Tag Archive for Tax Cuts and Jobs Act

Tax Cuts And Jobs Act (H.R.1) of 2017

Tax Cuts And Jobs Act (H.R.1) of 2017

The Tax Cuts and Jobs Act was signed into law on December 22, 2017. This marked the first comprehensive tax law reform since 1986, and has had an impact on every American taxpayer and industry. The TCJA brings new opportunities, as well as some challenges, to the commercial real estate community. Most of the legislation became effective January 1, 2018, with two important exceptions.

Capstan Tax Strategies is at your service as we navigate these changes together. We’ve done a thorough review of the TCJA- Tax Cuts and Jobs Act and analyzed the legislation most likely to have a major impact on our clients and colleagues. (Click HERE if you’d like to read the Act in full).

Corporate Tax Rate
The top corporate tax rate of 35% was reduced to 21%. Corporate AMT was eliminated.
Interest Deduction Limitation
For years beginning 1/1/2018, companies are subject to a limitation on deductible interest expense. The deductible amount is capped at 30% of adjusted taxable income, after certain adjustments.
Companies that are “real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing or brokerage trade or business” may “elect-out” of this limitation. However, any company that elects-out of the interest limitation will be required to depreciate its real property using the Alternative Depreciation System (ADS).

For a company electing-out for tax years after 12/31/17, the ADS lives below are applicable:
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IRS Statement On Tax Cuts And Jobs Act: A Comparison For Large Businesses And International Taxpayers

Tax Cuts And Jobs Act:

The Tax Cuts and Jobs Act (“TCJA”) made significant changes that affect international and domestic businesses, such as deductions, depreciation, expensing, tax credits and other tax items. This side-by-side comparison can help taxpayers understand the changes and plan accordingly.

Some provisions of the TCJA that affect individual taxpayers can also affect business taxes. Businesses and self-employed individuals should review tax reform changes for individuals and determine how these provisions work with their business situation.

Visit TCJA: International Taxpayers and Businesses regularly for tax reform updates. International and Domestic Businesses can find details and the latest resources on the provisions below at Tax Reform Provisions that Affect Businesses.

International Provisions

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Congress And TCJA: Oddities Of No §174 R&D Fix In 2022

Oddities of No §174 R&D Fix in 2022

I thought Congress would repeal or extend the Tax Cuts and Jobs Act of 2017 delayed change to §174 that changes from expensing R&D (the law since 1954) to capitalizing and amortizing over 5 years (domestic) or 15 years (foreign). After all, a key purpose of the TCJA was to make our tax system more internationally competitive. Providing a more unfavorable rule for R&D expenditures goes in the opposite direction. But it wasn’t to be effective until tax years beginning after 12/31/21 (most TCJA changes were effective after 2017). So it was arguably more of a budget gimmick to reach the desired revenue loss target set for the TCJA. But, it was not delayed or repealed – although that might still happen.

Two observations:

1. Is expensing the right tax policy? I think so. Generally, a long-lived asset should be amortized over its useful life. But not all R&D has a life beyond one year and when it does, it is hard to estimate. So, I think economic growth and administrative convenience reach an appropriate result to just expense the R&D when incurred.

2. Capitalizing and expensing over 5 years is too long and sends the wrong message that R&D work in the U.S. is not valued. A recent report from the National Academies of Sciences, Engineering and Medicine entitled Protecting U.S. Technological Advantage notes in the first paragraph in the preface:

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Written by | Posted in Congress And TCJA: Oddities Of No §174 R&D Fix In 2022 • Expensing R&D To Capitalizing And Amortizing

Tax Cuts And Jobs Act: A Comparison For Businesses

Tax Cuts And Jobs Act: A Comparison For Businesses

The Tax Cuts and Jobs Act (“TCJA”) changed deductions, depreciation, expensing, tax credits and other tax items that affect businesses. This side-by-side comparison can help businesses understand the changes and plan accordingly.

Some provisions of the TCJA that affect individual taxpayers can also affect business taxes. Businesses and self-employed individuals should review tax reform changes for individuals and determine how these provisions work with their business situation.

Visit IRS.gov/taxreform regularly for tax reform updates. Businesses can find details and the latest resources on the provisions below at Tax Reform Provisions that Affect Businesses.

