You asked us to elaborate on how tax reform did away with client and prospect business meals. It starts with the Tax Reform Act of 1986, when business meals were by law placed in the entertainment category. As you know, so-called business-friendly tax reform killed deductions for business entertainment and, along with it, client and prospect meals.
Imagine this. You pay $1,000 for your golf foursome to play golf in the annual charitable golf outing. You have been doing this for years, and you were always able to deduct the full $1,000. Now, because of the new tax reform, your deduction is $300. Disturbing?
Has tax reform created a need for you to switch your S corporation to a C corporation? You will find the answer here. Also, you will find it interesting to see how we make the comparison easy with the chart in this article.
We had many compliments on our 2017 desktop reference and requests to create a 2018 desktop reference so that you can quickly look up the new (after tax reform) 2018 tax rates. You can download the new 2018 reference with the link that’s in this article.
Tax reform did not destroy business meal presentation expenses. Read this article to see how business meal presentations work in the real world and also learn the basic rules that apply to them.
Finally, lawmakers did the right thing by increasing the luxury auto depreciation limits on business cars. The old luxury limits were unrealistic, punitive, unfair, and discriminatory against any car that cost more than about $15,000. The new limits don’t create parity in all respects, but they are a big improvement.
Download your free resource guide titled Beating IRS Penalties, Your Guide to Reducing or Avoiding IRS Penalties.
Here’s a troubling thought. Did lawmakers put you in the out-of-favor tax group that denies you the 20 percent Section 199A deduction (a) because your business makes too much money and (b) it does so because of the reputation or skill of one or more of the business’ owners or employees?
The new 2018 Section 199A tax deduction that you can claim on your IRS Form 1040 is a big deal. There are many rules (all new, of course), but your odds as a business owner of benefiting from this new deduction are excellent.
The new Section 199A deduction is a very nice tax break for business owners, except for owners with high income who also fall into the out-of-favor group. In general, the out-of-favor group includes lawyers, doctors, accountants, tax professionals, consultants, athletes, authors, security traders, actors, singers, musicians, entertainers, and others.
Tax reform no longer allows Section 1031 exchanges on personal property such as your business vehicle. The trade-in was the most common 1031 exchange of a business vehicle. Now, because of tax reform, the vehicle trade-in is simply the sale of the old vehicle to the dealer and the purchase of a new vehicle. The sale to the dealer creates gain or loss on the sale just as it would on an outright sale.
Lawmakers finally did it. First, they reduced the directly related and associated entertainment deductions to 80 percent with the 1986 Tax Reform Act. Later, in 1993, they reduced that 80 percent to 50 percent. And now, with the newest tax reform, lawmakers simply killed business deductions for directly related and associated entertainment.
Lawmakers do not like businesses that feed their employees on the business premises. The new tax reform takes what last year was a 100 percent deduction for a meal served for the convenience of the employer, reduces it to 50 percent this year (2018), and then throws it into the compost pile with a zero deduction in 2026 and later years.
Will your business operation create the 20 percent tax deduction for you? If not, and if that is due to too much income and a lack of (a) wages and/or (b) depreciable property, a switch to the S corporation as your choice of business entity may produce the tax savings you are looking for.
You could (and can) deduct your costs for reimbursing employees for their qualified bicycle transportation costs. But tax reform now makes this bicycle transportation benefit a taxable event for your employees. As you will see in this article, even though the reimbursements are now taxable to the employees, you likely should continue the benefits.
If your pass-through business is an in-favor business and it qualifies for tax reform’s new 20 percent tax deduction on qualified business income, you benefit at all times, including being above, below, or in the expanded wage and property phase-in range. On the other hand, if your business is a specified service trade or business, it is in the out-of-favor group and you benefit only when you are in or below the phaseout range.
Traditional business entertainment such as business meals and ballgames with clients and prospects died with tax reform. That’s a sad deal, really. On the good news front, your parties with employees remain deductible, as do your employee entertainment facilities and selected other types of entertainment.
It’s true—you don’t need a receipt for an entertainment expense that is less than $75. But you may need to prove that you had the cash available to pay for your entertainment that cost less than $75.
The business mileage rules can get tricky, and this is especially true if you drive both inside and outside your metropolitan area. This metropolitan area is not what you think it is. The IRS and the courts have created special confusion about your metropolitan area.
Even if you are not required to file a tax return, you need to file a return within the statute of limitations if you are due a refund and you want the cash. If you fail to file a return within the statute of limitations, you forfeit your refund and make a contribution of that refund to the government.
With one business use of the home office and no personal use, you qualify for the home-office deduction. The second business use, employee use, and spouse use must equally qualify for the home-office deduction, or else.
If you own rental properties, you don’t want the tax law to call the rentals an investment. Instead, you want the rental properties to qualify as a trade or business so that you achieve tax-favored Section 1231 treatment and many other tax breaks.
What can appear logical when planning for the S corporation owner’s business expenses can prove costly to the owner and, as in this article, cost every penny of the business deductions.
We have had requests for a desktop reference that you can use to quickly look up the 2017 tax rates. You can download the 2017 reference with the link that’s in this article.
Section 1031 exchanges are perfect when you are going to stay in the real estate rental or investment business. When it’s time to cash out, you need to look at different strategies that help you avoid taxes and give you cash to spend (liquidity).
You want to deduct your business, rental, and non-rental losses when possible, because those deductions put cash in your pocket. The sooner you get the cash, the faster you can put that cash to work for you building your net worth. This article helps you realize those losses sooner.
You really should consider antiques when furnishing your offices or buying a unique second business vehicle. Unlike regular furnishings and vehicles, well-selected antiques increase in value. Also, you can depreciate or even Section 179 expense them. When you run the after-tax numbers, you can easily find that an antique will yield 36 times more after-tax cash than a non-antique.
If you are looking for some last-minute tips to save on your 2017 federal income taxes, this article has what you need.
The 1099-K gives the IRS another audit weapon. In this article, you see how an IRS revenue agent uses the 1099-K to catch taxpayers who underreported their gross income. You also learn why you are likely to receive a letter from the IRS auditing or asking about your 1099-K amounts.
When it comes to college planning, your lawmakers created some real traps. One big trap is the kiddie tax. This insidious tax destroys the traditional IRA as a college funding source and does much the same to your child’s interest and dividends savings. There’s much to know here, and we make it clear.
Do you have children who are currently subject to the kiddie tax? Could those children work for you or someone else and create some earned income? If so, the strategy in this Q&A can eliminate or reduce the kiddie tax.
What percentage of your business vehicles would you (or your business) like to deduct? To achieve your desired percentage, you need to know and apply the rules that the IRS applies to the mileage that you drive from your home to various business destinations.
The woman in this audit learned how tax knowledge can turn what appears as a nightmare (an IRS audit) into a positive happening—meaning cash refunds for the year of the audit and subsequent years. As the old saying goes, “knowledge is power.”
In IRS Notice 2015-17, the IRS allowed S corporation owners in 2014 and 2015 to avoid the $100-a-day penalties on S corporation reimbursements of individually purchased health insurance and on providing insurance for the owners only. But 2016, 2017, and 2018 are new years, so what is that status now?
If you have not done so before, make sure to put your safe harbor de minimis expensing election in place now. The new de minimis rules make your tax record keeping easier. With this safe harbor expensing, unlike with Section 179 expensing, you don’t need to track the assets and keep them in a depreciation schedule.