Tax Newsletters & Articles
Lawmakers continue to debate comprehensive tax reform, aiming for a package to clear Congress and be signed into law by the President before summer. At the same time a “mini” tax reform package in an Affordable Care Act (ACA) repeal and replacement plan appears to have stalled in Congress.
Tax reform for individuals and businesses is being driven by two proposals: ones made by President Trump during the campaign last year and ones set out by the House GOP (known as the GOP blueprint). In many areas, the two find common ground, including consolidation and a reduction in the income tax rates for individuals, a cut in the corporate tax rate, elimination of the federal estate tax, and abolishment of the alternative minimum tax (AMT). President Trump has also called for new tax incentives for child and elder care.
The chief tax writer in the House, Rep. Kevin Brady, R-Texas, has predicted that a comprehensive tax reform package will pass the House before summer. The top tax writer in the Senate, Orrin Hatch, R-Utah, has indicated that the Senate Finance Committee, which he chairs, is likely to develop its own tax proposals. Senate Majority Leader Mitch McConnell, R-Ky., has said that the pace of tax reform in the Senate will depend on the make-up of the House’s tax package.
Closely-related to tax reform is infrastructure spending. In January, President Trump called on Congress to support a $1 trillion spending initiative for highways, bridges, and other developments. White House officials indicated that tax credits of some type would be part of the proposal. In March, a senior GOP lawmaker indicated that infrastructure spending could be part of a federal aviation bill this year. Infrastructure spending is an area where there may be bipartisan support.
At the eleventh hour, House republicans pulled their ACA repeal and replacement plan (the American Health Care Act (ACHA)) from the House floor. The ACHA would have repealed the ACA’s tax measures including the,
- Net investment income (NII) tax
- Additional Medicare tax
- Excise tax on certain medical devices
- Excise tax on tanning services
The excise tax on high-dollar health insurance plans (also known as the “Cadillac plan” tax) would have been delayed. The medical expense deduction would have been returned to its pre-ACA parameters. In place of the premium assistance tax credit, the ACHA would have provided a new tax credit generally based on an individual’s age.
For now, ACA repeal and replacement appears to have been moved to the back burner in the House. The statute remains in place. There could, however, be some changes to regulations under the ACA.
If you have any questions about tax reform, health care reform or any federal legislative developments, please contact our office.
The IRS has released the inflation-adjusted limitations on depreciation deductions for business-use passenger automobiles, light trucks, and vans first placed in service during calendar year 2017. All limitations are inflation-adjusted based upon October 2016 CPI amounts, with rounding conventions that account for almost all 2016 limits remaining the same for 2017 (only the third-year limitation for light trucks and vans rose, from $3,350 to $3,450 in 2017).
Comment. The Protecting Americans from Tax Hikes Act of 2015 (PATH Act) has allowed for 50 percent bonus depreciation where applicable through 2017. For both passenger automobiles and light trucks and vans, that amount raises first-year depreciation by $8,000. The bonus rate is scheduled to drop to 40 percent for property placed in service in 2018 and to 30 percent for 2019, before sunsetting entirely unless changed by Congress.
For passenger automobiles that are not trucks and vans first placed in service in 2017, the depreciation limitations under Code Sec. 280F for the first three years are $3,160 ($11,160 with additional first-year depreciation), $5,100, and $3,050, respectively, and $1,875 for each succeeding year.
For trucks and vans, the 2017 maximum deduction limits under Code Sec. 280F for the first three tax years are $3,560 ($11,560, with additional first-year depreciation), $5,700, and $3,450, respectively for years two and three, and $2,075 for each succeeding year. Lease inclusion tables for vehicles first leased in 2017 are provided with the applicable inclusion amounts.
Code Sec. 280F provides that lease payments for vehicles used for business or investment purposes are deductible in proportion to the vehicles’ business use. Lessees must include a certain amount in income during the year the vehicle is leased to partially offset the amounts that the lease payments exceed the luxury automobile limits. Rev. Proc. 2017-29 includes tables identifying the income inclusion amounts for passenger automobiles starting at $19,000, and for trucks and vans starting at $19,500 (with both tables topping out at a $240,000 value), in connection with lease terms beginning in calendar year 2017.
Citation: Rev. Proc. 2017-29
In a case that provides a lesson to anyone donating property to charity for which a deduction of more than $500 is claimed – get proof in writing and get it at the time you donate the property. After-the-fact substantiation, no matter how convincing, is not acceptable under the tax law to support a deduction.
