Continuing with my list of reforms I think would help our tax system (see prior lists of 8/29/21 and 6/21/21), here are three more.
- 1. Consolidating education provisions further. Need to better identify purpose of these provisions and if their “cost” is appropriate and in line with direct spending such as Pell grants.
- 2. If higher education incentives are retained, be sure they also cover post-secondary trade schools and only for reasonable costs.
- 3. Make the IRC gender neutral – “his” is often used in the Code, sometimes even to describe a business (such as at §446(a)). Also, references to husband and wife should be changed to spouses.
- §213 – Medical, dental, etc., expenses. (a) Allowance of deduction. There shall be allowed as a deduction the expenses paid during the taxable year, not compensated for by insurance or otherwise, for medical care of the taxpayer, his spouse, or a dependent (as defined in section 152, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof), to the extent that such expenses exceed 7.5 percent of adjusted gross income.
- §446(a) – General Rule. Taxable income shall be computed under the method of accounting on the basis of which the taxpayer regularly computes his income in keeping his books.
- §7701(a)(17) defines “husband and wife”.
- §121(d)(1) – “If a husband and wife made a joint return for the taxable year of the sale or exchange of the property, ….”
This week the House Ways and Means Committee began marking up a tax reform bill to improve equity in our tax system, make modifications to have the system better comport with societal and environmental goals, and generate revenue to cover new spending particularly for infrastructure.
The list of changes under review includes several tax measures that were not included in President Biden’s Build Back Better Greenbook
. These differences include:
Well, back to what I started with a June 21, 2021 post where I’m sharing my ever-growing list of what I think are necessary but usually overlooked tax changes. It would be terrific to see these in the next tax reform bill or even some picked up in other legislation. I hope you’ll review my first list and this one, check back for future posts (I have more reform ideas on my list) AND please post a comment with your reaction and your tax reform ideas.
- Reform the personal income tax to its basic framework where reasonable deductions to produce income are deductible (they are not limited to 2% AGI or disallowed for 8 years (2018 through 2025)).
- Modernize §197 to include 21st century intangibles – see page 5 of my 2017 article.
- Update §170(f)(11) on qualified appraisals to expand situations where an appraisal is not needed because there are public listings of value, such as for most virtual currencies. Read More
I often find it helpful to see how tax legislation changes existing Internal Revenue Code sections. So, I took a few and made the modifications called for in P.L. 115-97 (12/22/17) (the Tax Cuts and Jobs Act), and show how they change the relevant Code section using track changes. I also include the effective date information. For the changes to 448, I also include a caution about how the favorable methods changes don’t apply to “tax shelters” which could include some limited partnerships and LLCs even though they don’t act like a typical tax shelter.
Here are the ones I modified:
Section 1 – tax rates including kiddie tax change
Section 62 – changes to AGI
Section 163 – changes to mortgage interest and the new interest limitation for non-small entities (and tax shelters – see comment above)
The Tax Cuts and Jobs Act brought several improvements for small businesses, most notably, favorable accounting methods such as use of the cash method and not having to deal with the Unicap rules. The AICPA Tax Section recently posted a position paper noting 13 more changes that would further help modernize the Code to reflect how small businesses operate. Some of these would more completely simplify what Congress started with the TCJA.
For example, the TCJA increased the Section 179 expensing amount to $1 million, adjusted for inflation annually. But, despite the fact that intangibles are important to all sizes of businesses today (and for the past two decades), it only applies to tangible assets (and off-the-shelf software), not intangible assets, such as acquisition of a patent or domain name.
Tax reform made a lot of changes, some of which impacted employees’ fringe benefits. This article reviews the most frequently encountered fringe benefits, including those that were and were not impacted by tax changes. These changes can affect both a business’s bottom line and its employees’ deductions.
BENEFITS IMPACTED BY TAX REFORM
Qualified Transportation Fringe Benefits – Qualified transportation fringe benefits include parking, transit passes, commuter (van pool) transportation, and bicycle commuting.
- Qualified parking – The tax-free fringe benefit for qualified parking is still available to employees and is capped at $265 per month for 2019, up from $260 in 2018.
