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Tax Tip of the Week | Students Get Help From Judges January 2, 2019

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

Students Get Help From Judges

To give you an idea of the pervasiveness of this issue, student loan debt “has eclipsed credit cards as the largest source of consumer debt after mortgages.”  Please read the write-up below for potential relief for some former students.

Mark Bradstreet, CPA

“More bankruptcy judges are throwing lifelines to people struggling to repay their student loans after decades of refusing to consider any sort of relief.

In interviews with the Wall Street Journal, more than 50 current and former bankruptcy judges, frustrated at seeing borrowers leave federal courtrooms with six-figure debts, say they or their colleagues are more open to chipping away at the decades-old guidelines that determine how such debt is treated.

“If the law’s not going to be improved by Congress, we have to help these young people who are drowning in student loan debt, said U.S. Bankruptcy Court Judge John Waites in South Carolina.

Outright cancellations remain rare, but judges said they have other tools at their disposal, including asking lawyers to represent borrowers for nothing. The lawsuits can cost $3,000 to $10,000 and take years.

Other judges are embracing debt-relief techniques that don’t fully erase student loans but make repayment more affordable by, for instance, canceling future related tax bills. The popularity of these relief strategies could get a boost from a panel of professors, judges and advocates who are studying failures in consumer bankruptcy law and plan to release a report next year.

Hundreds of thousands carry student debt in the U.S. – the total has more than doubled over the past decade to $1.4 trillion – nearly all backed by the federal government. It has eclipsed credit cards as the largest source of consumer debt after mortgages. Almost every other type can be extinguished in bankruptcy, but standards made college debt untouchable. Borrowers typically must repay student loans over their lifetime, even those facing extreme financial hardship.

In March, Federal Reserve chairman Jerome Powell said he would be “at a loss to explain” why student loans can’t be cancelled like other debt. The Trump administration is considering whether to fight cancellation requests less aggressively.

Consumer bankruptcy lawyers are starting to notice that judges are being more flexible. One Las Vegas law firm recently filed the first cancellation request in its 14-year history after hearing a judge at a conference voice concern over student loans. Other lawyers said growing sympathy amounts to judges making lenders more willing to reach resolutions in court.

“I’m getting really good results with settlements these days,” said Chicago lawyer David Leibowitz. “I’m not the only one.”

Rules governing how student debt is handled in bankruptcy are made by Congress and by judges who issue influential rulings. Several bills in Congress that would erase student-loan debt in bankruptcy have stalled in recent years.

Last year in Philadelphia, U.S. Bankruptcy Court Judge Eric Frank cancelled a single mother’s $30,000 in student loans. Opposing lawyers from the U.S. Department of Education said the borrower needed to prove her hardship would persist 25 years. Judge Frank ruled that the relevant window was five years.

An appeals court over-turned his ruling, but his decision inspired a Tacoma, Wash., judge in December to cancel a portion of another borrower’s loans.

Such rulings are rare because few troubled borrowers attempt to cancel their student loans, because of the historically slim chances of victory.

Some bankruptcy judges criticize colleagues for re-interpreting well-settled law on student loans. “My view is, if the law is clear, follow it,” said retired California judge Peter Bowie.

The push to rethink the legal standard on student-loan debt is bipartisan. Judges interviewed by the Wall Street Journal were appointed during both Republican and Democratic administrations, though bankruptcy judges are appointed by appeals court judges, not the president.

Before 1976, laws allowed borrowers to do away with student-loan debt in bankruptcy. Congress, out of concern that the new graduates would take too much advantage of that option, made a new rule: Borrowers could cancel student loan debt after only five years of payments. Judges could grant exceptions if borrowers showed that repaying would cause “undue hardship.”

Congress didn’t define “undue hardship” so the task of doing so fell to federal judges. When Marie Brunner, a 1982 graduate of a master’s program in social work tried to cancel her loans in bankruptcy, a New York judge in 1985 said she had to show three things: she struggled financially, her struggles would continue and that she had made a good faith effort to repay. She lost.

That list still serves as a baseline for hardship in circuit courts that control the rules in most states.  Some appeals courts set even higher bench-marks, with one, for instance, saying borrowers must face a “certainty of hopelessness.”

