If you have tax troubles or questions, one potential source of help is to call the Internal Revenue Service’s help line. They can assist you if you have questions about your tax return, or you need to arrange a payment plan for taxes you owe, or a variety of other issues. However, if you decide to call the IRS, there are a few things you should know beforehand:
1. Do Not Call Looking For Help With Your Return
This may sound obvious, but the IRS is not your tax preparer, or a tax attorney, or an accountant. They cannot directly assist you with your return, and if you call asking for help with your return, you will likely just wind up wasting their time and yours. That is why you should first speak to your accountant, lawyer, or tax preparer first, or check the IRS website to see if they have an answer to your questions already.
2. Have Your Identifying Information Ready
When you call the IRS, you will need to be able to identify yourself or the person you are calling on behalf of. This means you will need your name, date of birth, and a Social Security number, as well as a completed tax return, an EIN or Tax Payer Identification Number, and proof of past payments if you have a payment plan with the IRS. If you are calling on behalf of someone else, you should have their power of attorney available to prove you can speak on their behalf.
3. Know Why You Are Calling
In order to make your call with the IRS as efficient as possible, make sure you are clear about what matter you are calling about. This means you should have any relevant documentation on hand, and be clear about what kind of help you need. That way, your call will go as quickly as possible, and your chances of having your matter handled expeditiously will increase.
4. Expect Significant Wait Times
Although the IRS recently received additional funding for its help line, it is still very busy, especially as tax season approaches. Thus, if you need to call the IRS, expect to have significant wait times before your call goes through. This means you should set aside a decent amount of time for your call, and be ready to wait until you connect with someone on the line.
5. Beware Anyone Who Calls You Claiming to Be From the IRS
That being said, while it is perfectly normal for regular people to call the IRS, it is unheard of for the IRS to call people. The IRS may email you, but never unsolicited. If you receive an unsolicited call, text, or email from someone claiming to be an IRS agent, report it to the agency so they can investigate it.
It is estimated that as many as 19 million people filed extensions for their tax returns last year, according to the IRS, and it is expected that at least as many will file for their 2022 returns. However, not everyone understands what it means to file an extension for their tax returns, or how it could impact them. Here are five things you need to know about filing an extension for your taxes:
1. You can automatically file an extension for your returns for six months
Any individual taxpayer can file Form 4868 before the deadline to get an extension on their tax returns for up to six months. You do not need to have a specific reason for filing for an extension, and everyone can get one. You do, however, need to submit information for how much you will owe in taxes.
2. You can avoid penalties for failing to file on time
One of the biggest reasons that people seek an extension for submitting their tax returns is that they run out of time to do them. By filing an extension, you can avoid any penalties that might arise for being late, giving you more time to get everything done. This can be especially helpful if you have something else taking up your time and attention that you cannot focus on at the moment.
3. It gives you more time to collect necessary information, if you need it
Another important reason that people file for an extension is that it can give them time to compile necessary information or documentation. Submitting a return with missing or incomplete information can result in significant penalties, and may lead to legal issues. WIth an extension, you can give yourself time to make sure your return is complete and accurate, avoiding these potential problems.
4. It can help you if you are out of town during tax season
Sometimes, people will file for an extension because they are out of town during tax season. This can make it harder to fill out or file tax returns in a timely fashion, possibly causing them to miss important filing deadlines. With an extension, you have more time to get your tax return in order, which can be helpful for those who need to do something on paper or who struggle with electronic filing.
5. If you do not pay when you file your extension, you could owe interest
That being said, an extension on filing your tax return does not mean that you are exempt from paying your taxes. While it gives you time to get your return in order, it does not give you extra time to pay. If you do not pay your taxes on time, you could owe additional penalties, as well as interest on the amount owed. That is why it is essential to get proper tax advice from professionals with the knowledge and experience to guide you through the process.
Republicans in Congress are attempting to extend the tax cuts that were implemented by former President Donald J. Trump, but the sticking point seems to be the $10,000 cap on deducting state and local taxes (SALT).
