Notice 2019-07 Creates a Safe Harbor for Rental Income

When the Tax Cuts and Jobs Act signed into law in 2017, the act brought changes to both personal and business income taxes. We developed a comprehensive guide on the TCJA and offered more details on the Qualified Business Income Deduction (QBDI) in 2018, but questions still remain on some of the finer details, particularly with rental properties. In a competitive rental market like the Madison area, you’re likely wondering if your rental property income qualifies for the coveted 20% tax deduction. The IRS recently clarified and issued some guidance on whether income from real estate rental activities was “Qualified Business Income” (QBI). Notice 2019-07, a new proposed revenue procedure, provides a safe harbor under which rental real estate will be treated as a trade or business solely for the purposes of Section 199A. This proposed revenue procedure would apply to tax years ending after December 31, 2017. The new notice, however, does not apply to self-rental situations, where a business pays rent to a related party entity which is owned by the same business owner(s). We’ll outline some of the core details from the IRS notice and how to qualify, below. [Related: A Comprehensive Guide to the Top 8 Provisions of the Tax Cuts and Jobs Act]   Qualifying for the Safe Harbor Taxpayers looking to utilize Section 199A’s deduction must hold the rental property directly or through a disregarded entity. They must also treat each rental property as a single activity or elect to treat all similar rentals as a single activity. The choice is either a “one or all,” meaning you must combine all similar rentals,...

4 Things to Do Now to Impact Your 2018 Taxes Most

Taxes are something we’re all familiar with in one form or another. By law, any income made as an employee or net income made as a business owner must be reported and taxed. If you’re a small business owner, you understand that tax planning happens year-round, not just in April. The last month of 2018 is here, and many small business owners have already approached us with questions about end-of-year tax planning. After the Tax Cuts and Jobs Act of 2017 (TCJA) was passed, there were provisions that affected business deductions and personal deductions.  For businesses, a couple big changes affect depreciation of assets, the qualified business income deduction, and meals and entertainment expenses. For individuals, changes to itemized deductions available and standard deduction amounts changed drastically. As many small businesses are taxed on a pass-through basis, the business changes may affect personal income tax returns, so we have included some strategies still available to the small business owner that can ultimately affect their personal tax return. [Related: A Comprehensive Guide to the Top 8 Provisions of the Tax Cuts and Jobs Act] 1. Invest in your employees and service. December is a popular time of year for business owners to purchase assets.  Businesses can take advantage of the 100% bonus depreciation, or full write-off of qualifying assets placed in service in 2018, both new and used, with tax lives of 20 years or less.  Expensing of asset placed in service under Section 179 is also available for businesses with less than $2.5 million of assets placed in service during 2018.  For these small businesses, up to $1 million...

Updates on U.S. Tax Law: The Qualified Business Income Deduction and the Holiday Party

With the recent changes to the U.S. tax code, we’ve had several small business owners ask us how this will affect them when they complete their 2018 taxes. They know that the Tax Cuts and Jobs Act (TCJA) has shaken things up, and they want to make sure they’re maximizing their deductions. In July, we covered the Top 8 Provisions of the Tax Cuts and Jobs Act, the latest revision to United States tax law. The question we’ve received most frequently since then is about Section 199A, which allows small business owners a new deduction. And in October 2018, the IRS made clarifications and updates to the TCJA, changing some of the details from the blog earlier this year. As such, we’ve put together an overview of the basics of Section 199A as well as the IRS’ clarifications regarding work meals and holiday parties. [Related: A Comprehensive Guide to the Top 8 Provisions of the Tax Cuts and Jobs Act] How Small Business Owners Can Use Section 199A to Save Money The TCJA contains a new deduction for business owners of entities taxed on a “pass-through” basis. It is called the Qualified Business Income Deduction (QBID), the deduction is included Section 199A of the TCJA. This deduction allows certain business owners to deduct up to 20% of their qualified business income (QBI) on their personal tax income tax return. So, for example, if you own a furniture store that qualifies for the deduction with QBI of $10,000 during the year, you will be able to claim up to a 20% of QBI, or $2,000 as a deduction on your...

Small Business Taxes: 5 Questions to Consider When Choosing to DIY or Hire a Professional

Tax season is slowly approaching, and as a small business owner, you’ve probably spent some time contemplating whether to do your business taxes yourself or hire a professional. It’s also likely you’ve wondered why it would be valuable to work with a professional when there’s plenty of tax software available. To help you decide, we’ve put together 5 questions to consider before choosing to do your taxes yourself or hire a professional. 1. Is your business structure simple or complex? Your business structure plays a big role in the complexity or simplicity of your tax filing. If you have a simple business structure, such as a Sole Proprietorship with one individual running the business, filing your own business taxes would be less problematic because your income and expenses from the business might be included on one schedule on your personal income tax return. However, if you have a more complex business structure, such as a partnership, S corporation, or a multi-member Limited Liability Company, or if you have employees or depreciable equipment, it may be a good idea to hire a professional. Businesses with these characteristics will have more complex tax reporting requirements. It’s also important to understand your state’s tax reporting obligations in relation to your business structure. If your state has more complex reporting requirements, be sure to consider that before filing your own taxes. Ultimately, your business and its needs are unique. It’s best to analyze your abilities, know where your knowledge lies and also know your limitations in terms of knowledge and time. If you’re unsure and want to lessen potential issues with the IRS...

A Comprehensive Guide to the Top 8 Provisions of the Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act (TCJA) is now in full force and has made significant changes to the U.S. tax code for both individuals and businesses since it was signed by President Trump on December 22, 2017. Though we’ve been living with the major reform for several months, the uncertainty surrounding the changes and their effects are still highly prevalent. We’ve put together a guide comparing the new and old laws of the top 8 provisions to help flesh out the uncertainty of the reform and to help you understand how the TCJA could impact your take-home pay and tax refund this year. [Related Article: New Federal Law Brings Changes to Business Taxes] 1. Individual Tax Rates The TCJA has kept the seven-bracket structure, however, the income tax rates have decreased. Comparable rates are as follows: 2. Individual Alternative Minimum Tax Old: The AMT exemption amount was $54,300 for single filers and $84,500 for married taxpayers filing jointly. New: The AMT exemption amounts increased to $70,300 for single filers and $109,400 for married taxpayers filing jointly. 3. Standard Deduction & Personal Exemptions A standard deduction is the portion of income that is not subject to tax and can be used to reduce a taxpayer’s tax bill. A personal exemption is the amount taxpayers can deduct from their income for every taxpayer and most dependents claimed on their return. Old: Single taxpayers were allowed a standard deduction of $6,350 and $12,700 for married taxpayers filing jointly. Personal exemptions of $4,050 were allowed for each family member. New: Single taxpayers are allowed a standard deduction of $12,000 and $24,000 for...