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Vehicle-expense deduction ins and outs for individual taxpayers

March 19, 2019Advice, Articles, UncategorizedIndividual Taxes, mileage, taxes, TCJA[email protected]

It’s not just businesses that can deduct vehicle-related expenses. Individuals also can deduct them in certain circumstances. Unfortunately, the Tax Cuts and Jobs Act (TCJA) might reduce your deduction compared to what you claimed on your 2017 return. For 2017, miles driven for business, moving, medical and charitable purposes were potentially deductible. For 2018 through 2025, business and moving miles are deductible only in much more limited circumstances. TCJA changes could also affect your tax benefit from medical and charitable miles. Current limits vs. 2017 Before 2018, if you were an employee, you potentially could deduct business mileage not reimbursed by your employer as a miscellaneous itemized deduction. But the deduction was subject to a 2% of adjusted gross income (AGI) floor, which meant that mileage was deductible only to the extent that your total miscellaneous itemized deductions for the year exceeded 2% of your AGI. For 2018 through 2025, you can’t deduct the mileage regardless of your AGI. Why? The TCJA suspends miscellaneous itemized deductions subject to the 2% floor. If you’re self-employed, business mileage is deducted from self-employment income. Therefore, it’s not subject to the 2% floor and is still deductible for 2018 through 2025, as long as it otherwise qualifies. Miles driven for a work-related move in 2017 were generally deductible “above the line” (that is, itemizing isn’t required to claim the deduction). But for 2018 through 2025, under the TCJA, moving expenses are deductible only for certain military families. Miles driven for health-care-related purposes are deductible as part of the medical expense itemized deduction. Under the TCJA, for 2017 and 2018, medical expenses are deductible to the extent they exceed 7.5% of your AGI. For 2019, the floor returns to 10%, unless Congress extends the 7.5% floor. The limits for deducting expenses for charitable miles driven haven’t changed, but keep in mind that it’s an itemized deduction. So, you can claim the deduction only if you itemize. For 2018 through 2025, the standard deduction has been nearly doubled. Depending on your total itemized deductions, you might be better off claiming the standard deduction, in which case you’ll get no tax benefit from your charitable miles (or from your medical miles, even if you exceed the AGI floor). Differing mileage rates Rather than keeping track of your actual vehicle expenses, you can use a standard mileage rate to compute your deductions. The rates vary depending on the purpose and the year: Business: 54.5 cents (2018), 58 cents (2019) Medical: 18 cents (2018), 20 cents (2019) Moving: 18 cents (2018), 20 cents (2019) Charitable: 14 cents (2018 and 2019) In addition to deductions based on the standard mileage rate, you may deduct related parking fees and tolls. There are also substantiation requirements, which include tracking miles driven. Get help Do you have questions about deducting vehicle-related expenses? Contact us. We can help you with your 2018 return and 2019 tax planning. © 2019

2019 Tax Calendar

February 26, 2019Advice, Articles, Uncategorized2018 taxes, 2019 calendar, due dates, employers, individual[email protected]

To help you make sure you don’t miss any important 2019 deadlines, we’ve provided this summary of when various tax-related forms, payments and other actions are due. Please review the calendar and let us know if you have any questions about the deadlines or would like assistance in meeting them.

State Income Tax Filing Requirements and Economic Presence

February 19, 2019Advice, Articles, Uncategorized2018, Economic Presence, Filing Requirements, new tax law, State Income, tax filing, taxes[email protected]

Scope: This memo is intended to provide general guidance on how state income tax return filing requirements are determined and to provide an explanation of the Economic Presence standard which several states are now using to determine if a business entity has a tax return filing requirement in that state. Vertical Advisors (VA) determines state tax return filing requirements based on information provided to us from our clients. However, the historic state income tax filing requirements are based on the general standard as described below but each business will ALSO need to decide whether state filing requirements under the Economic Presence standard should be considered. VA is available to be engaged to review income tax filing requirements for our clients. General Standard: There are multiple factors that affect state tax return filing requirements. This memo is meant to provide a general overview. A detailed analysis of state tax attributes would be needed to fully understand the state tax return filing requirements for a particular business. Attributes that are considered when determining state tax return filing requirements are as follows: Sales by state Wages by state (could also include vendor or independent contractors) Fixed assets by state Historically, when a business has two or more of the attributes listed above, a state tax return would be required for that state. However, several states are now using the more aggressive Economic Presence standard which can cause a state tax return filing requirement even if only one attribute exists which is usually sales in that state. Economic Presence Standard: Under the Economic Presence standard, a state tax return may be required if any one of the following conditions exists: Any income derived in the state Sales in the state exceeding certain threshold Licensed intangible properties in the state Doing business or seeking profits in the state The Economic Presence standard is not new and approximately 43 states currently have an Economic Presence standard. Although the Economic Presence standard has existed for years, the states were not aggressively enforcing tax return filing requirements under this standard. However, due mainly to the growth of the e-commerce industry, it is now common for a company to transact business in several states in which the only connection to that state may be the sales with no actual physical presence in that state. Under the general standard, without a physical presence in the state, there was no state return filing requirement and thus the states could not assess income tax on businesses that had only sales in those states. Under Economic Presence, the sales alone can cause a tax return filing requirement. Since each state defines Economic Presence standard differently, a detailed analysis by state would be required to understand the possible state tax return filing requirements under the Economic Presence standard. Conclusion: As mentioned earlier, Vertical Advisors reviews state tax return filing requirements consistent with the general standard and information provided by our clients. However, since states are becoming more aggressive in applying the Economic Presence standard, […]

