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Business Tax Planning

04/02/2018

More New Business and Investor Tax Rules Released

The rules to calculate how new tax laws will impact business and investors are now being publicly released.  The Treasury Department and the Internal Revenue Service have announced updated guidance is ready for businesses and investors reflecting tax changes under the Tax Cuts and Jobs Act. 

Specifically, 2018 guidance on computing business interest expense limitations as well as withholding guidance on the transfer of non-publicly traded partnership interests will be released April 16th.  More updates are also expected in the weeks ahead as the changes and effects of tax reform are being confirmed and quantified.  Accountants and tax professionals now already have access to the information in order to help taxpayers determine the best tax planning strategies. Investor Business Manager working

A preliminary news release regarding business interest expense says the new tax law imposes a limitation on deductions for business interest incurred by certain large businesses.  For most large businesses, business interest expense is limited to any business interest income plus 30 percent of the business’ adjusted taxable income.

The IRS update will list new regulations that the Treasury Department and the IRS intend to enforce, including rules addressing how the business interest expense limitation is calculated at the level of a consolidated group of corporations as well as other rules. A notice on the new guidance makes it clear that partners in partnerships and S corporation shareholders cannot interpret newly amended sections inappropriately to “double count” the business interest income of a partnership or S corporation.

The announcement says that tax reform now interprets a foreign taxpayer’s gain or loss on the sale or exchange of a partnership interest as part of the conduct of a trade or business in the U.S. if the partnership sold all of its assets.  That means there is a tax due on the sale.  New guidance imposes a withholding tax on the disposition of a partnership interest by a foreign taxpayer.

Also, tax enforcement and collections authorities announce that they intend to issue more rules and procedures soon detailing how a business or individual may qualify for withholding exemptions or reductions in the amount of withholding under this section of the new tax law.  In addition, the notice suspends secondary partnership level withholding requirements.  See also our recent blog on the effects of the new "transition tax" affecting investors.

McRuer CPAs business tax planning experts will have the latest information about IRS guidance on these more complicated new business and investor-related tax laws.   If these provisions apply to you, or if you have questions about how the new tax act may affect you please contact us to schedule a meeting to review your tax plan to make certain it is updated to best benefit from the tax reform.  Call us for your appointment at 816.741.7882 or contact us online.

New Tax Withholding Calculator Reflects Tax Law Changes

It may be time for a "paycheck checkup" The new federal tax withholding calculator has been released reflecting changes under the Tax Cuts and Jobs Act.  The calculator helps taxpayers determine the correct amount of income tax that should be withheld from their paychecks.

The paycheck checkup can protect against having too little or too much tax withheld, which can lead to a balance due or a penalty when 2018 income tax returns are processed.  While tax reform includes lower tax rates for many working Americans, some changes may result in a higher tax bill for taxpayers with more complicated tax returns.

Click here to see information on the new withholding tables or click here for an interactive online version. Calculator and tax tables(The interactive version will need Javascript activation to work properly.)  The calculator will ask questions such as your estimated 2018 income, the number of children you may claim for the Child Tax Credit and Earned Income Tax Credit, and questions about other types of deductions.  You should have your most recent pay stubs and income tax return on hand to help you fill out the most accurate information.

Taxpayers with simpler tax filings may not need to make any changes as long as their current Form W-4 filed with their employer has the correct amount of claimed deductions.  Simple situations would include taxpayers who have only one job, have no dependents, and do not claim itemized deductions or tax credits.

Taxpayers who need to change the amount of tax withheld from their paychecks should complete a new Form W-4 and submit that to their employer.

Taxpayers who file more complex tax returns may need to use a different tool to calculate withholding amounts, including the IRS tax computation worksheet available in Publication 505 or should contact their tax planning advisor to ensure they are paying the correct amount of taxes on their income.  Taxpayers that may need this more advanced review include people who are self-employed, pay the alternative minimum tax, pay tax on unearned income from dependents or taxpayers reporting capital gains or dividends.

The paycheck checkup is encouraged for all taxpayers, but is especially important under the new tax laws for taxpayers who are part of two-income families, claim tax credits and itemized deductions, and who support older dependents.  Those who have two or more jobs or who work for only part of the year should also review their paycheck withholding to ensure the proper amount of tax is being withheld in total from all employers.