Many homeowners who live in high-tax areas, especially Long Island, take advantage of the SALT deduction. That is because a majority of their tax bills are property taxes, which are higher than the state and national averages. According to the Tax Foundation, Long Island is one of the most expensive areas to live in, with Nassau County being the most expensive and Suffolk as the 12th most expensive county in the nation.
“While there are some tax cuts and other provisions of the law that we would like to see extended, the SALT cap is not one of them,” Long Island Congressman Andrew Garbarino, a Republican and co-chairman of the SALT Caucus, told The Washington Examiner. He is introducing the SALT Deductibility Act (H.R.613), which would eliminate the cap and reinstate the full SALT deduction.
In 2021, the Senate considered a repeal of the SALT cap on those making $500,000 annually or less. According to the Center for Responsible Budgeting (CFRB), the Senate proposal would result in a loss of $150-$200 billion in tax revenue over a five-year period.
U.S. Representative Mike Lawler (R-Pearl River) announced that he is introducing the SALT Marriage Penalty Elimination Act, which would double the deduction to $20,000 for married couples. He said it is unfair for married couples who file jointly to receive only a $10,000 deduction, while single homeowners are entitled to the same amount. The bill is being co-sponsored by Republican Anthony D’Esposito of Long Island and Democrat Mikie Sherrill of New Jersey.
“What I’m introducing here is a commonsense, bipartisan piece of legislation that begins to chip away at the cap on SALT in a way that I think we can get it passed,” Lawler told The Examiner-News.
The SALT deduction cap is set to expire in 2025, which is OK with Garbarino. “The clock is running out,” he told Roll Call. “To me, I’d like to see it go completely in three years. I think it would be better than doing any sort of extension with a lift or with an increase right now. So I think time is on our side.”
What is the NYS PTET (“Pass-Through Entity Tax”) (NYS Technical Memorandum TSB-M-21(1)C)?
The NYS PTET is a tax paid through a business entity for the benefit of its owners.
The purpose is to get a “work around” of the state and local tax deduction restriction (“SALT”), in the amount of $10,000, enacted with the tax law changes for the 2018 tax year, for individual taxpayers.
By allowing the PTET (NYS passed a bill in April 2021, to allow the NYS PTET starting with the 2021 tax year), the entity can take a business deduction against its income for the full amount paid for the PTET, on its federal partnership or S corporation business tax return. As a result, the entity’s net taxable income is lowered, dollar for dollar, for the full amount paid, with no restriction. Please note that in order to get the deduction for NYS PTET taxes paid, NYS is basing this deduction on a CASH BASIS (even if the entity is on an accrual basis for income tax purposes). However, for NYS entity tax purposes, the deduction taken for federal purposes is an addback to NYS net taxable income (an “addition modification” for state taxes based on income).
Individual owners (including grantor trusts and other qualifying trusts) of the flow-through entity electing the NYS PTET, partners for partnerships and shareholders for S corporations, are then allowed to take their respective amounts (based on profit and loss %s) of the PTET paid through their entities, as a credit against their NYS personal income tax liabilities. Please note that “disregarded entities” (single member LLCs) and corporations are not eligible for purposes of calculating the NYS PTET within that entity.
Who Qualifies and Making the Election
“Flow-through entities” qualify: Partnerships (LLCs) and S corporations. Please note that publicly traded partnerships do not qualify for this election.
The entity needs a NYS online account to elect, file the return, and to pay estimated taxes. If the entity pays NYS payroll taxes and/or NYS sales taxes, then the entity already has a NYS online account.
Once in the NYS online account, go to the “menu” on the left of the screen, and there are 2 options: “Corporation tax, PTET webfile” for S corporations and “Partnership tax, PTET web file” for partnerships (LLCs). Choose the web file for the entity that you are making the election for.
NYS has made it very clear that only an “authorized person” can make this election on behalf of the entity. The idea being that outside agents or professionals, like accountants, tax preparers, attorneys, etc., are not supposed to be electing the NYS PTET on behalf of its clients. For S corporations, any officer, manager, shareholder, or any individual with financial responsibility, and for partnerships, any member, partner, owner, or any individual with financial responsibility, can make this election.
