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NEW EXPENSING AND BONUS DEPRECIATION RULES FOR SMALL BUSINESSES

Posted on November 26th, 2018

By Isaac M. O’Bannon, Managing Editor, CPA Practice Advisor

 

Some of the changes in the tax reform law mean small businesses can immediately expense more of the cost of certain business property. Many are now able to write off most depreciable assets in the year they are placed into service.

The Tax Cuts and Jobs Act (TCJA), passed in December 2017, made tax law changes that will affect virtually every business and individual in 2018 and the years ahead. Among those for business owners are tax rate changes for pass-through entities, changes to the cash accounting method for some, limits on certain deductions and more.

Section 179 expensing changes

A taxpayer may elect to expense all or part of the cost of any Section 179 property and deduct it in the year the property is placed in service. The new law increased the maximum deduction from $500,000 to $1 million. It also increased the phase-out threshold from $2 million to $2.5 million. These changes apply to property placed in service in taxable years beginning after Dec. 31, 2017. For most businesses, this means the 2018 return they file next year.

Section 179 property includes business equipment and machinery, office equipment, livestock and, if elected, qualified real property. The TCJA also modifies the definition of qualified real property to allow the taxpayer to elect to include certain improvements made to nonresidential real property. See New rules and limitations for depreciation and expensing under the Tax Cuts and Jobs Act for more information.

New 100 percent, first-year ‘bonus’ depreciation

The 100 percent depreciation deduction generally applies to depreciable business assets with a recovery period of 20 years or less and certain other property. Machinery, equipment, computers, appliances and furniture generally qualify. The law also allows expensing for certain film, television, and live theatrical productions, and used qualified property with certain restrictions.

The deduction applies to business property acquired after Sept. 27, 2017, and placed in service after Sept. 27, 2017, and before Jan. 1, 2023. In general, the bonus depreciation percentage is reduced for property placed in service after 2022. See the proposed regulations for more details.

Taxpayers may elect out of the additional first-year depreciation for the taxable year the property is placed in service. If the election is made, it applies to all qualified property that is in the same class of property and placed in service by the taxpayer in the same taxable year. The instructions for Form 4562, Depreciation and Amortization, provide details.

Business owners can refer to the Tax Reform Provisions that Affect Businesses page for updates.

 

 


Posted on March 6th, 2018

Be on the lookout for refund scams!

IRS Tax Tip 2018-32, March 1, 2018

The IRS warns taxpayers of a new twist on an old scam. Criminals are depositing fraudulent tax refunds into individuals’ actual bank accounts, then attempting to reclaim the refund from the taxpayers.

Here are the basic steps criminals follow to carry out this scam. The thief:

  • Hacks tax preparers’ computers to steal taxpayer data.
  • Uses the stolen information to file tax returns as the taxpayers.
  • Has refunds deposited into taxpayers’ bank accounts.
  • Contacts their victims, telling them the money was mistakenly deposited into their accounts and asking them to return it.

While the IRS is aware of variations of this scam, the agency also knows that this scam may continue to evolve. Here are two current versions of this scam:

  • Criminals pose as debt collection agency officials acting on behalf of the IRS. The thief contacts the taxpayer to report an erroneous refund deposit and request that the taxpayer forward the money to the thief’s collection agency.
  • The taxpayer who received the erroneous refund gets an automated call with a recorded voice saying the caller is from the IRS. The recording threatens the taxpayer with criminal fraud charges, an arrest warrant and a “blacklisting” of his or her Social Security number. The recorded voice gives the taxpayer a phony case number and telephone number to call to return the refund.

Here are some things taxpayers should remember if someone contacts them about an erroneous refund:

  • There are established procedures taxpayers should follow to return erroneous funds to the IRS. Tax Topic Number 161 – Returning an Erroneous Refund has full details about how to return the money, including the actual mailing addresses where a taxpayer should send a paper check, if necessary. By law, interest may accrue on erroneous refunds.
  • The IRS encourages taxpayers to discuss the issue with their financial institutions because there may be a need to close bank accounts.
  • Taxpayers receiving erroneous refunds also should contact their tax preparers immediately.

More Information:

 


2018 Filing Due Dates

Posted on December 11th, 2017

This will be the second year of earlier deadlines for information returns. Below is a refresher list of the due dates for common forms and returns in 2018.

COMMON FORMS AND RETURNS

  • Forms W-2 and W-3: Employers must file by January 31 with the Social Security Administration.
  • Forms 1099-MISC and related Form 1096 must be filed by January 31 with the Internal Revenue Service. If you don’t have completed W9s on your independent contractors, get them now. You can download forms here: https://www.irs.gov/pub/irs-pdf/fw9.pdf
  • Partnership tax returns are due by March 15.
  • California LLC partnership fees are due by March 15.
  • California Single Member LLC’s will be due on March 15 if owned by a pass-through entity (S corporations, partnerships, and LLCs classified as partnerships). For all other Single Member LLC’s, the due date is April 17.
  • S corporations are due on March 15.
  • C corporations are due on April 17. The exception to this rule is C corporations with a fiscal yearend of June 30. These C corporation returns will be due September 17.
  • The Federal extended due date for all partnerships, S corporations, and C corporations is September 17.
  • Trusts are due on April 17. The extended due date is October 1.
  • FinCen Report 114, the Foreign Bank and Financial Accounts report is due on April 17 but can be extended to October 15.
  • Individual returns are due on April 17. The extended due date is October 15.
  • Exempt organization returns are due May 15. California has an automatic 6-month extension, and the extended due date is November 15.

