Archives for September 2018

2017 Tax Cuts and Jobs Act Allows Certain Businesses a 20% Tax Deduction

September 25, 2018 by Frank

Pass-Through Businesses May Receive

20 Percent Tax Deduction

2017 Tax Cuts and Jobs Act

Allows Certain Businesses a 20% Tax Deduction

The 2017 Tax Cuts and Jobs Act (TCJA) had several tax law changes enacted to help the business community generate more jobs and reduce their tax burden. When the TCJA was announced, the 20 percent deduction for pass-through entities was identified as the one most likely to significantly reduce the taxes paid by certain businesses. It was also identified as the one change that was the most difficult to determine as to whom would benefit from this change. As of this date, there are still many unknowns.

Some of the undefined concepts are (1) identifying the types of service businesses (health, law, accounting, consulting, etc.) whose benefits may be limited; (2) what are the distinguishing factors between owner-employee wages (subject to payroll taxes) and return on capital (which qualifies for the 20 per-cent deduction); (3) what exactly is a trade or business; (4) when must separate lines of business be grouped together as a single trade or business; (5) and how are revenues and expenses allocated and apportioned to arrive at the 20 per-cent deduction on qualified business income (QBI)? Once all of the terms are defined and quantified, a long series of calculations may need to be performed to compute the tax deduction which has phase-out limitations.

Notwithstanding the unknowns, here is what we know today:

Pass-through tax entities are sole proprietors (Sch. C filers), partnerships and S Corporations. C Corporations do not qualify for this deduction. The taxable income from pass-through entities are not taxed at the business legal entity, but rather pass-through (flow-through) to the individual taxpayer. Thus if your business is a pass-through tax entity, you may be entitled to this 20 per-cent tax deduction.

Here is some good news. [Read more…] about 2017 Tax Cuts and Jobs Act Allows Certain Businesses a 20% Tax Deduction

2018 Home Office Deduction

September 20, 2018 by Frank

2018 Home Office Deduction

You Need to Understand 2018 Tax Law Changes

The legal entity of the taxpayer is a determining factor when looking at the home office deduction.

Employees: The 2017 Tax Cuts and Jobs Act (TCJA) eliminated the 2% miscellaneous itemized deductions on Schedule A as a tax deduction. Accordingly, since this is where an employee in 2017 and earlier years would have deducted their home office expenses, employees may no longer deduct unreimbursed expenses for a home office beginning with the 2018 tax year.

Self-Employed Individuals: Self-employed individuals (Sch. C and single-member LLC owners) may be entitled to claim the home office (H/O) deduction. To qualify for the H/O deduction, the office must qualify as the business owner’s principal place of business. The business owner must meet clients/customers at the home office on a regular basis (incidental meetings do not qualify) OR the office is used exclusively and regularly for administrative or management activities of your business. Examples of qualifying activities include [Read more…] about 2018 Home Office Deduction

IRS INTRODUCES NEW TRANSCRIPT

September 18, 2018 by Frank

IRS INTRODUCES NEW TRANSCRIPT

Another Positive Step to Combat ID Theft

Effective September 23, the IRS will begin to use a new transcript format that will redact personally identifiable information from its Form 1040 transcripts. The new format will be used when a person requests a transcript via Get Transcript Online, Get Transcript by Mail, and the Transcript Delivery System used by tax professionals. The new format will continue to show the financial information that taxpayers and third parties are currently receiving for tax preparation or loan income verification purposes.

Another significant change is that the IRS has created a 10-digit Customer File Number (CFN) field that lenders, colleges and other third parties that order transcripts for non-tax purposes can use as an identifiable number instead of using SSNs. For example, a lender could use its loan application number as the CFN so that it can easily match the transcripts to the loan application.

The IRS had identified [Read more…] about IRS INTRODUCES NEW TRANSCRIPT

IRA Custodian Errors – Form 1099-R with Code G

September 10, 2018 by Frank

IRA Custodian Errors

Form 1099-R with Code G

When a Code G is inserted in box 7 of Form 1099-R, the IRA custodian is representing to the IRS that the taxpayer did a non-taxable IRA rollover. The taxpayer reports the dollars rolled over on Form 1040, but does not pay any tax on the rollover.

It has come to our attention that the IRS will sometimes ask the taxpayer to see the rollover paperwork to verify the non-taxable rollover. Why? Apparently there is confusion among taxpayers and some IRA custodians as to what constitutes a valid IRA rollover. For example, while a taxpayer can do unlimited transfers between IRA accounts if the monies are transferred directly from one IRA custodian to another, the same does not hold true if the taxpayer “touches” the funds. For example, if a taxpayer transfers funds from one IRA account and takes possession of those funds, the taxpayer has 60 days to transfer those funds to another IRA account to make the transfer tax-free. In the latter situation, the taxpayer is allowed to make such a transfer only once every 12 months. If the taxpayer makes this 60-day rollover request to more than one custodian during a 12-month period, the custodians have no way of determining if the transfer was non-taxable.

Tax Planning Tip: When making an IRA rollover, taxpayers need to retain all of their rollover paperwork including IRS Form 5498 and the statements from both the old IRA and the new IRA so that the rollover can be substantiated.

If you would like to discuss your business or personal tax planning, tax preparation and other financial concerns with an experienced tax professional, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation. You can also schedule a consultation at Click Here.

Copyright © 2018 Keystone Financial Solutions, P.C. All rights reserved. BE SURE TO READ THE DISCLAIMER PAGE: Content in this blog is for educational purposes only and should not be considered as the rendering of tax, legal or investment advice. The publisher of this blog makes no representations as to the accuracy or completeness of any information herein, will not be liable for any errors or omissions, and shall not assume liability for any losses, injuries, or damages from the display or use of this information.

About F. Bryan Haarlander, EA, CTRS:

Bryan Haarlander is an IRS licensed Enrolled Agent and who owns and operates a specialized tax services firm serving clients in the western suburbs of Philadelphia, PA, which includes the cities of Chester Springs, Coatesville, Collegeville, Devon, Downingtown, Exton, Frazer, King of Prussia, Paoli, Philadelphia, Phoenixville, Pottstown, Radnor, Reading, Wayne, West Chester in Berks, Chester, Delaware, Montgomery and Philadelphia Counties, as well as clients in Delaware, New Jersey, New York and throughout the continental USA.

A Certified Tax Resolution Specialist, Bryan is well-known for his IRS tax resolution expertise and his book How to Resolve Your IRS Tax Debt Problems.

IRS HOT Audit Issues

September 6, 2018 by Frank

IRS HOT Audit Issues

Be Prepared

Substantiation Is Key to Sustain Tax Credits

As a tax professional, it is relatively easy to identify some key issues that the IRS is focusing its attention. In recent years, in addition to auditing taxpayers, the IRS has begun to audit tax preparers. If the IRS identifies a tax preparer during an audit of an individual taxpayer who allowed the claiming of unsubstantiated tax credits, the IRS may decide to audit the tax preparer. By auditing the tax preparer, the IRS is attempting to determine if the unsubstantiated credit was an isolated case or if the tax preparer systematically prepared tax returns without asking for substantiation. If the latter, the IRS can quickly and easily identify taxpayers to audit which will result in revenue collections.

To be clear, tax preparers are usually not required to substantiate credits and deductions claimed by a taxpayer. However, the IRS does require that tax preparers conduct due diligence in five specific circumstances. The required IRS due diligence consists of certain questions that be asked of the taxpayer and documented by the tax preparer.

What are the issues that require due diligence by a tax preparer? [Read more…] about IRS HOT Audit Issues