berkowitz pollack brant advisors and accountants

IRS Issues Safe Harbor for Business Vehicles that Qualify for First-Year Bonus Depreciation by Cherry Laufenberg, CPA

Posted on April 16, 2019 by Cherry Laufenberg

Under the Tax Cuts and Jobs Act (TCJA), businesses have an opportunity to claim larger depreciation deductions beginning in 2018 for qualifying new and used property, including passenger vehicles, they acquire and place into service between Sept. 28, 2017, and Dec. 31, 2026. However, it is critical that businesses pay particular attention to recent IRS guidance to determine deductions when vehicles are eligible for a 100 percent additional first-year bonus-depreciation deduction and subject to depreciation limitations.

In general, Section 179 and depreciation deductions for passenger automobiles are subject to dollar limitations for the year the taxpayer places the passenger automobile in service and for each succeeding year. A new or used passenger car, SUV or truck used by a taxpayer at least 50 percent of the time for business purposes can also qualify for an additional first-year depreciation deduction, which the TCJA increased to a maximum of $18,000 for tax year 2018.

Under prior law, the allowance for a new passenger vehicle was limited to $11,160 in the first year or $3,160 for a used car. According to the IRS, this generous provision of the new tax law could result in irregularities in tax years after the placed in service year and before the first tax year succeeding the end of the recovery period. The safe harbor method of accounting recently issued by the IRS aims to mitigate situations in which the depreciable basis of a passenger automobile for which the 100-percent additional first-year depreciation deduction exceeds the first-year limitation.

If the depreciable basis of a passenger automobile for which the 100-percent additional first-year depreciation deduction is allowable exceeds the first-year limitation, the taxpayer may apply the safe harbor accounting method to deduct the excess amount of depreciation deductions on their income tax returns in the first tax year after the end of the recovery period. Doing so requires taxpayers to use the IRS applicable depreciation tables.

Excluded from the benefit of the safe harbor are passenger vehicles that taxpayers place in service after 2022 or those automobiles for which a taxpayer elected out of the 100-percent additional first-year bonus depreciation deduction or elected under Section 179 to expense all of a portion of the cost of the vehicle.

The advisors and accountants with Berkowitz Pollack Brant work closely with businesses of all sizes and across virtually all industries to implement strategies intended to minimize tax liabilities, maintain regulatory compliance, improve efficiencies and achieve long-term growth goals.

About the Author: Cherry Laufenberg, CPA, is an associate director of Tax Services with Berkowitz Pollack Brant, where she works with corporations, pass-through entities, trusts and foreign entities. She can be reached at the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or via email at info@bpbcpa.com.

 

Information contained in this article is subject to change based on further interpretation of tax laws and subsequent guidance issued by the Internal Revenue Service.

                                                         

IRS Warns of Top Tax Schemes for 2019 by Edward N. Cooper, CPA

Posted on April 05, 2019 by Edward Cooper

By Edward N. Cooper, CPA

The IRS has issued its annual list of the Dirty Dozen scams that taxpayers should look out for in 2019. Under U.S. laws, taxpayers are legally responsible for the information contained in their tax returns, even when those documents are prepared by someone else. Therefore, it is critical that you take special care when selecting a tax preparer and reviewing your returns for errors. Your best defense to avoid falling victim to these scams is to learn how to spot them and remain vigilant throughout the year.

Phishing Attempts. Criminals are skilled as creating official-looking emails and websites that trick individuals into divulging their personal information. Taxpayers should be wary of all emails and text messages that request they log in to an established account or that ask for sensitive information, such as their social security or tax ID number. Moreover, remember that the IRS will never contact you via email or text, and any message purporting to come from the agency is most likely a scam.

Phone Scams. There has been a steady increase in phone scams in which criminals impersonate the IRS or claim to be IRS debt collectors in order con taxpayers into sending them bogus tax payments. Learn how to recognize these schemes and take extra precautions to protect yourself.