Note for tiered partnerships: If a partnership has partners that are also partnerships, then the election would be made at the partner’s entity level, not at the original partnership level.
When are the Elections Needed to be Made?
For the 2021 tax year: By October 15, 2021.
For the 2022 tax year: By March 15, 2022.
For tax years after 2022: By March 15, following the calendar year end of the entity.
All elections are irrevocable. Meaning that once you elect for a given tax year, then you cannot get out of it, and that the respective tax due for that tax year needs to be paid, based on the rates as stipulated by NYS.
This election is a completely voluntary and it is not REQUIRED to be made.
This election needs to be made on an annual basis. It does not carry over from year to year once the entity elects for the first time.
How is the PTET Calculated?
In general, the PTET is imposed on all taxable income/losses of the electing entity, that flows through to the individual owners of the entity.
For S corporations, the net taxable income subject to the PTET is the amount of net taxable income allocated to NYS only. So, if there is net taxable income allocated to other states, within the S corporation, then that amount of net taxable income allocated out of NYS is not included in the NYS PTET calculation.
For partnerships, an electing partnership is required to classify all partners as either resident or nonresident of NYS. Any partner that is a NYS resident for at least 6 months of an electing tax year, is deemed to be a NYS resident for this purpose. Part-year classification is not an option. Qualifying trusts are considered residents or nonresidents based on the nexus of the trust, not its beneficiaries.
The partnership’s net taxable income is then separated into resident and nonresident categories. If all net taxable income within the entity is from NYS sources, then all such income is included in the calculation for the NYS PTET, as it relates to NYS nonresidents. And, if there are no specific allocations of net taxable income to the partners, then all taxable net income is included in the PTET calculation. If there are specific allocations of net taxable income to partners, then only the net taxable income allocated to nonresidents are subject to the NYS PTET, as it relates to NYS nonresidents.
NYS PTET Tax Rates
$2M or less, 6.85% of NYS PTET taxable income.
Greater than $2M but less than $5M, $137,000 plus 9.65% of the excess NYS PTET taxable income over $2M.
Greater than $5M but less than $25M, $426,500 plus 10.30% of the excess NYS PTET taxable income over $5M.
Greater than $25M, $2,486,500 plus 10.90% of the excess NYS PTET taxable income over $25M.
How to Make the NYS PTET Tax Payments
All payments are to be paid online, through the entity’s NYS online tax account.
For 2021 only, no estimated tax payments are required. The full amount of the NYS PTET can be paid by the due date of the NYS PTET return, or March 15, 2022. Underestimated tax penalties will not be imposed for 2021, as long as the NYS PTET is paid by the March 15, 2022 due date of the tax return.
The first 2021 estimated tax payment can be made by December 15, 2021. Please note that, as of now, NYS has not set up the capability of making such a payment, on its website.
Starting in 2022, NYS PTET estimated tax payments are due March 15, June 15, September 15, and December 15. Penalties will be imposed for the underpayment of NYS PTET estimated tax payments.
Again, please note that in order to get the deduction for NYS PTET taxes paid, NYS is basing this deduction on a CASH BASIS (even if the entity s on an accrual basis for income tax purposes). As a result, if no 2021 estimated tax payment is made by December 31, 2021, then there will be no deduction on the entity’s federal tax return, for 2021. The deduction will have to be taken in 2022, if paid in 2022.
NOTE: NYS has stated that, even if electing for the NYS PTET, that 2021 personal NYS estimated tax payments still need to be paid, in full, as if the NYS PTET did not exist.
How to File the NYS PTET Tax Return
The return must be filed online.
6-month extensions are allowed (filed online), but the tax must be fully paid in by the original due date of the return, to avoid penalties.
NO AMENDED NYS PTET TAX RETURNS ARE ALLOWED.
How Individuals Claim the NYS PTET Credit
Via Form IT-653 (Pass-Through Entity Tax Credit) attached to the individual’s NYS personal income tax return.
Qualifying trusts claim the credit on its NYS trust return only. The trust is not allowed to distribute the credit to its beneficiaries.