If you have questions about tax withholding or need the advice of tax planning professional, please contact us at McRuer CPAs online or call 816.741.7882.

03/12/2018

Identity Theft Targets Business Data

Good news. Bad news. New data shows tax-related identity theft is declining rapidly as federal and state tax and law enforcement officials seek solutions together.  Unfortunately, thieves and scammers continue to develop new schemes targeting both individuals and businesses yielding more stolen data and dollars per incident.

Identity thief eyes personal online dataA business can hardly do business without collecting and holding clients’ private and identifying information, including names and addresses, phone numbers, and email addresses.   Many businesses also collect and maintain their clients’ birth dates, credit information, Social Security numbers and more.  If a data security breach occurs, these individuals are at risk for tax-related identity theft.  Their personal information is used to file fake tax returns requesting refunds.  In other schemes, scammers posing as IRS representatives, or federal or state authorities or creditors directly demand payments for taxes that are not owed.

Businesses are warned to keep up with current scam and phishing trends as well as take the necessary steps to secure systems and fix vulnerabilities.  The Federal Trade Commission provides updated online information about securing operations against data breaches, and a new business-focused Data Breach Response Guide.

If you own a business that has been a victim of a data security breach, authorities offer three important steps to take:  notify law enforcement, notify other businesses affected (such as banks, credit issuers and major credit bureaus), and notify individuals.  If Social Security numbers have been compromised, individuals should be alerted to take steps to avoid being a tax-related identity theft victim.

The most popular way to steal from individual taxpayers uses simple data including names, phone numbers, email addresses and home addresses stolen from businesses.  With this basic information, scammers send out emails and make threatening phone calls claiming to be IRS representatives, banks or credit card companies demanding payments on overdue taxes, overdrawn accounts or bills.  They even using text messages contacting innocent victims who are tricked into sharing even more private information.  Criminals will use the IRS logo and language in letters, emails or phone calls that seem legitimate.

Specifically, tax-related identity theft uses a stolen Social Security number to file a fraudulent tax return claiming a refund.  This particular type of scam is being reduced dramatically as new, more-secure information transfers between the IRS and banks track automatic taxpayer refund deposits and checks.

Businesses should also remember that their business identity may also be stolen.  A new type of business tax identity-theft is on the rise.  Cybercriminals are using stolen business information to file fraudulent Forms 1120 – U.S. Corporate Income Tax Returns to capture corporate income tax refunds.  They often obtain this private business information through the business’s website and by hacking into documents stored on unsecured computers.

Taxpayers, businesses and tax professionals should remain alert and ask more questions before sharing information.  If you have questions about tax-related identity theft as an individual or business, please contact one of our tax preparation specialists at McRuer CPAs

02/13/2018

Investors Eye Effects of New Transition Tax

International investingAs corporations determine the impact of the one-time new tax reform-mandated ‘transition tax’ on overseas earnings, it’s important for investors to consider how the tax may impact a public company’s cash flow when valuing its stock.

A Tax Cuts and Jobs Act (TCJA) provision assesses a one-time ‘transition tax’ on accumulated 2017 untaxed earnings held overseas by considering those earnings repatriated.  Generally, foreign earnings held as cash or cash equivalents are taxed at 15.5 percent.  Remaining earnings are taxed at 8 percent.

Many American corporations have held their foreign-earned profits overseas for years to escape the world’s-highest 35% U.S. corporate tax rate.  As the new tax reform package imposes this one-time tax, the U.S. will relinquish its right to tax foreign profits.  The U.S. will then switch its corporation taxation method to a “territorial tax” system.

Under a territorial tax system businesses must pay income taxes only on the income earned within the subject country’s boundaries.  The tax liability is determined by the subject country’s tax laws, and no other nation’s corporate tax may be charged.  European nations have followed this tax method for decades, and it avoids double taxation.  TCJA supporters say this tax change, coupled with the new flat 21% corporate tax rate, will return jobs and American investment dollars back home.