IRS provides QBI deduction guidance in the nick of time

February 12, 2019Advice, Articles, Uncategorized2018 Business taxes, 2018 taxes, deduction regs, QBI, REIT, Tax Cuts and Jobs Act, tax returns, TCJA[email protected]

When President Trump signed into law the Tax Cuts and Jobs Act (TCJA) in December 2017, much was made of the dramatic cut in corporate tax rates. But the TCJA also includes a generous deduction for smaller businesses that operate as pass-through entities, with income that is “passed through” to owners and taxed as individual income. The IRS issued proposed regulations for the qualified business income (QBI), or Section 199A, deduction in August 2018. Now, it has released final regulations and additional guidance, just before the first tax season in which taxpayers can claim the deduction. Among other things, the guidance provides clarity on who qualifies for the QBI deduction and how to calculate the deduction amount. QBI deduction in action The QBI deduction generally allows partnerships, limited liability companies, S corporations and sole proprietorships to deduct up to 20% of QBI received. QBI is the net amount of income, gains, deductions and losses (excluding reasonable compensation, certain investment items and payments to partners) for services rendered. The calculation is performed for each qualified business and aggregated. (If the net amount is below zero, it’s treated as a loss for the following year, reducing that year’s QBI deduction.) If a taxpayer’s taxable income exceeds $157,500 for single filers or $315,000 for joint filers, a wage limit begins phasing in. Under the limit, the deduction can’t exceed the greater of 1) 50% of the business’s W-2 wages or 2) 25% of the W-2 wages plus 2.5% of the unadjusted basis immediately after acquisition (UBIA) of qualified business property (QBP). For a partnership or S corporation, each partner or shareholder is treated as having paid W-2 wages for the tax year in an amount equal to his or her allocable share of the W-2 wages paid by the entity for the tax year. The UBIA of qualified property generally is the purchase price of tangible depreciable property held at the end of the tax year. The application of the limit is phased in for individuals with taxable income exceeding the threshold amount, over the next $100,000 of taxable income for married individuals filing jointly or the next $50,000 for single filers. The limit phases in completely when taxable income exceeds $415,000 for joint filers and $207,500 for single filers. The amount of the deduction generally can’t exceed 20% of the taxable income less any net capital gains. So, for example, let’s say a married couple owns a business. If their QBI with no net capital gains is $400,000 and their taxable income is $300,000, the deduction is limited to 20% of $300,000, or $60,000. The QBI deduction is further limited for specified service trades or businesses (SSTBs). SSTBs include, among others, businesses involving law, financial, health, brokerage and consulting services, as well as any business (other than engineering and architecture) where the principal asset is the reputation or skill of an employee or owner. The QBI deduction for SSTBs begins to phase out at $315,000 in taxable income for married taxpayers filing […]

Why you shouldn’t wait to file your 2018 income tax return

February 8, 2019Advice, Articles, Uncategorized1040, 1099, 1099s, 2018 tax returns, FTB, income tax return, IRS, tax identity theft, tax return, TCJA, W2[email protected]

The IRS opened the 2018 income tax return filing season on January 28. Even if you typically don’t file until much closer to the April 15 deadline, this year consider filing as soon as you can. Why? You can potentially protect yourself from tax identity theft — and reap other benefits, too. What is tax identity theft? In a tax identity theft scheme, a thief uses your personal information to file a fraudulent tax return early in the tax filing season and claim a bogus refund. You discover the fraud when you file your return and are informed by the IRS that the return has been rejected because one with your Social Security number has already been filed for the same tax year. While you should ultimately be able to prove that your return is the legitimate one, tax identity theft can cause major headaches to straighten out and significantly delay your refund. Filing early may be your best defense: If you file first, it will be the tax return filed by a would-be thief that will be rejected — not yours. What if you haven’t received your W-2s and 1099s? To file your tax return, you must have received all of your W-2s and 1099s. January 31 was the deadline for employers to issue 2018 Form W-2 to employees and, generally, for businesses to issue Form 1099 to recipients of any 2018 interest, dividend or reportable miscellaneous income payments. If you haven’t received a W-2 or 1099, first contact the entity that should have issued it. If that doesn’t work, you can contact the IRS for help. What are other benefits of filing early? Besides protecting yourself from tax identity theft, the most obvious benefit of filing early is that, if you’re getting a refund, you’ll get that refund sooner. The IRS expects more than nine out of ten refunds to be issued within 21 days. But even if you owe tax, filing early can be beneficial. You still won’t need to pay your tax bill until April 15, but you’ll know sooner how much you owe and can plan accordingly. Keep in mind that some taxpayers who typically have gotten refunds in the past could find themselves owing tax when they file their 2018 return due to tax law changes under the Tax Cuts and Jobs Act (TCJA) and reduced withholding from 2018 paychecks. Need help? If you have questions about tax identity theft or would like help filing your 2018 return early, please contact us. While the new Form 1040 essentially does fit on a postcard, many taxpayers will also have to complete multiple schedules along with the form. And the TCJA has changed many tax breaks. We can help you ensure you file an accurate return that takes advantage of all of the breaks available to you. © 2019

Happy Thanksgiving!

November 22, 2018Uncategorized[email protected]