payment relief. The current list of eligible localities is always available on the disaster relief page on IRS.gov. The tax relief postpones various tax filing and payment deadlines that occurred starting on March 3, 2019. As a result, affected individuals and businesses will have until July 31, 2019, to file returns and pay any taxes that were originally due during this period. This includes individual income tax returns and payments normally due April 15, 2019. Eligible taxpayers will also have until July 31, 2019 to make 2018 IRA contributions. The July 31, 2019, deadline also applies to quarterly estimated income tax payments due on April 15 and June 17, 2019 and the quarterly payroll and excise tax returns normally due on April 30, 2019. In addition, penalties on payroll and excise tax deposits due on or after March 3, 2019, and before March 18, 2019, will be abated as long as the deposits were made by March 18, 2019. It also applies to tax-exempt organizations, operating on a calendar-year basis, that have a Form 990 information return due on May 15, 2019. Businesses, including corporations, S corporations and partnerships, that have a 2018 return due during this period also have the extra time.
In Notice 2019-18 the IRS is informing taxpayers that the IRS no longer intends to amend the required minimum distribution regulations under Sec. 401(a)(9) to address the practice of offering retirees and beneficiaries who are currently receiving annuity payments under a defined benefit plan a temporary option to elect a lump-sum payment in lieu of future annuity payments.
Item L of Schedule K-1 to Form 1065 requires reporting of a partner’s capital account. Generally, a partnership may report partner capital to a partner using tax basis, Generally Accepted Accounting Principles, section 704(b) book, or some other method. The 2018 Instructions for Form 1065 and Partner’s Instructions for Schedule K-1 (Form 1065) to Item L now require a partnership that does not report tax basis capital accounts to its partners to report, on line 20 of Schedule K-1 using code AH, the amount of such partner’s tax basis capital both at the beginning of the year and at the end of the year if either amount is negative (negative tax basis capital account information). Notice 2019-20 (IRB 2018-13) provides a waiver of penalties under Sections 6722 and 6698 to certain partnerships that file Schedules K-1 that fail to report information about partners’ negative tax basis capital accounts for the partnerships' 2018 tax year. The relief is conditioned on the partnerships providing the missing information in a separate schedule by March 15, 2020.
Tip of the DayCompare to last year . . . Sometime during the tax preparation (or review) process tax professionals compare line items to the prior year. That's one way of catching an error. It doesn't work for all items (e.g., capital gains and losses; repairs on a rental property), but it's a surprising good approach. You don't have to look at individual dividends, but if you had $1,200 of dividends last year, your total this year should be plus or minus 10 percent. If there's more of a difference you should investigate further. A drop might indicate that you sold some stock. Your mortgage interest expense should be a bit lower, unless you refinanced to make improvements. Most tax software can generate reports comparing the prior and current year. In some cases that may not be detailed enough (e.g., expenses on a rental property) but it's a good start and will save time.
March 7, 2019
NewsThe Senate Finance Committee has released a Summary of the Tax Extender and Disaster Relief Act of 2019. A number of tax provisions expired at the end of 2018 and have not yet been extended, although there is general consensus that they should be. The provisions include the credit for nonbusiness energy property, exclusion from gross income of discharge of qualified principal residence debt, mortgage insurance premiums as qualified residence interest, and above the line deduction for tuition. The bill also includes disaster tax relief benefits to individuals and businesses affected by major disasters in 2018.
