Your gift from Lawmakers is the new safe harbor for section 199A rental properties. If you qualify you can take it, its there for you to. According to the trade or business rule, your rental property profits can create the deduction. And now, under an alternative rule, you can use the newly created IRS safe harbor to make your rentals qualify for the deduction.
When you meet the new safe-harbor rules, the IRS deems your rental a trade or business with net rental profits that are QBI for the Section 199A tax deduction. But you may not want to use the safe-harbor rules, because they contain some onerous provisions. Also, you may not qualify to use the safe harbor. No problem. You can simply use the second method and win your 199A tax deduction using the existing trade or business tax law rules.
The IRS has provided some clarity on net capital gains in its section 199A final regulations.
It is possible for Section 199A, the new tax code, may be able to provide your net capital gains with a 20% reduction of your taxable income. The IRS has issued final regulations on Section 199A, along with that clarity they have issued on the capital gains component.
Section 199A often referred to as QBI is a tax deduction that applies to your trade or business income from pass-through entities. If your taxable income is equal to or less than the threshold of $315,000 (married, filing jointly) or $157,500 (filing as single or head of household), you apply the 20 percent to the lesser of your:
For the Section 199A calculation, your net capital gains are
Code §179 Property Defined as new or used depreciable tangible §179 property that is purchased for use in the active conduct of a trade or business (Code §179 (d)(1)).
TCJA 2017 modified Code §179, where the deduction limitation has increased, qualified real property expensing has expanded, lodging facility property is now eligible and $25,00 limit on SUV's inflation has been adjusted.
We Now, have covered the actual law for Qualified Real Property Expenditure. Let's shed some light on it!
Rental Property QBI
If you own rental property as an individual or through a single-member LLC for which you did not elect corporate taxation, you report your rental activity on Schedule E of your Form 1040. If you can claim the property is a trade or business, your QBI begins with the net income from your Schedule E.
We can help you with your rental property QBI. Contact us at 262-358-8297 or schedule an appointment online.
You will benefit from § 199A tax and are eligible to take the deduction from your business’s W-2 wages that were paid to you and your employees if any of the following applies:
Wages are just one factor that will help you realize an § 199A deduction! Give us a call we can help realize your full deduction on your tax return. 262-348-8297
For the purposes of the new Qualified Opportunity Fund, TCJA is not the big bad wolf. In fact, it is a new strategy for tax planning shaped by the tax reform of the Tax Cuts and Jobs Act.
These funds can defer capital gains in the current year, significantly reduce some of them later on, while making capital gains tax-free on the new investment. You will need to strategies to maneuver the new rules and time frames to implement the tax benefits.
Here are two strategies that may help you:
If you need help strategizing please contact us we can help! 262-358-8297
Thanks to the tax reform of the Tax Cuts and Jobs Act, you have some obstacles to overcome for tax years to 2025.
TCJA tax reform changes the kiddie tax rules to tax a portion of an affected child’s or young adult’s unearned income at the federal income tax rates paid by trusts and estates, which can be as high as 37%.
If this applies to you, tax planning will help mitigate this tax.
If Congress doesn't send a bill to the President approving a spending budget by midnight Friday, most federal agencies will be forced to stop operations, again.
It is expected that bipartisan legislation will be first voted on by the Senate today, then the House where a vote is expected on agreement this evening. The bill then goes to the President for signature Friday morning.
It is unknown exactly how a second shutdown would affect the IRS, filing season, tax preparers and taxpayers. We would expect additional refund delays and staff shortages.
Here is why may not work for you!
The tax reform of the Tax Cuts and Jobs Act (TCJA) has introduced an astonishing threshold to larger business losses that can actually attack your cash flow, ouch!
So, this new law apparently works in some bizarre ways, even though you don’t have a real income for the year. Then you really have some planning opportunities to mitigate the problem when you know precisely how this hideous new rule actually does work.
Your Elected Officials have decided to introduce laws over the years that severely limits your opportunities to counter your business or lease losses to other sources of income.
Here are the most common that I have been hearing in all my continuing education workshops:
In other words, this relatively new policy is that in the current year, which the new law considers to be an "excess business loss, "you simply cannot use your business loss. "Instead, the excess business loss will be treated as a net operating loss (NOL) for the next taxable year.