- Transit Passes – The tax-free fringe benefit for transit passes is also still available to employees, up to $265 per month for 2019, an increase from $260 in 2018.
- Bicycle Commuting – Unfortunately, tax reform did away with the $20-per-month tax-free reimbursement for the cost of an employee commuting to work on a bicycle.
- Commuting – Tax reform killed the monthly commuting fringe benefit (which was $260 in 2018) except when necessary for ensuring the safety of an employee. When allowed, the maximum amount is the same as the transit pass fringe benefit.
The Tax Cuts and Jobs Act (TCJA) included a few dozen tax law changes that affect businesses. Most of the changes in the new law took effect in 2018 and will impact tax returns filed in 2019.
This fact sheet summarizes some of the changes for businesses and gives resources to help business owners find more details.
Business Taxpayers Recalculate Estimated Tax Payments
The TCJA changed the way most taxpayers calculate tax, including those with income not subject to withholding, such as small business owners and self-employed individuals. The new law changed tax rates and brackets, revised business expense deductions, increased the standard deduction, removed personal exemptions, increased the Child Tax Credit and limited or discontinued certain deductions. As a result, many taxpayers may need to raise or lower the amount of estimated tax they pay each quarter.
A few times each year we are fortunate to have internationally recognized tax provision expert Nick Frank teach. Recently, we asked Nick about Tax Reform and its impact on the tax provision. What he shared was what the auditors are saying about the corporate tax provision and your corporations’ readiness.
If you are responsible for the tax provision, you will benefit from attending this COMPLIMENTARY SESSION.
COURSE: ASC 740 and 2018 Year End – A Debrief on the First Year of Tax Reform
DATE: Friday, March 8, 2019
TIME: 11:00AM EST/10:00AM CT/9:00AM MT/8:00AM PST
This course will discuss the challenges that companies faced as they grappled with their ASC 740 processes for the first year under the Tax Cuts and Jobs Act. We will take an in depth look at the best practices we are seeing in the market to make the tax provision/ASC 740 process as efficient and effective as possible.
Debrief On Tax Reform And The Tax Provision – March 8th 2019
Tax reform added some new taxpayer-advantageous changes to college savings plans. These plans are also known as qualified tuition programs (QTPs) or Sec. 529 plans, named after the part of the Internal Revenue Code that established them.
Background: Sec. 529 plans allow taxpayers to put away larger amounts of money than other tax-advantaged education savings plans do, limited only by the contributor’s gift tax concerns and the contribution limits of the intended plan. There are no limits on the number of contributors, and there are no income or age limitations. The maximum amount that can be contributed per beneficiary (the intended student) is based on the projected cost of college education and will vary between the states’ plans. Some states base their maximum on the projected costs of an in-state four-year education, but others use the cost of the most expensive schools in the U.S., including graduate studies. Most have limits in excess of $200,000, with some topping $370,000. Generally, additional contributions cannot be made once an account reaches the state’s maximum level, but that doesn’t prevent the account from continuing to grow.
Small business owners, self-employed should plan now for new changes
With just a few months left in tax year 2018, the Internal Revenue Service today urges small business owners to learn about how the new tax law changes may affect them.
The Tax Cuts and Jobs Act, passed in December 2017, made tax law changes that will affect virtually every business and individual in 2018 and the years ahead. Among other things, the new law may change their tax rates and impact the quarterly estimated tax payments they are required to make during the year. Read More
As a result of tax reform, most taxpayers will be paying less tax for 2018 than they did in 2017. But that may not translate into a larger refund. Your refund is the amount that your pre-payments (withheld income tax, estimated tax payments, and certain credits) exceed your tax liability, and if the pre-payment also got reduced, you could be in for an unpleasant surprise at tax time. Read More
The Internal Revenue Service issued guidance today on the business expense deduction for meals and entertainment following law changes in the Tax Cuts and Jobs Act (TCJA).
The 2017 TCJA eliminated the deduction for any expenses related to activities generally considered entertainment, amusement or recreation. Read More