In 1998 Congress said any borrower trying to cancel any federal student loans must prove “undue hardship,” like Ms. Brunner. Congress gave private student loans the same protection in 2005.

Some of the country’s bankruptcy judges are starting to argue that the prevailing legal standard is unintentionally harsh and wasn’t meant for adults still on the hook for student-loan debt years after college.

Judge Frank Bailey in Boston made that argument in an April ruling wiping out $50,000 in student loans for a 39-year-old man whose health ailments prevent him from working.

Some judges, including U.S. Bankruptcy Court Judge Michael Keplan in Trenton, N.J., said they are looking for ways to be more forgiving after seeing their own adult children borrow heavily for their education. Other judges grew concerned after talking to their law clerks. The typical law-school student takes out $119,000 in loans.

Two judges said they regret their rulings against borrowers more than a decade ago.

Kansas judge Dale Somers said he worked particularly hard to justify the reasoning in a December 2016 ruling that cancelled more than $230,000 in interest that built up on a couple’s student loans from the 1980s. They left bankruptcy owing $78,000.

Alabama judge William Sawyer declared that student loans had become “a life sentence” in a 2015 decision cancelling a $112,000 student loan debt for high school science teacher Alexandra Conniff, a single mother of two teen boys whose yearly income is $59,400.”

Credit given to Katherine Stech (Wall Street Journal)

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

This Week’s Author – Mark C. Bradstreet, CPA

-until next week

Happy Holidays & Happy New Year! December 26, 2018

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

Happy Holidays & Happy New Year!

And get ready for the tax filing season.

Hopefully, you followed some of the suggestions outlined in Publication 552 to organize your records. If you did, great! This will make filing your tax returns a lot easier this year. It also means that you and your tax advisor can spend more time on tax and financial planning issues for 2019 vs. looking back to 2018.

This week we will look at some of the more common forms that you should be watching for in the coming weeks and months:

W-2:    Employers should mail these by 1/31/19. If you have moved during the year, make sure former employers are aware of your new address. Some employers provide W-2’s to their employees via a website. Be sure to login and print out your W-2 after it is available.

W-2G:    Casinos, Lottery Commissions and other gambling entities should mail these by 1/31/19 if you have gambling winnings above a certain threshold. Note: Some casinos will issue you a W-2G at the time you win a jackpot. Make sure you have saved those throughout the year.

1096:    Compilation sheet that shows the totals of the information returns that you are physically mailing to the IRS.The check box for Form 1099-H was removed from line 6, while a check box for Form 1098-Q was added to line 6.The spacing for all check boxes on line 6 was expanded.The amounts reported in Box 13 of Form 1099-INT should now be included in box 5 of Form 1096 when filing Form 1099-INT to the IRS.

1098-C:    You might receive this form if you made contributions of motor vehicles, boats, or airplanes to a qualified charitable organization. A donee organization must file a separate Form 1098-C with the IRS for each contribution of a qualified vehicle that has a claimed value of more than $500. All filers of this form may truncate a donor’s identification number (social security number, individual taxpayer identification number, adoption taxpayer identification number, or employer identification number), on written acknowledgements. Truncation is not allowed, however, on any documents the filer files with the IRS.

1099-MISC:   This form reports the total paid during the year to a single person or entity for services provided. Certain Medicaid waiver payments may be excludable from the income as difficulty of care payments. A new check box was added to this form to identify a foreign financial institution filing this form to satisfy its Chapter 4 reporting requirement.

1099-INT:    This form is used to report interest income paid by banks and other financial institutions. Box 13 was added to report bond premium on tax-exempt bonds. All later boxes were renumbered. A new check box was added to this form to identify a foreign financial institution filing this form to satisfy its Chapter 4 reporting requirement.

1099-DIV:    This form is issued to those who have received dividends from stocks. A new check box was added to this form to identify a foreign financial institution filing this form to satisfy its Chapter 4 reporting requirement.

1099-B:     This form is issued by a broker or barter exchange that summarizes the proceeds of sales transactions. For a sale of a debt instrument that is a wash sale and has accrued market discount, a code “W” should be displayed in box 1f and the amount of the wash sale loss disallowed in box 1g.