However, this TCJA tax payment may complicate traditional methods used to analyze a company’s financial statements and attractiveness as an investment.  Corporations may pay the new one-time tax in eight annual installments under a back-loaded schedule, with a maximum 25% tax payment expected in the 8th year.  While this TCJA provision offers corporate taxpayers a potential significant overall tax savings, The Wall Street Journal reports that huge household-name US corporations like Microsoft, McDonald’s and Johnson and Johnson may pay billions to repatriate these earnings they otherwise would not have.  Financial analysts advise investors that this change may impact these companies’ cash flow as a percentage of their earnings – which is an important measure of a stock’s market value.  Investors should consider the impact of the new lower US corporate tax rate on a subject business’s cash flow remembering that at the same time the subject company owes the final and largest one-time tax payment, which may also be partly offset by tax credits, deductions, deferred tax liabilities and more.

Tax reform and consumer confidence have lifted the stock market to record-breaking levels. Now investors and analysts following corporations with foreign profits must re-think how they value companies as they determine what to buy or sell.

If you have any questions or need more information, please contact one of our wealth accumulation experts at McRuer CPAs online, or call 816.741.7882.

02/06/2018

New Business Tax Credit for Family and Medical Leave Approved

Daugher and elderly mom walkingA new federal tax credit is available for 2018 through the end of 2019 for eligible employers  providing their employees paid family and medical leave.  The new tax credit is part of the Tax Cuts and Jobs Act that has employers hoping the first version of the business tax credit will become permanent as more employers switch to paid time off (PTO) compensation as an employee benefit.

Full guidance regarding the credit has not yet been released, but a general review indicates eligible employers may claim a tax credit equal to a percentage of wages paid to qualifying employees on leave under the Family and Medical Leave Act (FMLA).  To receive the credit, employers must provide at least two weeks of FMLA leave and pay workers at least 50 percent of their regular earnings.  Both full-time and part-time workers, if employed for at least a year, must be offered paid leave for an employer to be able to claim the tax credit.  Part-time employee qualifying for paid leave must be determined on a prorated basis.

The credit will range from 12.5% to 25% of the cost of each hour of paid leave, depending on how much of a worker's regular earnings the benefit replaces.  The government will cover 12.5% of the benefit's costs if workers receive half of their regular earnings, increasing to 25% if workers receive their entire regular earnings while on leave.  So if the leave payment rate is 100% of the normal rate, then the credit is raised to 25% of the on-leave payment rate.  The maximum leave allowed for any employee during any tax year is 12 weeks.

Employers may only apply the credit toward workers they have employed for at least a year, and who were paid no more than $72,000 for 2017.  The wage ceiling will be inflation adjusted going forward.

As they await more specific guidance, Society for Human Resource (SHRM) members debate whether most company PTO policies qualify for the tax credit, as many do not offer paid ‘family and medical leave’ as a separate provision as the new tax law requires.  Instead, they say most companies designate their PTO benefits for vacation, personal, medical or sick leave; none of which are considered as ‘family and medical leave’ under FMLA.  The human resource professionals say that employers should review their paid-time-off policies to assure they are drafted to qualify them for the tax credit.

SHRM also points out the credit does not apply to paid leave mandated under state or local law.  Further, they suggest that policies may need to include nonretaliation provisions to assure employees won’t be penalized for taking the paid leave.

For more on the effect of the new tax credit on your business, please contact one of our business tax planning experts at McRuer CPAs online or call 816.741.7882.

01/17/2018

Online Sales Tax Debate Advances to Supreme Court

Interent Sales TaxThe U.S. Supreme Court has agreed to hear a case that may change the standard for how sales taxes are applied to online purchases.  In the case of South Dakota v. Wayfair Inc., the state will argue that all online sellers should be required to collect state sales taxes from South Dakota customers. It is one of only a few states that imposes taxes on all finished goods and services.  The case could set a precedent affecting all states and the District of Columbia.

Since 1992, a Supreme Court ruling (Quill v. North Dakota) has prevented states from collecting any sales tax from internet-related retail purchases unless the seller had a physical presence in the state where the sale transaction was conducted.  The case finding was based upon the idea that states should not interfere with interstate commerce.

The Tax Foundation’s Joe Bishop-Henchman writes that local businesses and states argue that they are unfairly losing revenues to retailers outside their jurisdiction.  He explains, “Traditional brick-and-mortar retailers that have to collect sales taxes feel they’re at a competitive disadvantage, and states are potentially losing out on billions of dollars in revenue annually.” 

