Tax Cuts and Jobs Act – Changes for Businesses

On Friday, December 22, 2017, the Tax Cuts and Jobs Act was signed into law. The following tax law changes are effective for tax years beginning after December 31, 2017, unless otherwise noted.

INCOME TAX FOR BUSINESSES

There are several provisions pertaining to businesses that we believe will be of interest to you as follows.

  • The corporate tax rate has been reduced to a flat 21% and the corporate alternative minimum tax has been repealed;
  • The maximum amount a taxpayer can immediately expense for qualified property (Sec. 179) has been increased to $1,000,000 and the phase-out threshold amount is increased to $2.5 million;
  • A 100% first-year deduction for qualified property (increased from 50% deduction) for property placed in service after September 27, 2017 and before January 1, 2023;
  • The deduction for domestic production activities has been repealed ;
  • The deduction of 50% of expenses relating to entertainment has been repealed;
  • Net operating losses can no longer be carried back but can be carried forward indefinitely and the deduction is limited to 80% of taxable income.

 

While this summary is not comprehensive, we hope it will help you understand upcoming changes to your tax liability. As always, we are available to discuss your circumstances and how this new law may affect you.

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Tax Cuts and Jobs Act – Changes for Individuals

On Friday, December 22, 2017, the Tax Cuts and Jobs Act was signed into law. The following tax law changes are effective for tax years beginning after December 31, 2017, unless otherwise noted.

INDIVIDUAL INCOME TAX

The law contains a large number of changes affecting individual taxpayers. Depending on the individual circumstances, each taxpayer will be affected differently. All of the changes for individuals will expire for tax years after 2025. We have summarized some provisions that are likely to affect our clients.

Standard Deduction, Exemptions, and Tax Rates

  • The standard deduction for 2018 will increase to $24,000 for married filing jointly couples; and to $12,000 for most other taxpayers. This will result in fewer people claiming itemized deductions.
  • Individual exemptions for all taxpayers and dependents claimed on a return have been repealed.
  • Tax rates for most individuals have been reduced.
  • Exemptions for the Alternative Minimum Tax have been increased and permanently adjusted for inflation.

Itemized Deductions

For those individuals who will continue to itemize deductions:

  • The income threshold for allowable medical expense deductions has been reduced for 2017 and 2018 to 7.5%. After 2018, the threshold will return to the less beneficial 10% of adjusted gross income;
  • Combined state income taxes and local property tax deductions are limited to $10,000;
  • Mortgage interest debt limits have been reduced to $750,000 from $1,000,000 for indebtedness incurred after December 31, 2017;
  • Home equity debt interest is no longer deductible;
  • Miscellaneous deductions exceeding 2% of income, including unreimbursed employee business expenses, tax preparation fees, investment fees, and legal fees, are no longer deductible;
  • Limitations on itemized deductions for high-income individuals have been repealed.

Income from Partnerships, S corporations, and Sole Proprietorships

  • Individuals engaged in a trade or business who report the income on Schedule C, or have income reported to them on a Schedule K-1, may deduct 20% of the business income, with limitations related to wages.
  • There are additional limitations to this deduction for service-oriented businesses.

Other Changes for Individuals

  • The child tax credit has been increased to $2,000 per qualifying child, and expanded to include taxpayers at higher income levels (adjusted gross income up to $400,000 for married taxpayers and $200,000 for most other taxpayers).
  • For divorce or separation agreements executed after December 31, 2018, alimony is no longer taxable to the recipient, nor is it deductible by the payer. If taxpayers have an existing divorce or separation agreement (pre-2019) that is legally modified, the new rules don’t apply unless the modification expressly provides that the Act rules are to apply.
  • Moving expenses are no longer deductible, and moving reimbursements are no longer excludible from income, with the exception of certain members of the armed forces.
  • The additional tax for individuals who do not maintain essential minimum health coverage is repealed.
  • The estate and gift tax exemption has been increased to $11.2 million, from $5.6 million, for each taxpayer.

While this summary is not comprehensive, we hope it will help you understand upcoming changes to your tax liability. As always, we are available to discuss your circumstances and how this new law may affect you.

Scharf Pera & Co., PLLC merges with Brian Boswell CPA, PLLC

Scharf Pera & Co., PLLC can be found in this week’s Charlotte Business Journal in an article about our recent merger with Brian Boswell CPA, PLLC.

Check out the article for more info, and also see below for the text of a letter sent out to our clients announcing the move.

We are pleased to announce the merger of Scharf Pera & Co., PLLC with the firm of Brian Boswell CPA, PLLC effective January 1, 2016.   We will continue to practice as Scharf Pera & Co., PLLC at our office located at 4600 Park Road, Suite 112, Charlotte, NC. We welcome Brian and his staff to our “family”.

Brian is originally from California and graduated from California State University – Sacramento and previously worked with GreerWalker LLP, Deloitte & Touche, and Peter Bell CPA before starting his own firm in 2010. Brian specializes in income tax compliance and planning for businesses and individuals. Throughout his career he has consulted with entrepreneurs and business professionals to proactively provide general business advice and guidance on various complex tax situations.

