NEWS & UPDATES

Great Year End Tax Planning Opportunity for Pass-Through Entities

As the end of the year approaches, it’s a good time to think of planning opportunities that will lower your overall income tax bill for 2018.  One of the most important provisions of the Tax Cuts and Jobs Act, enacted in 2017, is the new deduction for qualified business income (QBI).

Starting in 2018, this new deduction allows a 20% deduction on income from partnerships, limited liability companies, S corporations, or sole proprietorships, subject to limitations.    This deduction is taken at the partner, S corporation shareholder, or sole proprietor level.  QBI deduction reduces the taxable income, not the adjusted gross income of the taxpayers, and eligible taxpayers can take this deduction whether or not they itemize.

In general, qualified business income includes US domestic income from a trade or business and it does not include employee wages or guaranteed payments made to a partner, or investment income, including capital gains, interest and dividends.  The deduction is generally available to eligible taxpayers whose 2018 taxable incomes fall below $ 315,000 for joint returns and $ 157,500 for other taxpayers. 

The QBI deduction is very complex and is subject to multiple limitations based on the type of trade or business, the taxpayer’s taxable income, the amount of W-2 wages paid with respect to the qualified trade or business, and the unadjusted basis of qualified property held by the trade or business.  Notwithstanding these limitations, however, taxpayers with qualified business income and with taxable income under $157,500 for single, or $315,000 for joint returns, will generally be eligible for the deduction.  The IRS will be providing additional information and guidance on this deduction to further clarify the rules and definitions.

The new qualified business deduction offers a great opportunity for tax planning before year end.   Many taxpayers will see a reduction of their federal tax liabilities.

Be sure to contact us to provide you with an understanding as how these rules will affect your individual personal income tax liability before year end.

IRS issues guidance on Tax Cuts and Jobs Act changes on business expense deductions for meals, entertainment

The Internal Revenue Service issued guidance on the business expense deduction for meals and entertainment following law changes in the Tax Cuts and Jobs Act (TCJA).

The 2017 TCJA eliminated the deduction for any expenses related to activities generally considered entertainment, amusement or recreation.

Taxpayers may continue to deduct 50 percent of the cost of business meals if the taxpayer (or an employee of the taxpayer) is present and the food or beverages are not considered lavish or extravagant. The meals may be provided to a current or potential business customer, client, consultant or similar business contact.

Food and beverages that are provided during entertainment events will not be considered entertainment if purchased separately from the event.

Prior to 2018, a business could deduct up to 50 percent of entertainment expenses directly related to the active conduct of a trade or business or, if incurred immediately before or after a bona fide business discussion, associated with the active conduct of a trade or business.

The Department of the Treasury and the IRS expect to publish proposed regulations clarifying when business meal expenses are deductible and what constitutes entertainment. Until the proposed regulations are effective, taxpayers can rely on guidance in Notice 2018-76.

Updates on the implementation of the TCJA can be found on the Tax Reform page of IRS.gov.

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