2020 Year-End Tax Planning for Businesses

We can all agree that 2020 is unlike any other year. As we consider tax-planning strategies for the year end, major uncertainty continues concerning the severity of the pandemic and length of the economic recovery. Although Congress passed two major pieces of legislation in response to the health and economic impact of the coronavirus pandemic, it remains unclear if additional relief is forthcoming. In addition, some regularly expiring tax provisions are due to expire again at the end of 2020. In the meantime, the IRS continues to release significant guidance on provisions of the Tax Cuts and Jobs Act. As such, each business should consider the unique challenges and possible opportunities that this year presents.

COVID Relief

In addition to providing resources to the health community to help contain and combat the virus, the Families First Coronavirus Response Act offered employees and self-employed individuals affected by the pandemic with guaranteed paid sick leave. Provisions of the Coronavirus Aid, Relief and Economic Security (CARES) Act also included numerous tax benefits for businesses. Here are highlights for tax planning consideration at 2020 year-end.

  • The Paycheck Protection Program (PPP). Under the Cares Act, a recipient of a covered loan can receive forgiveness of indebtedness on a PPP loan in an amount equal to the sum of payments made for qualified expenses. According to IRS guidance, the business expenses related to forgivable PPP loans are not deductible. However, lawmakers state that this was not their intent. Congress will need to address the deductibility of these expenses in future legislation to clearly make these expenses deductible.
  • Employee Retention Credits. The employee retention credit is designed to encourage businesses to keep employees on their payroll and is available for qualified wages paid through the end of 2020. This credit is very similar to the paid leave credits granted to employers under the Families First Coronavirus Response Act with some changes to the requirements. Most significantly, neither the employee nor the employer has to be directly impacted by the infection. Employers can reduce their required deposits of payroll taxes withheld from employees’ wages by the amount of the credit or request an advance of the employee retention credit. Eligible employers may use the employee retention credit with other relief such as payroll tax deferral which may affect deposits and advances.
  • Deferred Payroll Tax Payments. Payroll taxes due from the period beginning on March 27, 2020 and ending on December 31, 2020, can be deferred. The total payroll taxes incurred by employers, and 50 percent of payroll taxes incurred by self-employed persons qualify for the deferral. Half of the deferred payroll taxes are due on December 31, 2021, with the remainder due on December 31, 2022.
  • Executive Memorandum on Withholding. President Trump has authorized employers to defer the withholding of the employee’s share of Social Security taxes through the end of 2020. However, unless Congress forgives the repayment of these taxes, they will have to be repaid in the first quarter of 2021. It is unclear as to how the deferred tax would be collected from individuals who are no longer employed when the taxes come due. Employers that are concerned with the administration and collection of the deferred taxes continue to withhold the taxes from their employees.

Tax Cuts and Jobs Act modified under the CARES Act

Several tax provisions under the Tax Cuts and Jobs Act were modified by the CARES Act for 2020 and earlier years providing opportunities to amend prior year returns. A 15-year recovery period is retroactively assigned to qualified improvement property placed in service after December 31, 2017 allowing the property to be depreciated over 15 years or, alternatively to qualify for 100 percent bonus depreciation. Net operating losses (NOLs) arising in tax years beginning in 2018, 2019, and 2020 now have a five-year carryback period with an unlimited carryforward period and are not limited to 80 percent of taxable income. The business interest deduction limit increased from 30 to 50 percent of the taxpayer’s adjusted taxable income for the 2019 and 2020 tax years with special rules for partners and partnerships. The limitation on the deduction of excess business losses for noncorporate taxpayers does not apply for tax years beginning in 2018, 2019, and 2020. Corporations can accelerate the recovery of refundable AMT credits which allows corporations to claim a refund immediately and obtain additional cash flow during the COVID-19 emergency.

Expiring Provisions

Taxpayers might consider taking advantage of the following tax benefits in 2020 before they expire. In some cases, these benefits were retroactively applied. In which case, it may be useful to amend prior year’s returns if the savings are significant enough.

  • The Work Opportunity Credit terminates for wages paid to workers that begin work for an employer after December 31, 2020.
  • A deduction is allowed for all or part of the cost of energy efficient commercial building property (i.e., certain major energy-savings improvements made to domestic commercial buildings) placed in service after December 31, 2017 and before January 1, 2020.
  • A three-year extension of the energy-efficient homes credit is available to eligible contractors for new homes manufactured after December 31, 2017 through December 31, 2020.

Contact Us

There is no one size fits all for tax planning and any strategy may have unintended consequences if the taxpayer’s situation is not evaluated holistically considering changing landscape. Traditional methods for postponing income and accelerating deductions may not be the best option if tax rates rise after an election year. Please call our office to discuss all your options.

2020 Year-End Tax Planning for Individuals

As the end of 2020 approaches, we can all agree that this year is unlike any other. The coronavirus pandemic and natural disasters have had a significant impact on the tax situation for many taxpayers. In response to the health and economic impact of the coronavirus pandemic, Congress passed two major pieces of legislation – the Families First Coronavirus Response Act and the Coronavirus Aid, Relief, and Economic Security (CARES) Act. More relief may be forthcoming. In addition, we might expect future tax law changes following the election. As such, each individual taxpayer should consider the unique challenges and opportunities that this year presents.  

Economic Impact Payment

If an individual missed the extension for non-filers, the credit may be taken on the 2020 Form 1040 for the full amount to which they are entitled. Taxpayers who received more than the amount to which they are entitled do not have to repay it unless they were not eligible to receive it in the first place, e.g. deceased individuals or non-resident aliens. A person claimed as a dependent in 2018 or 2019 may also be entitled to the refundable credit if they are not claimed as a dependent in 2020 even though their parent received the $500 credit for the earlier year.


The CARES Act allows penalty free distributions made during the 2020 calendar year of up to $100,000 for COVID-related expenses. Any income attributable to an early withdrawal is subject to tax over a three-year period, and taxpayers may recontribute the withdrawn amounts to a qualified retirement plan without regard to annual caps on contributions if made within three years.

The maximum loan amount from a retirement account is increased from the lesser of $50,000 or 50% of vested balance to the lesser of $100,000 or 100% of vested balance for qualified individuals. This increase applies to loans made between March 27, 2020 and December 31, 2020. In addition, qualified individuals may delay loan payments due after March 27, 2020 and before December 31, 2020 for one year. A qualified individual is an individual (or the spouse of an individual) diagnosed with COVID-19 with a CDC-approved test, or who experiences adverse financial consequences as a result of quarantine, business closure, layoff, or reduced hours due to the virus.

There is a temporary waiver of required minimum distributions for the 2020 calendar year. However, because of recent changes to retirement accounts, such as the increased age to begin RMDs, the end to the 70 ½ age limit for contributions to an IRA, and the shortened distribution period for non-spouse inherited IRAs, taxpayers are encouraged to review strategies for continuing to make IRA contributions and to reevaluate their beneficiary designations.

Charitable Deductions

For 85% of taxpayers who do not itemize, a $300 above-the-line deduction for cash contributions is available for 2020. However, the law is unclear if the $300 amount applies for both individual and joint returns or whether it is available beyond 2020.

For 2020 only, the limit for itemized charitable deductions is increased from 50% to 100% of adjusted gross income.

Although the CARES Act eliminated the required minimum distribution for 2020, taxpayers over age 70 ½ may still make a direct contribution to a charity from their IRA of up to $100,000 in 2020 and thereby reduce their adjusted gross income.

Student Loans

For payments made before January 1, 2021, employers may reimburse employees for principal and interest on student loans of up to $5,250 as part of an education reimbursement program.

Kiddie Tax

Changes under the Tax Cuts and Jobs Act (TCJA), that were meant to simplify the application of the kiddie tax, had the unintended consequence of increasing the tax on the unearned income, such as military death benefits, of children in low-income families. As a result, the kiddie tax reverts to rules prior to TCJA, using the parents’ tax rate for tax years after 2019. However, a taxpayer may elect to apply the parent’s tax rate to 2018 and 2019 thereby providing an opportunity to amend a prior year’s return.

Disaster Relief

Several tax law provisions may help taxpayers recover financially from the impact of a disaster, especially when the federal government declares their location to be a major disaster area. Depending on the circumstances, the IRS may grant additional time to file returns and pay taxes. Both individuals and businesses can elect to claim casualty losses related to a disaster on the tax return for the previous year and thereby receive needed funds more quickly. Although the Covid-19 pandemic is a federally declared disaster and qualifies for a casualty loss deduction in 2020 (or the prior year, if elected) the IRS must provide further clarification on what losses qualify and for what time period.

Expiring Provisions

Taxpayers might consider taking advantage of these tax benefits in 2020 before they expire. In some cases, these benefits were retroactively applied. In which case, it might be useful to amend prior year’s returns if the savings are significant enough.

  • Exclusion from income for the forgiveness of debt on a principal residence. The exclusion now applies to discharges of qualified principal residence indebtedness occurring before January 1, 2021, or discharges that are subject to an arrangement that is entered into and evidenced in writing before January 1, 2021.
  • Mortgage insurance premium deduction. Premiums paid or accrued after January 1, 2018, for qualified mortgage insurance in connection with acquisition indebtedness are deductible as home mortgage interest (qualified residence interest). The deduction is subject to the taxpayers adjusted gross income (AGI) limits.
  • Above-the-line deduction for tuition and fees. The tuition and fees deduction may be claimed for qualified tuition and related expenses paid for the enrollment or attendance at an eligible education institution. The student may be the taxpayer, the taxpayer’s spouse, or the taxpayer’s dependent.
  • Nonbusiness energy property credit. The nonrefundable nonbusiness energy property credit is available for qualified energy efficient improvements or property placed in service before January 1, 2021. Qualified energy efficiency improvements include energy-efficient exterior windows, doors and skylights; roofs (metal and asphalt) and roof products; and insulation. Residential energy property includes energy-efficient heating and air conditioning systems; water heaters (natural gas, propane or oil); and biomass stoves.
  • Reduced 7.5 percent threshold for medical expense. If it is possible and the expenses are significant, accelerate the payment of medical expenses into 2020. The threshold rises to 10% of adjusted gross income in 2021.
  • Health coverage tax credit (HCTC). Eligible individuals can receive a tax credit to offset the cost of their monthly health insurance premiums for 2020 if they have qualified health coverage for the HCTC.