To avoid becoming a victim of this new TCJA new rules you need to implement these two strategies:
While the determination of the applicable rate of capital gains under TCJA is different, with the rate structure linked to taxable income " breakpoints " rather than tax brackets, there is in fact no difference in the effect of these changes. Long term capital gains taxed at zero, 15% or 20%
There is still time to mitigate your 2018 tax liability. Contact us we can help.
According to the Protecting Americans from Tax Hikes (PATH) Act, the IRS cannot issue EITC and ACTC refunds before February 15. The IRS expects the earliest EITC/ACTC related refunds to be available in taxpayer bank accounts or debit cards on February 27, 2019, if these taxpayers chose direct deposit and there are no other issues with their tax return.
The new standard deductions are:
On Jan. 25, in a 3-1 ruling, the National Labor Relations Board (NLRB) returned to its long-standing independent-contractor standard—essentially reversing an Obama-era decision that made it harder for employers to classify workers as independent contractors, and reaffirmed the NLRB’s adherence to the traditional common-law test. In the ruling, titled SuperShuttle DFW, Inc., NLRB effectively overturned its 2014 decision in FedEx Home Delivery, holding that members of a group of franchisee shared-ride van drivers are independent contractors.
The NLRB’s Republican majority wrote that the Obama-era FedEx case “significantly limited the importance of entrepreneurial opportunity by creating a new factor (‘rendering services as part of an independent business’) and then making entrepreneurial opportunity merely ‘one aspect’ of that factor.” Instead, the board reverted to an earlier common-law test that weighs, among other factors, the length of time a person is employed, the skills required to do the job and whether the contracted work is part of the company’s regular business.
We can Help you determine what this means for you and your business! Give us a call 262-358-8297
We will Resume Operations tomorrow on 01/22/2019. Enjoy this Day!
Let us help you figure this out! Call today 262-358-8297
New deduction for individuals who have qualified business income.
(QBI) — Effective Jan. 1, 2018, through Dec. 31, 2025, there is a potential 20% deduction for individuals who have qualified business income (QBI) from a partnership, S corporation or sole proprietorship. This deduction also applies to REIT dividends, qualified cooperative dividends and qualified publicly traded partnership income.
We are here to help you navigate through and to this deduction.
The IRS announced on Monday evening that it is prepared to start processing 2018 tax returns on Jan. 28 and that it will pay tax refunds despite the partial shutdown of the federal government. The agency has been operating under a contingency plan that has furloughed 88% of the IRS’s workforce. It says it will recall “a significant portion” of its furloughed staff for tax season. The agency also says it will issue an updated contingency plan in the next few days.
Visit our Blog Often, especially during tax season! We will keep you posted on the latest tax updates and we have some exciting things coming this tax season!
In the past, taxpayers received an exemption for themselves, their spouse and each of the eligible dependents that they claimed on their tax return. The TCJA eliminated these exemptions through Dec. 31, 2025.
Please call our office today at 262-358-8297 to set up a tax preparation appointment.
The TCJA increased the child credit for children under age 17 to $2,000 and also introduced a new $500 credit for a taxpayer’s dependents who are not their qualifying children. In addition, the phase-out limits for these credits have increased to $400,000 for joint filers ($200,000 for others), so that more individuals will be able to take advantage of this credit.
Please call our office at your earliest convenience to schedule an appointment. 262-358-8297
The IRS has released their contingency plan for fiscal year 2019, In the event of a long-drawn-out shutdown of the federal government. Loaded with valuable information that affects you, but guaranteed to put you to sleep. We can help you through this government shutdown! See Document below.
There are many sources of income that must be included on your individual income tax return such as wages, interest, dividends, self-employment, rental income, pensions, IRA’s, etc. Some of the non-traditional income sources that the IRS is targeting includes income from the following: Lyft or Uber drivers, home rentals through Airbnb or VRBO, GoFundMe or Kickstarter campaigns, and virtual currency (or cryptocurrency) such as Bitcoin.