ACA REPORTING

  • Forms 1095-C: Employers must furnish these to employees by January 31.
  • Form 1094-C: Employers must furnish these to the IRS by February 28, if filing by paper, and by April 2 if e-filing. See what they did there? The push is on for e-filing all information returns. Employers that file 250 or more information returns with the IRS must e-file the returns.

Instructions for filing these forms can be found here:  https://www.irs.gov/pub/irs-pdf/i109495c.pdf


Injunction on DOL Overtime Rule

Posted on December 1st, 2016

On November 22, 2016, a preliminary injunction was issued that blocks the Department of Labor from enforcing its new regulations that would extend overtime pay to approximately 4 million workers. In a nutshell, the judge argued that DOL overstepped by creating a salary test that overrides the duties test. The new rule excludes any employee whose salary is under the limit (approximately $48,000) from being classified as an exempt employee.  The 2004 rule that this new rule would replace also had a salary test, and the current limit is approximately $24,000. The DOL could appeal the injunction, but whether or not it will is completely up in the air.

Below are links to the injunction and to articles with more details.

https://www.unitedstatescourts.org/federal/txed/171486/60-0.html

http://www.natlawreview.com/article/texas-federal-court-blocks-new-salary-restrictions-exempt-employees

Overtime Rules in Limbo: What Businesses Should Do Now


Due Dates Change in 2017

Posted on November 19th, 2016

The IRS and Franchise Tax Board changed the required filing due dates for some business entity tax returns.  Extensions are still available, but care must be taken to pay any unpaid taxes by the new due dates.  Listed below is a summary of the changes.

 

Effective January 1, 2017:

 

  • Forms W-2 and W-3: Employers must file by January 31 with the Social Security Administration. An extending filing date is no longer allowed for electronic filing.

 

  • Forms 1099-MISC and related Form 1096 must be filed by January 31 with the Internal Revenue Service. The due date for other Forms 1099 and 1098 have not changed.

 

  • Partnership tax returns are due by March 15 instead of April 15.

 

  • California LLC partnership fees are due by March 15.

 

  • California Single Member LLC’s will be due on March 15 if owned by a pass-through entity (S corporations, partnerships, and LLCs classified as partnerships). For all other Single Member LLC’s, the due date is still April 15.

 

  • S corporations are due on March 15. No change.

 

  • C corporations are due on April 15 instead of March 15. The exception to this rule is C corporations with a fiscal yearend of  June 30. These C corporation returns will be due September 15 .

 

  • The Federal extended due date for all partnerships, S corporations, and C corporations is September 15.

 

  • Trusts are due on April 15. The extended due date has been extended to September 30.

 

  • FinCen Report 114, the Foreign Bank and Financial Accounts report is due on April 15, but can be extended to October 15.

 

  • Individual returns are due on April 15. The extended due date is October 15.

 

We welcome your questions on these and other due date changes.


The New Overtime Rules

Posted on August 3rd, 2016

Earlier this year, President Obama announced the publication of the Department of Labor’s Final Rule updating the overtime regulations, which will go into effect on December 1, 2016. Under the new regulation, the salary threshold for overtime increases, making over 4 million more workers eligible to receive overtime pay at a rate of time-and-a-half when they work in excess of 40 hours in a workweek.

The Final Rule updates the salary and compensation levels needed for executive, administrative, and professional workers to be exempt. Specifically, the Final Rule does the following:

  1. Sets the standard salary level at $47,476 per year ($913 weekly).
  2. Sets the total annual compensation requirement for highly compensated employees (HCE) to $134,004. This is the annual compensation level above which most white collar workers will be ineligible for overtime.
  3. Establishes a mechanism for automatically updating the salary and compensation levels every 3 years, beginning on January 1, 2020.
  4. Amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.
  5. Maintains the current standard duties tests for executive, administrative, and professional (EAP) employees. See the WHD Fact Sheet #17A for a description of EAP duties at https://www.dol.gov/whd/overtime/fs17a_overview.pdf.

The details of the Final Rule can be found at https://www.dol.gov/whd/overtime/final2016. Additional guidance for private employers can be found at https://www.dol.gov/whd/overtime/final2016/general-guidance.pdf.

California has its own set of overtime regulations which are more stringent than federal law. The table below features a recap of the differences between California law and the Final Rule from the Department of Labor.

[table id=1 /]
This is a brief summary of the new rules. We welcome your questions on how to comply with the new regulations.


Goodrich, Thomas, Cannon & Reeds, LLP

T: (714) 546-0755
F: (714) 546-4901
E: info@gtcrcpas.com

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