Protective Claims

In addition to the individual mandate tax penalty, the Affordable Care Act introduced the 3.8 percent net investment income tax and the .09 percent Medicare tax. If the Supreme Court determines the ACA to be unconstitutional, there is a potential for a refund for taxpayers subject to these taxes. Taxpayers should consider filing a protective claim for any open tax years.

Contact Us

Because of the retroactive changes to tax rules, the possibility of more changes after the election and with the continuing challenge of the pandemic, there is no one size fits all for tax planning and any strategy may have unintended consequences if the taxpayer’s situation is not evaluated holistically considering the changing landscape. Please call our office to schedule an appointment to discuss your year-end strategy.

2020 Tax Planning: Tax Benefits of Cost Segregation

Business and individual taxpayers that acquire nonresidential real property or residential rental property have an opportunity to reduce the depreciable lives on assets which are building components. Certain assets may qualify for shorter lives and recovery periods under MACRS depreciation. The reduction of the asset lives provides accelerated deductions to offset income.

Many taxpayers mistakenly include the cost of such components in the depreciable basis of the building and the cost is recovered over a longer depreciation period.  A nonresidential real property is depreciated over a 39-year life and a residential rental property is depreciated over 27.5-years. Certain building components may qualify for a reduced recovery period over 5-years, 7-years, or 15-years.

Some examples of building components include: parking lots, sidewalks, curbs, roads, fences, storm sewers, landscaping, signage, lighting, security and fire protection systems, removable partitions, removable carpeting and wall tiling, furniture, counters, appliances and machinery (including machinery foundations) unrelated to the operation and maintenance of the building, and the portion of electrical wiring and plumbing properly allocable to machinery and equipment that is unrelated to the operation and maintenance of the building.

A taxpayer may engage a specialist to conduct a cost segregation study to identify the separately depreciable components and their depreciable basis. Ideally, a cost segregation study should be conducted prior to the time that a building is placed into service (i.e., when it is under construction or at the time of purchase). However, a cost segregation study can be completed after a building is placed in service. Even if a detailed cost segregation study is impractical, a practitioner should carefully consider whether there are any obvious land improvements and personal property components of a building that can be separately depreciated over a shorter recovery life.

The change to the depreciation lives requires either an amended return or an accounting method change (if two years after the property is acquired or placed in service). The reporting to the IRS includes the change of basis, depreciable lives, and any adjustments for the impact of the depreciation acceleration from the date placed in service to the year of the method change.

Please contact our offices if you would like greater detail or information on how cost segregation may apply specifically to your situation and we can work with you to determine your best options.

2020 Tax Planning: Itemized Deductions

There are two ways you can take deductions on your federal income tax return: you can itemize deductions or use the standard deduction. Deductions reduce the amount of your taxable income.

The standard deduction amount varies depending on your income, age, whether or not you are blind, and your filing status. The amount is also adjusted annually for inflation.

Certain taxpayers can’t use the standard deduction:

 A married individual filing separately whose spouse itemizes deductions.

 An individual who files a tax return for a period of less than 12 months because of a change in his or her annual accounting period.

 An individual who was a nonresident alien or a dual-status alien during the year. However, nonresident aliens who are married to a U.S. citizen or resident alien at the end of the year and who choose to be treated as U.S. residents for tax purposes can take the standard deduction

Itemized deductions include amounts you paid for state and local income or sales taxes, real estate taxes, personal property taxes, mortgage interest, and disaster losses from a Federally declared disaster. You may also include gifts to charity and part of the amount you paid for medical and dental expenses. You would usually benefit by itemizing if you:

 Can’t use the standard deduction or the amount you can claim is limited

 Had large uninsured medical and dental expenses

 Paid interest or taxes on your home

 Had large “other” deductions

 Had large uninsured casualty or theft losses from a Federally declared disaster

 Made large contributions to qualified charities

The higher standard deduction under Tax Reform means fewer taxpayers are itemizing their deductions. However, taxpayers may have an opportunity to itemize this year by keeping these tips in mind:

Deducting state and local income, sales and property taxes. The deduction that taxpayers can claim for state and local income, sales and property taxes is limited. This deduction is limited to a combined, total deduction of $10,000. It is $5,000 if married filing separately. Any state and local taxes paid above this amount can’t be deducted.

Refinancing a home. The deduction for mortgage interest is also limited. It’s limited to interest paid on a loan secured by the taxpayer’s main home or second home. For homeowners who choose to refinance, they must use the loan to buy, build, or substantially improve their main home or second home, and the mortgage interest they may deduct is subject to the limits described in the next bullet under “buying a home.”

Buying a home. People who buy a new home this year can only deduct mortgage interest they pay on a total of $750,000 in qualifying debt for a first and second home. It’s $375,000 if married filing separately. For existing mortgages, if the loan originated on or before December 15, 2017, taxpayers continue to deduct interest on a total of $1 million in qualifying debt secured by first and second homes.

Donating items and deducting money. Many taxpayers often find unused items in good condition they can donate to a qualified charity. These donations may qualify for a tax deduction. Taxpayers must itemize deductions to deduct charitable contributions and must have proof of all donations.

Deducting mileage for charity. Driving a personal vehicle while donating services on a trip sponsored by a qualified charity could qualify for a tax break. Itemizers can deduct 14 cents per mile for charitable mileage driven in 2020.

Reporting gambling winnings and claiming gambling losses. Taxpayers who itemize can deduct gambling losses up to the amount of gambling winnings.

 If you have any questions related to itemized deductions or tax planning in general, please call our office.

2020 Tax Planning: Retirement Savings for the Self-Employed

Many tax-favored options are available to self-employed individuals to provide for their retirement. Tax planning for retirement can include deductible contributions to a traditional or Roth IRA, SEP plan, SIMPLE plan or a one-person 401(k) plan. You may wish to consider implementing one of these plans for yourself and/or your employees to benefit from a current tax year deduction and accumulate tax-deferred retirement savings.

Each of these plans has advantages and disadvantages, and some may not be applicable to your situation. For example, a sole-owner 401(k) retirement plan allows a contribution for you as both an employer and as an employee. Therefore, a sole-owner 401(k) plan may provide for the largest deductible contribution. However, a sole-owner 401(k) is not available to the self-employed with employees other than a spouse or relative. As an alternative, a SEP or SIMPLE plan may have less administrative costs. Ultimately, the choice of savings vehicle will depend on factors related to your business and your retirement needs. Regardless of which plan you qualify for or what your retirement needs are, it is important to begin planning now for your retirement.

Please call our office to arrange an appointment. We will be happy to discuss the various retirement plan options and how they might apply to your business.

2020 Tax Planning: Benefits of Lowering Adjusted Gross Income

Taking steps to reduce your income can reduce your overall tax burden. Individual taxpayers may be able to reduce their taxable income through deductions if they meet the qualifications and income limitations. Saving for retirement and for future medical costs is an important way for an individual may achieve financial security and prepare to save for future expenses. This post focuses on the background and tax benefits on reducing adjusted gross income by contributing to retirement plans, contributing to a health savings account, and opportunities for a student loan interest deduction.

Traditional IRA. Any individual, regardless of whether or not covered under other qualified retirement plans, can establish an individual retirement account (IRA). Whether an individual is employed or self-employed, they may also take advantage of a variety of employer-sponsored retirement plans. These options not only provide security for the future, but also may provide opportunities for current tax savings. Traditional IRAs allow an individual with earned income to make tax-deductible contributions to a savings plan under which the gains and earnings are not taxed until they are distributed.

Contributions to a traditional IRA are generally deductible on the taxpayer’s individual income tax return, to the extent that they do not exceed the lesser of the individual’s compensation for the year or the maximum contribution limit for the year and subject to income limits. In addition, nondeductible contributions from after-tax income may be made to traditional IRAs.  For 2020, total contributions to all of a taxpayer’s traditional and Roth IRAs cannot be more than, the lesser of: $6,500 ($7,500 if they are age 50 or older) or their taxable compensation for the year. The prior maximum age limitation of 70 ½ to contribute to an IRA ended effective for contributions after December 31, 2019.

SEP Plan. A SEP is a type of IRA for small business owners or self-employed individuals. A SEP IRA allows the employer to make contributions to the accounts set up for employees. Self-employed individuals choosing a SEP must include all employees who satisfy the following requirements: at least 21 years of age; were employed during any three of the preceding five years; and earned at least $600 in the current year.

Contributions to a SEP plan are tax-deductible and earnings are not taxable until withdrawal. One advantage of the SEP IRA is the higher contribution limit. For 2020, employers can contribute the lesser of: up to 25% of income (limited to $285,000) or $57,000.

 SIMPLE Plan. Any employer that had no more than 100 employees with $5,000 or more in compensation during the preceding calendar year can establish a SIMPLE IRA plan. Self-employed individuals who received earned income from the taxpayer and leased employees are taken into account for purposes of the 100-employee limitation.

Employers must also make contributions whether or not an employee elects to defer a portion of their income to the plan. Contributions are tax deductible and investments grow tax deferred until the owner is ready to make withdrawals in retirement. For 2020 an employee may defer up to $13,500. If the individual age 50 or over, there is a $3,000 catch up contribution allowed, for a total of $16,500.

Health Savings Account (HSA). Health savings accounts (HSAs) are available for individuals who have a high deductible health plan and may be funded by the individual or the individual’s employer. The benefits of an HSA include:

  • taxpayers can claim a tax deduction for contributions you or someone other than your employer make to your HSA,
  • contributions to your HSA made by your employer may be excludable from income, and
  • the contributions remain in your account until you use them.

For 2020, the maximum contribution to an HSA is the lesser of: the annual deductible under the individual’s high deductible health plan; or $3,550 for an individual with self-only coverage and $7,100 for an individual with family coverage.

Student loan interest deduction. Interest paid by an individual taxpayer during the tax year on any qualified education loan is deductible from gross income in calculating adjusted gross income. The student loan must be incurred by the taxpayer solely to pay qualified higher education expenses. The maximum deductible amount of interest is $2,500, but the deduction is phased out or reduced based on the taxpayer’s modified adjusted gross income.