1099-K:    This form is given to those merchants accepting payment card transactions. Completion of box 1b (Card Not Present transactions) is now mandatory.

K-1s:    If you are a partner, member or shareholder in a partnership or S corporation, your income and expenses will be reported to you on a K-1. The tax returns for these entities are not due until 3/15/19 (if they have a calendar-year accounting). Sometimes, you may not receive a K-1 until shortly after the entity’s tax return is filed in March.

If you are a beneficiary of an estate or trust, your share of the income and expenses for the year will also be reported on a K-1. These returns will be due 4/15/19 so you might not receive your K-1 before the due date of your Form 1040.

NOTE:  Many times corporations, partnerships, estates and trusts will put their tax returns on extension. If they do, the due date of the return is not until 9/16/19 or later. We often see client’s receiving K-1s in the third week of September.

If you receive, or expect to receive, a K-1 it is best if you place your personal return on extension. It is a lot easier to extend your return then it is to amend your return after receiving a K-1 later in the year.

1098:    This form is sent by banks or other lenders to provide the amount of mortgage interest paid on mortgage loans. The form might also show real estate taxes paid and other useful information related to the loan.

1098-T:    This form is provided by educational institutions and shows the amounts paid or billed for tuition, scholarships received, and other educational information. These amounts are needed to calculate educational credits that may be taken on your returns.

So start watching your mailbox and put all of these statements you receive in that new file you created!

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

–until next week

Tax Tip of the Week | Keep your Tax Returns Forever? October 24, 2018

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

Tax Tip of the Week
October 24, 2018

One of our more commonly asked questions is, how long do I have to keep my income tax returns?

Maybe, the key words in this question are “have to.” For practically all intents and purposes “have to” refers to the requirement of retaining three (3) years after filing them. The reasoning is that you and the IRS only have three (3) years to amend or change a return (typical statute of limitations).

BUT, there are some notable exceptions to the three (3) year rule:

(1) The IRS may go back six (6) years when a significant income amount (25%) has been omitted from an income tax return. They can also go back indefinitely if the IRS proves you filed a fraudulent tax return.

(2) What about the situation where the IRS says you failed to file a return? Let’s say the IRS asks for a return from four (4) years ago. Oops – you just shredded that one since you were diligently following the three (3) year rule. Who knows why the IRS did not receive the return. Maybe your neighbor hijacked it from your mailbox, possibly your postal carrier lost it or the IRS Center received it but simply missed processing it because the return was attached to another return and overlooked. It matters not, why the return was not shown as received by the IRS, because the burden is yours to prove the return was filed. Now you have to resurrect your records, prepare and file the tax return again or be classified forever and ever as a “non-filer.”

Bob Carlson, editor of Retirement Watch, contends that keeping your tax returns indefinitely may well be worth the hassle. “Once you show a return was filed, the statute of limitations is three (3) years, unless the fraud or six (6) year exceptions apply. With very few exceptions, the IRS won’t be able to question the details of the (older) returns. You can shred and dispose of those supporting records and keep a copy of the return.”

It may well be worth the hassle to store these old returns in an effort to gain just a little peace of mind.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

This Week’s Author – Mark C Bradstreet, CPA

–until next week

Tax Tip of the Week | Gifts to Charity: Six Facts About Written Acknowledgements September 19, 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
September 19, 2018

Throughout the year, many taxpayers contribute money or gifts to qualified organizations eligible to receive tax-deductible charitable contributions. Taxpayers who plan to claim a charitable deduction on their tax return must do two things:

•    Have a bank record or written communication from a charity for any monetary contributions.
•    Get a written acknowledgment from the charity for any single donation of $250 or more.

