Author Archives: Carol Coburn

Revenue Procedure 2019-08

The Internal Revenue Service issued Revenue Procedure 2019-08 today to provide guidance on deducting expenses under Section 179(a). These rules, as amended by the Tax Cuts and Jobs Act (TCJA) in December 2017, generally apply to tax years beginning after 2017.

Section 179 allows taxpayers to deduct the cost of certain property as an expense when the property is placed in service. For tax years beginning after 2017, the TCJA increased the maximum Section 179 expense deduction from $500,000 to $1 million. The phase-out limit increased from $2 million to $2.5 million. These amounts are indexed for inflation for tax years beginning after 2018.

The TCJA changed the ADS recovery period of residential rental property. For property placed in service after 2017, the recovery period is 30 years. It was formerly 40 years.

Proposed Revenue Procedure

Purpose:

Section 3 of this revenue procedure provides a safe harbor under which a rental real estate enterprise will be treated as a trade or business for purposes of section 199A of the Internal Revenue Code 1.199A-1 through 1.199A-6 of the Income Tax Regulations (26 CFR Part I). The safe harbor provided by this revenue procedure applies solely for purposes of section 199A. If an enterprise fails to satisfy the requirements of this safe harbor, the rental real estate enterprise may still be treated as a trade or business for purposes of section 199A if the enterprise otherwise meets the definition of trade or business in 1.199A-(b)(14).

Slightly Embellished Prayer (Russell Baker)

“O mighty Internal Revenue,

Who turneth the labor of man to ashes,

We thank thee for the multitude of thy forms,

Which thou has set before us,

And for the infinite confusion of thy commandments,

Which multiplieth the fortunes of (enrolled agents) and accountants alike,

Grant that this sacrifice not be found insufficient unto they auditor.”

New Form 1040

Form 1040 has been redesigned for tax year 2018. The revised form consolidates Forms 1040, 1040A and 1040-EZ into one form that all individual taxpayers will use to file their 2018 federal income tax return.

Renew ITIN to avoid refund delays

  • Many Individual Taxpayer Identification Numbers (ITINs) expired on December 31, 2018.
  • This includes any ITIN not used on a tax return at least once in the past three years.
  • Also, any ITIN with middle digits of 73, 74, 75, 76, 77, 81 and 82 is now expired.
  • ITINs that have middle digits 70, 71, 72 or 80 expired December 31, 2017, but taxpayers can still renew them.
  • Affected taxpayers should act soon to avoid refund delays and possible loss of eligibility for some key tax benefits until the ITIN is renewed.
  • It can take up to 11 weeks to process a complete and accurate ITIN renewal application.

 

IRS kicks off tax-filing season as tax agency reopens

The Internal Revenue Service successfully opened the 2019 tax-filing season! More than 150 million individual tax returns for the 2018 tax year are expected. The IRS worked to successfully implement the biggest tax law changes in 30 years.

Following the government shutdown, the IRS is working to promptly resume normal operations. “Taxpayers can minimize errors and speed refunds by using e-file.” The IRS expects many refunds to be paid by mid- to late February.

The filing deadline to submit 2018 tax returns is Monday, April 15, 2019, for most taxpayers. Because of the Patriots’ Day holiday on April 15 in Maine and Massachusetts and the Emancipation Day holiday on April 16 in the District of Columbia, taxpayers who live in Maine or Massachusetts have until April 17 to file their returns. Choosing e-file and direct deposit remains the fastest and safest way to file an accurate income tax return and receive a refund.

Most refunds sent in less than 21 days;

EITC/ACTC refunds starting February 27

The IRS expects to issue more than nine out of ten refunds in less than 21 days. However, it’s possible a tax return may require additional review and take longer.

The IRS also notes that refunds, by law, cannot be issued before February 15 for tax returns that claim the Earned Income Tax Credit or the Additional Child Tax Credit. This applies to the entire refund – even the portion not associated with EITC and ACTC. The IRS expects the earliest EITC/ACTC related refunds to actually be available in taxpayer bank accounts or on debit cards starting on February 27, 2019, if they chose direct deposit and there are no other issues with the tax return.

The law was changed to give the IRS more time to detect and prevent fraud.

IRS Release

As of January 16, 2019, the IRS released that 54.7% of employees would return to the job to process tax returns and issue refunds. We will continue to update our clients as the IRS information is released.

Three Weeks and Counting

The Internal Revenue Service shut down on December 22, 2018. The vast majority of IRS employees turned off their computers, and cellphone and went home. Approximately 10,000 workers (out of over 80,000) were asked to continue working -most without pay- under the “protection of government property” (i.e., your tax dollars) exception.

The Department of Treasury has announced it will begin on January 28, 2019 and they will be issuing refunds.

Like-kind Exchanges Now Limited to Real Property

The Internal Revenue Service reminded taxpayers that like-kind exchange tax treatment is now generally limited to exchanges of real property.

Like-kind exchange treatment now applies only to exchanges of real property that is held for use in a trade or business or for investment. An exchange of real property held primarily for sale still does not qualify as a like-kind exchange.

“Tax Transcript” email scam

The Internal Revenue Service and Security Summit partners today warned the public of a surge of fraudulent emails impersonating the ITS and using tax transcripts as bait to entice users to open documents containing malware.

The scam is especially problematic for business whose employees might open the malware because malware can spread throughout the network and potentially take months to successfully remove.

This well-known malware, known as Emotet, generally poses as specific banks and financial institutions in its effort to trick people into opening infected documents.

In the past few weeks, the scam masqueraded as the IRS, pretending to be from “IRS Online.” The email carries an attachment labeled “Tax Account Transcript” or something similar, and the subject line uses some variation of the phrase “tax transcript.”

The IRS does not send unsolicited emails to the public, nor would it email a sensitive document such as a tax transcript.

Treatment of Leave-Based Donation Payments

 The Internal Revenue Service will not assert that cash payments an employer makes to organizations in exchange for vacation, sick, or personal leave that its employees elect to forgo constitute gross income or wages of the employees if the payments are (1) made to the organizations for the relief of victims of Hurricane Michael; (2) paid to the organizations before January 1, 2020.

Electing employees may not claim a charitable contribution deduction with respect to the value of forgone leave excluded from compensation and wages.

Business Owners Can Claim a Qualified Business Income Deduction

Eligible taxpayers may now deduct up to 20% of certain business income from domestic businesses operated as sole proprietorships or through partnerships, S-corporations, trusts, and estates. The deduction may also be claimed on certain dividends. Eligible taxpayers can claim the deduction for the first time on the 2018 federal income tax return they file in 2019.

Some things business owners should know about this deduction.

The deduction applies to qualified:

  • Business income
  • Real estate investment trust dividends
  • Publicly traded partnership income
  • Only items included in taxable income are counted
  • Deduction is available whether they itemize their deductions on Schedule A or take the standard deduction.
  • Deduction is generally equal to the lesser of these two amounts:
    • Twenty percent of qualified business income plus 20 percent of qualified real estate investment trust dividends and qualified publicly traded partnership income.
    • Twenty percent of taxable income computed before the qualified business income deduction minus net capital gains.
  • Taxpayers with taxable income that exceeds $315,000 for a married couple filing a joint return, or $157,500 for all other taxpayers, the deduction may be subject to additional limitations or exceptions.