We would like to evaluate the tax advantages of retirement plans, health savings account, or education benefits could apply to your individual income tax situation. Please call us at your earliest convenience to review potential opportunities for you to reduce your taxable income or tax liability.

Identity Theft

Identity theft presents a challenge to businesses, organizations and governments, including the Internal Revenue Service. Tax-related identity theft occurs when someone uses a stolen Social Security number to file a tax return to claim a fraudulent refund. Although identity theft affects a small percentage of tax returns, it can delay a taxpayer’s refund and have a major impact on the victim’s peace of mind.

IRS-Impersonation Telephone Scam

Your SSN can be stolen through a data breach, a computer hack or a lost wallet. Recently, an aggressive and sophisticated phone scam targeting taxpayers, including recent immigrants, has been making the rounds throughout the country. Callers claim to be employees of the IRS, but are not. These con artists can sound convincing when they call. They use fake names and bogus IRS identification badge numbers. They may know a lot about you, and they usually alter the caller ID to make it look like the IRS is calling.

Victims are told they owe money to the IRS and it must be paid promptly through a pre-loaded debit card or wire transfer. If the victim refuses to cooperate, they are then threatened with arrest, deportation or suspension of a business or driver’s license. In many cases, the caller becomes hostile and insulting.

Sometimes, victims are told they have a refund to try to trick them into sharing private information. If the phone isn’t answered, the scammers often leave an “urgent” callback request.

Please remember that the IRS will never: 1) call to demand immediate payment, nor will the agency call about taxes owed without first having mailed you a bill; 2) demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe; 3) require you to use a specific payment method for your taxes, such as a prepaid debit card; 4) ask for credit or debit card numbers over the phone; or 5) threaten to bring in local police or other law-enforcement groups to have you arrested for not paying.

Here are some additional tips to protect yourself from becoming a victim, and steps to take if you discover that someone may have stolen your identity.

Tips to protect you from becoming a victim of identity theft

  • Don’t carry your Social Security card or any documents that include your Social Security number (SSN) or Individual Taxpayer Identification Number (ITIN).
  • Don’t give a business your SSN or ITIN just because they ask. Give it only when required.
  • Protect your financial information.
  • Check your credit report regularly. The IRS suggests you do this every 12 months. We advise you to do it more often, even monthly.
  • Review your Social Security Administration earnings statement annually.
  • Secure personal information in your home.
  • Protect your personal computers by using firewalls and anti-spam/virus software, updating security patches and changing passwords for Internet accounts.
  • Don’t give personal information over the phone, through the mail or on the Internet unless you have initiated the contact or you are sure you know who you are dealing with.

Know the Warning Signs

Be alert to possible tax-related identity theft. You may receive a notice from the IRS or, in filing your electronic return, we may discover and notify you that:

  • More than one tax return was filed for you;
  • You owe additional tax, have a refund offset or have had collection actions taken against you for a year you did not file a tax return;
  • IRS records indicate you received more wages than you actually earned; or
  • Your state or federal benefits (e.g. social security benefits) were reduced or cancelled because the agency received information reporting an income change.

Steps for Victims of Tax-Related Identity Theft

  • All victims of identity theft should follow the recommendations of the Federal Trade Commission: File a report with the local police.
  • File a complaint with the Federal Trade Commission at www.consumer.ftc.gov or the FTC Identity Theft hotline at 877-438-4338 or TTY 866-653-4261.
  • Contact one of the three major credit bureaus to place a “fraud alert’ on your account:
    • Equifax – www.equifax.com, 800-525-6285
    • Experian – www.experian.com, 888-397-3742
    • TransUnion – www.transunion.com, 800-680-7289
  • Close any accounts that have been tampered with or opened fraudulently.

In addition, if your SSN has been compromised and you know or suspect you may be a victim of tax-related identity theft, take these additional steps:

  • Contact us if you receive an IRS notice. We can help you to understand what the notice means and be sure you respond immediately to the IRS request.
  • We can also prepare IRS Form 14039, Identity Theft Affidavit, if applicable.
  • We encourage you to continue to pay your taxes and file your tax return. Under some circumstances, we will instruct you to do so by paper.
  • If necessary, we will work on your behalf with the IRS Identity Protection Specialized Unit to seek a resolution to your identity theft.

The IRS has greatly reduced the time it takes to resolve identity theft cases but please know these are extremely complex cases, frequently touching on multiple issues and multiple tax years. It can be time consuming. A typical case can take about 120 days to resolve with the IRS.

If you take steps to protect your information, you will reduce the risk of identity theft. However, if it becomes necessary, we are here to help you through the entire process and restore your peace of mind.

Year-end Planning for 2019

As the end of the year approaches, it is a good time to think of planning moves that will help lower your tax bill for this year and possibly the next. Year-end planning for 2019 takes place against the backdrop of recent major changes in the rules for individuals and businesses. For individuals, these changes include lower income tax rates, a boosted standard deduction, severely limited itemized deductions, no personal exemptions, an increased child tax credit, and a watered-down alternative minimum tax (AMT). For businesses, the corporate tax rate has been reduced to 21%, there is no corporate AMT, there are limits on business interest deductions, and there are very generous expensing and depreciation rules. And non-corporate taxpayers with qualified business income from pass-through entities may be entitled to a special deduction.

Despite these major changes, the time-tested approach of deferring income and accelerating deductions to minimize taxes still works for many taxpayers, along with the tactic of bunching expenses into this year or the next to get around deduction restrictions.

We have compiled a list of actions based on current tax rules that may help you save tax dollars if you act before year-end. Not all actions will apply in your particular situation, but you (or a family member) will likely benefit from many of them. We can narrow down the specific actions that you can take once we meet with you to tailor a particular plan. In the meantime, please review the following list and contact us at your earliest convenience so that we can advise you on which tax-saving moves to make:

Year-End Tax Planning Moves for Individuals

… Higher-income earners must be wary of the 3.8% surtax on certain unearned income. The surtax is 3.8% of the lesser of: (1) net investment income (NII), or (2) the excess of modified adjusted gross income (MAGI) over a threshold amount ($250,000 for joint filers or surviving spouses, $125,000 for a married individual filing a separate return, and $200,000 in any other case). As year-end nears, a taxpayer’s approach to minimizing or eliminating the 3.8% surtax will depend on his estimated MAGI and NII for the year. Some taxpayers should consider ways to minimize (e.g., through deferral) additional NII for the balance of the year, others should try to see if they can reduce MAGI other than NII, and other individuals will need to consider ways to minimize both NII and other types of MAGI.

… The 0.9% additional Medicare tax also may require higher-income earners to take year-end actions. It applies to individuals for whom the sum of their wages received with respect to employment and their self-employment income is in excess of a threshold amount ($250,000 for joint filers, $125,000 for married couples filing separately, and $200,000 in any other case). Employers must withhold the additional Medicare tax from wages in excess of $200,000 regardless of filing status or other income. Self-employed persons must take it into account in figuring estimated tax. There could be situations where an employee may need to have more withheld toward the end of the year to cover the tax. For example, if an individual earns $200,000 from one employer during the first half of the year and a like amount from another employer during the balance of the year, he or she would owe the additional Medicare tax, but there would be no withholding by either employer for the additional Medicare tax since wages from each employer don’t exceed $200,000.

… Long-term capital gain from sales of assets held for over one year is taxed at 0%, 15% or 20%, depending on the taxpayer’s taxable income. The 0% rate generally applies to the excess of long-term capital gain over any short-term capital loss to the extent that it, when added to regular taxable income, is not more than the maximum zero rate amount (e.g., $78,750 for a married couple). If the 0% rate applies to long-term capital gains you took earlier this year for example, you are a joint filer who made a profit of $5,000 on the sale of stock bought in 2009, and other taxable income for 2019 is $70,000 then before year-end, try not to sell assets yielding a capital loss because the first $5,000 of such losses won’t yield a benefit this year. And if you hold long-term appreciated-in-value assets, consider selling enough of them to generate long-term capital gains sheltered by the 0% rate.

… Postpone income until 2020 and accelerate deductions into 2019 if doing so will enable you to claim larger deductions, credits, and other tax breaks for 2019 that are phased out over varying levels of adjusted gross income (AGI). These include deductible IRA contributions, child tax credits, higher education tax credits, and deductions for student loan interest. Postponing income also is desirable for those taxpayers who anticipate being in a lower tax bracket next year due to changed financial circumstances. Note, however, that in some cases, it may pay to actually accelerate income into 2019. For example, that may be the case where a person will have a more favorable filing status this year than next (e.g., head of household versus individual filing status), or expects to be in a higher tax bracket next year.

… If you believe a Roth IRA is better than a traditional IRA, consider converting traditional-IRA money invested in beaten-down stocks (or mutual funds) into a Roth IRA in 2019 if eligible to do so. Keep in mind, however, that such a conversion will increase your AGI for 2019, and possibly reduce tax breaks geared to AGI (or modified AGI).

… It may be advantageous to try to arrange with your employer to defer, until early 2020, a bonus that may be coming your way. This could cut as well as defer your tax.

… Many taxpayers won’t be able to itemize because of the high basic standard deduction amounts that apply for 2019 ($24,400 for joint filers, $12,200 for singles and for marrieds filing separately, $18,350 for heads of household), and because many itemized deductions have been reduced or abolished. No more than $10,000 of state and local taxes may be deducted; miscellaneous itemized deductions (e.g., tax preparation fees and unreimbursed employee expenses) are not deductible; and personal casualty and theft losses are deductible only if they’re attributable to a federally declared disaster and only to the extent the $100-per-casualty and 10%-of-AGI limits are met. You can still itemize medical expenses but only to the extent they exceed 10% of your adjusted gross income, state and local taxes up to $10,000, your charitable contributions, plus interest deductions on a restricted amount of qualifying residence debt, but payments of those items won’t save taxes if they don’t cumulatively exceed the standard deduction amount that applies to your filing status.

Some taxpayers may be able to work around these deduction restrictions by applying a bunching strategy to pull or push discretionary medical expenses and charitable contributions into the year where they will do some tax good. For example, if a taxpayer knows he or she will be able to itemize deductions this year but not next year, the taxpayer will benefit by making two years’ worth of charitable contributions this year, instead of spreading out donations over 2019 and 2020.