In most situations a supervisor has to provide written approval for penalties to be assessed. There have been a number of cases recently where the taxpayer challenged the penalty because such approval was not provided. In Palmolive Building Investors, LLC, DK Palmolive Building Investors Participants, LLC, Tax Matters Partner (152 T.C. No. 4) the petitioners filed for 2004 a Form 1065, U.S. Return of Partnership Income. On that return it claimed a $33.41 million charitable contribution deduction for the contribution of a facade easement. The IRS examined the return. The examining agent decided to disallow the deduction and to assert two penalties in the alternative—a 40% penalty for gross valuation misstatement under Sec. 6662(h) and a 20% underpayment penalty due to negligence under Sec. 6662(b)(1). The agent proposed these adjustments on Forms 886A, Explanation of Items, attached to a Form 5701, Notice of Proposed Adjustment. The agent's immediate supervisor signed the Form 5701. The deduction disallowance and the gross valuation misstatement penalty were later proposed to the petitioner in a “30-day letter”, and the disallowance and both penalties were thereafter proposed to P in a “60-day letter”. The petitioner requested a conference with the IRS Office of Appeals. An Appeals officer proposed the issuance of a notice of final partnership administrative adjustment (FPAA) by means of a Form 5402-c, Appeals Transmittal and Case Memo, to which he attached a Form 886A that asserted four alternative penalties—the two initially determined by the examining agent and also penalties for substantial understatement of income tax under Sec. 6662(b)(2) and for substantial valuation misstatement under Sec. 6662(b)(3). The Appeals officer's immediate supervisor signed the Form 5402-c (on the “Approved by” line), and six weeks later an FPAA was issued to the petitioner disallowing the charitable contribution deduction and determining all four penalties. The petitioner timely filed a petition challenging the FPAA. The Tax Court issued an opinion, Palmolive Bldg. Inv'rs, LLC, sustaining the disallowance of the deduction. The petitioner filed a motion for summary judgment, and the IRS filed a cross-motion for partial summary judgment, concerning, inter alia, whether the IRS complied with Sec. 6751(b)(1) in determining the penalties. The Court held that where the IRS asserts multiple penalties, Sec. 6751(b)(1) does not require that the “initial determination” of all the penalties be made at the same time or by the same individual and Sec. 6751(b)(1) does not require supervisory approval to be made on a particular form, and the statute is satisfied by approval made on Form 5701 or Form 5402-c, with the subordinate's “initial determination[s]” of penalty attached thereto.
Tip of the DayReconcile your capital gains and losses . . . If you have stock and investment transactions, you should make sure your totals agree with your Form 1099-Bs. Go through the statements and pick up the totals for cost basis and sale proceeds for each category--short-term, covered sales (where basis is reported to IRS), short-term, not covered sales (basis not reported) and the similar categories for long-term transactions. If your totals for each category don't match the 1099-Bs, you can expect a letter from the IRS somewhere down the road.
March 6, 2019
NewsThe IRS has issued proposed regulations (REG-104464-18 and NPRM REG-104464-18) that provide guidance to determine the amount of the deduction for foreign-derived intangible income and global intangible low-taxed income. This document also contains proposed regulations coordinating the deduction for foreign-derived intangible income and global intangible low-taxed income with other provisions in the Code.
The Court of Appeals for the D.C. Circuit has overruled a District Court case in Montrois and held that the IRS can charge a fee for tax preparers to obtain a PTIN (Preparer Tax Identification Number). The Court found the IRS provided a specific benefit to return preparers. Based on the holding the IRS seems likely to reinstitute the fee.
In Craig S. Walquist and Maria L. Walquist (152 T.C. No. 3) the IRS through his Automated Correspondence Exam system determined, for the taxpayers' 2014 tax year, a deficiency in tax and a penalty for an underpayment attributable to a substantial understatement of income tax. The IRS's computer program generated a 30-day letter inviting the taxpayers to reply and submit relevant information. When they declined to respond, the program generated and issued to them a notice of deficiency in the form of a Letter 3219. This letter again invited them to contact the IRS, but they did not do so. The taxpayers timely petitioned the Tax Court, ?advancing numerous frivolous arguments. They refused to participate in the pretrial process and failed to appear for trial. They persisted in advancing frivolous arguments despite our warnings that they risked dismissal and additional penalties if they continued down that path. The IRS moved to dismiss the case for lack of proper prosecution by the taxpayers. The Court held that penalties determined under Sec. 6662(a) and (b)(2) by an IRS computer program without human review are “automatically calculated through electronic means” within the meaning of Sec. 6751(b)(2)(B) and thus are exempt from the written supervisory approval requirement of Sec. 6751(b)(1) and that the IRS met its burden of production with respect to establishing the taxpayers' unreported income and with respect to the Sec. 6662 penalty as required by Sec. 7491(c). The Court also held the IRS's motion to dismiss for lack of prosecution be granted, and the deficiency and penalty determined by the IRS, as reduced by the concession in the IRS's answer, were sustained. The Court ordered the taxpayers to pay the United States a penalty of $12,500 pursuant to Sec. 6673(a)(1) because they have repeatedly advanced frivolous positions during the case.