Deductions, Depreciation And Expensing

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R&D Tax Credits – IRS Form 8974, IRS Form 6765, IRS Form 3800 And The Tax Cuts And Jobs Act

John Dundon: R&D Tax Credits

Hold On! Resist the urge to gloss over the title so fast! Do whatever it takes to clear your head and FOCUS for 6,000 words or so on R&D Tax Credits – IRS Forms 8974, 6765, 3800 & the TCJA.

Understanding the tax reporting and compliance procedures of this very interesting tax credit is GOOD BUSINESS for 3 VERY IMPORTANT Reasons:

  1. MONEY – Taxpayers Save BIG
  2. OPPORTUNITY – More Taxpayers Qualify
  3. TIMING – Applicable statues changing in 2022
Money

Since becoming law in 1981 the R&D tax credit has proven to be quite a valuable tax planning tool yielding billions of dollars in federal and state benefits for LARGE US businesses with big compliance budgets.

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Written by | Posted in IRS Form 6865 • IRS Form 8974 • IRS Tax Credits • R&D Tax Credits

Tax Cuts And Jobs Act: Comparison For Large Businesses And International Taxpayers

Tax Cuts And Jobs Act: Comparison For Large Businesses And International Taxpayers

The Tax Cuts and Jobs Act (“TCJA”) made significant changes that affect international and domestic businesses, such as deductions, depreciation, expensing, tax credits and other tax items. This side-by-side comparison can help taxpayers understand the changes and plan accordingly.

Some provisions of the TCJA that affect individual taxpayers can also affect business taxes. Businesses and self-employed individuals should review tax reform changes for individuals and determine how these provisions work with their business situation.

Visit TCJA: International Taxpayers and Businesses regularly for tax reform updates. International and Domestic Businesses can find details and the latest resources on the provisions below at Tax Reform Provisions that Affect Businesses.

International Provisions

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Two Year Anniversary Of Tax Cuts And Jobs Act

Tax Cuts And Jobs Act Effects

On December 22, 2017, the Tax Cuts and Jobs Act (P.L. 115-97) was signed into law with most of it starting to be effective just ten days later. Give the roughly 115 changes in the law, that was a lot of work for the IRS to issue guidance on which is likely to take many years (we are still waiting for some guidance on the Tax Reform Act of 1986). It’s also a lot for taxpayers and tax professionals to deal with.

We likely need another year of data to know if the TCJA might stimulate the economy. According to the Congressional Research Service in a June 2019 report (page 14), the lowering of the top corporate rate from 35% to 21% led to a “record-breaking” amount of corporate stock buybacks.
For most individuals, the law did not add any complexity other than dealing with no more personal and dependency exemptions and that effect on wage withholding. A bigger complexity might be the IRS change to the Form 1040 including eliminating 1040-A and 1040-EZ. For about 15% of individuals, there is new complexity from new deduction and loss limitations.

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R&D Tax Credits – IRS Form 8974, IRS Form 6765, IRS Form 3800 And The Tax Cuts And Jobs Act

JOHN DUNDON - IRS Forms On R&D Tax Credits

Hold On! Resist the urge to gloss over the title so fast! Do whatever it takes to clear your head and FOCUS for 6,000 words or so on R&D Tax Credits – IRS Forms 8974, 6765, 3800 & the TCJA.

Understanding the tax reporting and compliance procedures of this very interesting tax credit is GOOD BUSINESS for 3 VERY IMPORTANT Reasons:

  1. MONEY – Taxpayers Save BIG
  2. OPPORTUNITY – More Taxpayers Qualify
  3. TIMING – Applicable statues changing in 2022

Money

Since becoming law in 1981 the R&D tax credit has proven to be quite a valuable tax planning tool yielding billions of dollars in federal and state benefits for LARGE US businesses with big compliance budgets.

Opportunity

Now that the tax credit is permanent and can be applied towards employment tax, planning opportunities abound for medium size and smaller companies – including startups!

The intended consequence of the 2015 PATH Act is prevailing and it turns out more small businesses are putting systems in place to comply with tax credit audit standards.