… Consider using a credit card to pay deductible expenses before the end of the year. Doing so will increase your 2019 deductions even if you don’t pay your credit card bill until after the end of the year.

… If you expect to owe state and local income taxes when you file your return next year and you will be itemizing in 2019, consider asking your employer to increase withholding of state and local taxes (or pay estimated tax payments of state and local taxes) before year-end to pull the deduction of those taxes into 2019. But remember that state and local tax deductions are limited to $10,000 per year, so this strategy is not a good one to the extent it causes your 2019 state and local tax payments to exceed $10,000.

… Take required minimum distributions (RMDs) from your IRA or 401(k) plan (or other employer-sponsored retirement plan). RMDs from IRAs must begin by April 1 of the year following the year you reach age 70½. (That start date also applies to company plans, but non-5% company owners who continue working may defer RMDs until April 1 following the year they retire.) Failure to take a required withdrawal can result in a penalty of 50% of the amount of the RMD not withdrawn. Thus, if you turn age 70½ in 2019, you can delay the first required distribution to 2020, but if you do, you will have to take a double distribution in 2020 the amount required for 2019 plus the amount required for 2020. Think twice before delaying 2019 distributions to 2020, as bunching income into 2020 might push you into a higher tax bracket or have a detrimental impact on various income tax deductions that are reduced at higher income levels. However, it could be beneficial to take both distributions in 2020 if you will be in a substantially lower bracket that year.

… If you are age 70½ or older by the end of 2019, have traditional IRAs, and particularly if you can’t itemize your deductions, consider making 2019 charitable donations via qualified charitable distributions from your IRAs. Such distributions are made directly to charities from your IRAs, and the amount of the contribution is neither included in your gross income nor deductible on Schedule A, Form 1040. But the amount of the qualified charitable distribution reduces the amount of your required minimum distribution, which can result in tax savings.

… If you are younger than age 70½ at the end of 2019, you anticipate that in the year that you turn 70 and/or in later years you will not itemize your deductions, and you don’t have any traditional IRAs, establish and contribute as much as you can to one or more traditional IRAs in 2019. If these circumstances apply to you, except that you already have one or more traditional IRAs, make maximum contributions to one or more traditional IRAs in 2019. Then, when you reach age 70½, make your charitable donations by way of qualified charitable distributions from your IRA. Doing all of this will allow you to, in effect, convert nondeductible charitable contributions that you make in the year you turn 70½ and later years, into deductible-in- 2019 IRA contributions and reductions of gross income from age 70½and later year distributions from the IRAs.

… Take an eligible rollover distribution from a qualified retirement plan before the end of 2019 if you are facing a penalty for underpayment of estimated tax and having your employer increase your withholding is unavailable or won’t sufficiently address the problem. Income tax will be withheld from the distribution and will be applied toward the taxes owed for 2019. You can then timely roll over the gross amount of the distribution, i.e., the net amount you received plus the amount of withheld tax, to a traditional IRA. No part of the distribution will be includible in income for 2019, but the withheld tax will be applied pro rata over the full 2019 tax year to reduce previous underpayments of estimated tax.

… Consider increasing the amount you set aside for next year in your employer’s health flexible spending account (FSA) if you set aside too little for this year.

… If you become eligible in December of 2019 to make health savings account (HSA) contributions, you can make a full year’s worth of deductible HSA contributions for 2019.

… Make gifts sheltered by the annual gift tax exclusion before the end of the year if doing so may save gift and estate taxes. The exclusion applies to gifts of up to $15,000 made in 2019 to each of an unlimited number of individuals. You can’t carry over unused exclusions from one year to the next. Such transfers may save family income taxes where income-earning property is given to family members in lower income tax brackets who are not subject to the kiddie tax .

… If you were in federally declared disaster area, and you suffered uninsured or unreimbursed disaster-related losses, keep in mind you can choose to claim them either on the return for the year the loss occurred (in this instance, the 2019 return normally filed next year), or on the return for the prior year (2018).

… If you were in a federally declared disaster area, you may want to settle an insurance or damage claim in 2019 in order to maximize your casualty loss deduction this year.

Year-End Tax-Planning Moves for Businesses & Business Owners

… Taxpayers other than corporations may be entitled to a deduction of up to 20% of their qualified business income. For 2019, if taxable income exceeds $321,400 for a married couple filing jointly, $160,700 for singles and heads of household, and $160,725 for marrieds filing separately, the deduction may be limited based on whether the taxpayer is engaged in a service-type trade or business (such as law, accounting, health, or consulting), the amount of W-2 wages paid by the trade or business, and/or the unadjusted basis of qualified property (such as machinery and equipment) held by the trade or business. The limitations are phased in for example, the phase-in applies to joint filers with taxable income between $321,400 and $421,400 and to single taxpayers with taxable income between $160,700 and $210,700.

Taxpayers may be able to achieve significant savings with respect to this deduction, by deferring income or accelerating deductions so as to come under the dollar thresholds (or be subject to a smaller phaseout of the deduction) for 2019. Depending on their business model, taxpayers also may be able increase the new deduction by increasing W-2 wages before year-end. The rules are quite complex, so don’t make a move in this area without consulting your tax adviser.

… More small businesses are able to use the cash (as opposed to accrual) method of accounting in than were allowed to do so in earlier years. To qualify as a small business a taxpayer must, among other things, satisfy a gross receipts test. For 2019, the gross-receipts test is satisfied if, during a three-year testing period, average annual gross receipts don’t exceed $26 million (the dollar amount was $25 million for 2018, and for earlier years it was $5 million). Cash method taxpayers may find it a lot easier to shift income, for example by holding off billings till next year or by accelerating expenses, for example, paying bills early or by making certain prepayments.

… Businesses should consider making expenditures that qualify for the liberalized business property expensing option. For tax years beginning in 2019, the expensing limit is $1,020,000, and the investment ceiling limit is $2,550,000. Expensing is generally available for most depreciable property (other than buildings) and off-the-shelf computer software. It is also available for qualified improvement property (generally, any interior improvement to a building’s interior, but not for enlargement of a building, elevators or escalators, or the internal structural framework), for roofs, and for HVAC, fire protection, alarm, and security systems. The generous dollar ceilings that apply this year mean that many small and medium sized businesses that make timely purchases will be able to currently deduct most if not all their outlays for machinery and equipment. What’s more, the expensing deduction is not prorated for the time that the asset is in service during the year. The fact that the expensing deduction may be claimed in full (if you are otherwise eligible to take it) regardless of how long the property is held during the year can be a potent tool for year-end tax planning. Thus, property acquired and placed in service in the last days of 2019, rather than at the beginning of 2020, can result in a full expensing deduction for 2019.

… Businesses also can claim a 100% bonus first year depreciation deduction for machinery and equipment bought used (with some exceptions) or new if purchased and placed in service this year. The 100% writeoff is permitted without any proration based on the length of time that an asset is in service during the tax year. As a result, the 100% bonus first-year writeoff is available even if qualifying assets are in service for only a few days in 2019.

… Businesses may be able to take advantage of the de minimis safe harbor election (also known as the book-tax conformity election) to expense the costs of lower-cost assets and materials and supplies, assuming the costs don’t have to be capitalized under the Code Sec. 263A uniform capitalization (UNICAP) rules. To qualify for the election, the cost of a unit of property can’t exceed $5,000 if the taxpayer has an applicable financial statement (AFS; e.g., a certified audited financial statement along with an independent CPA’s report). If there’s no AFS, the cost of a unit of property can’t exceed $2,500. Where the UNICAP rules aren’t an issue, consider purchasing such qualifying items before the end of 2019.

… A corporation (other than a large corporation) that anticipates a small net operating loss (NOL) for 2019 (and substantial net income in 2020) may find it worthwhile to accelerate just enough of its 2020 income (or to defer just enough of its 2019 deductions) to create a small amount of net income for 2019. This will permit the corporation to base its 2020 estimated tax installments on the relatively small amount of income shown on its 2019 return, rather than having to pay estimated taxes based on 100% of its much larger 2020 taxable income.

… To reduce 2019 taxable income, consider deferring a debt-cancellation event until 2020.

… To reduce 2019 taxable income, consider disposing of a passive activity in 2019 if doing so will allow you to deduct suspended passive activity losses.

These are just some of the year-end steps that can be taken to save taxes. Again, by contacting us, we can tailor a particular plan that will work best for you.

Retrospective on key tax developments in 2018

This retrospective covers key tax developments that occurred during the 2018 calendar year to date as well as changes going into effect for 2018, including tax laws, rulings, significant case law, and other guidance that may affect 2018 returns. Many of the items listed below reflect law changes made by, and guidance issued on, the Tax Cuts and Jobs Act (TCJA; P.L. 115-97)—the sweeping tax reform law that significantly altered the tax landscape.

Tax Rates

• For tax years beginning after 2017 and before 2026, seven tax rates apply for individuals: 10%, 12%, 22%, 24%, 32%, 35%, and 37%; and four tax rates apply for estates and trusts: 10%, 24%, 35%, and 37%.

• The 2018 IRS Form 1040 has been significantly reduced in size and contains far fewer lines than any of its predecessors. But, it also includes six new accompanying schedules to which most of those removed lines have been moved.

• The Social Security wage base for 2018 is $128,400.

• For tax years beginning after 2017, the corporate income tax rate is 21%, and the corporate alternative minimum tax (AMT) is repealed.

• For tax years beginning after 2017, tax bracket amounts and certain other tax parameters under the Code that are adjusted for inflation under Code Sec. 1(f)(3) are adjusted by reference to chained CPI-U (Consumer Price Index for “all-urban customers”).

Taxable and Exempt Income

• Generally effective for stock attributable to options exercised or restricted stock units settled after 2017, a qualified employee can elect under Code Sec. 83(i) to defer, for income tax purposes, recognition of the amount of income attributable to qualified stock transferred to the employee by the employer, for up to five years after vesting.

• For 2018, the optional standard mileage rate for valuing an employee’s use of an employer-provided auto is 54.5¢ per mile.