Tip of the DayDifferential wage payments . . . If you're serving as an active duty member of the uniformed services for 30 days or more and receive a payment from your employer that represents all or a portion of the wages you would have received from the employer if you had been working, this amount is a differential wage payment. These payments are treated as wages and subject to income taxes and income tax withholding, but they are not subject to FICA or FUTA. Any such payments would be reported on your W-2 from your employer.
March 5, 2019
NewsIn Eaton Corporation and Subsidiaries (152 T.C. No. 2) the parties filed cross-motions for partial summary judgment. The issue was whether the earnings and profits (E&P) of the upper tier controlled foreign corporation (CFC) partners of Eaton Worldwide LLC (EW LLC), a domestic partnership, must be increased as a result of the partnership's Sec. 951(a) income inclusions. The taxpayer contended that EW LLC's Sec. 951(a) inclusions do not affect the E&P of its upper tier CFC partners. Conversely, the IRS contended that the upper tier CFC partners increase their E&P to reflect EW LLC's Sec. 951(a) inclusions. The Tax Court held that the E&P of upper tier CFC partners of a domestic partnership, such as EW LLC, must be increased as a result of the partnership's Sec. 951(a) income inclusions.
Tip of the DayEducation credits . . . Tax law now provides for two education credits--the American opportunity tax credit (AOTC) and the Lifetime learning credit. The AOTC is only available for the first four years of postsecondary education, working to a dgree, and can be up to $2,500 of credit per eligible student. The lifetime learning credit is available for all years of postsecondary education and for courses to acquire or improve job skills. The maximum credit is $2,000 per return. For the AOTC qualified education expenses include amounts spent on books, supplies, and equipment needed for a course of study, whether or not the materials are purchased from the educational institution as a condition of enrollment or attendance. For the lifetime learnng credit the qualifying expenses are the same, but only if required to be paid to the institution as a condition of enrollment or attendance. If you claim the American opportunity tax credit even though you're not eligible, you may be banned from claiming the credit for 2 or 10 years. There are other requirements for both credits. See IRS Publication 970, Tax Benefits for Education.
March 4, 2019
NewsThe IRS has announced the filing season statistics for the week ending February 22, 2019. Compared to 2018 the total number of returns received is down 3.5 percent and the number processed is down 4.6 percent. To date, 47,700,000 returns have been processed. Total e-filing receipts are down 2.7 percent; from tax professionals the number is down 6.7 percent; for self-prepared returns the number is up 0.9 percent. The number of refunds is still down compared with last year (4.8 perenct), but not by nearly as much. The same is largely true for the total amount of refunds. That's down by 3.6 percent. However the average refund is now up by 1.3 percent. More than likely, the number of returns filed by professionals is down more than self-prepared returns because professionals tend to file more complex returns. To see all the statistics go to Filing Season Statistics for Week Ending February 22, 2019.
The IRS has released statistical data on individual tax returns filed in 2017 including sources of income, deductions, credits and liability. The data is grouped by adjusted gross income (i.e., under $15,000; $15,000 to $30,000; etc.) giving information on the number of returns and the dollar amount for the various items and income groupings. The downloadable data is presented in spreadsheet format. On the same page is data for other sources and years. Go to SOI Tax Stats--Individual Income Tax Returns.
If the IRS classifies your unpaid (and undealt with) tax liability as a seriously deliquent debt ($52,000 or more), you may not be able to get a passport or your current passport could be revoked. You don't necessarily have to pay off the debt, but you must be able to show you're dealing with it in one of several ways including an installment agreement. The IRS has just released IR-2019-23 which provides details on what steps you can take to deal with the issue. While the solution may not be complicated, it will take time.
Tip of the DayCheck the instructions . . . You don't have to be a tax professional to see the differences in Form 1040 or Schedule A. And you may be lulled into a false sense of security when you see many of the other forms and schedules you'll attach for your individual return look very similar to last year. But there are a number of subtle differences. For example, on Part II of Schedule E (where you report income or loss from S corporations and partnerships) if you report a loss, receive a distribution, dispose of stock, or receive a loan repayment from an S corporation, you must check the box in column (e) and attach a basis computation. There are very few S corporations that don't meet any of those requirements.