On the other side of the issue, online retailers argue that each state may have different sales tax collection mandates that are often confusing, inefficiency in tracking collections, and expensive to comply with.

In this case, South Dakota is one of nearly two dozen states who are working together under the Streamlined Sales and Use Tax Agreement.  It is a voluntary governing board working to simplify and standardize sales tax rules.  At McRuer CPAs we have been helping clients navigate these issues since the advent of internet sales.  Unfortunately, their resolutions often reflect the one size fits all sales and use tax law requirements adopted years ago for a different time.

Arguments in the South Dakota v. Wayfair Inc. case are now set to be heard in April and may provide clarity on the constitutional limits of state taxing authorities and the scope and reach of the physical presence rule. 

8 Ways Tax Reform Affects You in 2018

Tax-ChangesAs we launch into the 2017 tax filing season we are receiving as many questions about the new Tax Cuts and Jobs Act and how it affects 2018 individual and business income taxes as we are about the best planning to file 2017 returns.  To that end, here we are highlighting the 8 most significant ways tax reform may affect you in 2018.  We will continue presenting additional information in the weeks ahead to help you best navigate your income tax planning.

Here are the eight tax change topics we receive the most questions about from both individual and business taxpayers:

  1. Individual income tax rates
  2. Personal exemptions
  3. Standard versus itemized deductions
  4. Child tax credits
  5. Mortgage interest
  6. Deducting state and local property taxes
  7. Estate tax
  8. Corporate income tax rate

Here is a short assessment of how tax reform has affected the eight tax topics compared to 2017 tax law.  These are generalized overviews of the tax law changes, so please keep in mind how they may apply your individual and/or business tax strategy may be different.

Individual income tax rates:  There were seven 2017 tax brackets: 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%.  Though President Donald Trump had hoped for three tax brackets, the final 2018 tax reform law was passed with seven tax brackets:  10%, 12%, 22%, 24%, 32%, 35%, and 37%.  Businesses have received the new employee income tax withholding tables and the IRS is working on updating its online calculator for businesses and employees to estimate their income tax liability and how these changes affect their annual tax bill.

Personal exemptions:  The prior law allowed most taxpayers a $4,050 exemption for each household member.  Under the 2018 tax law, personal exemptions are eliminated.

Standard deduction:  The prior tax law allowed a standard deduction of up to $6,350 for single taxpayers and married couples filing separately, $12,700 for married couples filing jointly, and $9,350 for heads of households.  The new law increase the standard deduction to $12,000 for single taxpayers, $24,000 for married couples filing jointly, and $18,000 for heads of households.

Child tax credits:  The 2017 tax law allowed a $1,000 tax credit for each qualifying child under age 17.  Now that credit is increased to $2,000 per qualifying child, and up to $1,400 is refundable.  A $500 credit has been added temporarily for other qualifying dependents.

Mortgage interest:  The mortgage interest deduction formerly allowed homeowners to deduct interest on mortgages up to $1 million and home equity borrowing up to $100,000.  Under the new law, the borrowing threshold is $750,000 for mortgage borrowing after December 14, 2017.  Mortgages closed prior to that date still qualify for the $1 million limit.  Beginning in 2026 the $1 million limit will return, while the home equity borrowing interest deduction has been eliminated until 2026.

State and local property taxes:  Under the old law Taxpayers itemizing their deductions could deduct state and local real and personal property taxes, and either state and local income taxes or state and local sales taxes.  Under the new law, state and local taxes remain deductible but the combination of all state and local taxes are now capped at $10,000.

Estate tax:   Under the former rules, a 40% tax was levied on qualifying estates of more than $5.49 million per person, or nearly $11 million per married couple transferred upon their death.  The 2018 law increases the overall estate tax exemption to nearly $11 million per taxpayer.

Corporate tax rate:  Previously the tax rate charged on corporate income varied between 15% to 35% depending on the amount of annual taxable income for a flat rate of 35% on all corporate income beyond a certain income amount.  The new tax law simplifies the rate by reducing the maximum corporate income tax rate on all corporate income to 21%.

Though many taxpayers were disappointed that the tax code was not more significantly simplified, the Tax Cut and Jobs Act is the most significant tax reform this country has experienced in more than 30 years.

