Depreciation related breaks on business real estate: What you need to know when you file…Posted on February 2nd, 2019
Commercial buildings and improvements generally are depreciated over 39 years, which essentially means you can deduct a portion of the cost every year over the depreciation period. (Land isn’t depreciable.) Special tax breaks allow deductions to be taken more quickly. They are available for certain real estate investments. Some were enhanced by the Tax Cuts and Jobs Act (TCJA) and may provide a bigger benefit when you file your 2018 tax return. But there are two breaks you may not be able to enjoy due to a drafting error in the TCJA. Contact us at 954-967-0969 to learn more.
Is Your Investment interest expense still deductible?Posted on February 2nd, 2019
Will the investment interest expense deduction save you tax on your 2018 return? Although the Interest expense was, as a result of, debt used to buy assets held for investment, you must pass some hurdles to benefit. First, you must itemize, to do so may no longer benefit you because of the higher standard deduction. Second, interest incurred to produce tax-exempt income, such as from municipal bonds, isn’t deductible. Finally, the deduction is generally limited to your taxable interest income, nonqualified dividends and net short-term capital gains for the year. Contact us for more details.
What is Qualified Business Income DeductionPosted on January 27th, 2019
The Tax cuts & Job Act introduced a new deduction for tax years beginning after Dec 31, 2017 and before 2026 for domestic business income other than C Corporations. This pass through income applies to pass through entities that use Schedule C, F, E1 and E2, sole proprietorships, partnerships, S Corporations, Qualified REIT dividends, and income from publicly traded corporations.
The Tax Cuts and Jobs Act may allow taxpayers, other than corporations, to deduct up to 20 percent of their qualified business income from a qualified trade or business reduced by the taxpayers’ net capital gain.
This deduction can be taken in addition to the standard or itemized deductions. The qualified business income deduction is subject to multiple limitations based on the type of trade or business, the taxpayer’s taxable income, the amount of W-2 wages paid with respect to the qualified trade or business, and the unadjusted basis of qualified property held by the trade or business. Taxpayers with only W2 income and no business income do not qualify for the deduction, however, an independent contractor with non-employee compensation is allowed to take the deduction.
Notwithstanding these limitations, however, taxpayers with qualified business income (which does not include income from performing services as an employee) and with taxable income under $157,500, or $315,000 for joint returns, will generally be eligible for the deduction. This deduction phases out as taxable income exceeds certain income thresholds. The phaseout applies without application of the wages or as is limitation.
Looking for additional information, call us at 954-967-0969 or visit us at www.jdaviscpa.com.
2018 Donations – Obtain Your Proof Before FilingPosted on January 27th, 2019
Generally you need a contemporaneous written acknowledgment from the charity to claim an itemized deduction for a donation of more than $250 . “Contemporaneous” means the earlier of:
1) the date you file your income tax return, or
2) the extended due date of your return.
If you made a donation in 2018 and have not received proof of your donation and you’d like to deduct it, consider requesting a written acknowledgment from the charity and waiting to file your 2018 return until you receive it.
Additional rules apply to certain types of donations. Contact us at 954-967-0969 or www.jdaviscpa.com to learn more.
IRS warns of “Tax Transcript” email scam; dangers to business networksPosted on January 9th, 2019
The Internal Revenue Service and Security Summit partners tis warning the public of a surge of fraudulent emails impersonating the IRS and using tax transcripts as bait to entice users to open documents containing malware.
The scam is especially problematic for businesses whose employees might open the malware because this malware can spread throughout the network and potentially take months to successfully remove.
This well-known malware, known as Emotet, generally poses as specific banks and financial institutions in its effort to trick people into opening infected documents. The Summit partnership of the IRS, state tax agencies and the nation’s tax industry remind taxpayers to
watch out for this scam.
However, in the past few weeks, the scam masqueraded as the IRS, pretending to be from “IRS Online.” The scam email carries an attachment labeled “Tax Account Transcript” or something similar, and the subject line uses some variation of the phrase “tax transcript.”
These clues can change with each version of the malware. Scores of these malicious Emotet emails were forwarded to email@example.com recently.
The IRS reminds taxpayers it does not send unsolicited emails to the public, nor would it email a sensitive document such as a tax transcript, which is a summary of a tax return. The IRS urges taxpayers not to open the email or the attachment. If using a personal computer, delete or forward the scam email to firstname.lastname@example.org. If you see these using an employer’s computer, notify the company’s technology professionals.
The United States Computer Emergency Readiness Team (US-CERT) issued a warning in July about earlier versions of the Emotet in Alert (TA18-201A) Emotet Malware.
US-CERT has labeled the Emotet Malware “among the most costly and destructive malware affecting state, local, tribal, and territorial (SLTT) governments, and the private and public sectors.”