March 1, 2019
NewsThe IRS has announced (Notice 2019-17) it will waive the estimated tax penalty for any qualifying farmer or fisherman who files his or her 2018 federal income tax return and pays any tax due by Monday, April 15, 2019. (The deadline is Wednesday, April 17, 2019, for taxpayers residing in Maine or Massachusetts.) The IRS is providing this relief because, due to certain rule changes, many farmers and fishermen may have difficulty accurately determining their tax liability by the March 1 deadline that usually applies to them. For tax year 2018, an individual who received at least two-thirds of his or her total gross income from farming or fishing during either 2017 or 2018 qualifies as a farmer or fisherman.
The IRS has issued final regulations (T.D. 9850) that amend the utility allowance regulations concerning the low-income housing credit under Section 42. These final regulations extend the principles of the current submetering rules. The current rules address situations in which a building owner purchases a utility from a utility company and then separately charges the tenants for the utility. In those situations, if the utility costs paid by a tenant are based on actual consumption in the tenant's submetered, rent-restricted unit and if certain other requirements are satisfied, then the charges for the utility are treated as paid by the tenant directly to the utility company, even though the payment passes through the building owner. The final regulations extend these principles and apply to situations in which a building owner sells to tenants energy that is produced from a renewable source and that the owner did not purchase from or through a local utility company.
Tip of the DayChild tax credit . . . The new law modified the child tax credit, increasing it and raising significantly the adjusted gross income where the credit is phased out. But the new law also eliminated the dependent exemption. That means no $4,050 (the 2017 amount; last time it was available) for an older child who was still living at home and in school. The new law provides a $500 credit for a qualifying dependent. That could be your mother who can be claimed as a dependent or your son or daughter at college. Enter in all the information about the dependent correctly in your software and the program will take care of the details. But it's easy to miss a step, so look for the credit on Form 1040, line 12.
February 28, 2019
NewsThe IRS has posted four new Practice Units to IRS.gov. Practice Units are developed through internal collaboration and serve as both job aids and training materials on tax issues. Practice Units provide IRS staff with explanations of general tax concepts as well as information about a specific type of transaction. The new units are:
Self-Employment Tax and Partners
Creation of a Permanent Establishment (PE) through the Activities of a Dependent Agent in the United States
Preparatory and Auxiliary Treaty Exception to Permanent Establishment Status
IRC 179D Energy Efficient Commercial Buildings Deduction
The Joint Committee on Taxation has released JCX-5-19 Estimating The Effects Of The Required Minimum Distribution Rules On Withdrawals From Individual Retirement Arrangements. The study was undertaken to study the effects of required minimum distribution rules on the asset decumulation behavior of retirees with traditional IRAs.
Tip of the DayCosmetic surgery . . . Elective cosmetic surgery is generally nondeductible if you pay it out of your own pocket. If your insurance reimburses you for the procedure, the proceeds are likely to be taxable. As with all tax rules, there's an exception. Expenses are deductible if the surgery is necessary to relieve a deformity that resulted from a congenital condition, or a disfiguring disease. For example, after a serious accident you're left with a growth that restricts the movement of your left arm. In this case the surgery would be deductible. Since the procedure may not be covered by insurance, securing a deduction could be valuable. Talk to your tax advisor. He should be able to research the issue and provide guidance.
February 27, 2019
NewsDisputing the amounts on a W-2 or 1099 is not easy. In Peter E. Hendrickson and Doreen M. Hendrickson (T.C. Memo. 2019-10) the taxpayers used substitute Forms W-2 and Forms 1099-MISC to dispute the amount of income earned. The main premise of their argument is that the RIS has no proof that they engaged in taxable activities and the IRS's reliance on Forms W-2 and 1099-MISC is hearsay. The taxpayers incorrectly argued that this shifts the burden to the IRS. The Court noted that this frivolous argument is not new and refused to waste time addressing it. The taxpayers did not file valid tax returns for the years at issue. Because they didn't file valid returns they weren't liable for the accuracy-related penalty, but they were liable for the fraudulent failure to file penalty for those years noting the husband's pattern of filing frivolous returns shows a deliberate intent to conceal taxable income.