Here are six things for taxpayers to remember about these donations and written acknowledgements:

1.    Taxpayers who make single donations of $250 or more to a charity must have one of the following:
o    A separate acknowledgment from the organization for each donation of $250 or more.
o    One acknowledgment from the organization listing the amount and date of each contribution of $250 or more.
2.    The $250 threshold doesn’t mean a taxpayer adds up separate contributions of less than $250 throughout the year.
o    For example, if someone gave a $25 offering to their church each week, they don’t need an acknowledgement from the church, even though their contributions for the year are more than $250.
3.    Contributions made by payroll deduction are treated as separate contributions for each pay period.
4.    If a taxpayer makes a payment that is partly for goods and services, their deductible contribution is the amount of the payment that is more than the value of those goods and services.
5.    A taxpayer must get the acknowledgement on or before the earlier of these two dates:
o    The date they file their return for the year in which they make the contribution.
o    The due date, including extensions, for filing the return.
6.    If the acknowledgment doesn’t show the date of the contribution, the taxpayers must also have a bank record or receipt that does show the date.

This article was provided by the Internal Revenue Service in Tax Tip 2017-59.  If you have any questions concerning charitable donations, let us know.  We can help.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

–until next week.

Tax Tip of the Week | Miscellaneous Itemized Deductions Are Now Gone September 5, 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
Sept 5, 2018 
 

Keep the Common Misconceptions coming, we have had wonderful feedback, thank you!  Let us know via email, what are common business misconceptions that you have come across; markb@bradstreetcpas.com?   

As discussed before, the new tax law has nixed miscellaneous itemized deductions. They are no longer a part of your itemized deductions on Schedule A. These include your unreimbursed employee business expenses such as mileage, meals, travel, uniforms and other expenses such as tax prep fees, brokerage fees, etc. Some of the aforementioned expenses are still deductible as business expenses – that hasn’t changed.

Many people are upset about the loss of these tax deductions. Before deciding if a person has the right to be upset, some questions must first be answered. First, how much income tax did you save as a result of these deductions? Well, if you were ineligible to itemize your deductions, you didn’t miss out on anything – nada. And, even if you were able to itemize, the total miscellaneous deductions must exceed 2% of adjusted gross income (AGI) before any benefit is realized. Lastly, even If you cleared these first two hurdles, you may still flunk because of additional Alternative Minimum Tax (AMT) being created.

So, let’s walk through a real-life example – your AGI is $150,000 and itemizing your deductions is to your benefit.  More good news – you are not subject to AMT. The grand total of your miscellaneous tax deductions is $4,000. Now, remember that only the portion that exceeds 2% of the $150,000 AGI or a $3,000 floor is of any value at all. Yes, in this case, we have a $1,000 additional deduction or tax savings of roughly $275. Better than nothing – but not worth writing home about. Also, no benefit exists on either the Ohio or School District returns. Sometimes, the unreimbursed employee business expenses are deductible to a taxing city but they almost always generate tax correspondence which takes away most of that fun.

So, at the end of the day, the press is making a big to do about taking away something most people never had anyway!

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

This week’s author – Mark Bradstreet, CPA

–until next week.

Tax Tip of the Week | No. 465 | IRS Penalties – DON’T PAY Just Out of Frustration June 20, 2018

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Tax Tip of the Week | June 20, 2018 | No. 465 | IRS Penalties – DON’T PAY Just Out of Frustration

Is it a big-time hassle to deal with the IRS in any fashion? That is a big Y E S! In fact, it has never been more difficult. Maybe that is the IRS’s fault and perhaps it is the inevitable result of their budget being slashed. Regardless, attempting to communicate with them can make you crazy!

To give you some idea of the amount of civil penalties (via notices) assessed; in 2016, the IRS assessed 39.6 million taxpayers and abated 5.2 million of these. Considering the number of taxpayers in the USA, thusly, you have a relatively high chance of receiving a tax notice.

It is not uncommon for IRS notices to show balances due in the tens of thousands of dollars and to be very threatening. If you receive IRS correspondence – try not to overreact. Many people upon receiving IRS tax correspondence have a tendency to simply write them a check; they assume the IRS is always right. In fact, more than half of their notices are incorrect and only computer generated. Writing them a check without any further research probably makes sense if the IRS only wants a few bucks. Aside, from a few bucks being due, a quick telephone call to the IRS by your tax professional (not that the call hold time is quick) may be all that is necessary. Other times, a one-page letter to the IRS may be all that is needed to save the day and have the tax, interest and/or penalty abated. Other times, three or four letters, over an extended period of time, may be needed to receive a “yea” or “nay” to your request from the IRS. To avoid digging a deeper hole I would prefer that you do not call or correspond with the IRS on your own. A power of attorney is needed for your tax professional to have meaningful conversations and correspondence with the IRS.