Identity Theft. Tax-related identity theft occurs when someone uses a stolen Social Security number or Individual Taxpayer Identification Number (ITIN) to file a fraudulent tax return and claim a refund. Safeguard your personal information and regularly review your credit report for signs of theft.

Tax Preparer Fraud. While the vast majority of tax professionals provide honest, high-quality service, there are some prepares who operate solely for the purpose of scamming taxpayers, perpetuating identity theft and reaping the benefits of refund fraud.

Inflated Refund Claims. Be wary of tax preparers who ask you to sign blank tax returns, promise you a refund before looking at your records or charging you fees based on a percentage of the refund. Do your homework and check references before selecting a tax preparer.

Falsifying Income to Claim Credits. Con artists have been successful in convincing taxpayers to invent income to erroneously qualify for tax credits, such as the Earned Income Tax Credit. To avoid significant tax bills and penalties and interest, make sure that you verify the accuracy of the information contained in the tax return you file with the federal government.

Falsely Padding Deductions on Returns. Think twice before overstating deductions, such as charitable contributions and business expenses, or improperly claiming credits, such as the Earned Income Tax Credit or Child Tax Credit, in an effort to reduce your bill or inflate the amount of your tax refund.

Fake Charities. Before making donations to charitable organizations, take the extra time to confirm that the group asking for a contribution is, in fact, a qualified and legitimate non-profit agency. A complete search is available on the IRS website.

Excessive Claims for Business Credits: Avoid improperly claiming tax credits, such as the fuel tax credit and the research credit, unless you satisfy the requirements to legitimately use them.

Offshore Tax Avoidance. Hiding money and income offshore has been the target of a wide sweep of successful enforcement actions. The best option for avoiding penalties and potential criminal prosecution is to come clean and voluntarily report offshore assets.

Frivolous Tax Arguments. While taxpayers do have a right to contest their tax liabilities, they should avoid using frivolous tax arguments or other unreasonable schemes to avoid their tax liabilities. The penalty for filing a frivolous tax return is $5,000 and felony prosecution.

Abusive Tax Shelters. The vast majority of taxpayers pay their fair share to the federal government. However, it is not uncommon for individuals to fall victim to con artists who scam them into using abusive tax structures. Always seek the opinion of professional counsel when faced with a complex tax-avoidance product.

About the Author: Edward N. Cooper, CPA, is director-in-charge of Tax Services with Berkowitz Pollack Brant, where he provides business- and tax-consulting services to real estate entities, multi-national companies, investment funds and high-net-worth individuals. He can be reached at the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or via email at info@bpbcpa.com.

Information contained in this article is subject to change based on further interpretation of tax laws and subsequent guidance issued by the Internal Revenue Service.

 

Businesses Face Challenges of New Limits to Excess Business and Net Operating Losses by John G. Ebenger, CPA

Posted on March 22, 2019 by John Ebenger

Two provisions of the Tax Cuts and Jobs Act (TCJA) are throwing some business owners for a loop as they prepare to file their federal income tax returns for 2018. The new law introduced a limit on the deductions that non-corporate taxpayers could claim for excess business losses while also limiting deductions for net operating loss (NOLs) carryforwards and repealing the use of NOL carrybacks. In addition, taxpayers should note that they must apply the at-risk limits and passive activity loss (PAL) rules under the old Tax Code before calculating the amount of any excess business loss.

An excess business loss is the amount by which the total deductions attributable to all of your trades or businesses exceed your total gross income and gains attributable to those trades or businesses plus $250,000 (or $500,000 in the case of a joint return).

Under the TCJA, taxpayers that are not structured as C Corporations may not deduct excess business losses in the current year. Instead, they can treat the disallowed deduction as a 2018 NOL carryforward that they may now use indefinitely to offset only 80 percent of a business’s future taxable income, according to the new NOL rules, which also prohibit taxpayers from carrying back NOLs that arise in tax years after Dec. 31, 2017. Exceptions apply for certain farming businesses and insurance companies, other than life insurance companies.

