IRS has announced Cost-Of-Living Adjustments for 2019

Notice 2018-83, 2018-47 IRB; IR 2018-211, 11/1/2018

IRS has announced the 2019 cost-of-living adjustments (COLAs) with respect to retirement plan limits. Many limits, which are adjusted by reference to Code Sec. 415(d), are changed for 2019 since the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. However, others remain unchanged. Certain dollar limit changes keyed to Code Sec. 1(f)(3), some of which were previously calculated by Thomson Reuters Checkpoint, have also increased.

The following plan limits are increased effective Jan. 1, 2019:

Elective deferrals. The Code Sec. 402(g)(1) limit on the exclusion for elective deferrals described in Code Sec. 402(g)(3) increases from $18,500 to $19,000 for 2019. This limitation affects elective deferrals to Code Sec. 401(k) plans, Code Sec. 403(b) plans, and the Federal Government's Thrift Savings Plan.

Defined benefit plans. The limitation on the annual benefit under a defined benefit plan under Code Sec. 415(b)(1)(A) increases from $220,000 to $225,000 for 2019. For participants who separated from service before Jan. 1, 2019, the 100% of average high-three-years' compensation under Code Sec. 415(b)(1)(B) is computed by multiplying the participant's compensation limitation, as adjusted through 2018, by 1.0264.

Defined contribution plans. The limit on the annual additions to a participant's defined contribution account under Code Sec. 415(c)(1)(A) increases from $55,000 to $56,000 for 2019.

Annual compensation limit. The maximum amount of annual compensation that can be taken into account for various qualified plan purposes, including Code Sec. 401(a)(17), Code Sec. 404(l), Code Sec. 408(k)(3)(C), and Code Sec. 408(k)(6)(D)(ii), increases from $275,000 to $280,000 for 2019.

Key employee in top-heavy plan. The dollar limit under Code Sec. 416(i)(1)(A)(i) relating to the definition of a key employee in a top-heavy plan increases from $175,000 to $180,000 for 2019.

ESOP 5-year distribution period. The dollar amount under Code Sec. 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan (ESOP) subject to a 5-year distribution period increases from $1,105,000 to $1,130,000 for 2019, while the dollar amount used to determine the lengthening of the five year distribution period increases from $220,000 to $225,000 for 2019.

Highly compensated employee. The dollar limit used in defining a highly compensated employee (HCE) under Code Sec. 414(q)(1)(B) increases from $120,000 to $125,000 for 2019.

Government plans subject to the grandfather rule. The annual compensation limitation under Code Sec. 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, '93 allowed COLAs to the plan's compensation limit under Code Sec. 401(a)(17) to be taken into account, increases from $405,000 to $415,000 for 2019.

SIMPLE accounts. The maximum amount of compensation an employee may elect to defer under Code Sec. 408(p)(2)(E) for a SIMPLE plan increases from $12,500 to $13,000 for 2019.

Government, etc. deferred compensation plans. The limit on deferrals under Code Sec. 457(e)(15), concerning deferred compensation plans of state and local governments and tax-exempt organizations, increases from $18,500 to $19,000 for 2019.

Control employee. The employee compensation amount used in the definition of "control employee" for fringe benefit valuation purposes under Reg § 1.61-21(f)(5)(iii) increases from $220,000 to $225,000 for 2019, but the compensation amount under Reg § 1.61-21(f)(5)(i) remains $110,000 for 2019.

Systemically important plan. The threshold used to determine whether a multi-employer plan is a systemically important plan under Code Sec. 432(e)(9)(H)(v)(III)(aa) increases from $1,087,000,000 to $1,097,000,000 for 2019.

The following plan limits are unchanged:

• Catch-up contributions. The dollar limit under Code Sec. 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in Code Sec. 401(k)(11) (SIMPLE 401(k) plan) or Code Sec. 408(p) (SIMPLE IRA) for individuals aged 50 or over remains at $6,000 for 2019. The dollar limit under Code Sec. 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in Code Sec. 401(k)(11) or Code Sec. 408(p) for individuals aged 50 or over remains at $3,000 for 2019.

