The Tax Cuts and Jobs Act (TCJA) includes several changes that affect partnerships and their partners, and LLCs that are treated as partnerships for tax purposes and their members. Some good some not so good! We are at your disposal to identify opportunities within the new law that apply to you and help steer you away from new pitfalls and challenges. Please call our office today at 262-358-8297 to set up a tax planning meeting.
The Tax Cuts and Jobs Act (TCJA) disallows all miscellaneous itemized deductions subject to the 2% floor for the tax periods 2018-through 2025. What does this mean for the Home Office Deduction during the aforementioned tax periods?
Company Employees who work from home will no longer be eligible to deduct any home office expenses as in past years. In prior years, all the expenses that went into making the home office space comfortable from the paint to the furniture were deductible as home office expenses. Now you will be working from home for the pure convenience of it, no more perks for the next 7 years (including the current year)!
Good News for those Self Employed- You can still deduct eligible home office expenses against your self-employment income.
The recently enacted Tax Cuts and Jobs Act (TCJA) has altered the tax landscape for a lot of individuals and businesses. The changes are extensive and this blog provides a high-level overview of some of the highlights to keep you informed. Due to the sweeping nature of the changes and the need for continued guidance, we’d like the opportunity to have a personalized conversation with you now to discuss planning opportunities for your specific situation. Additional conversations and tax projections are likely necessary to ensure we maximize your tax benefits. Please call our office at your earliest convenience to schedule a meeting.
Here’s how the TCJA applied its tax reform to your supper money meal allowances. Before tax reform, you deducted 100 percent of the supper money cost. Now, because of tax reform, your tax deduction for supper money is subject to a 50 percent cut for amounts paid during tax years 2018 through 2025.
As of January 2, 2018 there is a new and improved Section 179 deduction, thanks to the TCJA.
Section 179 was retroactive to 09/27/2017, which means most of you who have depreciable assets have benefited from this change on your 2017 tax return. What is great about Section 179 is it is like having a flexible tax shelter in your back pocket for when you need it for depreciable assets, but it doesn't have to be used.
The Section 179 deduction is available for both new and used assets (same as prior years) and offers you deduction flexibility. You have up to $1 million in Section 179 deduction availability. You also have new Section 179 qualifying asset possibilities such as
The big advantage to Section 179 deductions over bonus depreciation is flexibility. But bonus depreciation has its place as a tax strategy.
Tax reform changed the rules of the game when choosing your best tax structure.
In looking over the possibilities, we note that a properly structured spousal partnership could be your best choice.
Here are the tax benefits to you:
Here are the potential issues:
If you would like to discuss how your choice of business entity works in today’s tax environment, please don’t hesitate to contact us.
Have you considered hiring your children to work on your rental properties? If so, were you concerned when you did not see a line item for wages on Schedule E of your Form 1040?
Don’t let that bother you. The IRS in its instructions explains that wages and other ordinary and necessary business expenses of the rental that are not named on Schedule E go on line 19.
Because you own more than one rental property, your children may work on more than one. No problem. You need to allocate the wages and associated expenses to the properties on a reasonable basis.
The most apparent allocation basis for the money you are paying the children being time spent by the children at each property.
IRS has released the Code § 280F depreciation limits for business passenger automobiles placed in service by the taxpayer in 2018, taking into account the changes made by the Tax Cuts and Jobs Act . IRS has also released the annual income inclusion amounts for such vehicles first leased in 2018.
The tax law limits the amount you can deduct for depreciation of your car, truck or van. The § 179 deduction is also treated as depreciation for purposes of these limits. The maximum amount you can deduct each year depends on the year you place the car in service. The 2018 luxury vehicle limits are below.
The TCJA modified Code § 168( k) to extend the additional (bonus) first-year depreciation deduction for qualified property acquired and placed in service after Sept. 27, 2017, and before Jan. 1, 2027.