Despite Congress’s efforts to simplify the Tax Code, the new law can actually mean more work for taxpayers. For example, businesses will need to adjust carryovers from prior tax years to conform to the excess business loss limitations, and real estate professionals will need to apply the passive activity loss rules before calculating their business losses. In addition, taxpayers will need to carefully consider the scope of their income-generating activities and potentially implement new strategies to minimize the negative impact of these limitations and possible reduce their losses in 2018 and in future years.

The professional advisors and accountants with Berkowitz Pollack Brant have decades of experienced helping individuals and businesses across the globe implement tax-efficient strategies that comply with evolving tax policies.

About the Author: John G. Ebenger, CPA, is a director of Real Estate Tax Services with Berkowitz Pollack Brant, where he works closely with developers, landholders, investment funds and other real estate professionals, as well as high-net-worth entrepreneurs with complex holdings. He can be reached at the CPA firm’s Boca Raton, Fla., office at (561) 361-2000 or via email at info@bpbcpa.com.

 

 

 

How Can I Pay My Tax Bill? by Adam Cohen, CPA

Posted on March 15, 2019 by Adam Cohen

For many taxpayers, the joy they felt while taking home larger paychecks in 2018 due to the Tax Cuts and Jobs Act has turned to frustration as they file their federal income tax returns. Many are finding that they have a surprise tax bill or their refund from the government is significantly less than what they received last year. Why the disconnect?

It is common for taxpayers to assume that a tax cut automatically translates to a higher tax refund or a lower tax bill. The reality is that the size of refund or tax bill is based on how much you prepay to the government throughout the year through payroll tax withholding or estimated quarterly tax payments. If you withheld too much in 2018, you essentially gave the government an interest free loan that it will pay back to you as a refund when you file your returns. If you underpaid your tax liabilities, you may very well have a tax bill come April 15.

Many taxpayers are realizing that the new law’s lower tax rates and doubling of both the standard deduction and the child tax credit did not make up for the many deductions the law now limits or eliminates. According to the IRS, the number of taxpayers who qualified to receive a refund during the first week of this year’s filing season declined 24.3 percent from the same period last year, while the average dollar amount of refunds the agency did issue declined 8.4 percent. By Feb. 15, the average refund declined even further, falling 16.7 from the same period last year.

So how can you pay a tax bill that you did not expect to receive? The IRS offers several options for you to pay your liabilities either immediately or through an agreed-upon installment plan, for which interest and penalties may apply.

Here are some electronic payment options for you to consider:

  • Electronic Funds Withdrawal (EFW) allows you to pay through your bank account when you e-file your tax return. EFW is free and only available through e-File.
  • Direct Pay allows you to make a payment directly to the IRS from your checking or savings account. The service is free and you will receive an email confirmation when the agency receives your payments. This option allows you to schedule payments up to 30 days in advance and change or cancel them two business days before the scheduled payment date.
  • Credit Card or Debit Card payments are accepted online, by phone, or with a mobile device. Card payment processing fees vary by service provider, but no part of the fee goes to the IRS.
  • Pay with Cash is available when you visit one of 7,000 participating retail partners across the country, such as 7-Eleven stores, which can be found at https://www.irs.gov/paywithcash. Cash payments come with a $3.99 fee.

If you are unable to pay your tax debt immediately, you may visit the IRS’s online payment tool at https://www.irs.gov/payments/online-payment-agreement-application to apply for a payment plan. Eligibility will depend on your unique tax situation, and fees will apply.

If you do receive a tax bill for 2018, the good news is that you still have time to take action and minimize or even eliminate any amount you may owe in 2019. One of the easiest ways to accomplish this to the change the number of allowances you claim on your Form W-4, which tells your employer how much to withhold from your pay for tax purposes. If you are self-employed, you may choose to increase the amount of the estimated tax payments you make to the IRS each quarter. A tax accountant can help you estimate your projected income and related year-end tax liabilities and implement strategies to help you maximize your tax efficiency.

About the Author: Adam Cohen, CPA, is an associate director of Tax Services with Berkowitz Pollack Brant, where he works with closely held businesses and non-profit charities, hospitals and family foundations to maintain tax efficiency and comply with federal and state regulations. He can be reached at the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or via e-mail at info@bpbcpa.com.