Thanks to clients and friends like you, Scharf Pera & Co., PLLC has had the opportunity to provide professional tax, accounting and auditing services in the Charlotte area since 1977. We are always here to answer your questions and provide guidance and advice. We appreciate your support as we continue to grow and strive to improve our client service to you.

All of us at Scharf Pera & Co., PLLC thank you for your business and wish you a happy and prosperous 2016!

New law allows revocation of passports for delinquent taxpayers

On December 4, President Obama signed into law the Fixing America’s Surface Transportation (FAST) Act. While the main purpose of the legislation is to provide funding through 2020 for highways and other transportation projects, the bill also contains several new provisions designed to recover unpaid taxes, including requirements that the Internal Revenue Service (IRS) use private debt collection agencies and that the U.S. State Department refrain from issuing or renewing passports for certain taxpayers with outstanding tax debts in excess of $50,000.

For more information, visit our “Tax Guide Online” website and click on the “What’s New” button, where we provide details about this update.

We encourage you to visit our website today and often throughout the year. If you have questions on these or other topics, please contact us. We look forward to hearing from you!

Two year end tax updates

First, the IRS has released mileage rates for 2016. The business rate has decreased from 57.5 cents to 54 cents; the moving and medical rate is decreasing from 23 to 19; and the charitable rate will stay at 14 cents.

Second, Congress has come to an agreement on a tax extenders bill. While Congress waiting until the end of the year to pass this bill is nothing new, there’s some good news this time around: many provisions will be renewed for multiple years, and a few (including the increased Section 179 deduction) will be made permanent. It’s important to note that this isn’t a done deal, but many Hill watchers expect the bill to be passed in its present form.

IRS provides tips about vacation homes and other rentals

In a recent summertime tax tip, the IRS provides a quick primer on rental income and expenses, with an emphasis on rules for vacation homes.

The amount of income and expenses that can be claimed depend on many factors, including whether the property is used as a home, how many total days the property is rented, and how often the property is used for personal use vs. rented to other people.

Check out the IRS article for more information. The reporting of rental income and expenses can get complicated. If you have any questions, don’t hesitate to give us a call to review the income tax reporting for your vacation rental or second home.

FASB delays new revenue recognition standard by one year

In a move that had been in the works for a while, the Financial Accounting Standards Board (FASB) officially voted to delay its new revenue recognition standard by one year.

Financial statement preparers had complained that there was not enough time to implement some of the changes required by the new standards. Challenges cited by the Journal of Accountancy article linked above include the delayed issuance of the standard (it had been delayed several times before being issued in May 2014), the timing of the proposed changes, a lack of available IT solutions, and difficulty implementing internal controls amid the uncertainty.

Public companies as well as some employee benefit plans and not-for-profit organizations now must use the new revenue recognition rules for annual periods beginning on or after December 15, 2017. For a company reporting on the calendar year, this means 2018 will be the first year for which this is effective. All other entities must apply the new guidance one year later.

We’ve had our eyes on this issue throughout its evolution and will continue to keep you posted. If you have any questions about how this new standard might affect you, give us a call to see how we can help.

Gather donation records while you can still find them!

Since June 30th is the end of the fiscal year for many non-profits, you probably got a lot of mail and e-mail about donating to these organizations over the last month or so. If you took the opportunity to donate to some of your favorite causes over the past few weeks, now is a great time to get all of your receipts and paperwork organized, while it’s fresh and easy to find. After the new year, instead of scrambling to find documentation, it’ll all be filed away and you’ll have one less thing to worry about come tax time. (Many of the headaches we see simply arise from lost or missing paperwork, so trust us on this one!)

For more tips on donating to non-profits and how they relate to your taxes, see our blog post from earlier this year.

Many taxpayers with foreign assets face June deadlines

The IRS is reminding taxpayers with foreign assets that they may be subject to a pair of June deadlines.

Reporting of foreign assets and income has been a particular focus of the IRS over the past few years, and we urge any taxpayers with foreign assets and/or income to double check that they have met the requirements.

The Foreign Account Tax Compliance Act (FATCA) became law in 2010 and targets non-compliance by U.S. taxpayers with foreign accounts. Subject to this law, taxpayers with foreign assets over certain thresholds will have to file Form 8938 by June 15.

FBAR refers to Form 114, Report of Foreign Bank and Financial Accounts, that must be filed by June 30 with the Financial Crimes Enforcement Network (FinCEN), which is a bureau of the Treasury Department. The form must be filed electronically and is only available online through the BSA E-FilingSystem website.

Head over to the IRS article for more information, and please don’t hesitate to give us a call with any questions.

Keep your tax records safe in the event of a disaster

With hurricane season starting this week, the IRS is reminding taxpayers to keep their tax records safe and giving tips on how to do it. Though Charlotte generally doesn’t bear the brunt of hurricanes, we think these tips are very important for all taxpayers, as there are a variety of incidents that could cause the loss of your financial and tax records.

The tips are fairly straightforward; most taxpayers can get the process done in an afternoon and protect themselves against some unnecessary headaches in the event of a disaster.

Head over to the IRS website for the article. And as always, feel free to give us a call to see how we can help!