Under the TCJA, a 100% bonus first-year deduction of the adjusted basis is generally allowed for qualified property acquired and placed in service after Sept. 27, 2017, and before Jan. 1, 2023 (for certain property with longer production periods, the end date is increased by one year). In later years, the first-year bonus depreciation deduction phases down, as follows:
In the case of a passenger automobile, for qualified property acquired by the taxpayer before Sept. 28, 2017, and placed in service by the taxpayer during 2018, Code § 168( k)))(2)(F)(iii) increases the first-year depreciation allowed under Code Sec. 280F by $6,400. For qualified property acquired and placed in service after Sept. 27, 2017, Code § 168( k)(2)(F)(i) increases the first-year depreciation allowed under Code § 280F by $8,000.
Guidance. The following are the annual depreciation dollar caps for vehicles that are subject to the luxury auto limits of Code § 280F and are placed in service by the taxpayer in calendar year 2018. As Code § 280F(a), as amended by the TCJA, provides the limits on depreciation for passenger automobiles placed in service during calendar year 2018, no adjustment for inflation applies to calendar year 2018.
The depreciation limits for passenger automobiles acquired by the taxpayer before Sept. 28, 2017, and placed in service by the taxpayer during calendar year 2018, for which the Code § 168( k) bonus first-year depreciation deduction applies, are:
The depreciation limits for passenger automobiles acquired by the taxpayer after Sept. 27, 2017, and placed in service by the taxpayer during calendar year 2018, for which the Code § 168( k) bonus first year depreciation deduction applies, are:
The depreciation limits for passenger automobiles placed in service during calendar year 2018 for which no Code § 168( k) bonus first-year depreciation deduction applies are:
By Firm Staff
With regards to the recent Tax Reform it is unclear if Fringe benefits will be a good thing. In the Case of the S Corp it may or may not be if you own more than 2% of the company. Regardless if you benefit the Federal tax law does allow the cost of fringes benefits as an deductible expenses for your S corporation tax return.
However, Shareholders who owns more than 2%, may suffer additional taxes on some of the benefits because the tax code requires your corporation to put selected benefits on your W-2. The outcome is sometimes favorable and sometimes not.
The rule that cases this concern is the following:
The recent tax reform destroyed what was a win-win tax benefit for the employer and the employee. Transportation fringe benefits came into being in 1992 under the Energy Policy of 1992 (Pub. Law. 102-486).
One difficulty was that the benefits expired often and worked their way into the group of tax provisions called extenders. No problem—lawmakers extended the transportation benefits provisions continuously from 1992 until they made the benefits permanent with the Protecting Americans from Tax Hikes Act of 2015 (Pub. Law. 114-113).
The now-permanent tax-free fringe benefit still exists. But because of the recent tax reform, employers get stuck with a penalty tax when they grant employees any of the following qualified tax-free transportation fringes:
The penalty tax on the qualified tax-free transportation fringes applies to the business owner. It works like this: the business gets no tax deduction for the qualified tax-free transportation fringe benefits.
Example. Henry is in the 35 percent tax bracket, operates his business as an S corporation, and has 14 employees. His penalty tax rate on the loss of his S corporation’s transportation fringe benefits deduction is 35 percent.
Employees continue to receive the benefits tax-free as before.
Example. You reimburse your employee Fred for mass transit commuting fees. It costs you $3,160 for tax year 2018. Fred gets the mass transit benefit free of tax, but you don’t get a tax deduction for the $3,160.
If you want the tax deduction, you simply put the mass transit benefit on Fred’s W-2 as additional taxable compensation to Fred.
But in some locations, including Washington, D.C., New York City, San Francisco, and Los Angeles, you may be required to pay for Fred’s mass transit, depending on the number of employees that you have. In such cases, you can’t stick it to Fred. You simply get the short end of the stick.
Will your business operation create the 20 percent tax deduction for you?
If not, and if that is due to too much income and a lack of (a) wages and/or (b) depreciable property, a switch to the S corporation as your choice of business entity may produce the tax savings you are looking for.
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Spencer Accounting Group, LLC does not provide investment, tax, legal, or retirement advice or recommendations in these blogs. The information presented here is not specific to any individual's personal circumstances.
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.