Case in point: The Tax Court, in Izen, Jr. v. Commissioner, 148 TC No. 5, found that a failure to follow the substantiation rules for donation of an aircraft precluded a taxpayer from claiming a deductions. The taxpayer’s evidence of donation did not satisfy the substantiation requirements, which are heightened for donations of vehicles, including aircrafts.
The taxpayer was assessed a deficiency on his federal income tax return for the year at issue. He then filed an amended return on which he claimed that he had donated a 50 percent interest in an aircraft to a tax-exempt historical society. His interest in the plane was appraised at $340,000, and he claimed a charitable contribution deduction in that amount.
The Tax Court observed that under Code Sec. 170(f)(12), contributions of used vehicles, including airplanes, whose claimed value exceeds $500, must satisfy special substantiation requirements. A taxpayer must obtain a contemporaneous written acknowledgment and include the acknowledgment with his or her return. Further, if the donee has not sold the vehicle or aircraft, the donee must certify the intended use or improvement to the property, among other requirements. Additionally, the donee must provide the IRS with a copy of the acknowledgment. The IRS developed Form 1098-C for this purpose.
The court found that the taxpayer did not include the requisite copy of Form 1098-C with his amended return, nor did the IRS receive the form from the historical society related to the taxpayer’s donation of the aircraft.
Although the taxpayer did include a copy of a letter to the IRS that was from the historical society thanking him for the donation, the court found that the letter failed to satisfy the contemporaneous written acknowledgement requirements. The letter failed to include the name and taxpayer identification number of the donor, among other items.
The court also rejected the taxpayer’s purported deed of a gift as satisfying the contemporaneous written acknowledgment requirement. The “aircraft donation agreement” did not meet the statutory requirements for a contemporaneous written acknowledgment. Like the letter, the deed failed to include the taxpayer identification number of the donor. The deed also did not include a certification of intended use.
Starting a new business venture can prove exciting, but rather costly. There are certain tax advantages that can help alleviate some of the financial burden associated with entrepreneurship.
A taxpayer may start a business by forming an entirely new business or acquiring an existing business. One of the most important decisions a business owner should make is to choose a type of business entity. If the business is entirely new, the taxpayer will be able to choose the type of entity from inception; however, if the taxpayer purchases an entity that differs from the entity of choice, the taxpayer must convert the purchased entity to the entity of choice. Be aware that each type of entity—be it sole proprietorship, corporation, or partnership—comes with its own advantages and disadvantages.
Regardless of the type of business entity that a taxpayer decides on for his or her new business, a portion of the start-up costs may be deducted, with amortization available for the remainder. Start-up costs are those incurred in investigating or creating an active trade or business before the day on which the active trade or business begins. Further, expenses paid or incurred before a business commences operations are start-up costs. Such costs do not include interest, taxes or research, nor do they include experimental expenditures. In addition, the cost must be one that would have been deductible if incurred in connection with an existing business in the same field.
Eligible start-up costs fall within three categories: investigatory, business start-up, and pre-opening costs. Start-up expenses include:
- Advertising costs;
- Training costs;
- Travel expenses incurred in lining up distributors, suppliers, or customers; and
- Fees incurred for executives, consultants, and similar professional services.
Start-up expenses do not include:
- Acquisition costs;
- Amounts paid for the purchase of property;
- Organizational costs; or
- Deductible ordinary and necessary business expenses paid or incurred in connection with an expansion of a business.
A taxpayer beginning a new business can take a first-year deduction on the first $5,000 of start-up costs. Note that for tax years beginning in 2010, the deduction is $10,000. The $5,000 deduction is reduced dollar-for-dollar to the extent start-up expenses exceed $50,000. Any excess amount must be amortized over a 180-month period. For start-up expenses incurred in 2010, the deduction is limited to $10,000, and are reduced to the extent that expenses exceed $60,000.
Partnerships and corporations are deemed to have made an election to deduct start-up expenditures for the tax year in which the business begins an active trade or business. Such business entities may choose to forgo the deemed election by affirmatively electing to capitalize its start-up expenditures on a timely filed federal income tax return for the tax year in which an active trade or business begins.