•Simplified employee pensions (SEPs). The compensation limit under Code Sec. 408(k)(2)(C) (amount of compensation above which an employee who meets other requirements must be able to participate in the employer's SEP plan) remains at $600 for 2019.

• Gratuitous transfers of employer securities. The limitation under Code Sec. 664(g)(7) concerning the qualified gratuitous transfer of qualified employer securities to an employee stock ownership plan remains $50,000 for 2019.

• Premiums on longevity annuity contracts. The dollar limitation on premiums paid with respect to a qualifying longevity annuity contract under Reg § 1.401(a)(9)-6, Q&A-17(b)(2)(i), remains $130,000 for 2019.

The following plan limits are calculated by reference to Code Sec. 1(f)(3):

• IRA and Roth IRA income limits. The deductible amount under Code Sec. 219(b)(5)(A) for an individual making qualified retirement contributions increases from $5,500 to $6,000 for 2019. The 2019 figures reported by IRS for the income limits used to determine traditional IRA deductions and Roth IRA contributions are identical to the figures previously calculated by Thomson Reuters Checkpoint (see "Key 2019 individual tax items as calculated by Thomson Reuters Checkpoint based on inflation data").

• Saver's credit AGI amounts. The adjusted gross income (AGI) figures for the saver's credit increased as indicated below. Under the credit, an eligible lower-income taxpayer can claim a nonrefundable tax credit for the applicable percentage (50%, 20%, or 10%, depending on filing status and AGI) of up to $2,000 of his or her qualified retirement savings contributions.

For 2019, the AGI limitation under Code Sec. 25B(b)(1)(A) for determining the retirement savings contributions credit for married taxpayers filing a joint return increased from $38,000 to $38,500; the limitation under Code Sec. 25B(b)(1)(B) increased from $41,000 to $41,500; and the limitation under Code Sec. 25B(b)(1)(C) and Code Sec. 25B(b)(1)(D) increase from $63,000 to $64,000.

For 2019, the AGI limitation under Code Sec. 25B(b)(1)(A) for determining the retirement savings contributions credit for taxpayers filing as head of household is increased from $28,500 to $28,875; the limitation under Code Sec. 25B(b)(1)(B) is increased from $30,750 to $31,125; and the limitation under Code Sec. 25B(b)(1)(C) and Code Sec. 25B(b)(1)(D) is increased from $47,250 to $48,000.

For 2019, the AGI limitation under Code Sec. 25B(b)(1)(A) for determining the retirement savings contributions credit for all other taxpayers is increased from $19,000 to $19,250; the limitation under Code Sec. 25B(b)(1)(B) is increased from $20,500 to $20,750; and the limitation under Code Sec. 25B(b)(1)(C) and Code Sec. 25B(b)(1)(D) is increased from $31,500 to $32,000.

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IRS Provides Guidance On 20% Pass-Through Deduction

The Tax Cuts and Jobs Act -- signed into law on December 22, 2017 — gave birth to a brand new provision: Section 199A, which permits owners of sole proprietorships, S corporations, or partnerships to deduct up to 20% of the income earned by the business. While the provision has the potential to bestow a tremendous benefit upon owners of these pass-through businesses, since its enactment, no one has been able to, well... figure out how the whole thing works.

Read More: https://www.forbes.com/sites/anthonynitti/2018/08/09/irs-provides-guidance-on-20-pass-through-deduction-but-questions-remain/#4fa1dd862ff8

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Quick Notes For New Tax Law Changes

Hello everyone, I hope this finds you doing well.

At the end of last year Congress enacted the Tax Cuts and Jobs Act (TCJA) which includes a sweeping tax package. Here is a look at some of the more important elements of the new law that have an impact on individuals and businesses. Unless otherwise noted, the changes are effective for tax years beginning in 2018 through 2025.

