Back to top

Client Login

Forgot your password?

Tax Alerts

Click here to go back

Importance of Year-End Tax Planning for 2018

Posted by Admin Posted on Nov 21 2018

As the end of 2018 rapidly approaches, we are sharing this alert as a reminder that 2018 is not business as usual from a Federal and state income tax year-end planning perspective.

 

The 2018 tax year is the first year the changes made by the 2017 Tax Cuts and Jobs Act go into effect for most businesses and individuals.

 

MAJOR BUSINESS CHANGES

 

  • Corporate tax rate.  The C corporation tax rate was reduced to a flat 21 percent rate.  For some corporations this will be a tax rate increase.

 

  • Section 199A pass-through deduction.  A new 20 percent tax deduction was created for businesses, including farming and rental real estate, operating as a sole proprietorship, S corporation, limited liability company or partnership.  The new tax deduction comes with a great deal of complexity and requires review prior to year-end for optimization.

 

  • Depreciation.  More liberal depreciation rules were put into effect starting September 17, 2017.  The new rules carry over into 2018 and future tax years.  Both new and used equipment purchases qualify for some of these new liberalized rules, including business acquisitions.  Coordinating with the new Section 199A tax deduction is required.

 

  • Like-kind exchanges.  Like-kind exchange of personal property was repealed.  Now all car and equipment trade-ins are taxable.

 

  • Cash method of accounting.  Expansion of the ability to utilize the cash method of accounting may provide an opportunity for additional flexibility for year-end planning.

 

  • Interest expense deduction.  A limitation on the use of interest expense as a tax deduction was enacted for larger corporations.

 

MAJOR INDIVIDUAL CHANGES

 

  • Section 199A deduction.  The Section 199A deduction from pass-through entities is discussed above.  Managing your taxable income is important to maximizing your Section 199A deduction.

 

  • Standard deduction increase.  For many individuals, the increased standard deduction may limit the ability to itemize tax deductions each year.  Bunching deductions in alternative years will become an important planning tool for many individual taxpayers.  

 

  • Limit on state and location tax deduction.  The itemized deduction for state income tax, real estate tax and personal property taxes is limited to a combined $10,000 annually.

 

  • Charitable giving alternatives.  Direct charitable gifts from IRA accounts for individuals over 70 ½ and the use of donor advised funds will become important planning tools for those with charitable giving objectives.

 

  • Reduced Federal withholding.  The 2018 Federal income tax withholding tables could cause individual taxpayers to owe money when they file their 2018 tax return.  Check your withholding before year-end so you can plan for this possibility. 

Meals and Entertainment Charts

Posted by Admin Posted on Nov 19 2018

Meals and Entertainment

 

Activity

2018 Expenses
(New Law)

2017 Expenses
(Old Rules)

 

Office holiday parties,
  summer picnics

100% deductible
 

100% deductible
 

 

Entertaining clients













 

Meals 50% deductible

50% deductible

Meals with prospects
  and referral sources –
  50% deductible

50% deductible

 

Events such as theatre
  tickets, sporting tickets,
  golf outings – not
  deductible, meals 50%
  deductible, if separated
  on invoice or receipt

50% deductible




 

Charitable event tickets –
  charitable portion
  deductible, meals 50%
  deductible if separated
  on invoice or receipt

Tickets to qualified charitable
  events – 100% deductible


 

 

Business meetings of employees,
  stockholders, agents or directors

50% deductible
 

50% deductible
 

 

Expenses for attendance at a
  501(c)(6) business meeting or
  convention of a business league

Meals – 50% deductible

 

50% deductible

 

 

Employee travel meals

50% deductible

50% deductible

 

Meals provided for the
  convenience of the employer
 

50% deductible
  (not deductible after 2025)
 

100% deductible if a
  de minimis fringe benefit;
  otherwise 50% deductible

 

Examples

 

Example Activity

2018 Expenses
(New Law)

2017 Expenses
(Old Rules)

 

 

 

Meal with a client in town (not
  away from home)

50% deductible
 

50% deductible
 

 

 

 

Meal with a client while traveling
  away from home

50% deductible
 

50% deductible
 

 

 

 

All employee meeting with food
  and beverages served after

100% deductible
 

100% deductible
 

 

 

 

Open house for customers and
  employees

 

Employee portion –
  100% deductible
Customer portion –
  50% deductible

Employee portion –
  100% deductible
Customer portion –
  50% deductible

 

 

 

Company sponsors a table at a
  charitable event attended by
  employees and customers

 

Value of meals – 50% if
  separated on invoice
  or receipt
(Remainder is charitable contribution)

Meals – 50% deductible
(Remainder is a charitable contribution)

 

 

 

 

Golf sponsorship and outings
  $1,000 of which $300 is
  charitable contribution



 

Meals – 50% deductible if
  separated on invoice
  or receipt
Cost of golf – Not
  deductible

(Remainder is charitable contribution)

Meals and golf –
  50% deductible
(Remainder is a charitable contribution)


 

  • Note the cost of the meal must not be lavish or extravagant under the circumstances.
  • Assumes appropriate documentation exists in all instances.
  • Additional guidance and clarification from the IRS is still forthcoming.