All individual taxpayers claiming the NYS PTET credit must file a NYS personal tax return.
If the amount of the PTET credit allowable for any taxable year exceeds the taxpayer’s tax due for that tax year, then the excess will be treated as an overpayment, to be credited to future years or to be refunded without interest.
WITHOUT NYS PTET ELECTION
2021 Taxable Income Received from Passthrough Entity
$ 1, 000, 000. 00
Individual Federal Tax Rate (Assumed for this example)
37%
Individual Income Tax Due on Passthrough Income
$ 370, 000, 000. 00
WITH NYS PTET ELECTION
2021 Taxable Income Received from Passthrough Entity
$ 1, 000, 000. 00
NYS PTET Tax Paid At Entity Level (Assumed Rate)
6.85%
NYS PTET Tax (Refundable credit to the individual taxpayer)
$ 68, 500. 00
2021 Taxable Income After Reduction for NYS PTET
$ 931, 500. 00
Individual Federal Tax Rate (Assumed for this example)
37%
Individual Income Tax Due on Passthrough Income
$ 344, 655. 00
Individual Tax Savings On Making NYS PTET Election
Victims of remnants of Hurricane Ida that began September 1, 2021 now have until January 3, 2022, to file various individual and business tax returns and make tax payments, the Internal Revenue Service announced today.
Following the recent disaster declaration issued by the Federal Emergency Management Agency, the IRS announced today that affected taxpayers in certain areas will receive tax relief.
Individuals and households affected by Hurricane Ida that reside or have a business in Bronx, Kings, Nassau, New York, Queens, Richmond, Suffolk, Sullivan and Westchester counties qualify for tax relief. The declaration permits the IRS to postpone certain tax-filing and tax-payment deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after September 1, 2021, and before January 3, 2022, are postponed through January 3, 2022.
This means that individuals who had a valid extension to file their 2020 returns, due to run out on October 15, will now have until January 3, 2022 to file. The IRS noted, however, that because tax payments related to these 2020 returns were due on May 17, 2021, those payments are not eligible for this relief.
Businesses with extensions also have the additional time including, among others, calendar-year partnerships and S corporations whose 2020 extensions run out on September 15, 2021 and calendar-year corporations whose 2020 extensions run out on October 15, 2021.
The January 3, 2022, deadline applies to the quarterly estimated tax payment, normally due on September 15 and to the quarterly payroll and excise tax returns normally due on Nov. 1, 2021. It also applies to tax-exempt organizations, operating on a calendar-year basis, that had a valid extension due to run out on November 15, 2021. Also, penalties on deposits due on or after September 1, 2021, and before September 16, 2021, will be abated as long as the tax deposits were made by September 16, 2021
If an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date that falls within the postponement period, the taxpayer should call the telephone number on the notice to have the IRS abate the penalty. For information on services currently available, visit the IRS operations and services page at IRS.gov/coronavirus.
The IRS automatically identifies taxpayers located in the covered disaster area and applies filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area should call the IRS disaster hotline at 866-562-5227 to request this tax relief.
As a result of the American Rescue Plan Act being signed into law, millions of Americans will be receiving $1,400 checks from the IRS to help them deal with the economic burden caused by the coronavirus pandemic.
Officially, checks will start going out on March 17, although people with direct deposit accounts may already see the money in their bank accounts as pending or provisional deposits. People without direct deposit set up should begin to see their checks over the coming days and weeks. Here is what you need to know about your stimulus check:
How Will I Receive My Stimulus Check?
If you have direct deposit set up with the federal government, it should be deposited directly into your account. However, if you do not already have direct deposit set up, you will instead receive the stimulus check in the mail. Some people may also instead receive the money through an Economic Impact Payment (EIP) Card, which is a sort of prepaid debit card which must be activated online.
How Are These Payments Being Calculated?
While the stimulus payments are potentially up to $1,400 per person, the fact is that the exact amount of your payment will depend on a number of factors, including your income, the number of dependents you have, and whether you are filing as an individual or jointly. If you have not yet filed your tax returns for 2020, the IRS may instead base your payment on your tax return information from 2019. In addition, there may be other factors that limit or delay your payment.