As a driver for Uber or Lyft you are considered an independent contractor and all income derived is reported on Schedule C, Profit or Loss From Business (Sole Proprietorship).
Drivers are described as self-employed “partners” and are subject to the Form 1099 tax rules. This includes a combination of the Form 1099-K, Payment Card and Third Party Network Transactions for payments processed through credit cards and Form 1099-MISC, Miscellaneous Income, for other payments received such as referral fees, bonuses, etc.
As an independent contractor, you are considered self-employed responsible for your own taxes with no benefits such as health insurance or vacations. You pay your own Social Security and Medicare Taxes (aka FICA taxes) on the net profit earned from your ridesharing business.
If your net earnings (gross income less associated business expenses) are greater than $400 you are required to file a tax return and report your self-employment activities.
Eligible expenses may include the following:
Home Rental Income
If you rent out your home for short-term rentals (less than 14 days per year) the income is not taxable regardless of how much you earn. Your rental income is tax-free if you rent out your home for 14 days or less, and the home is used personally for more than 14 days, or more than 10% of the total days it is rented out to others at a fair market rental price.
If you rent out your home for more than 14 days then you are subject to tax on income that exceeds your expenses. The rental income and expenses are reported on Schedule E, Supplemental Income and Loss (From rental real estate, royalties, partnerships, S corporations, estates, trusts, REMICs, etc.)for each property that you list on the rental sites.
You can deduct 100% of any direct rental expenses, and a portion of the general or shared expenses. These are allocated based on the amount of time the property serves as a rental, compared to the total time it is used during the year for both personal and rental use.
EXAMPLE: Timothy lives in his Coronado condo for 300 days during the year and rents it out for 65 days. The property was used as a rental 18% of the time (65/365 = 18%). Paul can, therefore, deduct 18% of his general expenses up to the amount of the rental income earned during the year.
In some cases, renting out all or part of your house or apartment can be classified as the equivalent of running a bed and breakfast for tax purposes. If you dedicate a room or rooms for the use of paying customers and provide substantial services such as regular cleaning, changing linen or daily maid service. In this situation, your rental activity would be considered a business for tax purposes and reported on Schedule C, Profit or Loss from Business.
The treatment of funds that are received through sources such as GoFundMe or Kickstarter are determined on a case-by-case basis.
Generally, funds received through a GoFundMe account are considered a gift and as such not a tax deduction for the person making the payment and not income for the person receiving it. Those payments are generally defined as made out of a detached generosity with no expectation of ‘quid pro quo.”
Funds received through a Kickstarter campaign are generally includable in income unless they are classified as a loan that must be repaid or a capital contribution to an entity in exchange for an equity interest.
Virtual currency, the most popularly known is Bitcoin, are either ordinary income or a capital asset depending on the facts and circumstances.
EXAMPLE:Elaine’s business accepts payment in Bitcoin for consulting services. When Bitcoin has a value of $100, she charges $500 for her services and receives 5 Bitcoin. Several months later she purchases a $3,000 computer system from Dell for her business when Bitcoin has a value of $1,000 each. She uses 3 of her Bitcoins for the computer and has a short-term capital gain of $2,700 ($3,000 disposition price less $300 basis). She then uses the remaining 2 Bitcoin for a vacation rental and has a short-term gain of $1,800 ($2,000 disposition price less $200 basis). The Dell computer is a business asset which she can capitalize and depreciate, the vacation home is a personal expense. With this simple example, Elaine has ordinary income to her business of $500; $4,500 of short-term capital gain; a business asset worth $3,000 and personal expense of $2,000.
It is important that you accurately record your virtual currency transactions. For tax purposes we need to know when the virtual currencies were purchased, the value on the date of purchase, when the currencies were traded or used, and the value on the date of disposition. In addition, if you are involved in the global market and are trading in foreign currencies we will also need to determine the value of your transactions in U.S. dollars.
Contact our office if you have any questions regarding funds received and the potential tax liability.
We're Here to Help
Get advice from our experienced network of financial managers.
Keana Spencer is an Accountant, Entrepreneur, and Educator to her clients, with a strong passion. Keana has over 10 years of experience and through her practice, she is a source of knowledge and strategies to her clients.