Harless Tax Blog

Harless Tax Blog

Several tax law changes may affect bottom line of many business owners

Friday, October 19, 2018

Source from irs.gov
WASHINGTON — The Internal Revenue Service today reminded business owners that tax reform legislation passed last December affects nearly every business.

With just a few months left in the year, the IRS is highlighting important information for small businesses and self-employed individuals to help them understand and meet their tax obligations.

Here are several changes that could affect the bottom line of many small businesses:

Qualified Business Income Deduction
Many owners of sole proprietorships, partnerships, trusts and S corporations may deduct 20 percent of their qualified business income. The new deduction -- referred to as the Section 199A deduction or the qualified business income deduction -- is available for tax years beginning after Dec. 31, 2017. Eligible taxpayers can claim it for the first time on the 2018 federal income tax return they file next year.

A set of FAQs provides more information on the deduction, income and other limitations.

Temporary 100 percent expensing for certain business assets
Businesses are now able to write off most depreciable business assets in the year the business places them in service. The 100-percent depreciation deduction generally applies to depreciable business assets with a recovery period of 20 years or less and certain other property. Machinery, equipment, computers, appliances and furniture generally qualify.

Taxpayers can find more information in the proposed regulations.

Fringe benefits

  • Entertainment and meals: The new law eliminates the deduction for expenses related to entertainment, amusement or recreation. However, taxpayers can continue to deduct 50 percent of the cost of business meals if the taxpayer or an employee of the taxpayer is present and other conditions are met. The meals may be provided to a current or potential business customer, client, consultant or similar business contact.
  • Qualified transportation: The new law disallows deductions for expenses associated with transportation fringe benefits or expenses incurred providing transportation for commuting. There’s an exception when the transportation expenses are necessary for employee safety.
  • Bicycle commuting reimbursements: Employers can deduct qualified bicycle commuting reimbursements as a business expense for 2018 through 2025. The new tax law also suspends the exclusion of qualified bicycle commuting reimbursements from an employee’s income for 2018 through 2025. Employers must now include these reimbursements in the employee’s wages.
  • Qualified moving expenses reimbursements: Reimbursements an employer pays to an employee in 2018 for qualified moving expenses are subject to federal income tax. Reimbursements incurred in a prior year are not subject to federal income or employment taxes; nor are payments from an employer to a moving company in 2018 for qualified moving services provided to an employee prior to 2018.
  • Employee achievement award: Special rules allow an employee to exclude certain achievement awards from their wages if the awards are tangible personal property. An employer also may deduct awards that are tangible personal property, subject to certain deduction limits. The new law clarifies that tangible personal property doesn’t include cash, cash equivalents, gift cards, gift coupons, certain gift certificates, tickets to theater or sporting events, vacations, meals, lodging, stocks, bonds, securities and other similar items.

The tax reform for businesses page has more information on fringe benefit changes.

Estimated Taxes
Individuals, including sole proprietors, partners and S corporation shareholders, may need to pay quarterly installments of estimated tax unless they owe less than $1,000 when they file their tax return or they had no tax liability in the prior year (subject to certain conditions). More information about tax withholding and estimated taxes can be found on the agency’s Pay As You Go page as well as in Publication 505, Tax Withholding and Estimated Tax. Publication 505 has additional details, including worksheets and examples, which can help taxpayers determine whether they should pay estimated taxes. Some affected taxpayers may include those who have dividend or capital gain income, owe alternative minimum tax or have other special situations.

Small Business Accounting | South Florida

IRS issues guidance on Tax Cuts and Jobs Act changes on business expense

Wednesday, October 10, 2018

Source from irs.gov
WASHINGTON — The Internal Revenue Service issued guidance today on the business expense deduction for meals and entertainment following law changes in the Tax Cuts and Jobs Act (TCJA).

The 2017 TCJA eliminated the deduction for any expenses related to activities generally considered entertainment, amusement or recreation.

Taxpayers may continue to deduct 50 percent of the cost of business meals if the taxpayer (or an employee of the taxpayer) is present and the food or beverages are not considered lavish or extravagant. The meals may be provided to a current or potential business customer, client, consultant or similar business contact.

Food and beverages that are provided during entertainment events will not be considered entertainment if purchased separately from the event.