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Written by | Posted in IRS Form 6865 • IRS Form 8974 • IRS Tax Credits • R&D Tax Credits

Treasury Fails To Prevent Lawsuit Against US Transition Tax From Proceeding

JOHN RICHARDSON - US Transition Tax

What Happened: The Judgement Is Here And Taxpayers Win!

About The Transition Tax

As part of the 2017 TCJA, Congress imposed a retroactive tax, without any realization event, on the retained earnings of Controlled Foreign Corporations. Although intended to be the the “trade off” for lowering the Corporate Tax rate from 35% to 21%, it was interpreted to apply to the small business corporations owned by Americans abroad. (The tax compliance industry aggressively promoted this damaging interpretation of the law.)

In any event, this imposed significant and life altering consequences on Americans abroad (particularly in Canada) for whom their small business corporations were really their pension plans. I documented the history, damage and madness of this in a series of posts about the transition tax. The law was interpreted (in various ways) and the regulations were drafted in an extremely punitive manner. What needs to be most understood is that a law intended for the Apples, Googles, etc. was interpreted to apply in the same way to individuals (your friends and neighbors) who owned small business corporations.

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Written by | Posted in Tax Cuts and Jobs Act • TaxConnections • US Transition Tax

Want To See Santa’s Previous Year Tax Return? Can You Advise Santa On The Tax Cuts And Jobs Act?

We know you will have some fun looking over Santa Claus’ previous year tax return. He has a great job gift giving and needs some help on his deductions. If you have any ideas of deductions he is able to take under the Tax Cuts And Jobs Act we would greatly appreciate your tax expertise.

This is an opportunity for tax professionals to chime in and be one of Santa’s helpers. TaxConnections will in turn promote you and your tax expertise. We will gift a one year TaxConnections Membership promoting your tax expertise to our visitors when you register for a one year membership before Christmas Day 2019. Limited Time!

Please add your commentary below after you see Santa’s Tax Form.

Want to see Santa’s Tax Form?

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Written by | Posted in Santa Claus Tax Form • Tax Cuts and Jobs Act

Tax Cuts And Jobs Act: IRS Final Regulations On Estate/Gift Tax

DARLENE HART - Tax Cuts And Jobs Act Estate/Gift Tax

The Tax Cuts and Jobs Act (TCJA), enacted in December 2017, increased the life-time exclusion amount of transfers subject to Estate/Gift tax from $5 million to $10 million. Adjusted for inflation, this amount is $11.4 million in 2019. The TCJA also provides that this higher amount will revert to its pre-TCJA amount after 2025.

The IRS has now issued TCJA final regulations to address concerns that an estate tax could apply to gifts exempt from gift tax by the increased TCJA amounts in excess of the historic exclusion amount.

The final regulations provide a special rule that allows the estate to compute its estate tax credit using the higher of the TCJA exclusion amount or the or the pre-TCJA amount applicable on the date of death with respect to gifts made during the decedent’s lifetime.

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Repeal The Kiddie Tax: The Tax Cuts And Jobs Act Changed The Tax Calculation

Annette Nellen _ Kiddie Tax

The TCJA changed the tax calculation for the kiddie tax which results in the child possibly having a higher marginal tax rate than the parents. This was highlighted by survivors of deceased members of the military in that a pension a child received was subject to more tax in 2018 than in prior years. A report on Military.com, “This Year’s Tax Cut Cost Some Gold Star Families Dearly,” 4/23/19, included an example of a child paying tax of about $1,150 on the benefits but owing $5,400 for 2018. This child’s parent is in a lower bracket than 37%.

While the TCJA does make the calculation one where the child can compute the tax without the need for the parent’s return, using the tax rate schedule for trusts where the 37% bracket is reached at just below $13,000 is wrong. Query – Why didn’t Congress say to use a rate structure 20 times the trust income tax bracket or some other percentage?

This issue caught the attention of some in Congress with proposals offered for relief for these benefits. S. 1370 and H.R. 2481 propose to treat the benefits as earned income so they are only taxed at the child’s tax rate. H.R. 2716 would not apply the TCJA changes to these benefits (so apparently still taxed at the parent’s marginal tax rate). H.R. 1994, a retirement bill passed by the House in May 2019 would change the kiddie tax calculation back to pre-TCJA times.

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