Tip of the DayReceipt required . . . Undoubtedly at one time or another you've heard a contractor, plumber, landscaper, auto repair shop, etc. say "if you pay cash I don't have to charge the sales tax". You may save the sales tax, but you're unlikely to get a good receipt. And more than likely the vendor isn't reporting any of that amount to the IRS or another other taxing authority. You don't need a receipt if the work is on your personal vehicle. But if the work is on your home without a good receipt and a canceled check you won't be able to show additional basis in the house. If you've got a rental property, you need a paid invoice and canceled check and make sure the address of the property worked on and a description of the work done is on the invoice. If the work is for your business, clearly you'll need a detailed invoice and you should be able to show it was paid--either by an ACH debit, credit card receipt, canceled check, wire transfer, or one of the new, electronic ways of paying.
February 26, 2019
NewsThe IRS has announced (Rev. Rul. 2019-05) that interest rates will remain the same for the calendar quarter beginning April 1, 2019, as they were in the first quarter of 2019. The rates will be:
Tip of the DayWhat's the verification code mean? . . . Your W-2 may have a verification code in box 9. The IRS has partnered with certain payroll service providers to include a 16-character code on many Forms W-2. This year the code will appear on some 60 million W-2s (about 25 percent). The code is in four groups of alphanumeric characters with each group separated by a hyphen. The code appears on copies B ("to be filed with employee's federal tax return") and C ("for employee's records"). If there's no code in the box (or there's no box 9) don't worry. Your return will process fine. But if there is a code and you're filing electronically, the IRS urging taxpayers to enter the code. It will assist the IRS in validating the W-2 data submitted with your return and can speed the processing of the return. On the other hand, omitted and incorrect verification codes (your software may warn you of a code that is patently wrong because it contains unacceptable entries) will not delay the process of a return.
February 25, 2019
NewsAre you suing for the right thing? In John F. Schlieker, Plaintiff v. United States of America, Transportation Security Administration (TSA), and Robert Grimes, Branch Chief, Defendants. (U.S. District Court, D. Colorado) the taxpayer sued the TSA (Transportation Security Administration) for losing some of his tax records when his luggage was inspected. As a result, the taxpayer was unable to get some of the refund he sought. The District Court noted he did not file a refund claim with the IRS. The Court concluded the petitioner was really seeking a refund from the IRS, not compensation for the lost tax documents. Because the petitioner failed to file a claim with the IRS the Court did not have jurisdiction.
Tip of the DayRefunds down further . . . Results from the third week of this tax season (through Feb. 15) show the average refund is down 16.7 percent according to the IRS. The average refund was $2,640 compared with $3,169 for the prior year. The average refund for the second week of filing season was down 8.4 percent. The IRS is attributing the lower refunds to a timing difference. The IRS noted it processed fewer returns claiming tax credits. It's still too early to gauge how the average refund will fare at the end of the tax season. Keep in mind that getting a refund or having to pay is a function of two variables--your tax liability and how much you paid in during the year. For example, your taxes could have decreased by $500 from the prior year, but if you paid in--through withholdings and estimates--$1,500 less, you'll owe $1,000. And there's a strong possibility the withholding tables were skewed toward not withholding enough in 2018.
February 22, 2019
NewsThe IRS is always on the lookout for hobby loss activities. That's because the dollar amounts can be substantial and the Service has a good track record of winning. Anything to do with horses appears to be suspect. That's the issue in many of the cases. In a case decided in May 2018 (Cecilia M. Hylton, U.S. Court of Appeals, Fourth Circuit) the Court sided with the Tax Court in finding the taxpayer's quarter-horse activity was not engaged in primarily for profit. The Court noted that despite the taxpayer's expertise in horse breeding and the considerable time spent in the activity she incurred significant losses over a number of years (the activity did not turn a profit) yet did not seek financial advice. The Court noted the activity had significant recreational aspects. The taxpayer petitioned the U.S. Supreme Court for review. The Supreme Court has denied the petition for certiorari.
Tip of the DayQualified dividends . . . If you're entering information on dividends in your tax software, be sure to do so carefully. Dividends on most U.S. corporations are qualified and are taxed at lower capital gain rates. Generally you don't have enough information to determine the status so the company or your broker will identify them as qualified on your 1099-DIV or substitute 1099. There's one other requirement--you must have held the stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date.