Prior to 2018, a business could deduct up to 50 percent of entertainment expenses directly related to the active conduct of a trade or business or, if incurred immediately before or after a bona fide business discussion, associated with the active conduct of a trade or business.

The Department of the Treasury and the IRS expect to publish proposed regulations clarifying when business meal expenses are deductible and what constitutes entertainment. Until the proposed regulations are effective, taxpayers can rely on guidance in Notice 2018-76.

Small Business Accounting | South Florida

Why Americans Are Retiring Later

Thursday, October 04, 2018

Source from fa-mag.com
Something significant is happening in Social Security: People are retiring and taking their benefits later. These trends are at least in part the consequence of policy changes made in the early 1980s that were purposefully delayed in their implementation.

Consider this: In 1997, 57 percent of men claiming their retirement benefits under Social Security were 62, the earliest age at which one can do so. By 2017, that share had dropped to 34 percent because more people elected to put off claiming their benefits. As a result, the average age of a new male beneficiary has risen by a full year. (These data exclude disabled workers. There are other ways of doing the calculations, but they all show the same phenomenon.)

Not surprisingly, taking Social Security benefits later is also associated with delayed retirement. According to data from the Current Population Survey tabulated by Courtney Coile of Wellesley College, 38 percent of those aged 62 to 64 were working in 1990. By 2017, that share had risen to 53 percent.

Why are people delaying retirement and claiming their Social Security benefits later? One explanation is increased life expectancy and improved health. This probably isn't the full explanation, however, if only because life expectancy changes have been very uneven, as have changes in health status. A second factor is that private pensions have transitioned from defined- benefit plans to defined-contribution ones, and that creates less of an incentive to retire earlier.

Another important reason is changes made way back in 1983, when a Social Security reform following the Greenspan Commission’s recommendations gradually raised what is called the full retirement age from 65 to 67. Full implementation of those increases was delayed for almost 20 years, so that the changes wouldn’t unnecessarily disrupt retirement plans. The ongoing retirement age changes have attracted very little recent public attention, even though the first tranche of the rise, to age 66, is already over, and we are almost halfway through the transition to 67, which will be complete by 2022.

The rise in the full retirement age has two types of effects on when people decide to claim their benefits. The first is that it reduces the monthly benefit received at any given age. For example, when the full retirement age is 67, those deciding to take their benefits at 62 can do so only by accepting a 30 percent discount per month on the “full” benefit. When the full retirement age was 65, the discount was 20 percent. (The goal of these adjustments is to offset the longer time those claiming their benefits earlier will receive them, on average. Most of the evidence, however, suggests that many people claim their benefits too soon and would be better off, in expected value, if they waited.)

The second, and more important, effect is that the full retirement age creates a social norm influencing when people retire and also take their benefit. People may be drawn to the age at which benefits are called “full” even though there’s nothing particularly special that happens at that age. Therefore, when the full retirement age is raised, people push back when they take their benefits.

The statistical evidence suggests that the increase in the full retirement age has indeed delayed benefit claiming, most likely because of this anchoring effect.

So reforms enacted in 1983 are having an effect on how people nearing retirement behave today. Three conclusions follow:

First, delayed implementation with gradual phase-ins makes policy reforms more politically viable. The ongoing increase in the full retirement age is currently creating almost no political backlash, because it requires no new vote by Congress and because it is happening gradually. That may provide a pathway forward for other policy changes that raise revenue or reduce other expenditures.

Family Office Services | South Florida

Here are facts to help taxpayers understand the different filing statuses

Tuesday, October 02, 2018

Source from irs.gov
Taxpayers don’t typically think about their filing status until they file their taxes. However, a taxpayer’s status could change during the year, so it’s always a good time for a taxpayer to learn about the different filing statuses and which one they should use.

It’s important a taxpayer uses the right filing status because it can affect the amount of tax they owe for the year. It may even determine if they must file a tax return at all. Taxpayers should keep in mind that their marital status on Dec. 31 is their status for the whole year.

Sometimes more than one filing status may apply to taxpayers. When that happens, taxpayers should choose the one that allows them to pay the least amount of tax.