What if I Have Direct Deposit and Have Not Seen The Money in My Account?
The stimulus checks are being processed in batches, and thus not everyone will be receiving their money right away. In addition, given the proximity to tax day on April 15, there will likely be delays at the IRS. You can track your stimulus payment with the IRS’ official tool here.
If you receive our firm’s newsletter then you are aware that the estate/gift lifetime exclusion may be decreasing substantially after the 2020 tax year. The current lifetime exclusion currently sits at around $11.6M per person, meaning that an individual can transfer up to $11.6M of assets over the individual’s lifetime, without paying any gift taxes (approximately $23.2M for a married couple).
With a change of legislative regime coming in 2021, there has been serious talk of the lifetime exclusion being decreased to $5M per person, quite a substantial decrease. The possibility exists that the decreased exclusion may happen as soon as for 2021, but, from what we are hearing, gifts made prior to the enactment of the decreased lifetime levels, will not be impacted. In other words, if an individual has transferred up to the current $11.6M’s worth of assets, let’s say by the end of 2020, then any new laws enacted to decrease the lifetime exclusion (after 2020) will not apply to those transfers made by the end of 2020.
So, it is imperative to consider whether gifting by the end of 2020 is appropriate for your individual situation and circumstances, to use up as much of your current lifetime exclusion as possible, or as appropriate for you and your family. Direct transfers to family members and transfers to trusts qualify for the use of your current lifetime exclusion.
Example: An individual has transferred $5M of assets over their lifetime as of today. The result is, that individual has currently approximately $6.6M of lifetime estate/gift exclusion remaining/available to be used by the end of 2020.
As a reminder, the first $15,000 of gifting per person on an annual basis is not applied to the use of the lifetime exclusion, called “the annual gift exclusion.” So, parents can transfer up to $60,000 per year to their child and the child’s spouse on an annual basis, without utilizing any part of the parents’ lifetime exclusions.
We just wanted to give you all an update as to the taxability of the PPP loan forgiveness (currently a 2020 tax event regardless of when your PPP loan is forgiven). As of today, it is taxable, however, there is some movement in Congress to override the IRS to make the forgiveness of the PPP loan proceeds not taxable.
Here is how our firm is handling our own situation, assuming that we will not have any definitive answers from Congress by the end of the first quarter of 2021:
For 2020 projection purposes, we are assuming that our PPP loan proceeds will be taxable, and we will pay estimated taxes based on that assumption. Or, at least pay in 2020 estimates to meet the estimated tax “safe harbors” (paying in 110% of 2019’s actual tax liability or 90% of the 2020 projected taxes).
We will be putting our firm’s tax returns on extension, to buy some time, with the hope that Congress will finalize this issue prior to September 15 (the extended due date of partnership and S corporation returns) and prior to October 15 (the extended due date of personal tax returns).
If clients choose to have their business returns (partnerships and S corporations) filed by the original due date of March 15, then the PPP loan proceeds will be included in income for those filed returns. If Congress overrides the IRS subsequent to the March return file date, then amended business returns will be required to be filed (and personal returns as well since the income from partnerships and S corporations flow through to the personal returns). This would also hold true for personal returns originally due April 15 for self-employed clients, who would then have to file amended personal returns if Congress were to override the IRS (if applicable).
We have been told that there is a “strong” probability that Congress will act to override the IRS, but we will have to use the laws and the information that exists as of today, in the meantime.
Important tidbit: FTEs are not a requirement for PPP loan forgiveness for businesses that were mandated by any government health agencies as to the number of customers that they could service during the pandemic (and/or for the businesses that were required to be totally shut down for a long period of time during the pandemic). This would include restaurants, gyms and related businesses, retail stores, etc. There is a box to check within the PPP loan forgiveness application that can be checked which would result in the elimination of having to meet the FTE requirement.