Wayfair Decision State Tax Alert

Posted by Admin Posted on Oct 12 2018

On June 21, 2018, the U.S. Supreme Court (the Court) issued a decision in South Dakota v. Wayfair, overturning the physical presence standard requirement for states to impose sales and use tax filing obligations on companies doing business in a state.  As a result, companies are in the process of understanding how the Wayfair decision impacts their sales and use tax filing requirements.

 

We are alerting our clients that the Wayfair decision could also have other state tax filing implications, including income and franchise taxes as examples.

 

The Court observed in their Wayfair ruling that targeted advertising and electronic sales may allow a business to have “substantial virtual connections” to a state without traditional physical presence.  The Court noted that other functions of e-commerce, such as websites leaving cookies on customer hard drives and applications that can be downloaded on customer phones, may be considered to create something akin to a physical presence in a taxing state.

 

Given the Court's conclusion that “physical presence is not necessary to create substantial nexus”, the Wayfair decision could impact other state taxes, such as state income or franchise taxes, for companies conducting business activities in a state without necessarily having a physical presence.

 

For example, even prior to Wayfair, many state and Federal courts have taken the position that the physical presence standard does not apply for purposes of state income taxes.  Many states have been emboldened to enact “factor presence” laws tied to sales, property or payroll in their state.  Wayfair decision type states have attempted to subject companies to their state tax regime if they are doing business in their state even without physical presence.

 

The Court has declined to hear challenges to economic nexus laws for state income tax filing purposes.  With the test announced in Wayfair, more states may enact aggressive legislation.  Effects are likely to be especially pronounced in the handful of states that have taken the position that physical presence is not necessary for the state to assert income tax nexus against a company doing business in their state.  Physical presence is not required to establish nexus with Nebraska. [Neb. Rev. Stat.  §77-2734.04(5)]. 

 

We believe the Wayfair decision may empower states to not only enact legislation, but also pursue audit and collection activities against companies doing business in their state that currently are not subject to their state taxing regime.

 

Therefore, we believe it is necessary for companies that have customers or clients in multiple states to actively review their state filing positions in light of the recent Wayfair decision.

 

Please contact us if you need assistance with such a review or have questions about the Wayfair alert. 

2017 Tax Planning

Posted by Admin Posted on Dec 06 2017

Congress is currently working on a massive tax reform proposal that could change many aspects of income tax law. It is uncertain what the final version of the bill will look like or if anything will get passed at all, but there are still income tax planning opportunities available under the current law. We highlight below a few strategies you may want to consider before the end of the year to reduce your 2017 taxes.

  • Postpone income until 2018 and accelerate deductions into 2017 including:
    • Maximize your charitable contributions including prepayment of athletic event seating donations.
    • Prepay real estate taxes, state income taxes and miscellaneous itemized deductions (e.g., investment fees) unless you  are in an alternative minimum tax situation.
    • Defer any year-end bonuses.
    • If you have a health savings account (HSA), maximize your contributions for 2017 in December.
  • For individuals age 70 ½ or older, consider making charitable gifts up to $100,000 per person directly from your  individual retirement account (IRA).
  • Maximize your retirement plan contributions.
  • Reduce potential capital gains by selling securities in a loss position.

 

We also want to alert you to some new rules that will affect our partnership and LLC clients.

  • Beginning with partnership tax years starting on or after January 1, 2018, the partnership will be liable for any assessments levied on prior years’ tax returns.
  • This will eliminate the need to proceed against individual partners.
  • Current partners will be held responsible for tax liabilities of prior partners.
  • The “tax matters partner” will be replaced with a “partnership representative.”
    • This person will have complete authority to act on behalf of the partnership and the partners when dealing with the IRS.
    • This person also has the authority to make various elections.

 

In light of these changes, we recommend you review your partnership or LLC agreement with your attorney as soon as possible to ensure it addresses the significant changes required.

If you would like our assistance with any of your year-end planning questions, please let us know.