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Tax Tip of the Week | No. 443 | New Tax Law Changes – Businesses January 17, 2018

Posted by bradstreetblogger in : Deductions, General, tax changes, Tax Preparation, Tax Tip, Taxes, Uncategorized , add a comment

Tax Tip of the Week | Jan 17, 2018 | No. 443 | New Tax Law Changes – Businesses

A short recap of the new tax law changes that most commonly affect many businesses (for 2018) follows:

1)    C Corporations are now taxed at a flat rate of 21%.  No more brackets based on taxable income.
2)    Corporate Alternative Minimum Tax (AMT) is now history.
3)    New 20% deduction of qualified business income for pass-through businesses (this calculation is complex and far-reaching).
4)    Excess business losses are limited (aside from a corporation).
5)    Cash basis method of accounting has been extended to taxpayers with less than $25 million in average gross receipts. A change in accounting for inventory has also occurred.
6)    Completed contract method of accounting has been extended to businesses under $25 million in gross receipts.
7)    Like-kind exchanges are no longer allowed for any transactions aside from real property.  Ouch!!!
8)    Deductions for entertainment are gone.
9)    Depreciation amounts for luxury vehicles have increased.
10)  Businesses with sales in excess of $25 million will now have limited interest expense deductions. Excess may be carried forward.
11)  Section 179 expensing up from $510,000 to $1,000,000; but, phase out begins at $2,500,000.
12)  Definition of Section 179 property has been expanded. That is a good thing.
13)  Section 168 bonus property no longer has to be new property. The 50% has been increased to 100% on property placed in service after 9/27/17.
14)  Net operating losses (NOLs) can no longer be carried back (other than two years allowed for farming operations). They may now be carried forward indefinitely and are subject to an 80% income limitation.
15)  Domestic Production Activity Deduction (DPAD) is no longer allowed. Many businesses will be adversely affected by the loss of this provision.

We enjoy your questions, comments and suggestions for future topics. You may contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

This week’s author – Mark Bradstreet, CPA

–until next week.

Tax Tip of the Week | No. 442 | New Tax Law Changes – Individuals January 10, 2018

Posted by bradstreetblogger in : Deductions, General, tax changes, Tax Planning Tips, Tax Preparation, Tax Tip, Taxes, Uncategorized , add a comment

Tax Tip of the Week | Jan 10, 2018 | No. 442 | New Tax Law Changes – Individuals

We have attempted to recap some of the tax law changes that affect many individuals as below:

1)   We still have the seven–bracket individual tax structure but now with mostly lower tax rates.
2)    The marriage tax penalty has been effectively eliminated for all except for married couples with taxable income north of $400,000.
3)    Although, the higher standard deduction was billed as a tax cut, it really falls more into the realm of tax simplification. However, one must keep in mind that the personal exemption deduction was eliminated. So, for most people, what the government gives with one hand, they taketh away with the other.
4)    If your children are 17 or older or you take care of elderly relatives, you can claim a nonrefundable $500 credit, subject to income thresholds.
5)    Funds saved in a 529 savings plan may now be used for private school and tutoring (K – 12).
6)    Income thresholds for capital gains no longer match the tax brackets as before.
7)    People who don’t buy health insurance will no longer pay a tax penalty (effective in 2019).
8)    The net investment income tax of 3.8% remains the same.
9)    Interest on home equity debt may no longer be deducted.
10)  The Child and Dependent Care Credit remains in place.
11)  Some charitable donations may now be deducted up to 60% of income (up from 50%).
12)  Alternative Minimum Tax (AMT) is now adjusted for inflation and the AMT exemption amounts have increased.  Both are good.
13)  Estate tax exemption has effectively doubled to $11.2 million lifetime exclusion.
14)  Deductions that didn’t survive:
A.    Casualty and theft losses (other than a federally declared disaster).
B.    Unreimbursed employee expenses.
C.    Tax preparation expenses (still okay for businesses, rentals, and various investments, etc.).
D.    Moving expenses.

We enjoy your questions, comments and suggestions for future topics. You may contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our website.

This week’s author – Mark Bradstreet, CPA

–until next week.

Tax Tip of the Week | No. 441 | Company Vehicles January 3, 2018

Posted by bradstreetblogger in : Deductions, General, Tax Planning Tips, Tax Tip, Taxes, Uncategorized , add a comment

Tax Tip of the Week | Jan 3, 2018 | No. 441 | Company Vehicles

Many of our clients ask us about vehicles used in their businesses. . .

Basically, there are two ways to deduct vehicle expenses: the actual method and the mileage method. In the year a vehicle is placed in service, the taxpayer must choose which of these methods to use, and cannot use both on the same vehicle. If the taxpayer elects to use the mileage method in Year 1, the taxpayer can switch to actual expenses in Year 2. But if a switch to actual occurs, the straight-line method must be used to depreciate the vehicle. The basis of the vehicle must be reduced by the depreciation assumed while using the mileage rate, which is 25 cents per mile for 2017. If the basis is reduced to zero, the standard rate can continue to be used with no additional adjustments to basis.

The Actual Method:

The actual method allows deductions for depreciation of the vehicle (within certain limitations), insurance, fuel, repairs and maintenance, license fees and other actual expenses when the vehicle is owned by the business. If the actual method is used in year 1, it must continue to be used even if the mileage method would result in larger deductions. This is often the case with SUV’s that have a gross vehicle weight rating of over 6,000 pounds due to the write-off allowed in the year of purchase. For these SUV’s used predominantly for business, an election under Section 179 of the IRC allows expensing of up to $25,000 whether new or used. This is much more than what is allowed for a small SUV or passenger automobile in Year 1, which is limited to $11,160 if new, and $3,160 if used. These amounts are subject to periodic adjustment but have not changed since 2012.

The Mileage Method:

The mileage method allows a deduction for business mileage put on a vehicle, regardless of whether the vehicle is owned by a business, or owned personally. Mileage rates are determined by the IRS and vary by year. The standard mileage rate for business mileage for 2017 is 53.5 cents per mile. In some years, when economic conditions dictate, the IRS will change the rate during the year. When five or more vehicles are used in the same business, the mileage method cannot be used and the taxpayer has to claim actual expenses.

Importance of Record Keeping!

Passenger automobiles and other property that lends itself to personal use are known in tax lingo as “listed property”. Special rules may limit tax deductions related to listed property. For example, no depreciation or other deduction or credit is allowed for listed property unless the taxpayer meets certain record keeping requirements.

The records must support the amount of every expenditure such as the cost of acquiring the item, maintenance and repair costs, lease payments and any other expenses. The records must also support the amount of business use (business mileage) and total use (total mileage), the date of each expenditure or use, and the business purpose for each expenditure or use. Phone apps now exist that will help track business and personal mileage. Or, a business mileage log can be purchased at an office supply store and if kept updated correctly, will suffice for the record keeping requirement for business use, and should be mostly all that’s needed for those claiming the mileage deduction. However, an IRS audit will usually require a third party receipt at the beginning of the year and end of year to substantiate total mileage, hence the importance of keeping receipts for services such as oil changes.

Personal Use:
When personal use exists for a business asset, the personal use must be accounted for. A future tax tip will cover personal use, and how it should be reported. Leased vehicles have additional rules and will also be discussed in a future tax tip.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our website.

This week’s author — Norman S. Hicks, CPA

…until next week.