• For 2018, an employee can exclude up to $260 a month of employer-provided qualified parking benefits and the same amount for the combined value of transit passes and transportation in a commuter highway vehicle.

• The exclusion for qualified bicycle commuting reimbursements is suspended from 2018 through 2025.

• The exclusion for qualified moving expense reimbursements (except for certain members of the Armed Forces) is suspended from 2018 through 2025.

• For 2018, the maximum exclusion for employer-provided adoption assistance is $13,810, and the associated AGI phase-out amounts have increased.

• For 2018, an employee’s contribution to a health flexible spending account (FSA) through salary reduction contributions can’t exceed $2,650.

• Certain exceptions to the life insurance transfer-for-value rule don’t apply to life settlement transactions for transfers after 2017.

• For 2018, the income threshold for the definition of a ‘‘highly compensated employee’’ under the employer-owned life insurance rules is $120,000.

• For 2018, the per-diem dollar threshold in computing the limits for the exclusion of benefits from long-term care insurance is $360.

• Certain student loans that are discharged on account of death or total and permanent disability of the student during 2018 through 2025 are excluded from gross income.

Deductions—Expenses of a Business

• New definitions of “publicly held corporation,” “covered employee,” and “applicable employee remuneration” apply to the rules governing the deduction limit for compensation paid to top officers.

• For amounts incurred or paid after 2017, employers may not deduct the expense of a qualified transportation fringe provided to an employee, and deductions are generally not allowed for transportation expenses provided to an employee for travel between the employee’s residence and place of employment.

• For 2018, a high deductible health plan (HDHP) for medical savings account (MSA) purposes is one with an annual deductible of at least $2,300 and not more than $3,450 for individual coverage ($4,550 and not more than $6,850 for family coverage); in addition, the maximum out-of-pocket expenses can’t exceed $4,550 for individual coverage ($8,400 for family coverage).

• For 2018, an HDHP for health savings account (HSA) purposes is a health plan with an annual deductible that is not less than $1,350 for individual coverage and $2,700 for family coverage. Maximum out-of-pocket expenses for 2018 can’t exceed $6,650 for individual coverage and $13,300 for family coverage.

• The maximum annual health saving account (HSA) deductible contribution is the sum of the monthly contribution limits, based on eligibility and health plan coverage on the first day of the month. The monthly limit is 1/12 of the indexed amount for self-only coverage ($3,450 for 2018) and for family coverage ($6,900 for 2018).

• For 2018, the standard mileage rate for business travel is 54.5¢.

• Business deductions for entertainment expenses are generally disallowed after 2017.

• In a Notice, IRS provided transitional guidance on the deductibility of business meals that are purchased in an entertainment context.

• The simplified per diem rates for post-Sept. 30, 2018 travel are $287 for high-cost areas and $195 for all other localities. For pre-Oct. 1, 2018 travel, these amounts were $284 and $191, respectively.

• For amounts paid or incurred after 2017, cash, gift cards, and other intangible personal property specifically don’t qualify as employee achievement awards.

• Generally for amounts paid or incurred on or after Dec. 22, 2017, no deduction is allowed for: (i) any otherwise deductible amount paid or incurred to, or at the direction of, a government or specified nongovernmental entity in relation to the violation of any law or the investigation or inquiry by such government or entity into the potential violation of any law; or (ii) any settlement, payout, or attorney fees related to sexual harassment or sexual abuse if such payments are subject to a nondisclosure agreement.

• For tax years beginning after 2017, under Code Sec. 199A, non-corporate taxpayers may deduct 20% of “qualified business income” from a partnership, S corporation, or sole proprietorship (i.e., the “pass-through” or QBI deduction).

• IRS issued proposed reliance regs that explain the operation and calculation of the Code Sec. 199A passthrough deduction.

• For tax years beginning after 2017, specified agricultural or horticultural cooperatives may claim a deduction for a percentage of the cooperative’s qualified production activities income (QPAI), similar to the pre-2018 domestic production activities deduction (DPAD).

• For amounts paid or incurred after on or after Dec. 22, 2017, the business expense deduction for lobbying local governments is repealed.

• The moving expense deduction is suspended from 2018 through 2025, except for certain moves by members of the Armed Forces.

• For tax years beginning after 2017, “small resellers” for purposes of the Code Sec. 263A uniform capitalization rules means taxpayers with annual gross receipts of up to $25 million.

• IRS issued final regs on the simplified method uniform capitalization (UNICAP) rules for property produced or held for resale.

Interest Expense, Taxes & Losses

• For tax years beginning after 2017, subject to limited exceptions, a taxpayer’s deduction for business interest is limited to the sum of: (i) the taxpayer’s business interest income for the year, (ii) 30% of the taxpayer’s adjusted taxable income for the year (but not less than zero), plus (iii) the taxpayer’s floor plan financing interest (i.e., certain interest paid by vehicle dealers) for the tax year.

• IRS issued proposed reliance regs on the new business interest deduction limit, including rules for C corporations, partnerships and S corporations, the exception for small taxpayers, and various elections.

• For tax years beginning after 2017, taxpayers can’t deduct any “disqualified related party amount” (certain interest or royalties) paid or accrued under a hybrid transaction or by, or to, a “hybrid entity.”

• The aggregate amount of debt that can be treated as “acquisition indebtedness” for a qualified residence of the taxpayer is generally limited to $750,000 ($375,000 for a married individual filing a separate return) for each tax year from 2018 through 2025.

• The deduction for interest on ‘‘home equity debt’’ has been suspended from 2018 through 2025, but interest on a home equity loan used to buy, build or improve a home may be deductible.

• The safe harbor for governmental homeowner assistance payments has been extended through 2021.

• From 2018 through 2025, the annual deduction for state and local property, income, etc. taxes (SALT) is limited to $10,000.

• IRS issued proposed regs that would eliminate the benefit of certain “workarounds” implemented by states to avoid the $10,000 SALT limitation.

• From 2018 through 2025, foreign real property tax may not be deducted, other than taxes paid or accrued in carrying on a trade or business or in an activity for the production or collection of income.

• From 2018 through 2025, a noncorporate taxpayer’s “excess business” loss is disallowed and treated as part of the taxpayer’s net operating loss (NOL) carryforward in subsequent tax years.

• For 2018 through 2025, all deductions for expenses incurred in carrying out wagering transactions, and not just gambling losses, are limited to the amount of gambling winnings.

• The deduction for personal casualty and theft losses is generally suspended from 2018 through 2025, except for: (a) personal casualty losses incurred in a Federally declared disaster; and (b) nondisaster personal casualty losses to the extent of personal casualty gains.

• For losses arising in tax years beginning after 2017, the NOL deduction is limited to 80% of taxable income and generally cannot be carried back, but can be carried forward indefinitely.

• IRS issued proposed reliance regs that would remove the Code Sec. 385 documentation requirements (i.e., the portion of the final Code Sec. 385 regs issued in 2016 that provide rules for the documentation necessary to determine whether certain related party interests in a corporation are treated as stock or indebtedness for tax purposes).

Depreciation, Amortization, Property Expensing & Depletion

• For property placed in service after 2017, machinery and equipment used in agriculture is part of the 5-year MACRS class.

• For property placed in service after 2017, the categories of qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property are no longer eligible for 15-year MACRS depreciation (39-year MACRS applies instead).

• For property placed in service after 2017, depreciation under the alternate depreciation system (ADS) is required for any nonresidential real property, residential rental property and qualified improvement property held by an electing real property trade or business (generally, a real property trade or business that elects to not apply new limitations on interest deductions effective for tax years beginning after 2017). Depreciation under the ADS is also required of any MACRS property with a recovery period of 10 years or more that is held by a farm business that makes a similar election.

• For property placed in service after 2017, the ADS recovery period for residential rental property is 30 years.

• Generally for property that is both (1) acquired and placed in service after Sept. 27, 2017, and (2) placed in service before 2027, bonus depreciation is increased to 100% (full expensing). Beginning in 2023, the 100% amount gradually phases down.

• IRS issued proposed regs, on which taxpayers can rely, that clarify the post-Sept. 27, 2018 placed-in-service-and-acquisition requirement that applies to 100% bonus depreciation and to other changes in the bonus depreciation rules.

• For property placed in service after Sept. 27, 2017 and before 2027, qualified film, television, and live theatrical productions are “qualified property” for bonus depreciation purposes. • For qualified property that is both (1) acquired and placed in service after Sept. 27, 2017, and (2) placed in service before 2027, bonus depreciation may be claimed for most used as well as new property. IRS issued proposed regs, on which taxpayers can rely, that provide guidance as to how used property can qualify for bonus depreciation.

• For tax years beginning after 2017, the election trading bonus and accelerated depreciation for otherwise-deferred AMT credits is repealed.

• For tax years beginning in 2018, the Code Sec. 179 expensing limit is $1 million.

• For tax years beginning in 2018, the investment-based phase-out level for Code Sec. 179 expensing is $2.5 million.

• The Code Sec. 179 expensing limit for heavy SUVs is $25,000 for tax years beginning in 2018.

• For property placed in service after 2017, computer or peripheral equipment has been removed from the definition of “listed property.”

• Regular (as opposed to bonus first-year) depreciation and expensing limits for autos, trucks and vans placed in service in 2018 and used 100% for business are: $10,000 for the year in which the vehicle is placed in service, $16,000 for the second year, $9,600 for the third year, and $5,760 for the fourth and later years in the recovery period.

• The $8,000 increase for “qualified property” in the first-year depreciation cap for passenger autos was extended, effective for property both acquired and placed in service after Sept. 27, 2017 and before 2027.

• IRS issued proposed regs providing guidance on the additional first-year depreciation deduction, as modified by the Tax Cuts and Jobs Act.

• Autos, trucks and vans leased in 2018 are subject to revised income inclusion amounts, as provided in IRS tables.

Charitable Contributions, Medical Expenses, Alimony, & Other Nonbusiness Deductions

• For cash contributions made in 2018 through 2025, the 50% limitation under Code Sec. 170(b) for an individual’s cash contributions to public charities and certain private foundations is increased to 60%.

