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.

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:

• Your taxable income is over $315,000 and less than $415,000; for MFJ
• Your taxable income is over $157,500 and less than $207,500; for HOH/Single
• Your taxable income is greater than $415,000 (MFJ) or $207,500 (Single or HOH); AND you have an in-favor business

Consequently, for taxable income above these thresholds your and you don't have any wages or property your § 199A  deduction is zero!

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:

1.  appreciation in your qualified opportunity fund
   
2. to hold the investment for at least 10 years so that the appreciation is tax-free to you when you sell your investment.

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%.
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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.
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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:

1. Limitations that are, in accordance with IRC § 465, the taxpayer's loss deductions are limited to "at risk "amounts in trade or business or income-producing activities.
2. Limitations on the basis of partnership and S corporation, which limit your losses to the extent of your interest in the partnership or stock of S corporation
3. Limitation on passive loss, which severely limits your passive losses up to your passive income unless an exception applies.

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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:

1. accelerating business income, and
2.  delaying business deductions

​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%

The new standard deductions are:

• Heads of household:  $18,000
• Married filing jointly:    $24,000
• All other taxpayers:     $12,000

Although you may have historically had itemized deductions exceeding these amounts, other changes to itemized deductions may affect whether you are above the standard deduction in a given year. The increased standard deduction is effective through Dec. 31, 2025.

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. ​

We will Resume Operations  tomorrow  on 01/22/2019.  Enjoy this Day!

Two questions:

• Did you prepay your 2019 rent so that you have a big 2018 tax deduction?

 

• How do you identify in your accounting records the monies you put on your IRS Form 1099-MISC for the business rent payments to your landlord?

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.

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.

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. 

Independent Driver
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:

• car expenses (either mileage or actual expenses), 
• cell phone,
• water, candies, gum or other items provided for your passengers, 
• extra insurance required for your business,
• fees and commissions paid,
• parking and tolls,
• Paypal and/or other credit card transaction fees, and
• home office if there is an area used exclusively and regularly for your business activities. 

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.

Crowdfunding
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
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. 
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We have been stressing that the winners with the new Tax Law are C- Corps, however the next best thing are S-Corps.  If you feel you can comply with all the laws of a C-Corp you may want to look into terminating your S Corp Election.

Tax reform may have you thinking of changing your S corporation to a C corporation, partnership, or sole proprietorship. 

With such a switch, you need to consider:

• How do I terminate the S corporation election correctly?
• What are the tax consequences to me? 

If you want to turn your S corporation into a C corporation, you file an S corporation election revocation statement with the IRS. Your corporation is then a C corporation for federal tax purposes.

If you don’t want your business to be either an S or a C corporation, you liquidate the S corporation and contribute the assets to a new business entity.

If you chose S corporation taxation for your limited liability company (LLC), changing that election is a little more complicated.

First, you must file the S corporation election revocation statement with the IRS. The tax law then treats your LLC as a C corporation for federal tax purposes.

If that’s what you want, stop there.
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If you want a disregarded entity (single-member LLC) or a partnership (multi-member LLC), you also need to file Form 8832, Entity Classification Election, to revoke the C corporation election.