Guidance by IRS Limits Deductibility for Expenses from PPP Loans
When business owners first applied for loans from the Paycheck Protection Program (PPP), they did so with the expectation that they could seek forgiveness for some or all of it. In effect, this would make it a “free” loan, allowing businesses to continue functioning despite the economic impact of the coronavirus pandemic. Unfortunately, the IRS has decided to deliver some bad news to PPP recipients right before the holidays, announcing that expenses from a PPP loan that a recipient expects to be forgiven cannot be deducted from their taxes. The latest IRS ruling will most likely make this taxable event occur for 2020.
What does this guidance say?
Normally, many of the expenses that are intended to be paid by PPP loans would be considered tax-deductible under IRS regulations. However, the IRS has ruled that, due to the wording of the CARES Act, the expenses used to claim forgiveness under the PPP program cannot also be claimed for tax deductions. This is because the debt forgiveness from a forgiven PPP loan is not considered “gross income” under the wording of the CARES Act, and thus does not benefit from typical tax deductions.
The IRS also noted that this applies to PPP loans even where a recipient has yet to apply for loan forgiveness. Instead, it applies in all cases where someone has a “reasonable expectation” of forgiveness. In other words, even people who have yet to apply for forgiveness for their PPP loans do not get to benefit from tax deductions for applicable business expenses, so long as they have good reason to believe they will receive loan forgiveness.
How does this impact PPP recipients?
This is potentially a significant financial blow for PPP recipients, who may have expected to be able to deduct these business expenses as normal, in addition to the benefit of receiving loan forgiveness for their PPP loans. As a result, many of these business owners are now potentially facing significantly higher taxes than they may have been expecting when tax season rolls around.
If you have received a PPP loan and have either received forgiveness or believe you will receive forgiveness, you should contact the tax advisers at KVLSM LLP. Our team will work with you to minimize your tax liability, and work with you to protect your financial interests. For more information Download the IRS Guidance or call us (516) 294-0400. As always, should you have any questions or concerns regarding your situation please feel free to call.
The Tax Cuts and Jobs Act was officially signed into law by President Trump on Friday, December 22, 2017, and is said to be the largest tax reform bill to go through since the Regan-era Tax Reform Act of 1986. With it comes some significant changes to the way individuals and businesses will make financial decisions, which will have a broad impact on the American economy.
Here is a brief rundown of the highlights of the law, which includes changes to tax brackets and reduction of income tax rates for corporations.
Changes to Individual Tax Reporting Individual Income Tax Brackets
There will now be seven tax brackets as follows: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The top tax bracket rate, 37%, will be for those individuals who are earning $500,000 and above (joint filers must be earning at least $600,000). The new tax bracket rates are set to expire in 2026 and will then revert back to the current rate structure.
Additionally, the below tax brackets are also being changed:
• Estates & Trust Taxes: Will now be subject to four rates, the top rate being 37% and taking effect at $12,500
• “Kiddie Tax”: This applies to children under the age of 19 or any full-time students under the age of 24. This tax will no longer be tied to the income of the parents or siblings, instead, unearned income of children will now be subject to tax at the same rates of estates and trusts.
Standard Deductions The standard deduction will now be doubled. For example, a single filer’s deduction will increase from $6,350 to $12,000, with married and joint filers increasing from $12,700 to $24,000. The elderly and blind deductions will go unchanged. Beginning after December 31, 2025, the increased amount of the standard deduction will expire.
Personal Exemptions
Personal exemptions will be temporarily repealed for tax years starting in 2018 and until after December 31, 2025.
Alternative Minimum Tax (“AMT”)
The new AMT will be applied to the taxable years beginning after December 31, 2017, and before January 1, 2026. The AMT exemption will now be $109,400 for married taxpayers filing jointly with a phase-out threshold at $1,000,000. The AMT exemption for married individuals filing separately will be $54,700 for and all others at $70,300 with a phase-out threshold of $500,000.
Child Tax Credit
The Act will now increase the child tax credit from $1,000 to $2,000 with up to $1,400 of it being refundable. It will also increase the income level for married tax filers from $110,000 to $400,000, all others at $200,000. Additionally, it allows for a $500 credit for each non-child dependent (i.e., elderly).