• The amounts of benefits received by charitable donors that are considered to be inconsequential have increased for 2018. Items are considered “inconsequential” if: (1) the value of all benefits received isn’t more than $108 or (2) the amount contributed to the charity is at least $54 and the donor receives only token benefits (bookmarks, calendars, mugs, posters, tee shirts, etc.) generally costing no more than $10.80.

• For contributions made in tax years beginning after 2017, no charitable deduction is allowed for any payment to an institution of higher education in exchange for which the taxpayer receives the right to buy tickets or seating at an athletic event.

• The Tax Court held that a long-term lessee of buildings couldn’t contribute a facade conservation easement.

• Certain charitable deduction limitations are suspended for individuals making “qualifying charitable contributions” for relief efforts in the California wildfire disaster area.

• Certain charitable deduction limitations are suspended, and special carryover rules are provided, for corporations making “qualifying charitable contributions” for relief efforts in the California wildfire disaster area.

• IRS issued final charitable contribution substantiation/reporting regs.

• For 2018, the “floor” beneath medical expense deductions is 7.5% for all taxpayers.

• For 2018, the maximum amount of premiums paid for a qualified long-term care insurance contract that are deductible as a medical expense are: for individuals age 40 or less, $420; more than 40 but not more than 50, $780; more than 50 but not more than 60, $1,560; more than 60 but not more than 70, $4,160; and more than 70, $5,200.

• For 2018, the mileage rate for use of a car for qualified medical transportation is 18¢ per mile. • For any divorce or separation agreement that’s executed after 2018, or executed on or before that date but modified thereafter, the alimony-paying spouse won’t be able to deduct the payments, and the alimony-receiving spouse won’t include them in gross income.

• IRS indicated that it would issue regs clarifying that Code Sec. 682, which was repealed by the Tax Cuts and Jobs Act, will generally continue to apply with regard to trust income payable to a former spouse who was divorced or legally separated under a divorce or separation instrument executed before 2019.

Education Tax Breaks & ABLE Accounts

• The Lifetime Learning credit phases out over higher levels of modified AGI for 2018.

• Beginning in 2018, “qualified higher education expenses” for qualified tuition program (QTP) purposes include up to $10,000 per beneficiary per tax year for expenses for tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school.

• The higher education exclusion for savings bond income phases out over higher levels of modified AGI for 2018.

• The deduction for interest paid on qualified higher education loans phases out at higher levels of modified AGI for 2018.

• For 2018, the maximum teachers’ out-of-pocket classroom-related expenses is $250.

• For 2018, the amount of aggregate contributions from all taxpayers that a qualified ABLE account may receive is $15,000.

• For 2018 through 2025, after the general dollar limit for ABLE account contributions is reached, an ABLE account’s designated beneficiary may contribute, subject to a number of limitations, an additional amount, up to the lesser of (a) the beneficiary’s compensation for the tax year, or (b) the federal poverty line for a one-person household.

• In a Notice, IRS provided guidance on the new contribution limits for ABLE accounts and announced its intent to issue proposed regs.

Affordable Care Act Provisions

• The 2.3% medical device excise tax doesn’t apply to sales during 2018 or 2019.

• The annual fee on health insurance providers remains in effect for 2018 (but is suspended for calendar year 2019).

• IRS, together with the Departments of Labor and Health and Human Services, issued proposed regs that would, for plan years beginning on or after Jan. 1, 2020, allow integrating health reimbursement accounts (HRAs) and other account-based group health plans with individual health insurance coverage, if certain conditions are met. IRS then issued a Notice that set out potential approaches to issues raised by these regs.

• IRS, together with the Departments of Labor and Health and Human Services, issued final regs on the coverage of certain preventive services under the Affordable Care Act, including services relating to the so-called “contraceptive mandate.”

• IRS, together with the Departments of Labor and Health and Human Services, issued final regs expanding the coverage period for short-term, limited duration insurance (STLDI).

• For policy and plan years that end after Oct. 1, 2018 and before Oct. 1, 2019, the adjusted dollar amount for the Patient-Centered Outcomes Research Institute fee is $2.45. For policy and plan years ending on or after Oct. 1, 2017 and before Oct. 1, 2018, the amount was $2.39.

• In a Notice, IRS clarified the effect of the suspension of personal exemption deductions on certain health care provision.

Tax Credits

• The general business credit limitation for a corporation is applied by treating the corporation as having a minimum tax of zero, negating the corporate AMT (repealed after 2017) as a limit on allowable business credits for corporations.

• For amounts paid or incurred after 2017, the rehabilitation credit is no longer two- tiered. A single 20% credit for rehabilitating certified historic structures is allowed over a 5-year period.

• The carbon sequestration credit has been restructured to account for both carbon dioxide and carbon oxide, with the amount of credit based, in part, on whether carbon oxide was captured before or after Feb. 9, 2018.

• For 2018, a low-income housing credit for rehabilitation expenditures is allowed only if, during any 24- month period, the expenditures are not less than the greater of: (i) 20% of the building’s adjusted basis, or (ii) $6,800.

• For 2018, the refined coal credit is $7.03 per ton of refined credit coal, with no phaseout. • The orphan drug credit is reduced to 25% of qualified clinical expenses, and taxpayers may elect to take a reduced credit in lieu of reducing otherwise allowable deductions.

• For 2018, the small employer health insurance credit is reduced if the average annual full-time wages per employee were more than $26,800.

• The new employer-paid family and medical leave credit for 2018 and 2019 is 12.5% of the amount of wages paid to qualifying employees during any period they’re on family and medical leave if the rate of payment is at least 50% of the wages normally paid to an employee, up to maximum of 12 weeks of leave for any employee during the tax year. The credit is increased by 0.25 percentage points (but not above 25%) for each percentage point by which the rate of payment exceeds 50%.

• The maximum amount of the earned income tax credit (EITC) and the credit’s AGI-based phaseout thresholds have increased for 2018.

• For 2018, the maximum amount of investment income that a taxpayer can receive and still qualify for the EITC is $3,500.

• For the premium tax credit available to certain purchasers of health insurance, an eligible employer-sponsored plan is “affordable” if the part of the annual premium that an employee must pay for self-only coverage is 9.56% or less of the taxpayer’s household income for the 2018 plan year.

• For 2018, the adoption expense credit is $13,810.

• For 2018 through 2025, a $500 credit is available for each dependent of the taxpayer who is a U.S. citizen, national or resident, other than a qualifying child.

• For 2018 through 2025, the child tax credit is increased to $2,000, and the credit phaseout thresholds are increased.

• For 2018 through 2025, the refundable portion of the child tax credit for any qualifying child is limited to $1,400.

• The AGI amounts used in computing the “saver’s” credit for elective deferrals and IRA contributions have increased for 2018.

• For amounts contributed in tax years beginning after Dec. 22, 2017 and before 2026, amounts contributed to an ABLE account by the account’s designated beneficiary are eligible for the saver’s credit.

• For tax years beginning after 2017 and before 2022, a corporation’s minimum tax credit (MTC) (1) may offset regular tax liability for any tax year, and (2) is refundable for any tax year beginning after 2017 and before 2022 in an amount equal to 50% (100% for tax years beginning in 2021) of the excess MTC for the tax year, over the amount of the credit allowable for the year against regular tax liability.

• For purposes of the foreign tax credit limitation, for tax years beginning after 2017, there are now additional separate categories for “global intangible low-taxed income” and “foreign branch income.”

• IRS issued proposed regs explaining the new foreign tax credit limitation categories and providing transition rules.

• For purposes of the foreign tax credit, for tax years beginning after 2017, an 80% “deemed paid” foreign tax credit is available for amounts included in the U.S. shareholder’s income as global intangible low-taxed income (GILTI).

• IRS issued proposed regs explaining how deemed paid credits are determined.

• For tax years beginning after 2017 and before 2028, a taxpayer may, with respect to pre-2018 unused overall domestic loss, elect to recapture up to 100% of its U.S. source income for the tax year.

• For distributions made after 2017, a 10% corporate U.S. shareholder of a “specified 10% owned foreign corporation” may generally deduct 100% of the foreign-source portion of a dividend received from the specified 10% owned foreign corporation, and the deemed-paid credit under Code Sec. 902 no longer applies. A domestic corporation that is a U.S. shareholder of a controlled foreign corporation (CFC) may still claim a deemed-paid credit, but this credit is limited to 80% of foreign taxes paid with respect to global intangible low-taxed income.

Sales & Exchanges

• Generally for tax years beginning after 2017, an accrual basis seller reports gain or loss not later than the year in which the income is taken into account for financial reporting purposes.

• For exchanges completed after 2017 (subject to transition rules), like-kind exchange treatment is limited to exchanges of real property that is not held primarily for sale.

• Generally effective on Dec. 22, 2017, gains invested in a “Qualified Opportunity Fund” can be temporarily deferred and, if the investment in the Fund is held for 10 years, permanently excluded. IRS issued proposed regs explaining the mechanics of the deferral.

• IRS issued a complete list of all population census tracts it has designated as Qualified Opportunity Zones.

• For business autos for which the optional business standard mileage rate is used, depreciation is considered to have been allowed at a rate of 25¢ for 2018.

Capital Gains & Losses

• For 2018, new statutory breakpoints apply for the imposition of 0%, 15% and 20% capital gains/qualified dividend rates for noncorporate taxpayers.

• For dispositions after 2017, patents, inventions, models or designs (whether or not patented), secret formulas or processes are excluded from the definition of “capital assets.”

• For tax years beginning after 2017, partnership interests (“carried interests”) received for the performance of substantial services in certain specified trades or businesses must be held for more than three years to qualify for long-term capital gains rates.

Tax Accounting & Inventories

• For 2018, a business is excepted from the general limitation on use of the cash method if its three-year-average gross receipts are $25 million or less.

• Generally for tax years beginning after 2017, the all-events test for any item of gross income isn’t be treated as met any later than when the item is taken into account as revenue in an applicable financial statement (if the taxpayer has one for a tax year) or other financial statement specified by IRS.

• For tax years beginning after 2017, the deferral method of accounting for advance payments for goods and services has been codified.

• In a Notice, IRS clarified that accrual-method taxpayers may rely on prior guidance on deferral of advance payments until guidance on newly codified deferral rules is issued and becomes effective.

