The passage of the Tax Cuts and Jobs Act (TCJA) in late 2017 brought significant changes to the tax landscape. As the first tax season under the law looms on the horizon, new year-end tax planning strategies are emerging. Meanwhile, some of the old tried-and-true strategies have changed and others remain viable. Fresh opportunities The TCJA creates several new avenues of potential tax savings for businesses. Some of these, though, may require tough decisions. For example, the new tax law has prompted some businesses to question whether they should restructure to become a C corporation or a pass-through entity. The former is subject to potential double taxation (at the entity and dividend levels) but now enjoys a corporate tax rate that has fallen from 35% to 21%. The latter faces only an individual tax rate, which can run as high as 37%, but might qualify for a new, full 20% deduction on qualified business income (QBI). With a full QBI deduction, the maximum effective tax rate for pass-through entities comes out to 29.6%. But there are other factors to consider. For example, the TCJA limits the state and local tax deduction for individual pass-through owners but not for corporations. Further, the new corporate rate is permanent, while the QBI deduction is scheduled to sunset after 2025. Ultimately, the optimal entity choice depends on each business’s facts and circumstances. A business that goes the pass-through route, though, has several tactics available to maximize its QBI deduction. The deduction is subject to limits based on W-2 wages paid, the unadjusted basis of a taxpayer’s qualified property, and taxable income. A business, therefore, might increase its wages by converting independent contractors to employees, assuming the benefit isn’t outweighed by higher payroll taxes, employee benefit costs and similar considerations. It could also purchase assets before year end to pump up its unadjusted basis. And individual pass-through owners can maximize their above-the-line and itemized deductions to reduce their taxable income. The TCJA also establishes a business tax credit for paid family and medical leave — a credit that businesses can claim for 2018 as long as they adopt a retroactive policy before the end of the year. Eligible employers may claim the credit if they have a written policy that provides at least two weeks of annual paid family and medical leave to all employees who meet certain requirements, at a pay rate of at least 50% of normal wages. The maximum credit is 25% of wages paid during leave. Shifting strategies Not surprisingly, the TCJA alters several year-end strategies businesses have used in the past to curb liability. It bolsters some strategies, while trimming or ending the advantages of others. For several years, for example, asset acquisitions have offered a smart way to cut taxes through bonus depreciation and Section 179 depreciation deductions. The TCJA expands both types of deductions, potentially making investments in equipment and other assets even more advisable. Businesses could immediately write off 50% bonus depreciation on qualified new property purchased […]

Memo To:        VA Tax Files / VA Clients From:    Peter V. DeGregori, CPA MST CGMA Date:     June 28, 2018 Re:        Change in Sales Tax: Supreme Court Ruling for South Dakota v. Wayfair Summary: On June 21, 2018, the U.S. Supreme court issued a decision in South Dakota v. Wayfair, overturning the physical presence standard explained in Quill v. North Dakota (Sup Ct 1992) 504 U.S. 298, and other related cases. Prior to this ruling, the Quill case was an important case, which required a physical presence standard for a company to be subject to sales tax if they sold tangible property (typically items you can touch).  In general, the “physical presence” standard is a requirement for a company to be subject to sales tax.  This law became a common case / item to review if an out of state company was subject to sales tax in another state. As an example, if you have a company, located only in Florida, then generally that company would only be subject to sales tax in Florida based on sales to Florida consumers.  However, if the company shipped products into other states, then they generally they would not be subject to other states’ sales tax if they didn’t have any physical presence in that other state.   So, the outcome would be products sold outside of Florida didn’t have sales tax applied against them and this is the issue that has soured the change of this law.  If a business wasn’t subject to sales tax, then typically the consumer is responsible to pay use tax to their state.  But most consumers do not pay use tax, so the states want a method to subject out of state businesses to sales tax and this new court case has now removed the hurdle of the Quill doctrine.  States want more sales tax revenue, and they have been trying hard to collect sales tax from out of state businesses for a long time.  Now the law has changed based on this court case and states are going to be able to charge sales tax based on where the consumer resides regardless of “physical presence”. Now, let’s look at what is meant by “physical presence”.  First, this is a generalization, as each state may, unfortunately, have a different set of guidelines, in general, physical presence means that the company had property (fixed assets, inventory, etc.), people, or some other physical connection in a state to subject them to sales tax.  So, this was the concern based on the example above, the company in FL could sell products to every other state and wouldn’t be subject to sales tax in any state other than FL.  This created an unfair playing field with companies in states in which out of state resellers sold into.  So, the US Supreme Court changed the law and now companies are subject to sales tax based on revenue that is generated from a state which is also called “economic nexus”. Now this is a BIG change […]

