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Tax Tip of the Week | No. 448 | Litigious Times for Farmers (and All Businesses) February 21, 2018

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

Tax Tip of the Week | Feb 21, 2018 | No. 448 | Litigious Times for Farmers (and All Businesses)

I am not an attorney. I am not an insurance agent. Much of the following content was derived from “Welcome to the Litigious Age” written by Chris Bennett in the Farm Journal (January, 2018 pages 26-27). His article is slanted towards farmers but many of the ideas and concepts also apply to other businesses and industries. His article discusses the need for having appropriate insurance coverage. And, yes – good insurance is generally considered as the first line of defense against litigation. At the end of this article, I will briefly discuss the use of various entities as another line of defense.

Physical injuries can occur on a farm. They can happen to practically anyone. The list of people that could come in harm’s way is long and includes neighbors, employees, subcontractors, workers, suppliers, relatives, friends, passersby, hunters, trespassers, sales reps, guests, customers (e.g. hayrides). Lawsuits may ensue as the result of an injury. Such lawsuits are capable of swallowing the farm’s assets. Too often, farmers and other business owners are viewed as being wealthy with significant assets or having deep pockets. Even if the claim is insured, the existing coverage may not be enough. In this situation, the farmer may be responsible for the shortfall. Often after paying a claim an insurance company may cancel the policy or increase future premiums. For an example, one farmer allowed a neighbor to ride a snowmobile across his property. The neighbor ran into a white gas storage tank.  Argument was “the farmer should have recognized the low-visibility of the tank and marked it.” The insurance company paid the claim. But, with increased premiums to the farmer the insurance company will eventually recover their losses.

Meeting with your insurance agent at least once a year makes a lot of sense. Much of your insurance policy is often difficult to understand. So many farms’ assets and various operations may require specific coverage that is not otherwise covered by a general liability policy. Find out from your agent what is covered and what is not. Do you have enough coverage to protect your assets?  Etc.

As promised earlier – I will briefly discuss some of the traits of various entity choices and their application to a conversation on insurance coverage and potential litigation. First, let me define an entity. An entity includes a person, partnership, LLC, trust, or corporation – each of which has a separately identifiable existence. Each entity choice may come with its own set of tax rules and other regulations. The best way to describe some of the benefits of entities is to mention the old adage of – don’t put all of your eggs in a one basket, because if you do then the possibility exists of losing all of your eggs in one painful moment. Use of various entities aside from only a personal one may provide you with an opportunity to have multiple baskets to divide up your eggs. So in the event of some unfortunate mishap you would not have all of your eggs in one basket. As always, please consult with your insurance agent, attorney and your CPA.

Thank you for all of your questions, comments and suggestions for future topics. We may be reached 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. 447 | New Tax Law (TCJA) – Rules Significantly Eased for Code Section 168 & 179 February 14, 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 | Feb 14, 2018 | No. 447 | New Tax Law (TCJA) – Rules Significantly Eased for Code Section 168 & 179

Good news for business owners!

The Tax Cuts and Jobs Act (TCJA) has very favorably changed the tax rules for “accelerated” tax depreciation expense under IRC Sections 168 and 179.

Prior Law:  Section 168 (bonus depreciation) – taxpayers were allowed to deduct 50% of the cost of most new tangible property other than buildings (with a few exceptions). This “50% bonus depreciation” was scheduled to be reduced to 40% for property placed in service in calendar year 2018, 40% in 2019 and 0% in 2020 and thereafter.

New Law:  For property placed in service and acquired after Sept. 27, 2017, the TCJA has raised the 50% rate to 100%.

Also, perhaps, even more importantly, under the TCJA the post-Sept. 27, 2017 property eligible for bonus depreciation may be new or used.

Prior Law:  Section 179 expensing – taxpayers could elect to deduct the entire cost of Section 179 property up to an annual limit of $510,000. For qualifying assets placed in service in tax years that begin in 2018, the adjusted limit was $520,000. This annual limit was reduced by one dollar for every dollar that the cost of all Section 179 property placed in service during the tax year exceeded a $2,030,000 threshold. For those assets placed in service in tax years that begin in 2018, the threshold was to be $2,070,000.

New Law:  The TCJA ratcheted up the annual dollar limit for expensing to $1 million and $2,500,000 as the new phase down threshold.

The new definition of qualifying property has been expanded for both Sections 168 and 179. More favorable depreciation lives were also made available, meaning faster tax write-offs.

Vehicles.  The TCJA triples the annual dollar caps on depreciation (and the Code Sec. 179 vehicle expensing) of passenger automobiles and small vans and trucks. Also, because of the extension in bonus depreciation, the increase for vehicles allowed bonus depreciation of $8,000 in the other-wise-applicable first year cap is extended through 2026 (with no phase-down).

Farm property.  More good news!  For items placed in service after 2017, the TCJA reduces the depreciation period for most farm equipment from seven years to five. It also allows many types of farm property to be depreciated under the 200% (instead of 150%) declining balance method.

Thank you for all of your questions, comments and suggestions for future topics. We may be reached 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. 446 | Past Due Taxes May Jeopardize Your Passport February 7, 2018

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

Tax Tip of the Week | Feb 7, 2018 | No. 446 | Past Due Taxes May Jeopardize Your Passport

The IRS has recently provided further details about delinquent tax debts and their impact on your ability to travel. The IRS is required by law to notify the State Department once your tax debt is deemed as “seriously delinquent.” At that point, the State Department will typically deny issuing or renewing a passport and may even revoke an existing passport. Even though this law was enacted back in 2015, the IRS and State Department are only now enforcing the rules.

Please note these rules are not limited to criminal tax cases or even where the IRS believes you are trying to avoid paying a tax debt. Upon notification from the IRS, the State Department typically will not issue or renew your passport. This applies only to a “seriously delinquent” tax debt or more than $50,000. However, remember this tax debt balance also includes penalties and interest both of which may grow at an alarming pace.

The IRS now has new details explaining some remedies should this situation arise. The IRS says that once taxpayers are notified that “certification” of their seriously delinquent tax debt has been transmitted to the State Department, they should consider: (1) paying the taxes in full; (2) entering into an installment agreement with the IRS; or (3) making an offer in compromise. This “certification” is not to be taken lightly. It is not something to be ignored, hoping it will resolve itself. Hope is not a plan. If a “certified” taxpayer applies for a passport, the State Department, in general, will provide the applicant with 90 days to resolve the tax delinquency before denying the passport application. If a taxpayer needs their passport sooner than the 90 day window to travel, the taxpayer must contact the IRS and resolve the issue within 45 days from the application date. This is necessary, so the IRS has enough time to notify the State Department.

Typically, the only avenue for a taxpayer who believes that a certification was wrongfully issued or not reversed because of an error (e.g. the tax debt is paid or ceases to be defined as seriously delinquent) is to file a civil action in court. Going to IRS Appeals, to challenge the certification or the IRS decision not to reverse a certification, is not an option. However, the taxpayer may contact the IRS using the phone number in the IRS Notice CP508C to ask for a reversal of the certification if the taxpayer believes that the certification was issued in error.

As always with the IRS, procedure is important. Before a tax debt reaches this stage, the IRS usually sends multiple notices. Do not ignore, you should respond by their deadline and be persistent. A tax debt does not become final if you keep your tax dispute going.

Note: Further information exists on the IRS website.

Credit for information is given to Robert W. Wood, Contributor to Forbes

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.