Over the next couple of months we are going to be contacting clients that may need to change the structure of their business in order to take full advantage of some of the new tax laws.

Please read through these changes and let us know if you have any questions or concerns. We are still waiting on guidance from the IRS on how some of these new laws will apply to certain situations.

Tax Changes for Individuals

·        Tax rates. The new law imposes a new tax rate structure with seven tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The top rate was reduced from 39.6% to 37% and applies to taxable income above $500,000 for single taxpayers, and $600,000 for married couples filing jointly. The rates applicable to net capital gains and qualified dividends were not changed.

·        Standard deduction. The new law increases the standard deduction to $24,000 for joint filers, $18,000 for heads of household, and $12,000 for singles and married taxpayers filing separately.

·        Exemptions. The new law suspends the deduction for personal exemptions. Thus, starting in 2018, taxpayers can no longer claim personal or dependency exemptions.

·        New deduction for “qualified business income.” Starting in 2018, taxpayers are allowed a deduction equal to 20 percent of “qualified business income,” otherwise known as “pass-through” income, i.e., income from partnerships, S corporations, LLCs, and sole proprietorships. The income must be from a trade or business within the U.S. Investment income does not qualify, nor do amounts received from an S corporation as reasonable compensation or from a partnership as a guaranteed payment for services provided to the trade or business. The deduction is not used in computing adjusted gross income, just taxable income. For taxpayers with taxable income above $157,500 ($315,000 for joint filers), (1) a limitation based on W-2 wages paid by the business and depreciable tangible property used in the business is phased in, and (2) income from the following trades or businesses is phased out of qualified business income: health, law, consulting, athletics, financial or brokerage services, or where the principal asset is the reputation or skill of one or more employees or owners.

·        Child and family tax credit. The new law increases the credit for qualifying children (i.e., children under 17) to $2,000 from $1,000, and increases to $1,400 the refundable portion of the credit. It also introduces a new (nonrefundable) $500 credit for a taxpayer's dependents who are not qualifying children. The adjusted gross income level at which the credits begin to be phased out has been increased to $200,000 ($400,000 for joint filers).

·        State and local taxes. The itemized deduction for state and local income and property taxes is limited to a total of $10,000 starting in 2018.

·        Mortgage interest. Under the new law, mortgage interest on loans used to acquire a principal residence and a second home is only deductible on debt up to $750,000 (down from $1 million), starting with loans taken out in 2018. And there is no longer any deduction for interest on home equity loans, regardless of when the debt was incurred.

·        Miscellaneous itemized deductions. There is no longer a deduction for miscellaneous itemized deductions which were formerly deductible to the extent they exceeded 2 percent of adjusted gross income. This category included items such as tax preparation costs, investment expenses, union dues, and unreimbursed employee expenses.

·        Medical expenses. Under the new law, for 2017 and 2018, medical expenses are deductible to the extent they exceed 7.5 percent of adjusted gross income for all taxpayers. Previously, the AGI “floor” was 10% for most taxpayers.

·        Moving expenses. The deduction for job-related moving expenses has been eliminated, except for certain military personnel. The exclusion for moving expense reimbursements has also been suspended.

·        Alimony. For post-2018 divorce decrees and separation agreements, alimony will not be deductible by the paying spouse and will not be taxable to the receiving spouse.

·        Health care “individual mandate.” Starting in 2019, there is no longer a penalty for individuals who fail to obtain minimum essential health coverage.

·        Estate and gift tax exemption. Effective for decedents dying, and gifts made, in 2018, the estate and gift tax exemption has been increased to roughly $11.2 million ($22.4 million for married couples).