With the filing date for 2017 in the rear-view mirror for most businesses and individuals, the last thing they probably want to think about is income taxes. Unfortunately, though, criminals who commit tax-related identity theft don’t work seasonally — they’re constantly devising and unleashing new schemes. And even though the IRS has taken successful steps to reduce tax-related identity theft in 2017, it cautions taxpayers to stay alert for scams year round and especially right after the tax filing season ends. What is tax-related identity theft? According to the IRS, tax-related identity theft generally occurs when a thief uses a stolen Social Security number (SSN) to file a tax return claiming a fraudulent refund. The victimized taxpayer may not learn of the theft until he or she attempts to file a tax return and finds that a return has already been filed for that SSN. Alternatively, the taxpayer might discover the theft upon receipt of a letter from the IRS saying it has identified a suspicious return that uses the taxpayer’s SSN. Thieves have devised a variety of methods to obtain the information they need to file a tax return under another person’s SSN. During the past several years, the IRS, Federal Trade Commission (FTC) and state tax agencies have issued warnings as new methods come to the forefront. How does tax-related identity theft occur? But filing fraudulent returns isn’t the only way that taxpayers are victimized. Scam artists are using multiple channels to conduct their tax-related identity theft schemes, including: Phone schemes. This past April, less than 10 days after the tax return filing deadline, the IRS highlighted a new phone scam conducted by fraudsters who program their computers to display the phone number of the local IRS Taxpayer Assistance Center (TAC) on the taxpayer’s Caller ID. If the taxpayer questions the legitimacy of the caller’s demand for a tax payment, the caller directs him or her to IRS.gov to verify the local TAC phone number. The perpetrator hangs up, calls back after a short period — again “spoofing” the TAC number — and resumes the demand for money. These scam artists generally require payment on a debit card, which allows them to directly access the victim’s bank account. In another phone scheme, the criminals claim they’re calling from the IRS to verify tax return information. They tell taxpayers that the agency has received their returns and simply needs to confirm a few details to process them. The taxpayers are prompted to provide personal information such as an SSN and bank or credit card numbers. Digital schemes. Emails that appear to be from the IRS are part of phishing schemes intended to trick the recipients into revealing sensitive information that can be used to steal their identities. The emails may seek information related to refunds, filing status, transcript orders or PIN information. The scammers have developed twists on this approach, too. The emails might seem to come from an individual’s tax preparer and request information needed for an IRS […]

When school lets out, kids participate in a wide variety of summer activities. If one of the activities your child is involved with is day camp, you might be eligible for a tax credit! Dollar-for-dollar savings Day camp (but not overnight camp) is a qualified expense under the child and dependent care credit, which is worth 20% of qualifying expenses (more if your adjusted gross income is less than $43,000), subject to a cap. For 2018, the maximum expenses allowed for the credit are $3,000 for one qualifying child and $6,000 for two or more. Remember that tax credits are particularly valuable because they reduce your tax liability dollar-for-dollar — $1 of tax credit saves you $1 of taxes. This differs from deductions, which simply reduce the amount of income subject to tax. For example, if you’re in the 24% tax bracket, $1 of deduction saves you only $0.24 of taxes. So it’s important to take maximum advantage of the tax credits available to you. Qualifying for the credit A qualifying child is generally a dependent under age 13. (There’s no age limit if the dependent child is unable physically or mentally to care for him- or herself.) Special rules apply if the child’s parents are divorced or separated or if the parents live apart. Eligible costs for care must be work-related. This means that the child care is needed so that you can work or, if you’re currently unemployed, look for work. If you participate in an employer-sponsored child and dependent care Flexible Spending Account (FSA), also sometimes referred to as a Dependent Care Assistance Program, you can’t use expenses paid from or reimbursed by the FSA to claim the credit. Determining eligibility Additional rules apply to the child and dependent care credit. If you’re not sure whether you’re eligible, contact us. We can help you determine your eligibility for this credit and other tax breaks for parents. © 2018