• During the 2-year period beginning Dec. 22, 2017, Code Sec. 481 adjustments that are attributable to S elections revoked by certain corporations are taken into account ratably over a 6-tax-year period beginning with the year of change.

• IRS has updated automatic consent procedures for accounting method changes, including many occasioned by the Tax Cuts and Jobs Act provisions.

• IRS has updated automatic consent procedures for accounting method changes made to conform with FASB and IASB contract revenue recognition standards.

• For 2018, a business is exempted from use of the percentage-of-completion long-term contract method if its three-year-average annual gross receipts are $25 million or less.

• For 2018, a business is exempt from mandatory inventory accounting if its three-year-average annual gross receipts are $25 million or less.

Tax Withholding

• For stock attributable to options exercised, or restricted stock units settled, after 2017, withholding is required at the highest individual rate when the value of stock subject to a Code Sec. 83(i) deferral election is included in income.

• For 2018 through 2025, when the exemption amount is zero, employees are entitled to a “withholding allowance” instead of an “exemption” for each item under Code Sec. 3402(f)(1).

• For 2018, an employee who can be claimed as a dependent on someone else’s return can’t claim an exemption from withholding if his or her income exceeded $1,050 and includes more than $350 of unearned income.

• For 2018, the threshold amount subjecting cash payments to domestic service employees (e.g., nannies) to FICA is $2,100.

Individual Tax Computation

• For tax years beginning after 2017, an above-the-line deduction is allowed (with limits) for attorneys’ fees and court costs relating to awards under SEC Act of ’34 § 21F, a state law false or fraudulent claim meeting the requirements of Social Security Act, §1909(b) or Commodity Exchange Act § 23.

• Miscellaneous itemized deductions subject to the 2%-of-AGI floor are suspended from 2018 to 2025.

• The limitation on itemized deductions (the “Pease” limitation) is suspended from 2018 through 2025.

• The basic standard deduction amounts for 2018 are: $12,000 for single or married filing separate taxpayers, $24,000 for married filing joint and surviving spouses, and $18,000 for heads of household.

• The additional standard deduction amounts for elderly or blind taxpayers for 2018 are $1,600 for unmarried taxpayers (including heads of household) and $1,300 for married taxpayers (whether or not filing jointly) or surviving spouses.

• IRS announced that it will issue proposed regs providing that the reduction of the exemption amount to zero won’t be taken into account in determining whether a person is a qualifying relative.

• Personal exemptions (and personal exemption phaseout (PEP)) are suspended from 2018 through 2025.

• From 2018 through 2025, the taxable income of a child attributable to earned income is taxed under the rates for single individuals, and taxable income of a child attributable to net unearned income is taxed according to the brackets applicable to trusts and estates.

• For 2018, the dollar thresholds for the optional methods of computing net earnings from self-employment are $5,717.38 and $7,920.

Alternative Minimum Tax

• For tax years beginning after 2017, the corporate alternative minimum tax (AMT) has been repealed.

• For 2018, the inflation-adjusted amount used to determine the individual tentative minimum tax is $191,100.

• For tax years beginning in 2018, the individual AMT exemption amounts are: $70,300 for unmarried individuals, $109,400 for married individuals filing jointly, and $54,700 (50% of the joint filing amount) for married individuals filing separately.

• For tax years beginning in 2018, the AMT exemption amount for estates and trusts is $24,600.

• For 2018, the AMT exemption amount for a child subject to the kiddie tax is the lesser of $7,600 plus the child’s earned income, or $70,300.


• Generally for contributions made after 2017, the term “contributions to capital” generally no longer includes: (i) any contribution in aid of construction or any other contribution as a customer or potential customer, or (ii) any contribution by any governmental entity or civic group (other than a contribution made by a shareholder as such).

• For tax years beginning after 2017, the 70% dividends received deduction is reduced to 50%, and the 80% dividends received deductions is reduced to 65%. For 2018 through 2025, subject to a limitation based on taxable income, domestic corporations are allowed deductions for foreign-derived intangible income (FDII) and global intangible low-taxed income (GILTI).

• For distributions after 2017, a domestic corporation that is a “U.S. shareholder” of a “specified 10%-owned foreign corporation” can, if certain requirements are met, deduct an amount equal to the foreign-source portion of any dividend from the specified 10%- owned foreign corporation.

• For amounts paid or accrued in tax years beginning after 2017, certain corporate taxpayers are subject to a tax on “base erosion payments” under Code Sec. 59A. IRS issued proposed guidance explaining how the “base erosion anti-abuse tax,” or BEAT, would apply.

• For tax years beginning after 2017, qualified personal service corporations are subject to a flat 21% tax rate.

• For tax years beginning after 2017, a nonresident alien can now be a potential current beneficiary of an Electing Small Business Trust (ESBT).

• For S elections that are revoked by an “eligible terminated S corporation” during the 2-year period beginning Dec. 22, 2017, special rules govern both: (i) adjustments made under Code Sec. 481 that are attributable to the revocation; and (ii) the treatment of post-revocation distributions under Code Sec. 1371(f).

• For transfers after 2017, the “active trade or business exception” to Code Sec. 367 is eliminated.


• For partnership tax years beginning after 2017, in determining the amount of the partner’s loss, the partner’s distributive shares under Code Sec. 702(a) of partnership charitable contributions and taxes paid or accrued to foreign countries or U.S. possessions are taken into account; however, in the case of a charitable contribution of property with a fair market value that exceeds its adjusted basis, the partner’s distributive share of the excess is not taken into account.

• IRS issued final regs to prevent corporate partners from avoiding gain in partnership transactions.

• IRS issued proposed reliance regs restoring prior rules on the allocation of partnership liabilities in disguised sales.

• For partnership tax years beginning after 2017, a partnership has a substantial built-in loss with respect to a transfer of a partnership interest if either: (1) the partnership’s adjusted basis in the partnership property exceeds by more than $250,000 the fair market value of the property, or (2) the transferee partner would be allocated a loss of more than $250,000 if the partnership assets were sold for cash equal to their fair market value immediately after the transfer.

• For partnership tax years beginning after 2017, the partnership technical termination rule has been repealed.

• IRS privately ruled that the cessation of doing business as a partnership may result from a cessation of the business or from the fact that there is only one continuing partner in the partnership.

Trusts, Estates & Decedents

• For 2018, the 20% maximum rate for capital gains and qualified dividends applies to estates and trusts with income above $12,700, the 0% rate applies to amounts up to $2,600, while the 15% rate applies to amounts over $2,600 and up to $12,700.

• IRS issued proposed regs regarding the creation of multiple trusts for tax avoidance purposes.

• IRS announced that it intends to issue regs clarifying that non-grantor trusts may continue to deduct expenses under Code Sec. 67(e) during tax years when miscellaneous itemized deductions are not available.

• For 2018, the exemption amount for a qualified disability trust is $4,150, subject to a phaseout starting at modified AGI of $266,700.

Exempt Organizations

• For tax years beginning after 2017, “applicable tax-exempt organizations” are subject to a 21% excise tax on (i) remuneration exceeding $1 million paid to a covered employee, and (ii) excess parachute payments made to a covered employee.

• For tax years beginning after 2017, certain private colleges and universities with at least 500 tuition paying students, and with assets of at least $500,000 per student, are subject to a 1.4% excise tax on net investment income.

• For 2018, tax-exempt entities that fail to disclose their participation in prohibited tax shelter transactions are subject to a $100 per day penalty, not to exceed $52,000.

• For 2018, agricultural or horticultural organizations may exclude annual dues up to $165 from unrelated taxable income.

• For amounts paid or incurred after 2017, unrelated business taxable income of a tax-exempt organization also includes any expenses paid or incurred for “qualified transportation fringe benefits,” for a parking facility used in connection with “qualified parking,” or for any “on-premises athletic facility,” if certain requirements are met.

• Generally for tax years beginning after 2017, tax-exempt organizations with more than one unrelated trade or business generally must calculate their UBTI separately for each trade or business, such that losses from one may not be used to offset income of another. IRS issued a Notice providing interim and transition rules.

• For tax years beginning after 2017, an exception to the tax on “excess business holdings” applies if certain requirements are met.

Insurance Companies

• For tax years beginning after 2017, the small life insurance company deduction has been repealed.

Retirement Plans

• For 2018, the limit on 401(k) plan elective deferrals is $18,500. • For 2018, the catch-up contribution limit for 401(k), Code Sec. 457, and most Code Sec. 403(b) participants is $6,000.

• For 2018, the annual compensation limit on plan benefits and contributions under Code Sec. 401(a)(17) is $275,000.

• For 2018, the compensation amount used in determining “highly compensated employee” status under the qualified plan coverage and eligibility rules is $120,000.

• For 2018, annual additions under a participant’s defined contribution plans cannot exceed $55,000.

• For 2018, the annual benefit provided under a defined benefit plan cannot exceed $220,000.

• Special increased limitations and relaxed repayment dates apply with regard to loans from qualified plans taken by individuals impacted by certain specified disasters

• Relief from the 10% early withdrawal penalty tax and other temporary tax relief is provided to individuals impacted by certain specified disasters.

• For 2018, employees and self-employed individuals in an employer-maintained retirement plan may deduct up to $5,500.

• For amounts treated as distributed in tax years beginning after 2017, the rollover period for certain “qualified plan loan offsets” is extended from 60 days to the tax return due date.

• For amounts paid in tax years beginning after 2017, wrongfully levied retirement plan account or benefit returned after 2017, and interest on such, is eligible for tax-free 60-day rollover treatment.

• For 2018, the allowable annual nondeductible contribution to a Roth IRA phases out over the following levels of modified AGI: for joint filers, $189,000 to $199,000; for married persons filing separately, $0 to $10,000; and for single taxpayers and heads of household, $120,000 to $135,000.

• For tax years beginning after 2017, under Code Sec. 408A(d)(6)(B), an IRA-to-Roth IRA conversion can no longer be recharacterized (i.e., converted back to a regular IRA), and therefore cannot be reconverted.

• Relaxed rules apply to hardship distributions from, and rollovers to, Code Sec. 403(b) plans to victims of certain specified disasters.

• IRS issued proposed regs that would amend the existing regs relating to hardship distributions from Code Sec. 401(k) plans.