·        Alternative minimum tax (AMT) exemption. The AMT has been retained for individuals by the new law but the exemption has been increased to $109,400 for joint filers ($54,700 for married taxpayers filing separately), and $70,300 for unmarried taxpayers. The exemption is phased out for taxpayers with alternative minimum taxable income over $1 million for joint filers, and over $500,000 for all others.

Tax Changes for Businesses

·        Corporate tax rates reduced. One of the more significant new law provisions cuts the corporate tax rate to a flat 21%. Before the new law, rates were graduated, starting at 15% for taxable income up to $50,000, with rates at 25% for income between 50,001 and $75,000, 34% for income between $75,001 and $10 million, and 35% for income above $10 million.

·        Alternative minimum tax repealed for corporations. The corporate alternative minimum tax (AMT) has been repealed by the new law.

·        Net Operating Loss (“NOL”) deduction modified. Under the new law, generally, NOLs arising in tax years ending after 2017 can only be carried forward, not back. The general two-year carryback rule, and other special carryback provisions, have been repealed. However, a two-year carryback for certain farming losses is allowed. These NOLs can be carried forward indefinitely, rather than expiring after 20 years. Additionally, under the new law, for losses arising in tax years beginning after 2017, the NOL deduction is limited to 80% of taxable income, determined without regard to the deduction. Carryovers to other years are adjusted to take account of the 80% limitation.

·        Limit on business interest deduction. Under the new law, every business, regardless of its form, is limited to a deduction for business interest equal to 30% of its adjusted taxable income. For pass-through entities such as partnerships and S corporations, the determination is made at the entity, i.e., partnership or S corporation, level. Adjusted taxable income is computed without regard to the repealed domestic production activities deduction and, for tax years beginning after 2017 and before 2022, without regard to deductions for depreciation, amortization, or depletion. Any business interest disallowed under this rule is carried into the following year, and, generally, may be carried forward indefinitely. The limitation does not apply to taxpayers (other than tax shelters) with average annual gross receipts of $25 million or less for the three-year period ending with the prior tax year. Real property trades or businesses can elect to have the rule not apply if they elect to use the alternative depreciation system for real property used in their trade or business. Certain additional rules apply to partnerships.

·        Domestic production activities deduction (“DPAD”) repealed. The new law repeals the DPAD for tax years beginning after 2017. The DPAD formerly allowed taxpayers to deduct 9% (6% for certain oil and gas activities) of the lesser of the taxpayer's (1) qualified production activities income (“QPAI”) or (2) taxable income for the year, limited to 50% of the W-2 wages paid by the taxpayer for the year. QPAI was the taxpayer's receipts, minus expenses allocable to the receipts, from property manufactured, produced, grown, or extracted within the U.S.; qualified film productions; production of electricity, natural gas, or potable water; construction activities performed in the U.S.; and certain engineering or architectural services.

·        Increased Code Sec. 179 expensing. The new law increases the maximum amount that may be expensed under Code Sec. 179 to $1 million. If more than $2.5 million of property is placed in service during the year, the $1 million limitation is reduced by the excess over $2.5 million. Both the $1 million and the $2.5 million amounts are indexed for inflation after 2018. The expense election has also been expanded to cover (1) certain depreciable tangible personal property used mostly to furnish lodging or in connection with furnishing lodging, and (2) the following improvements to nonresidential real property made after it was first placed in service: roofs; heating, ventilation, and air-conditioning property; fire protection and alarm systems; security systems; and any other building improvements that aren't elevators or escalators, don't enlarge the building, and aren't attributable to internal structural framework.

·        Bonus depreciation. Under the new law, a 100% first-year deduction is allowed for qualified new and used property acquired and placed in service after September 27, 2017 and before 2023. Pre-Act law provided for a 50% allowance, to be phased down for property placed in service after 2017. Under the new law, the 100% allowance is phased down starting after 2023.

·        Computers and peripheral equipment. The new law removes computers and peripheral equipment from the definition of listed property. Thus, the heightened substantiation requirements and possibly slower cost recovery for listed property no longer apply.