One of the methods available for abatement includes the use of “administrative relief” under the “first-time penalty abatement policy.” The name “first time” is a misnomer, it doesn’t mean first time ever, just means you have been “clean” in the last three years… and yes, they do verify that.

Many other methods are available for potential abatement. But, remember, if your notice demands big dollars – get help.

Credit to… Tom Herman, Wall Street Journal “It May Pay to Fight IRS Penalties,” Monday, March 26, 2018

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. 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. 458 | Beware of the New Cap on Business Losses May 2, 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 | May 2, 2018 | No. 458 | Beware of the New Cap on Business Losses

Making money in the business world is not easy. Not many business owners would contest that statement. In spite of the best-laid plans and intentions, business losses can and do occur. I suspicion the IRS and/or Congress became concerned that someone might “create” a business loss only for tax saving purposes using some of the newly enacted faster write-offs for certain fixed assets. For that reason, I believe the IRS and/or Congress developed some of their own self-serving parameters to limit what they deemed as potential abuse. Thusly, the cap on “excess” business losses was apparently born.

This new tax law provision seems to have flown in under the radar. For the most part the press has chosen to write about other more popular topics. This limitation on “excess” business losses applies to individuals. However, remember that the income taxes on profits for many “flow-through” businesses are paid by the individuals on their own individual income tax returns. This new loss provision has been nicknamed the “anti-tax-shelter” measure. In certain instances, it treats taxpayers as though their business losses were from a tax shelter. This loss limitation was created to limit the ability of taxpayers (other than C Corporations) to use business losses to offset other sources of income, such as investment income. Limitations on business losses are not new. The ones already in place include passive activity loss limitations (PAL) and the at-risk basis limitations. Both of these are complicated and may have far-reaching consequences. The new loss limitation adds yet another hurdle to a loss deduction in addition to the ones already in place.

“Excess business loss” is essentially defined as the excess of aggregate business deductions over the taxpayer’s aggregate business income as defined in Internal Revenue Code Section 461(l), plus a floor amount. For 2018, the floor is $500,000 for married filing jointly taxpayers and $250,000 for all other taxpayers. The “excess business loss” that exists for the tax year is disallowed and becomes a net operating loss that will be carried forward for possible use in the future.

Thusly, the new law limits a taxpayer’s net business loss deduction to the threshold amount in the tax year incurred. The limitation also forces taxpayers to wait at least one year before these losses may be used. (Ouch!) In some instances one could draw some parallels between this business loss limitation and the Alternative Minimum Tax (AMT) – both are sneaky behind the curtain calculations that may result in an unpleasant tax surprise.

For illustration purposes:

A married taxpayer filing jointly has investment income from various sources of $875,000. She also has aggregate business losses of $1.2 million. The taxpayer’s excess business loss is $700,000 ($1.2 million aggregate loss – $500,000 threshold). This excess business loss may not be deducted in the year created. It will instead be treated as part of a net operating loss carryforward to later years. As a result, the taxpayer’s gross income for 2018 is $375,000 ($875,000 investment income – $500,000 limited business loss.)

This illustration demonstrates how the new law could limit a taxpayer’s ability to offset his other income with his business losses and result in a tax liability. Under prior law, the taxpayer’s business losses would have been deducted in full. For taxpayers that anticipate aggregate business losses above the threshold amount, they may need to engage in further tax planning.

As with other aspects of the new tax law, we await further IRS guidance and explanations about some of the technical aspects of this provision. We also are aware that further guidance may never be received.

Credit given for some ideas, concepts and excerpts from Tax Reform – The New Overall Loss Limitation February 20, 2018 – Aimee Reaving

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. 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. 452 | New Tax Law – The Common Misconceptions (That Can Get You Into Big Trouble) March 21, 2018

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

Tax Tip of the Week | March 21, 2018 | No. 452 | New Tax Law – The Common Misconceptions (That Can Get You Into Big Trouble)

Too often I am guilty of just reading the “headlines” and believing I have the whole story. If it were only that easy! If I had only read the “headlines” on this new tax law I would have been significantly mislead.