Section 529 Plans
Parents can use up to $10,000 per year for tuition and qualified expenses for public, private or religious elementary and secondary schools.
Property Taxes Deductions
A taxpayer may not deduct up to $10,000 in state and local taxes, but they must choose between property taxes and income or sales taxes. Additional property taxes can be deducted for business assets, such as residential business property.
Home Mortgage Interest Deductions
Current mortgage holders remain unaffected. New mortgages entered into between December 15, 2017, and December 31, 2025, will be reduced to a limit of $750,000 or $375,000 for married taxpayers filing separately. Additionally, beginning after December 31, 2017, and before January 1, 2026, the deduction for home equity interest will be suspended.
Charitable Contribution Deductions
The income-based percentage limit for charitable contributions of cash to public charities and other organizations is increased from 50% to 60% of adjusted gross income. This will be effective for taxable years beginning December 31, 2017, and before January 1, 2026.
Medical Expense Deduction
Changed to include costs that are 7.5% or more of adjusted gross income (compared to previous 10%) for 2017 and 2018.
Alimony Payments
Can no longer be deducted from or included in income, effective for any divorce or separation instrument executed after December 31, 2018.
Moving Expenses
Suspension of any deduction for taxable years 2018 through 2025. However, the rules allow for amounts attributable to in-kind moving and storage expenses for members of the armed forces, and their spouse and dependents, on active duty that must move due to a military order.
Personal Casualty and Theft Losses
Must be attributable to a disaster declared by the President under section 401 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act. Can no longer be deducted, save for cases of federally declared disasters. All other losses will not be accepted.
Wagering Losses
Will now be expanded to include expenses incurred in connection with an individual’s wagering activity. This is aimed to limit a professional gambler’s net loss to zero. This will be effective for taxable years beginning after December 31, 2017.
Under 2% Itemized Deductions and 3% Limitations
Are now repealed for taxable years beginning after December 31, 2017, and before January 1, 2026.
Affordable Care Act
The penalty for failure to maintain health care coverage has been eliminated for those without health insurance beginning after December 31, 2018.
Estate and Gift Tax Exemption
The exemption has been doubled to $10 million per individual (indexed for inflation). This is effective for decedents dying, generation-skipping transfers and gifts made after December 31, 2017. The increased exclusion is set to expire for decedents dying and gifts made after December 31, 2025.
Changes to Business Tax Reporting
Corporate Tax Rate
Reduced to a flat 21% which also applies to personal service corporations.
Dividend Received Deductions
The original 80% dividends received is reduced to 65% and the 70% dividends received is reduced to 50%.
Corporate Alternative Minimum Tax (AMT)
The corporate AMT has been eliminated. Any taxpayer that has an AMT credit carryforward may use them against their regular tax liability. They may also claim a refundable credit equal to 50% of the remaining AMT credit carryforward for years beginning in 2018-2020 changing to 100% for years beginning in 2021.
Business Income for Individuals and Trusts & Estates
Allows a non-corporate taxpayer who has a qualified business income (QBI) from either a partnership, S corporation or sole proprietorship to deduct the lesser of:
• The taxpayers combined QBI amount
• 20% of any of the excess of the taxpayer’s taxable income for the tax year
Excess Business Losses of Taxpayers Other Than Corporations
Are not allowable in the current taxable year, but are instead to be carried over and treated as part of the corporation’s net operating loss in subsequent tax years.
Bonus Depreciation Write-offs
Corporations are allowed to write off a percentage of depreciable assets from September 28, 2017, to December 31, 2026. The write-off percentages will decrease each year accordingly:
• 9/28/17 to 12/31/22: 100%
• 2023: 80%
• 2024: 60%
• 2025: 40%
• 2026: 20%
Section 179 Expensing
Expensing limitation is increased to $1 million, with a phase-out threshold of $2.5 million.
Luxury Vehicle and Personal Property Depreciation
Is increased to a maximum of $10,000 for the first year the vehicle is placed in service, $16,000 for the second and $9,600 for the third. All years thereafter are $5,760. This applies only to vehicles placed in service after 2018.