Do you know how significant TCJA changes impact you?Posted on January 4th, 2019
2019 is already here, There is very little that you can do to reduce your 2018 income tax liability. But you can be smart and begin preparations for the filing of your 2018 return. The Tax Cuts and Jobs Act (TCJA), which was signed into law at the end of 2017 will more than likely have a major impact on your 2018 taxes. It is a good time to review the most significant provisions impacting individual taxpayers.
1) Rates and exemptions
• As a general rule, most taxpayers will be subject to lower tax rates for 2018. But a couple of rates remain the same, and changes to some of the brackets for individuals and heads of households could cause them to be subject to higher rates. Some exemptions are eliminated, while others increase. Here are some of the specific changes:
• Drops of individual income tax rates ranging from 0 to 4 percentage points (depending on the bracket) to 10%, 12%, 22%, 24%, 32%, 35% and 37%.
• Elimination of personal and dependent exemptions.
• AMT exemption increase, to $109,400 for joint filers, $70,300 for singles and heads of households, and $54,700 for separate filers for 2018
• Approximate doubling of the gift and estate tax exemption, to $11.18 million for 2018.
2) Credits and deductions
• Generally, tax breaks are reduced for 2018. However, a few are enhanced. Here’s a closer look: Doubling of the child tax credit to $2,000 and other modifications intended to help more taxpayers benefit from the credit.
• Near doubling of the standard deduction, to $24,000 (married couples filing jointly), $18,000 (heads of households) and $12,000 (singles and married couples filing separately) for 2018.
• Reduction of the adjusted gross income (AGI) threshold for the medical expense deduction to 7.5% for regular and AMT purposes.
• New $10,000 limit on the deduction for state and local taxes (on a combined basis for property and income or sales taxes; $5,000 for separate filers)
• Reduction of the mortgage debt limit for the home mortgage interest deduction to $750,000 ($375,000 for separate filers), with certain exceptions
• Elimination of the deduction for interest on home equity debt
• Elimination of the personal casualty and theft loss deduction (with an exception for federally declared disasters).
• Elimination of miscellaneous itemized deductions subject to the 2% floor (such as certain investment expenses, professional fees and unreimbursed employee business expenses)
• Elimination of the AGI-based reduction of certain itemized deductions.
• Elimination of the moving expense deduction (with an exception for members of the military in certain circumstances).
• Expansion of tax-free Section 529 plan distributions to include those used to pay qualifying elementary and secondary school expenses, up to $10,000 per student per tax year How are you affected?
Do you know how these changes impact you?
As you may know, the TCJA changes for individuals are dramatic. Many rules and limits apply, so contact us at 954-967-0969 to find out exactly how you are impacted. We can also tell you if any other provisions affect you, and help you begin preparing for your 2018 tax return filing and 2019 tax planning.
2019 tax planning ©2019
Reducing Tax Liabilities for High Income EarnersPosted on December 14th, 2018
Preparing for end-of-the-year taxes can be daunting, but understanding good tax-planning practices can help to increase your chances of receiving higher returns on your investments. Income from investments can be one of the best places to look when searching for places to cut costs and increase your revenue. Creating a proactive tax-plan can prevent you from paying thousands of dollars in unnecessary taxes.
While high-income taxpayers are required to pay the most income tax, there are a few practices these individuals can engage in to lower the amount they pay at the end of the year. Purchasing stock for at least one year prevents you from paying additional costs from unnecessary taxes. Allowing your stock to become eligible for long-term treatment helps to reduce the amount you pay in taxes. Failing to hold stock for at least a year causes you to pay short-term capital gains on investments rather than just the 15 to 20 percent of normal capital gains tax, in short paying more.
Regular reviews of your taxable assets make sure you’re aware of all the areas that may be costing you extra money. Routine checks develop good practices and habits that help to reduce what you pay. Reduce the amount of taxable interest, which means reducing the amount of money stored in low-profit areas. Banks give their clients close to nothing, while clients are still required to pay at least half of that interest in taxes.
Utilizing high-profitable places to store your money will not only increase your dividends but also reduce the amount of taxes you pay. Give away assets, that is, giving or donating assets to charities and family members using appreciated stock, may reduce the amount of taxable income you own. Neither party associated in the exchange is required to pay capital-gains taxes when the stock is transferred. Additionally, family members may qualify for a different tax bracket that are lower than your costs, in turn reducing the overall amount of gains lost through the process. Since the New Year is just around the corner, it’s best to engage in proper tax-planning practices to best increase your chances for reducing the amount of money you pay and increase the amount of profit you actually keep.
Are You Saving For Retirement? If You Aren’t, Why Not?Posted on November 13th, 2018
2018 is almost over, your company is profitable and you are going to have a large tax bill. Why not set aside some of your money in a tax advantaged retirement account to reduce your tax liability.
Most small business owners have their funds tied up in their business and they do not plan for retirement and they are paying taxes on money they could be legally saving. If most of your money is tied up in your business, retirement can be a challenge. So if you haven’t already set up a retirement plan, consider doing so this year. There’s still time to set one up and make contributions that will be deductible on your 2018 tax return!