While these tax changes do NOT affect your current 2017 tax return, they will affect your 2018 tax plan.  Connecting with one of our experienced tax planning professionals will help you make the adjustments that may be needed in your overall tax strategy.  Contact us to learn more about how to make certain you pay only what you owe, no matter how tax reform may affect your bottom line.

01/11/2018

2018 Income Tax Withholding Tables Now Confirmed

The IRS has released the updated 2018 federal income tax withholding tables reflecting the recent tax reform.  This is the first of several updates that will be released in the next few weeks.

The updated withholding information, now posted online (click here to view the new tables), shows the new rates for employers to use for computing employee withholding amounts.  Employers are requested to begin using the 2018 withholding tables as soon as possible, but not later than February 15, 2018. They should continue using the 2017 withholding tables until they have fully implemented the new 2018 withholding rules. Calculating pay and taxes

When employees will see the changes in their paychecks will vary depending on how quickly their employers implement the new tables, and how often they are paid — generally weekly, biweekly or monthly.  Most employees will begin seeing paycheck increases in February.

The new withholding tables are designed to work with the Forms W-4 that workers should have already filed with their employers to claim withholding allowances.  Employees do not have to do anything at this time.

Acting IRS Commissioner David Kautter says the IRS will be providing more information in the next several weeks to help employers and individuals understand and review the withholding changes and the other tax reform affecting payrolls and paychecks.  Kautter explains the new tax withholding tables are designed to produce the correct tax withholding amount for taxpayers with simpler tax situations.  He says the revisions are also aimed at avoiding income tax over- and under-withholding as much as possible.  Soon the IRS will release additional updated information for taxpayers with more complicated tax plans.

Meanwhile, the IRS is working on revising its online withholding tax calculator to reflect the new tax law data and expects the calculator will be available by the end of February.  A revised Form W-4  is also being developed.  Both the Form W-4 and the online calculator will estimate the effect of changes such as itemized deductions, child tax credit increases, the new dependent credit and the repeal of dependent exemptions. These tools may be used by employees wishing to update their withholding in response to new tax reform law, to reflect changes in their personal circumstances in 2018, and by workers starting a new job.

If you have any questions, please don’t hesitate to contact us at McRuer CPAs online or call us at 816.741.7882.

01/05/2018

Tax Filing Season Starts January 29 for 2017 Tax Returns

Tax-DayThe IRS has announced that this year’s filing season will officially begin January 29th.  That is the first date that completed tax returns will be accepted by the IRS, though tax preparation may be completed before then so returns may be ready to submit on the first available day for processing.  The date is a bit later than the launch of the 2016 filing season, which began January 23rd.

The agency has been updating its systems since November to accommodate tax law changes for 2017.  Going forward, it's not yet clear how long it will take the IRS to adjust to the newly passed tax reform law that will implement major changes affecting individual and business income and other taxes in 2018.  Those tax reform changes do not affect your individual 2017 tax return.

The deadline to submit your 2017 individual federal and state income tax returns is April 17th this year.  The date is on the 17th of April because April 15th is a Sunday and April 16th is a holiday in the District of Columbia.

The IRS will not begin accepting federal income tax returns until January 29th.  It also reminds taxpayers that, by law, it cannot issue refunds related to claims for the earned income tax credit or the additional child tax credit until mid-February.

If you have any questions or need help with the preparation of your individual or business income tax returns, please contact us at McRuer CPAs online (click here) or by calling 816.741.7882.

01/03/2018

Withholding Guidance for Small Business Coming Soon

Hand and calculatorThe IRS has released a short update to answer questions from small businesses about how soon they should implement changes from the newly approved tax reform bill.

Currently, the IRS says it plans to "issue the withholding guidance some time in January, and employers and payroll service providers will be encouraged to implement the changes in February."  The updated information is supposed to be designed to work with the existing Forms W-4 that employees have already filed.  This is to make certain no additional action by taxpaying employees will be needed regarding the amount of taxes that should be withheld for each individual.

The 2018 withholding guidelines should enable taxpayers to see changes from the tax reform bill reflected in their paychecks as early as February.  Until the new tables are released, employers and payroll service providers are asked to continue to use the 2017 withholding tables and systems.

If you have any questions, please don't hesitate to contact McRuer CPAs online or call us at 816.741.7882. 

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