February 21, 2019
NewsThere is a trend to a greater number of workers in the "gig economy". That may be an issue for the IRS because self-employed taxpayers must pay the self-employment tax, about 15.3% of the first $132,900 of self-employment income and self-employed taxpayers can claim expenses against that income. The IRS last estimated the self-employment portion of the annual Tax Gap at $69 billion. The Treasury Inspector General for Tax Administration (TIGTA) initiated an audit because the gig economy has since emerged and grown considerably, with thousands of new taxpayers each year being responsible for self-employment taxes. This audit was started to evaluate the self-employment tax compliance of taxpayers who earn income in the gig economy and assess the IRS’s processes and controls that identify and address noncompliance with self-employment tax requirements. TIGTA reviewed cases in the IRS’s Automated Underreporter (AUR) program for taxpayers who work in the gig economy and who have discrepancies between what is reported on their income tax returns and payments reported to the IRS on Tax Years 2012 through 2015 Forms 1099-K, Payment Card and Third Party Network Transactions, by payers. The review was limited to nine commonly recognized gig economy payer companies and identified 264,346 cases with potentially underreported payments included on Form 1099-K. The number of discrepancies involving Forms 1099-K from these gig economy payers increased 237 percent from 2012 to 2015. Like other types of AUR inventory, many cases were not selected to be worked by the AUR program due to the large volume of discrepancies that were identified. Specifically, 59 percent of taxpayers were not selected to be worked by the AUR. This includes 2,817 taxpayers with potential underreporting of their Form 1099-K income in all four tax years, involving $2.7 billion in potentially underreported payments included on Form 1099-K. AUR employees removed thousands of cases from inventory without justification or with justification that was inaccurate. Many of the cases that were worked included errors by IRS examiners. Also, AUR employees rarely refer questionable deductions claimed by taxpayers on amended returns filed in response to receiving a notice from the AUR program to the Examination function. Treasury Regulations do not require certain gig economy businesses to issue Form 1099-K unless workers earn at least $20,000 and engage in at least 200 transactions annually. Consequently, many taxpayers who earn income in the gig economy do not receive a Form 1099-K; therefore, their income is not reported to the IRS. When income is not reported to the IRS, taxpayers are more likely to be noncompliant. TIGTA recommended that the IRS take several corrective actions to improve how the AUR program addresses self-employment tax noncompliance, selects cases, and conducts quality reviews. Additionally, TIGTA recommended that the IRS Office of Chief Counsel develop and issue guidance to help clarify current third-party reporting regulations and work with the Department of the Treasury Office of Tax Policy to pursue regulatory or legislative change to reduce the information reporting gap. The IRS agreed or partially agreed with nine of TIGTA's 11 recommendations. Management’s disagreement with two recommendations was mainly due to other work priorities and the cost and difficulties associated with making changes to IRS systems. TIGTA contends that the implementation of these recommendations would be in the best interest of improving taxpayer compliance. To see the full report, go to www.treasury.gov/tigta/auditreports/2019reports/201930016fr.pdf.
Tip of the DayAuto loan deliquencies up . . . And significantly so. There are one million more deliquent loans than at the end of 2010 when the overall rates were at their worst. While their may be a number of reasons for the high rate other than an impending financial crisis (cars more expensive, buyers buying more car than they should, more loans to subprime borrowers, etc.) it is disturbing and should not be ignored. It's important to remember that many individuals rely on a car for transportation and having a vehicle repossessed could leave many individuals without a way to get to work, shop, etc. It's certainly not a preferred way to reduce cash outflow. This could be a sign of distress in the overall economy, and is a factor for business owners to watch.
February 20, 2019
NewsThe IRS is reminding farmers and fishermen who chose to forgo making quarterly estimated tax payments that they must file their 2018 Form 1040 along with a payment for all taxes owed by Friday, March 1, 2019. This special rule normally applies to taxpayers whose farming or fishing income was at least two-thirds of their total gross income in either the current or the preceding tax year. Farmers and fishermen choosing not to file by March 1 should have made an estimated tax payment by Jan. 15 to avoid a penalty.