·        Like-kind exchange treatment limited. Under the new law, the rule allowing the deferral of gain on like-kind exchanges of property held for productive use in a taxpayer's trade or business or for investment purposes is limited to cover only like-kind exchanges of real property not held primarily for sale. Under a transition rule, the pre-TCJA law applies to exchanges of personal property if the taxpayer has either disposed of the property given up or obtained the replacement property before 2018.

·        Partnership “technical termination” rule repealed. Before the new law, partnerships experienced a “technical termination” if, within any 12-month period, there was a sale or exchange of at least 50% of the total interest in partnership capital and profits. This resulted in a deemed contribution of all partnership assets and liabilities to a new partnership in exchange for an interest in it, followed by a deemed distribution of interests in the new partnership to the purchasing partners and continuing partners from the terminated partnership. Some of the tax attributes of the old partnership terminated, its tax year closed, partnership-level elections ceased to apply, and depreciation recovery periods restarted. This often imposed unintended burdens and costs on the parties. The new law repeals this rule. A partnership termination is no longer triggered if within a 12-month period, there is a sale or exchange of 50% or more of total partnership capital and profits interests. A partnership termination will still occur only if no part of any business, financial operation, or venture of the partnership continues to be carried on by any of its partners in a partnership.

 As you can see from this overview, the new law affects many areas of taxation. If you wish to discuss the impact of the law on your particular situation, please give me a call.

Thank you!

Andrew McMillan, CPA

Tax Partner

REH CPA, PLLC

rehcpas.com

704-662-8249

U.S. TOP COURT LETS STATES FORCE ONLINE RETAILERS TO COLLECT SALES TAX

By Lawrence Hurley

WASHINGTON (Reuters) - States may force online retailers to collect potentially billions of dollars in sales taxes, the U.S. Supreme Court said in a major ruling on Thursday that undercut an advantage many e-commerce companies have enjoyed over brick-and-mortar rivals.

In a 5-4 ruling reviving a South Dakota law challenged by Wayfair Inc, Overstock.com Inc and Newegg Inc, the justices overturned a 1992 high court precedent that had barred states from requiring businesses with no “physical presence” there, like out-of-state online retailers, to collect sales taxes.

Read More: https://www.reuters.com/article/us-usa-court-taxes/supreme-court-lets-states-force-online-retailers-to-collect-sales-tax-idUSKBN1JH23B

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Update on Operation times:

Starting the week of May 12th and ending September 31st, our office will close on Fridays at 12:00 pm.

If you have any questions or concerns please contact us.

http://www.rehcpas.com/

NY Times: California Supreme Court Deals Major Blow To Gig Economy Business Model

NY Times: California Supreme Court Deals Major Blow To Gig Economy Business Model, Treats Workers As Employees Rather Than Independent Contractors

In a ruling with potentially sweeping consequences for the so-called gig economy, the California Supreme Court on Monday made it much more difficult for companies to classify workers as independent contractors rather than employees.

Read More: http://taxprof.typepad.com/taxprof_blog/2018/05/ny-times-california-supreme-court-deals-major-blow-to-gig-economy-business-model-treats-workers-as-e.html

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Boost To Small Business Retirement Plans

The Tax Cuts and Jobs Act (TCJA) was signed into law by President Trump near the end of 2017 and it mostly took effect in 2018. While the TCJA impacts almost every single individual taxpayer to some degree, the changes also significantly impact corporations and small businesses. In some areas, the impact was purposeful and directed. However, in other ways, the TCJA will have both positive and negative secondary effects. One area that could see a secondary or unintended boost due to a new tax deduction (IRC § 199A) for pass through businesses is retirement plans with small business employers.

Read More: https://www.forbes.com/sites/jamiehopkins/2018/03/12/tax-reform-provides-boost-to-small-business-retirement-plans/#546db60c4f32

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