With summer coming to an end, it is not too early to think about year-end tax planning, particularly in light of U.S. tax reform and major developments like the Wayfair ruling. The CPAs at Gelman, Rosenberg & Freedman (GRF) are keeping clients informed as more clarity emerges around these landmark changes, and we work with our clients proactively to help them achieve their best tax position. Below is some information you should keep in mind as you think about the end of the current tax year.
Tax Cuts and Jobs Act of 2017 (TCJA)
Passage of PL 115-97 (aka TCJA) has grabbed most of the headlines this year because of its sweeping changes to the U.S. tax code. For more on TCJA, click here to listen to our recorded webinar, Tax Reform Myth and Reality: Leveraging Changes in the Tax Law to Achieve Your Best Tax Position.
Clarification of Qualified Business Income (QBI) from Pass-Through Entities
On August 8, the Internal Revenue Service (IRS) and the U.S. Treasury Department (Treasury) released guidance on Section 199A which allows taxpayers to deduct the combined qualified business income amount from a pass-through entity in an amount up to 20% of the taxpayer’s taxable income. The announcement included a new provision making the deduction available to many owners of sole proprietorships, partnerships, trusts and S corporations for tax years beginning after Dec. 31, 2017. Eligible taxpayers whose 2018 taxable incomes fall below $315,000 for joint returns ($157,500 for individuals) can claim the deduction for the first time on the 2018 federal income tax return. Methods for calculating Form W-2 wages for purposes of the limitation on this deduction were also issued in Notice 2018-64.
Implementation of Section 965 – Interest in Foreign Corporations
Taxpayers should be aware of their income tax obligations under section 965 if they are U.S. shareholders as defined under section 951(b) with direct or indirect ownership in certain specified foreign corporations as defined under section 965(e). These taxpayers may be required to pay a transition tax on the untaxed foreign earnings of certain specified foreign corporations as if those earnings had been repatriated to the United States. On August 1, the IRS announced proposed regulations implementing Section 965 that contain detailed information on the calculation and reporting of a U.S. shareholder’s section 965(a) inclusion amount, as well as information on the payment elections available. For more on the transition tax, read Proposed regs. address several transition tax issues.
State and Local Tax Deduction Limitation
The Internal Revenue Service (IRS) released proposed regulations on August 22, 2018 designed to curtail states ability to convert state tax payments to charitable deductions. Several states, including California, Connecticut, Illinois, New York, New Jersey and others, had been considering or had already enacted workarounds to the state and local tax deduction limitation under TCJA. These new regulations effectively eliminate the overall tax benefits of the various state proposals by requiring a reduction in the charitable contribution deduction equal to the tax credit provided by the state. Click here to the AICPA’s article with more discussion on the effects of the new proposed regulations.
South Dakota vs. Wayfair, Inc.
Small businesses will want to take note of the recent Supreme Court decision that imposes online sales tax across state lines. With the physical presence test no longer a factor in determining nexus, businesses (particularly online retailers) should prepare for new expenses related to technology to collect state sales taxes, and they should reconsider their profit margins as a result. Additionally, while online sales tax has not yet been implemented across all 50 states, businesses should track changes at the state level very carefully. For more information on the impact of the Supreme Court’s decision, read our article. If you think this new ruling may affect your business, please reach out to one of our tax specialists for support.
Year-end Tax Planning Webinar
November 15, 2018 | 11:00 am – 12:00 pm
Presented by Tax Partner and Director of Tax, Troy Turner, CPA and David Graling, CPA, MBA, Audit & Tax Partner
Tax Planning Seminars
Check GRF’s events page for the opportunity to participate in a tax planning seminar in the Washington, DC area this fall. Bring your questions and hear from GRF’s tax professionals what you should keep in mind as we approach the end of the year.
Troy Turner, CPA Becomes the Director of Tax at Gelman, Rosenberg & Freedman
GRF is pleased to announce the promotion of Troy Turner, CPA to Director of Tax. Mr. Turner succeeds Walter Deyhle, CPA, who served as Director of GRF’s Tax Department for over 36 years. Mr. Deyhle will continue in a leadership role at the firm focused on exit planning and valuation services.
With over 36 years in the industry, GRF provides individuals and businesses with a broad range of tax services and expertise. Beyond preparing the tax return, you can count on tax advisory provided by seasoned CPAs to help you plan for major life events or changes in your business now and in the future. In addition to working with our U.S.-based clients, we help many individuals and businesses with the complexities of living or operating overseas, reporting foreign income and assets and taking advantage of exclusions, credits and treaty benefits. Complementing our tax planning and preparation services, GRF also has certificate and designation holders in business valuation, forensic accounting and exit planning available to assist with many types of specialty engagements. Visit our website at www.grfcpa.com for more information.