Here’s a list of the five filing statuses and a description of who claims them:

  • Single. Normally this status is for taxpayers who aren’t married, or who are divorced or legally separated under state law.
  • Married Filing Jointly. If taxpayers are married, they can file a joint tax return. When a spouse passes away, the widowed spouse can usually file a joint return for that year.
  • Married Filing Separately. A married couple can choose to file two separate tax returns. This may benefit them if it results in less tax owed than if they file a joint tax return. Taxpayers may want to prepare their taxes both ways before they choose. They can also use this status if each wants to be responsible only for their own tax.
  • Head of Household. In most cases, this status applies to a taxpayer who is not married, but there are some special rules. For example, the taxpayer must have paid more than half the cost of keeping up a home for themselves and a qualifying person. Taxpayers should check all the rules and make sure they qualify to use this status.
  • Qualifying Widow(er) with Dependent Child. This status may apply to a taxpayer if their spouse died during one of the previous two years and they have a dependent child. Other conditions also apply.
Family Office Services | South Florida

IRS wants taxpayers to know they have rights when interacting with the agency

Friday, September 21, 2018

Source from irs.gov
Taxpayers interact with the IRS for many reasons. In all these interactions with the IRS, even if taxpayers are simply asking an IRS representative questions about taxes or responding to an IRS letter, taxpayers have fundamental rights. These are outlined in the Taxpayer Bill of Rights.

Aside from making sure taxpayers are aware of these rights, the IRS educates its workforce about them. The IRS has an expectation that all employees will apply these rights to every encounter with taxpayers.

Here are the ten taxpayer rights with links to previous tax tips that outline each right along with details about when a taxpayer would take advantage of it.

Small Business Accounting | Stuart South Florida

Tax facts for seasonal job seekers

Thursday, September 20, 2018

Source from irs.gov
Small business owners and self-employed taxpayers often get seasonal jobs to earn extra spending money or to save for later. But many don't realize that they need to report income from a part-time or temporary job to the IRS.

The IRS offers this fact sheet for those working seasonal jobs and other part-time employment to help them correctly file and pay their taxes. See also:

Tax Reform
Publication 505, Tax Withholding and Estimated Tax
Understanding Employment Tax

Small Business Accounting | Stuart South Florida

IRS launches new easy-to-use webpages on tax reform

Wednesday, September 19, 2018

Source from irs.gov
Business owners and self-employed taxpayers should make IRS.gov/taxreform their first stop for information on how tax reform affects both their business and individual taxes. The updated IRS.gov/tax reform page has helpful information for three types of taxpayers: individuals, businesses and tax exempt entities.

The Businesses page is for businesses of any size and includes these topics, among others:

New 20 percent deduction for passthrough business
Changes to deductions for certain fringe benefits
Like-Kind Exchanges
New employer credit for paid family and medical leave
Depreciation and expensing

Small Business Accounting | South Florida


Clarification for business taxpayers: Payments under state or local tax credit programs may be deductible as business expenses

Tuesday, September 18, 2018

Source from irs.gov
WASHINGTON — Business taxpayers who make business-related payments to charities or government entities for which the taxpayers receive state or local tax credits can generally deduct the payments as business expenses, the Internal Revenue Service said today.

Responding to taxpayer inquiries, the IRS clarified that this general deductibility rule is unaffected by the recent notice of proposed rulemaking concerning the availability of a charitable contribution deduction for contributions pursuant to such programs. The business expense deduction is available to any business taxpayer, regardless of whether it is doing business as a sole proprietor, partnership or corporation, as long as the payment qualifies as an ordinary and necessary business expense. Therefore, businesses generally can still deduct business-related payments in full as a business expense on their federal income tax return.

Updates on the implementation of the Tax Cuts and Jobs Act (TCJA) can be found on the Tax Reform page of IRS.gov.


Small Business Accounting | Juno South Florida

Retirees with pension income should do a Paycheck Checkup ASAP

Friday, September 14, 2018

Source from irs.gov
Retirees should do a Paycheck Checkup to make sure they are paying enough tax during the year by using the Withholding Calculator, available on IRS.gov. The Tax Cuts and Jobs Act, enacted in December 2017, changed the way tax is calculated for most taxpayers, including retirees.

Because of this law change, retirees who receive a monthly pension or annuity check may need to raise or lower the amount of tax they pay in during the year. The easiest way to do that is to use the Withholding Calculator or read Publication 505, Tax Withholding and Estimated Tax. Though primarily designed for employees who receive wages, this online tool can also help those who receive pension or annuity payments on a regular schedule, usually monthly or quarterly.