To ensure you are maximizing the start-up related deduction for a new business, it is important to consider each cost incurred. If you would like assistance in determining the costs that qualify for the start-up cost deduction, please call our office at your earliest convenience to arrange an appointment.
Miscellaneous itemized deductions are certain nonbusiness expenses that individuals as taxpayers who otherwise itemize deductions may take against their taxable income. Such miscellaneous expenses are allowed only to the extent that they exceed 2-percent of a taxpayer’s adjusted gross income. Miscellaneous itemized deductions may also be limited by the overall itemized deduction phase-out.
These expenses include employee business expenses, expenses of producing income, expenses related to filing tax returns and certain hobby expenses. Specifically, the miscellaneous itemized deductions available to a taxpayer are:
- Professional society dues;
- Employment-related educational expenses;
- Home office expenses;
- Professional books, magazines and journals;
- Work clothes and uniforms;
- Union dues and fees
- A portion of unreimbursed business-related meal and entertainment expenses;
- Other unreimbursed employee business expenses;
- Employee expenses for which reimbursements are included in income;
- Rental of a safe-deposit box;
- Expenses incurred for tax counsel and assistance;
- Costs of work-related small tools and supplies;
- Investment expenses;
- Fees paid to an IRA custodian; and
- Certain expenses of a partnership, grantor trust or S corporation that are incurred for the production of income.
Additionally, there are some miscellaneous expenses that are not subject to the 2-percent of adjusted gross income limitation. These include:
- Bond premium amortization for taxable bonds;
- Gambling losses for the year up to the extent of gambling winnings;
- Casualty and theft losses associated with income-producing assets; and
- Federal estate tax on income in respect of a decedent.
There are many miscellaneous deductions and a number of very specific rules that may apply to any one. Please contact this office if you have questions about claiming the miscellaneous deductions and how they will affect your tax picture.
As an individual or business, it is your responsibility to be aware of and to meet your tax filing/reporting deadlines. This calendar summarizes important federal tax reporting and filing data for individuals, businesses and other taxpayers for the month of April 2017.
Individuals. Taxpayers who turned 70½ during 2016 must start to receive required minimum distributions (RMDs) from their IRAs; retirees who turned 70½ during 2016 must receive RMDs from workplace retirement plans.
Employers. Semi-weekly depositors must deposit employment taxes for Mar 29–Mar 31.
Employers. Semi-weekly depositors must deposit employment taxes for Apr 1–Apr 4.
Employees who work for tips. Employees who received $20 or more in tips during March must report them to their employer using Form 4070.
Employers. Semi-weekly depositors must deposit employment taxes for Apr 5–Apr 7.
Employers. Semi-weekly depositors must deposit employment taxes for Apr 8–Apr 11.
Employers. Employers who paid cash wages of $2,000 or more in 2016 to a house-hold employee, file Schedule H (Form 1040).
Employers. For those to whom the monthly deposit rule applies, deposit employment taxes and nonpayroll withholding for payments in March 2017.
Farmers and fisherman. File a 2016 income tax return (Form 1040) by April 18 if not previously filed.
Individuals. File a 2016 income tax return (Form 1040 series) and pay any tax due. If not filing Form 1040, file for a six-month extension but make full payment with extension request.
Individuals. If not paying 2017 income tax through withholding (or won't pay in enough tax during the year that way), pay the first installment of the 2017 estimated tax using Form 1040-ES.
Corporations. File a 2016 calendar year income tax return (Form 1120) and pay any tax due. For an automatic 6-month extension of time to file the return, file Form 7004 and deposit an estimated amount of the taxes owed.
Corporations. Deposit the first installment of estimated income tax for 2017.
Partnerships. File a 2016 calendar year return (Form 1065). Provide each partner with a Schedule K-1 (Form 1065), Partner’s Share of Income, Deductions, Credits, etc., or a substitute Schedule K-1.
Employers. Semi-weekly depositors must deposit employment taxes for Apr 12–Apr 14.
Employers. Semi-weekly depositors must deposit employment taxes for Apr 15–Apr 18.
Employers. Semi-weekly depositors must deposit employment taxes for Apr 19–Apr 21.
Employers. Semi-weekly depositors must deposit employment taxes for Apr 22–Apr 25.
Employers. Semi-weekly depositors must deposit employment taxes for Apr 26–Apr 28.
Employers. Semi-weekly depositors must deposit employment taxes for Apr 29–May 2.
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