• IRS provided relief from the “once-in-always-in” condition of the part-time exclusion for Code Sec. 403(b) plans.


• For net operating losses (NOLs) arising in tax years after 2017, any part of an NOL that’s a “farming loss” can be carried back to each of the two tax years preceding the tax year of the loss.

• From 2018 through 2025, the limitation of deduction of farm losses is suspended, and a broader “excess business loss” disallowance rule applies.

• For tax years beginning after 2017, the cash method may be used by farming C corporations (and farming partnerships with a C corporation partner) that satisfy a $25 million gross receipts test (adjusted for inflation after 2018).

• For amounts paid or incurred for replanting, etc. after Dec. 22, 2017, and before Dec. 23, 2027 for citrus plants lost or damaged due to casualty, the costs may also be deducted by a person other than the taxpayer if certain requirements are met.

• IRS provided automatic consent for taxpayers to change method of accounting to deduct post-casualty citrus replanting costs.

• Most MACRS farming property placed in service after 2017 may be depreciated under the 200% declining balance method.

Foreign Income & Transactions

• For 2018, the foreign earned income exclusion amount is $103,900.

• For 2018, the foreign housing cost exclusion amount is $14,546.

• For tax years beginning after 2017, individuals serving in combat zones are now excepted from the rule that an individual does not have a tax home in a foreign country for any period his or her abode is in the U.S.

• IRS has stated that individuals won’t lose their status as bona fide residents of Puerto Rico or the Virgin Islands due to a dislocation of up to 268 days (effective beginning Sept. 6, 2017, and ending May 31, 2018) caused by Hurricane Irma or Hurricane Maria.

• For tax years of foreign corporations beginning after 2017, and tax years of U.S. shareholders with or within which those tax years of foreign corporations end, a “U.S. shareholder” of a CFC is now determined based on either voting power or value of stock owned.

• For tax years of foreign corporations beginning after 2017, and tax years of U.S. shareholders with or within which those tax years of foreign corporations end, U.S. shareholders of CFCs must include in gross income global intangible low-taxed income (GILTI), in a manner generally similar to inclusions of subpart F income. IRS has issued proposed regs to implement the GILTI regime, including reporting rules.

• For sales or exchanges after 2017, in the case of the sale or exchange by a domestic corporation of stock in a foreign corporation held for one year or more, any amount received by the domestic corporation which is treated as a dividend by reason of Code Sec. 1248 is now treated as a dividend for purposes of applying the Code Sec. 245A dividend received deduction rules.

• For tax years beginning after 2017, the inclusion of foreign base company oil-related in foreign base company income has been repealed.

• For tax years beginning after 2017, proceeds from the sale of inventory are now generally sourced on the basis of the production activities with respect to the property.

• For tax years beginning after 2017, the requirement that a foreign corporation had to be a CFC for an uninterrupted period of 30 days or more during the tax year for its Subpart F income to be taxed to its shareholders has been eliminated.

• For sales, exchanges, and dispositions after Nov. 26, 2017, notwithstanding any other tax rules, if a nonresident alien individual or foreign corporation owns, directly or indirectly, an interest in a partnership that is engaged in any trade or business in the U.S., gain or loss on the sale or exchange of all (or any portion of) the interest is treated as effectively connected with the conduct of the trade or business to the extent the gain or loss does not exceed certain limitations.

• For 2018, an individual with “average annual net income tax” of more than $165,000 for the five tax years ending before the date of the loss of U.S. citizenship will be a covered expatriate. Under a mark-to-market deemed sale rule, all property of a covered expatriate is treated as sold on the day before the expatriation date for its fair market value. However, for tax years beginning in 2018, the amount that would otherwise be includible in the gross income of any individual under these mark-to-market rules will be reduced by $711,000.

• IRS has announced that, until regs are issued implementing the requirement to withhold on amounts realized on dispositions of partnership interests, taxpayers must use the principles applicable to withholding on U.S. real property interests, including the use of Forms 8288 and 8288-A.

• IRS issued proposed regs and other guidance on Code Sec. 965, which generally requires U.S. taxpayers to pay a “transition tax” on the untaxed foreign earnings of certain specified foreign corporations as if those earnings had been repatriated to the U.S.

• In a Notice, IRS delayed the due date for the Code Sec. 965 basis election until after proposed regs, issued earlier this year, are finalized.

• IRS issued guidance clarifying the treatment of overpaid Code Sec. 965(h) installments.

• In a Notice, IRS extended the exception from “U.S. real property” to certain types of obligations and announced its intent to issue regs.

• On Dec. 1, 2018, the user fee for residency certification made on Form 8802 (Application for U.S. Residency Certification) increased from $85 to $185 for non-individual taxpayers.

Returns & Payments of Tax

• Individual return filing thresholds have increased for 2018.

• For tax years beginning after Feb. 9, 2018, persons age 65 and older at the end of the tax year can use Form 1040SR, which will be similar to Form 1040EZ, but not restricted based on income, which can include Social Security benefits, distributions from retirement plans, annuities and other deferred pay arrangements, interest and dividends, and adjusted net capital gain.

• The income tax return filing threshold for a bankruptcy estate of an individual is $12,000 for 2018.

• After 2017, reporting requirements apply to the acquirer of an existing life insurance contract or interest therein in a reportable policy sale (and to the issuer of the contract) and to the payor of reportable death benefits. IRS has issued draft 2018 Form 1099-LS, which is to be used by acquirers of a life insurance contract.

• Generally for amounts paid or incurred after 2017, government agencies (or entities treated as such agencies) that are complainants or investigators with respect to a violation or potential violation of any law must report to IRS and to the taxpayer the amount of each settlement agreement or order entered into where the aggregate amount required to be paid or incurred to or at the direction of the government is at least $600 (or such other amount as may be specified by IRS.

• IRS issued proposed regs under which all information returns, regardless of type, would be taken into account in determining whether a person meets the 25-return threshold and thus must file the returns electronically.

Tax Audits, Deficiences, Refunds & Penalties

• Generally for returns for partnership tax years beginning after 2017, streamlined unified audit partnership rules replace the TEFRA and electing large partnership rules. Under the new rules, adjustment to items of income, gain, loss, deduction, or credit of a partnership for a partnership tax year, and any partner’s distributive share of such adjustment, is generally determined at the partnership level.

• IRS issued proposed regs that would provide guidance on how partnerships and their partners adjust tax attributes to take into account partnership adjustments under the new partnership audit regime.

• The interest rates with respect to overpayments of tax are: for the first quarter of 2018, 4% for individuals and 3% for corporations (1.5% if the overpayment is by a C corporation and exceeds $10,000); and for the last three quarters of 2018, 5% for individuals and 4% for corporations (2.5% if the overpayment is by a C corporation and exceeds $10,000).

• The interest rates with respect to underpayments of tax are: for the first quarter of 2018, 4%, and for the last three quarters of 2018, 5%. A higher rate applies on large corporate underpayments: 6% for the first quarter of 2018, and 7% for the last three quarters of 2018.

• For a refund claim for overpayment of excludible wrongful incarceration damages, the limitation period is waived until Dec. 18, 2019.

• For 2018, the minimum failure to file penalty on income tax returns filed more than 60 days late, unless due to reasonable cause, is the lesser of $210 or the amount of tax required to be shown on the return.

• Certain civil penalties on tax return preparers, and total maximum amounts that can be imposed, have increased for 2018.

• IRS issued final regs on the tax return preparer penalty under Code Sec. 6695(g) to reflect changes made by the Tax Cuts and Jobs Act.

• For 2018, the monthly national average bronze plan premium for purposes of the individual shared responsibility payment is $283 for an individual and $1,415 for a family of 5 or more.

• The penalties for failure to file information returns and provide payee statements have increased for 2018.

• For 2018, failure to file a partnership return exposes the partnership to a $200 per-partner, per-month penalty.

• For 2018, failure to file an S corporation return exposes the S corporation to a $200 per-shareholder, per-month penalty.

• The dollar amount in the definition of “seriously delinquent tax debt” for purposes of the revocation/denial-of passport rules in Code Sec. 7345 is $51,000 for 2018.

• For wrongful IRS levies made after Dec. 22, 2017 (and those for which the prior-law 9-month period of limitations remained open), an amount equal to the money levied upon or the money received from a sale of the property may be returned within two years from the date of the levy.

• IRS issued proposed regs that would authorize limited return disclosure to State Department contractors.

• IRS issued proposed regs that would limit the role of non-government attorneys in summons procedures.

Estate, Gift & Generation-Skipping Transfer Taxes

• A district court held that the value of a grantor retained annuity trust (GRAT) was includible in an estate because the right to the annuity was determined to be a right to possess or enjoy the income from the transferred property

• The total decrease in the value of all real property under the special use valuation election may not exceed $1,140,000 for 2018 deaths.

• For 2018, the basic exclusion amount for gift and estate tax purposes is $11,180,000.

• For 2018, the applicable credit amount has increased to $4,417,800, which is the tax that would otherwise be imposed on $11,180,000.

• IRS issued proposed regs that would protect pre-2026 gifts from the post-2025 drop in the exclusion amount.

• The Tax Court held that, when the second spouse dies, IRS may examine the estate tax return of the predeceased spouse if that spouse elected portability.

• For 2018, an executor must file an estate tax return if the decedent’s gross estate at death exceeds the basic exclusion amount of $11,180,000.

• For 2018, the gift tax exclusion is $15,000.

• For 2018, the gift tax annual exclusion for gifts to a noncitizen spouse is $152,000.

• For 2018, the generation skipping transfer (GST) exemption is $11,180,000.

Year-end tax strategies for 2017

As the end of the year approaches, it is a good time to think of planning moves that will help lower your tax bill for this year and possibly the next. In many cases, this will involve the time-honored approach of deferring income until next year and accelerating deductions into this year to minimize 2017 taxes. This time-honored approach may turn out to be even more valuable if Congress succeeds in enacting tax reform that reduces tax rates beginning next year in exchange for slimmed-down deductions. Regardless of whether tax reform is enacted, deferring income also may help you minimize or avoid AGI-based phaseouts of various tax breaks that are applicable for 2017. [Read more…]