Taxpayers who do not choose to have taxes withheld from their income should make estimated tax payments. This income includes pension and annuity income, and the taxable part of social security benefits. Estimated tax payments are due quarterly. The remaining due dates for 2018 payments are Sept. 17, 2018 and Jan. 15, 2019. Taxpayers can pay their taxes anytime throughout the year as long as they indicate the tax year and where to apply the payment. They can visit IRS.gov/payments to explore all IRS payment options.

Here are some things retirees should know about their withholding and using the calculator:

  • Like employees, retirees can use the calculator to estimate their total income, deductions and tax credits for 2018.
  • When using the Withholding Calculator, retirees should treat their pension like income from a job by entering:
    • The gross amount of each payment
    • How often they receive a payment, such as monthly or quarterly
    • The amount of tax withheld so far this year
  • Before using the calculator, users should have a copy of last year’s tax return. In addition, knowing or having a record of the total federal income tax withheld so far this year will also make the tool’s results more accurate.
  • Based on the taxpayer’s responses, the Withholding Calculator will recommend the number of allowances a pension recipient should claim. If the number is different from the number they are claiming now, they should fill out a new withholding form. If claiming zero allowances still doesn’t cover their expected tax bill, the tool will recommend asking their payor to withhold an additional flat-dollar amount from each pension payment.
  • Pension recipients can make a withholding change by filling out Form W-4P, and giving it to their payor. The IRS urges retirees to submit Forms W-4P to their payors as soon as they can. This gives payors time to apply withholding changes to as many payments as possible this year.
  • Because of the limited time left in 2018, some retirees may be unable to adequately cover their expected tax liability through withholding. In that case, a taxpayer could instead make an estimated or additional tax payment directly to the IRS.

Accounting Services | Palm Beach Gardens

IRS urges taxpayers to prepare for natural disasters

Tuesday, September 11, 2018

Source from irs.gov
WASHINGTON — Because a natural disaster can strike any time, the Internal Revenue Service is reminding individuals and businesses to take time now and create or update their emergency preparedness plan.

During 2018, the IRS has offered tax relief and assistance to millions of victims of natural disasters, including hurricanes, severe storms, flooding, tornados, wildfires, high winds, tropical storms, an earthquake and a volcano.

Individuals, families and businesses begin getting ready for a disaster with a preparedness plan that includes key documents, lists of belongings and property.

Copies of key documents
Original documents, including bank statements, tax returns, deeds, titles and insurance policies, should be kept in a safe place in waterproof containers. A duplicate set of key documents should be kept with a family member or trusted friend outside the area the disaster may affect. Rather than copy paper documents, scanning them for backup storage on a hard drive, flash drive, CD or DVD takes less space. Many financial institutions provide statements and documents electronically.

Document valuables and equipment
Photographs or videos of the contents of any home or business, especially high value items, can help support claims for any available insurance or tax benefits should a disaster strike. The IRS has a disaster-loss workbook for individuals (Publication 584, Casualty, Disaster, and Theft Loss Workbook) and businesses (Publication 584-B, Business Casualty, Disaster, and Theft Loss Workbook) that can help people compile lists of belongings or business equipment. Images may fit on the same storage device as electronic documents.

Check on fiduciary bonds
Employers who use payroll service providers should ask the provider if it has a fiduciary bond in place. The bond could protect the employer in the event of default by the payroll service provider.

IRS ready to help
In the case of a federally-declared disaster with FEMA Individual Assistance, an affected taxpayer can call 866-562-5227 to speak with an IRS specialist trained to handle disaster-related issues. Taxpayers can get copies of previously filed tax returns and all attachments, including Forms W-2, by filing Form 4506, Request for Copy of Tax Return. Tax transcripts that show most line items on a tax return can be ordered through the Get Transcript link on IRS.gov, by calling 800-908-9946 or by using Form 4506T-EZ, Short Form Request for Individual Tax Return Transcript, or Form 4506-T, Request for Transcript of Tax Return.

Hurricane preparedness tips are available on the National Weather Service web site. Plan ahead for disasters with Ready.gov.


Accounting Services | South Florida