Information contained in this article is subject to change based on further interpretation of tax laws and subsequent guidance issued by the Internal Revenue Service.

Miscellaneous Itemized Deductions – On the Brink of Extinction or Just in a Seven-Year Ice Age? by Jeffrey M. Mutnik, CPA/PFS

Posted on March 07, 2019 by Jeffrey Mutnik

Individual taxpayers have long relied on miscellaneous itemized deductions as a catch-all for a variety of business- and investment-related expenses that the tax code did not already allow as specified itemized deductions, such as those for medical expenses or contributions to charitable organizations. However, with the passage of the new tax law, these miscellaneous itemized deductions are no longer available for taxpayers to claim on their tax returns beginning in 2018.

Many taxpayers will not even notice the removal of these deductions, which were previously subject to being phased-out based on the taxpayer’s adjusted gross income (AGI). The only way taxpayers could yield the benefits of these deductions was if the total amount exceeded 2 percent of AGI. The peculiarity of the U.S. tax system was that the more income a taxpayer earned (creating a higher AGI), the greater the likelihood that the taxpayer would have more miscellaneous itemized deductions, but continue to lose the tax benefits since the higher income also increased the 2 percent limitation of these deductions. Additionally, the higher a taxpayer’s income, the more likely they would be subject to the alternative minimum tax (AMT), which essentially eliminating all tax benefits of the miscellaneous itemized deductions.

From a public policy point of view, eliminating these deductions will raise revenue and save the IRS time and money by not having to review, audit or litigate such matters. However, the impact on taxpayers can be significant, especially when they do not engage in advance planning to account of the loss of the deduction and improve their tax positions.

For example, while the new law prohibits individual taxpayers from deducting the costs they incur for hiring professionals to prepare their tax returns, taxpayers whose returns include a business reported on Schedule C have an opportunity for that business to fully deduct the associated fees on the Schedule C. This is similar to how an incorporated business would deduct professional fees on its corporate tax return. Since fees for the preparation of an individual tax return is not always segregated into its component parts, taxpayers should request their professional accountants provide them with an appropriate allocation of these fees.

In addition, without the benefit of deductions for unreimbursed business expenses (reportable on IRS Form 2016) beginning in 2018, taxpayers should consider requesting that their employers reimburse them directly for these expenditures. The employer’s reimbursement should become a business expense deduction for the employer without becoming taxable income to the employee. The employer’s policies and procedures should be reviewed and updated appropriately.

Additionally, without the availability of the miscellaneous expense deduction in 2018, taxpayers should weigh the benefits of paying their IRA fees individually with after-tax dollars versus having their IRAs pay those fees with pre-tax dollars. Under prior law, taxpayers often chose to pay IRA fees directly from their own funds to allow their IRAs to continue to compound growth without reducing their account balances for such fees.   Along the same lines, the new law’s elimination of deductions for investment fees may compel high net worth taxpayers to potentially create new organizational structures that allow them to treat these expenses as operating deductions rather than investment costs. The family that created Lender’s Bagels may be considered a pioneer of this strategy, creating a roadmap through litigation with the IRS in the Tax Court (TC Memo. 2017-246, Lender Management, LLC). Other families will find the facts and circumstances of their unique situation do not align with this case, and they will seek out alternate strategies. No matter what route taxpayers choose to take, their decision should always be made with the benefit of advice from informed tax professionals.

About the Author: Jeffrey M. Mutnik, CPA/PFS, is a director with the Taxation and Financial Services practice of Berkowitz Pollack Brant Advisors and Accountants, where he provides tax and estate-planning counsel to high-net-worth families, closely held businesses and professional services firms. He can be reached in the CPA firm’s Ft. Lauderdale office at (954) 712-7000 or via email at info@bpbcpa.com.

 

 

Information contained in this article is subject to change based on further interpretation of tax laws and subsequent guidance issued by the Internal Revenue Service.

 

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