Qualified Leasehold Recovery Period
Now includes a 15-year period for improvement property (including qualified leasehold, qualified restaurant, and qualified retail) and a 20-year alternative depreciation system (ADS) period. The ADS recovery period is reduced from 40 to 30 years.
Peripheral Equipment Deductions
Are no longer subject to heightened substantiation requirements.
Small Businesses
Applicable for businesses with less than $25 million in average annual gross receipts. They can now take advantage of several accounting simplifications, such as cash method of accounting, accounting for inventories, capitalization and inclusion of inventory expenses, and long-term contract accounting.
Interest Expense Deductions
For taxable years beginning after December 31, 2017, the interest expense deductions are limited to the sum of business interest income, floor plan financing interest, and 30% of the “adjusted taxable income” of the taxpayer for that taxable year. Exemptions include businesses with an average gross receipts amount of $25 million or less, regulated public utility companies, electing real property trade or business, and electing farming businesses.
Net Operating Loss (NOL) Deductions
NOL deduction is limited to 80% of taxable income.
Like-Kind Property Exchanges
Like-kind property exchanges apply only to real property not held mainly for sale.
S Corp to C Corp Conversions
Adjustments are taken into account for a six-year period from the time the S corporation status turns to a C corporation status.
Contributions to Capital
Contributions to the capital which may be an aid of construction or any other contribution as a customer or potential customer and any contribution by any governmental or civic group are no longer exempt.
Capital Gains Rollovers
For sales after 2017, for Special Small Business Investment Companies, gain rollovers are no longer permitted.
Business Expense Deductions
Expense deductions are now largely repealed – including for IRC Sec. 199, entertainment expenses other than meals and FDIC Premiums
Local Lobbying Deductions
Lobbying expenses or deductions are disallowed.
Self-Created Intangibles
Self-created intangibles, such as musical compositions, can no longer be treated as a capital asset.
Partnership Losses
Partner losses are only applicable to the specified partner’s distributive share of charitable contributions and foreign taxes.
Partnership Transfer
The transferee of a partnership must withhold 10% of the sale amount of a partnership interest.
Partnership Termination
The rule is now repealed, a partnership is treated as continuing even if more than 50% of the total capital and profit interests of the partnership are sold. There need not be any new elections.
Carried Interest
Transfers of applicable partnership interests for businesses held for less than three years are treated as a short-term capital gain.
Research and Experimental Expenditures
Are capitalized over a five-year period for tax years after 2021.
Orphan Drug Credit
Includes a 25% credit for clinical test expenses for drugs related to rare diseases.
Rehabilitation Credit
Includes a 20% credit for updates and maintenance of historical structures. The credit must be claimed ratably within a five-year period beginning with the taxable year the structure is placed in service.
Family and Medical Leave Credit
Employers may claim 12.5% of wages paid to employees during any time in which they are on family or medical leave if the rate of payment under the program was 50% of the wages normally paid to an employee.
Employee Compensation
A covered employee is now defined to include the principal executive officer, the principal financial officer, and the three other highest paid employees in order to repeal the exception for the $1 million deduction limitation for commissions and performance-based compensation.
Excise Tax
A 21% tax will now be imposed for compensation in excess of $1 million paid to a tax-exempt organization’s five highest-paid earners.
Qualified Equity Grants
Allows employees who are given stock options or restricted stock units to defer the income recognition for up to five years.
Sexual Harassment and Abuse Deductions
Deductions are not allowed for any settlement or payment related to a case if such settlement or payment is subject to a nondisclosure agreement or attorney’s fees related to such settlement or payment.
Fines and Penalties for Federal Income Taxes
No deduction will be allowed for any amount paid or incurred to a government or governmental entity in relation to a violation of any law (or any investigation or inquiry by that government or entity).
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The standard deduction will now be doubled. For example, a single filer’s deduction will increase from $6,350 to $12,000, with married and joint filers increasing from $12,700 to $24,000. The elderly and blind deductions will go unchanged. Beginning after December 31, 2025, the increased amount of the standard deduction will expire.