Your retirement plan funds will grow tax-deferred, and you get the benefit of a tax deduction on the amount you contribute to the plan. If you are subject to the 3.8% net investment income tax (NIIT), setting up and contributing to a retirement plan is beneficial because the contributions can reduce your modified adjusted gross income and thus help you reduce or avoid the NIIT.
You must allow your employees to participate in the plan, provided they meet the qualification requirements that was established for the plan. A good retirement plan allows you to attract and retain good employees.
If you have 100 or fewer employees, you may be eligible for a credit for setting up a plan. The credit is for 50% of start-up costs, up to $500. Remember, credits reduce your tax liability dollar-for-dollar, unlike deductions, which only reduce the amount of income subject to tax.
Three Popular Options to Consider
Many types of retirement plans are available, but here are three of the most attractive to business owners trying to build up their own retirement savings:
1. Profit-sharing plan.
This is a defined contribution plan. It allows discretionary employer contributions and flexibility in plan design. You can make deductible 2018 contributions if you establish your plan by December 31, 2018 and you will be allowed to contribute as late as the due date of your 2018 tax return, including extensions. For 2018, the maximum contribution is $55,000, or $61,000 if you are age 50 or older and your plan includes a 401(k) arrangement.
2. Simplified Employee Pension (SEP).
This is also a defined contribution plan, and it provides benefits similar to those of a profit-sharing plan. You can establish a SEP in 2019 for 2018, you will still make deductible 2018 contributions as late as the due date of your 2018 income tax return, including extensions. In addition, a SEP is easy to administer. For 2018, the maximum SEP contribution is $55,000.
3. Defined benefit plan.
This plan sets a future pension benefit and then actuarially calculates the contributions needed to attain that benefit. The maximum annual benefit for 2018 is generally $220,000 or 100% of average earned income for the highest three consecutive years, if less. Because it’s actuarially driven, the contribution needed to attain the projected future annual benefit may exceed the maximum contributions allowed by other plans, depending on your age and the desired benefit.
You can make deductible 2018 defined benefit plan contributions until your tax return due date, including extensions, provided your plan exists on Dec. 31, 2018. Be aware that employer contributions generally are required.
Sounds like this will help you save for the long term?
Would setting up a retirement plan benefit you and your team? If you believe it will do so, contact us at 954-967-0969. We can provide more information and help you choose the best retirement plan for your particular situation.
It’s Time to Review Your 2018 ExpensesPosted on October 28th, 2018
The 2018 tax year is ending shortly, so it’s time to review your business’s expenses to determine if you can accelerate purchases into this year to take advantage of their deductibility.
You need to evaluate the impact of the Tax Cuts and Jobs Act (TCJA) on your business, which reduces or eliminates many deductions. In some cases, it may be necessary or desirable to change your expense and reimbursement policies.
Do you know what’s deductible?
There’s no master list of deductible business expenses in the Internal Revenue Code (IRC). Although some deductions are expressly authorized or excluded, most are governed by the general rule of IRC Sec. 162, which permits businesses to deduct their “ordinary and necessary” expenses. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your business. (It need not be indispensable.) An ordinary and necessary expense may not be deductible if the IRS considers it lavish or extravagant.
What did the TCJA change?
The TCJA contains many provisions that affect the deductibility of business expenses. Significant changes include these deductions:
1) Meals and entertainment. The act eliminates most deductions for entertainment expenses, but retains the 50% deduction for business meals. What about business meals provided in connection with nondeductible entertainment? In a recent notice, the IRS clarified that such meals continue to be 50% deductible, provided they’re purchased separately from the entertainment or their cost is separately stated on invoices or receipts.
2) Transportation. The act eliminates most deductions for qualified transportation fringe benefits, such as parking, vanpooling and transit passes. This change may lead some employers to discontinue these benefits, although others will continue to provide them because 1) they’re a valuable employee benefit (they’re still tax-free to employees) or 2) they’re required by local law.
3) Employee expenses. The act suspends employee deductions for unreimbursed job expenses — previously treated as miscellaneous itemized deductions — through 2025. Some businesses may want to implement a reimbursement plan for these expenses. So long as the plan meets IRS requirements, reimbursements are deductible by the business and tax-free to employees.
The deductibility of certain expenses, such as employee wages or office supplies, is obvious. In other cases, it may be necessary to consult IRS rulings or court cases for guidance.
For assistance, please contact us.954-967-0969.
Do you know if you have you lost deductions Under TCJA?Posted on October 28th, 2018
As we approach the end of the year, it’s a good idea to review your business’s expenses for deductibility. At the same time, consider whether you’d benefit from accelerating certain expenses into this year. There’s no master list of deductible business expenses in the Internal Revenue Code (IRC). Some deductions are expressly authorized or excluded, but most are governed by the general rule of IRC Sec. 162, which permits businesses to deduct their “ordinary and necessary” expenses. Also, the TCJA reduces or eliminates many deductions. Contact us to learn more.