The IRS has released Publication 5035 reporting information on partnership filings. The first, IRS Publication 5035 The Partnership Returns Line Item Estimates (Publication 5035) presents estimates of frequencies of taxpayer entries recorded on the applicable lines of the forms and schedules filed with partnership returns. This publication also contains corresponding population estimates of dollar amounts recorded on those lines (as applicable). 2010 was the first year of availability for this data. The data is for 2016, the latest year available.
Tip of the DayFind an error on your K-1? . . . It does happen. It could be an incorrect allocation of income, the wrong amount for a distribution to you, or any one or more of the dozens of items that could be on a K-1 for a partnership or S corporation. If you don't report what's on the K-1 you could be liable for a penalty if audited. The correct approach is to notify the partnership or corporation of the error and get them to correct it. Then make sure they send a correct copy to the IRS (at the top of the K-1 there's a box to check for an amended K-1). If you can't reach the entity, they don't agree with the error, or they refuse to file an amended K-1, you'll need to file Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request.
February 19, 2019
NewsDue to the government shutdown, the processing of renewals for enrolled agents whose enrollment expires on March 31, 2019, will be delayed. The IRS is automatically extending enrollment card expiration for the current renewal cycle which includes all enrolled agents with social security numbers ending in 0, 1, 2, or 3. The deadline for submitting timely renewals was January 31, 2019. All renewal applications will be worked on a first in, first out basis. Enrolled agents with social security numbers ending in 0, 1, 2, or 3 who have not yet submitted a renewal should do so immediately at Pay.gov. For more information, go to www.irs.gov/tax-professionals/enrolled-agent-news.
Tip of the DayReport all income . . . Just because you didn't get a 1099 from that two-day job doesn't mean you don't have to report the income. There's no threshold. Worked one hour for $15, you have to report the income. And you shouldn't net any expenses against the income. For example, you don't usually sell parts without installing them, but for a good customer you sell him a part for $600 that cost you $575. Report the $600 as income and the $575 as cost of goods sold. The IRS has certain rules on reporting expenses.
February 15, 2019
NewsIncome from all sources is generally taxable. There are some limited exclusions. The courts narrowly construe exclusions from income. Settlement proceeds from legal action are excludable under Sec. 104(a)(2) only if the settlement is paid on account of personal physical injuries or physical sickness. In Daniel R. Doyle and Lynn A. Doyle (T.C. Memo. 2019-8) the Court noted for a taxpayer to fall within this exclusion, he must show that there is “a direct causal link between the damages and the personal injuries sustained. Here the taxpayer sued a former employer for emotional distress as a result of being fired. The employer settled and gave the taxpayer a 1099-MISC, reporting the amount of the settlement. The Court held that while the taxpayer may have had physical symptoms including nausea, vomiting, headaches, backaches--these are included in the definition of emotional distress when they result from such distress. The Court noted that the Code specifically says that “emotional distress shall not be treated as a physical injury or physical sickness." The Court found the settlement payments were not excludable from the taxpayers' income. The taxpayers did escape the accuracy-related penalty by showing they relied on competent professional advice. In addition, there was no evidence of supervisory approval for the penalties.
Tip of the DayElecting slower depreciation . . . Under the new law you're automatically entitled to claim 100 percent bonus depreciation in the year of acquistion of most tangible personal property assets. For example, your company purchases a new forklift for $50,000, you can claim Sec. 179 expensing and expense the full $50,000 in the year of purchase or take $50,000 of depreciation using the 100 percent bonus depreciation. While it appears both options produce the same result, there are some differences. But there are other considerations. What if your income, before any depreciation on the forklift, is only $15,000. Taking the full depreciation will only create a loss that can be carried forward. For various reasons, you may or may not want to do that. It may make more sense to level your income to keep you in the lower brackets (assuming you're doing business as an S corporation, sole proprietorship, etc.). There are other considerations. If taking the bonus depreciation will eliminate much, if not all, your income, discuss electing out of bonus depreciation with your accountant.
Tip of the Day
Resident alien . . . If you are a resident alien for the entire year, you must file a tax return following the same rules that apply to U.S. citizens. If you are a nonresident alien, the rules and tax forms that apply to you are different from those that apply to U.S. citizens.
Copyright 2019 by A/N Group, Inc. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is distributed with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought. The information is not necessarily a complete summary of all materials on the subject. Copyright is not claimed on material from U.S. Government sources.--ISSN 1089-1536