Some of my misconceptions follow:

MISCONCEPTION #1 – EVERYONE SAVES TAX DOLLARS UNDER THE NEW TAX LAW.

Not so. For a multitude of reasons, including the loss of personal exemptions and the ceiling on state and local income taxes, the new tax law will cost some taxpayers extra tax dollars. Some a significant amount!

MISCONCEPTION #2 – ALL BUSINESSES SHOULD BE A “C” CORPORATION.

We are led to believe that the new flat 21% tax rate for “C” Corporations is a silver bullet and will cause a mass exodus from S Corporations, LLCs, partnerships and sole proprietorships. That is not going to happen. Sure, the 21% “C” Corporation rate is well less than the 37% top bracket on individuals, but SO many other even more important considerations exist.

MISCONCEPTION #3 – No need for IRC Section 179 deductions any longer since both new AND used property now qualify for the IRC Section 168 (bonus depreciation) deduction.

Section 179 and Section 168 are not treated the same in many states. In many states, the Section 179 is a faster write-off than Section 168; therefore of a greater value.

Also, please note that Section 179 has never been allowed to create a net operating loss (NOL). Section 168 may do so. However, under the new tax law – NOLs may not be carried back, only forward. So don’t fall into the trap of believing you may “catch-up” on your equipment purchases, create a large NOL with Section 168 depreciation expense, and carry that loss back for a tax refund.

MISCONCEPTION #4 – THE PENALTY FOR NOT HAVING HEALTH INSURANCE HAS BEEN ELIMINATED FOR 2018.

It is true the health insurance penalty is gone, BUT not until 2019.

MISCONCEPTION #5 – ALL PASS-THROUGH ENTITIES AUTOMATICALLY RECEIVE A 20% DEDUCTION.

Many S Corporations, partnership, and LLCs will receive the 20% deduction. Some will not. The 20% deduction is not necessarily an all or nothing proposition. If a business qualifies (and not all do) the actual deduction, if any, is all formula driven.

MISCONCEPTION # 6 – BIG TAX INCREASES WILL RESULT FROM THE ELIMINATION OF MISCELLANEOUS EXPENSES AS ITEMIZED DEDUCTIONS.

Very few people received any benefit from miscellaneous itemized deductions, anyway. You may have observed them as a part of your itemized deductions on Form A. However, they are often blocked from being deducted since they must exceed 2% of adjusted gross income.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are very much appreciated. 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. 449 | New Tax Law (TCJA) Restricts Like-Kind Exchange Rules for Non-Real Estate Property (Ouch!) February 28, 2018

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

Tax Tip of the Week | Feb 28, 2018 | No. 449 | New Tax Law (TCJA) Restricts Like-Kind Exchange Rules for Non-Real Estate Property (Ouch!)

In a like-kind exchange, a taxpayer generally does not recognize a taxable gain or loss on an exchange of like-kind properties provided both the relinquished property and the replacement property are held for productive use in a business or for investment purposes, and no cash(boot) is received in the exchange. For those exchanges completed after Dec. 31, 2017, the TCJA limits tax-free exchanges to exchanges of real property that is not held primarily for sale. Therefore, as previously allowed, exchanges of personal property and intangible property can no longer qualify as tax-free like-kind exchanges.

On the surface, you may think losing like-kind exchanges for personal and intangible property is not a big deal since we can instead use IRC Sections 168 and/or 179 to write-off the new or used equipment placed in service. This reasoning may be valid. BUT, what about those situations where some equipment or machinery is sold without buying a replacement? Under the new tax law, this scenario will cost you tax dollars since you most likely will have a gain on the sale. This is especially true if Sections 168 and/or 179 had been used on the asset sold.  In fact, the entire gain may all be taxable in the year of sale since your tax basis is zero.

Make your CPA aware of any significant asset sales during the year, especially the sale of any equipment or machinery for which a replacement won’t be purchased in the same tax year (of an equal or greater value). Otherwise, you may be in for an unpleasant surprise.

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

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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.