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Tag Archive for Tax Cuts and Jobs Act

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 897467653800 & 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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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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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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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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Is Your Business Still the Right Entity Under the New Tax Rule? Part 2

Blake Christian 2

More tips about determining the right corporate, partnership or other structure that’s best for your business—and where you are in life. Key Takeaways:

  • The legal structure of your business operations can have a significant impact on your annual income tax and estate planning.
  • When you and/or your heirs expect to be at or near the maximum income tax rates, you will generally want to leave appreciated and appreciating assets in the taxable estate, rather than transfer them prior to death.
  • In general, assets with the potential to appreciate in value should not be placed into an S or C Corporation.

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Expiring ITINs? What You Should Know!

Manasa Nadig ITIN

Many come to the United States on various work Visas and eventually bring their spouse and children to join them. Now these family members may not qualify for Social Security Numbers (SSN) and they have to apply for an Individual Taxpayer Identification Number (ITIN). The member of the family here on the work visa and consequentially an SSN can claim dependency credits and also be able to file jointly on their U.S. tax return with their spouse if conditions have been met and they qualify.

The 2017 Tax Cuts and Jobs Act now requires all applicants for Employer Identification Numbers to have either a Social Security Number or an ITIN. Non-resident individuals doing business in the US as a partner in a US partnership also require an ITIN to file their US tax returns and to be able to claim back taxes paid on their behalf by the US partnership.

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TCJA Guidance Report from Treasury Inspector General For Tax Administration

Annette Nellen Regarding Treasury Inspector General Report

On May 14, TIGTA released a report, Status of the Office of Chief Counsel’s Issuance of TCJA Guidance. It reviewed the process for issuing guidance on the 100+ provisions of the Tax Cuts and Jobs Act (P.L. 115-97; 12/22/17). It also lists the guidance issued through the end of March (83 items) and what is expected from that date (95 items). A good amount of this includes Treasury Decisions, meaning final regs of the numerous proposed regs issued so far. Here is the detail of what they still plan to issue:

44 Treasury Decisions
35 NPRMs
4 Revenue Rulings
6 Revenue Procedures
4 Notice
1 Announcement
1 Undetermined

Appendices to the report list the specific topics of the guidance.

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Does TCJA Tax Churches? Should It?

Edward Zelinsky Taxing The Church

Does the new federal tax law, commonly known as the Tax Cut and Jobs Act (TCJA), tax churches as some have argued? If so, is this tax appropriate?

The answers are “yes” and “yes.” The TCJA provisions taxing qualified transportation fringes treat secular and religious employers alike, including houses of worship. In a world of imperfect choices, the TCJA reasonably treats all employers fairly without entangling church and state inordinately.

Churches (including all houses of worship such as synagogues, temples and mosques) pay more taxes than many people believe. Churches do not pay property taxes or basic income taxes. But churches do pay the employer portion of federal social security (FICA) taxes for their non-clergy employees. Churches also often pay or collect state sales taxes on the tangible personal property they sell or purchase. In most states, churches also pay real estate conveyance taxes like other real estate purchasers and sellers.

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IRS Tax Reform Changes: Depreciation And Expensing For Businesses

Depreciation And Expensing Under TCJA

The Tax Cuts and Jobs Act changed some laws on depreciation and expensing. These changes can affect a business’s tax situation. Here are the highlights:

  • Businesses can immediately expense more under the new law.
  • Temporary 100 percent expensing for certain business assets (first year bonus depreciation).
  • Changes to depreciation limitations on luxury automobiles and personal use property.
  • The treatment of certain farm property changed.
  • Applicable recovery period for real property.
  • Use of alternative depreciation system for farming businesses.

Taxpayers can use a safe harbor method to figure depreciation deductions for passenger automobiles qualifying for the 100-percent additional first year depreciation deduction and subject to depreciation limitations. The safe harbor allows depreciation deductions for the excess amount during the recovery period subject to depreciation limitations applicable to passenger automobiles.

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Estate Tax Planning Under Tax Cuts And Jobs Act

Haik Chilingaryan- Estate Planning

Even though Estate Tax Planning is currently utilized by only high net worth individuals, historic trends have shown that the risk of a person’s estate being subject to the estate tax may be applicable to also those individuals with more modest estates. If the federal estate taxes are owed at a person’s death, the then dead individual (“decedent”) has considerably less money to pass to his or her heirs, given that nearly half of the taxable amount may be taxed. There are available avenues that may lessen the value of a person’s estate by the time of death and potentially escape the estate taxes altogether.

Estate taxes are determined by the Basic Exclusion Amount (“BEA”) that is in effect at the time of the person’s death. The way the IRS calculates estate taxes is it tallies up the total value of the estate, then determines whether any gifts were made in any particular year that may have exceeded the Annual Exclusion Amount (“AEA”) and arrives at the final figure of the amount of tax owed. Both the BEA and AEA are indexed with inflation.

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