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If You Wonder About Tax Changes After Trump Tax Reform, Read This Summary

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According AccountingToday From a taxation point of view, the coming 2020 season will no doubt be more efficient than the past year. Now we are more proficient and have a better understanding of the new tax rules.  Be it as it may, it is a good idea to sit down with your tax advisors now to discuss what lies ahead.

The 199A 20% Deduction For Pass-Through Entities

This is a prominent aspect of most people’s tax planning, and after the past year’s learning curve, most practitioners can now advise on the proper business structure that their clients should select to take advantage of the new legislation.

No doubt, most taxpayers will not change their business structure, but such a decision has to be left until the structure has been thoroughly reconsidered in terms of new regulations.  Since corporate tax rates are now down to 21%, taxpayers should be able to justify why, if they decide not to switch to C corp status.  For most, the justification will be that double taxation will persist despite the same.

In terms of the final guidance on 199A, there is provision for a real estate safe harbor.  Sit down with your tax practitioners and determine whether you received this deduction during 2019. If you did not, try to find a strategy that will make you qualify for the coming year.  If you did not qualify because of the W-2 limit, you might be able to pay W-2 wages by changing the way you do business to qualify this year.

Section 163(j) on business interest limitation and the global intangible low tax income (GILTI) in respect of foreign income should be clear to you, so discuss this with your tax advisor.

The main difficulty with the application of the rental real estate safe harbor remains the question of whether your rental activity rises to the level of a trade or business.  The IRS provides a 250-hour safe haven for taxpayers who wish to claim the Section 199A deduction for a rental real estate enterprise.

A rental real estate enterprise is defined as an interest in real property, single or multiple properties, to generate rental or lease income. The taxpayer (or the pass-through partnership, sub-S corporation, estate, or trust), must hold each interest directly or through an entity treated as separate from its owner (such as an LLC).

  • 250 hours of rental services must have been performed in at least three of the past five years
  • For firms that are less than three years old, 250 hours of rental service must have been conducted per year
  • The taxpayer must maintain a contemporaneous record that includes time reports, logs, or similar documents to record all hours of all services performed, a description of the services performed, the date of the same, and the identity of the individual that performed the service.

  

Itemization

Due to the nearly double standard deduction, tax prepares must now consider if a taxpayer will ever be able to itemize.  Odds are that the answer will from now on always be negative, and if that is the case, many strategies have to change. It will be redundant then, to accelerate payments of expenses that would have been itemized, for example.  For those taxpayers who are charitable, it might work better to bunch itemized deductions into a single tax year, either by doubling contributions every other year to get over the threshold or to increase gifting in one year by putting money into a donor-advised find, for example.

Not all old standards are redundant, however.  A business that needs equipment will still benefit by putting the new equipment into service before the year-end to gain the 100 percent bonus depreciation deduction.  Retirement planning needs to be addressed as well, and those taxpayers who are employees should consider maximizing their contributions to employer retirement funds.

 

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Redundant Planning Techniques

In the past, you probably paid the fourth quarter of state income early or accelerated payment of property tax, but this will not work once you are over the $10,000 SALT limit.  On state level you might be able to deduct property taxes, though.

If you owed tax in 2018, it is incumbent to adjust your withholding and to make estimated tax payments. Some of you might have a lot of deductions but had a lousy year with losses, so your income is not sufficient to use all the deductions.  There is still time to convert your IRA into a Roth IRA. The income that comes from this conversion can be offset by personal deductions that would otherwise be unused.

More Deductions For Small Business

If you are a small business owner, consider the new, more substantial deductions you can make for the purchase of equipment – up to $ 1 million.  In the meantime, bonus depreciation will still be possible for 2019.  If it makes sense for your business to purchase new equipment that qualifies for bonus depreciation, before the end of the year, then do so.  The provision will disappear in 2020.

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The family leave tax credit will also disappear for small businesses in 2020.  It is still available this year for paid employee family leave.

Those of you who have capital gains should think about rolling them over into a Qualified Opportunity Fund for the benefit of the 15% step-up in basis resulting in a reduction of the deferred gain that is not recognized before 2026.  If you roll over capital gains after 31 December 2019, you will only qualify for a 10-percent step-up in basis.  Any appreciation in the QOF investment if you hold it for more than ten years, is entirely free from tax.

Readers should note that this article is only intended to convey general information on these issues and that FAS CPA & Consultants (FAS) in no way intends for the contents of this article to be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services.  This article cannot serve as a substitute for such professional services or advice.  Any decision or action that may affect the reader’s business should not rely solely on the contents of this article, but should rather be consulted on with a qualified professional adviser. FAS shall not be responsible for any loss sustained by any person who relies on this presentation.  This article is subject to change at any time and for any reason.

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Fulton Abraham Sanchez, CPA

Fulton Abraham Sánchez, CPA I am Certified Public Accountant, specialized in Tax Planning & Offshore Strategies for Real Estate, Hedge/Equity Funds, Fintech, Crypto, Expats, IRS Debt Resolution. You can email me fa@fascpaconsultants.com and follow us on Facebook : FAS CPA & Consultants.

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