(775) 786-6141
Late December Tax Changes are Effective Now – and Retroactively!

 

 

By Bill Saylor, CPA           bsaylor@bvcocpas.com

Two major pieces of legislation were finalized and signed on December 20, 2019 and are effective now. Specifically, the Taxpayer Uncertainty and Disaster Tax Relief Act of 2019, part of omnibus spending legislation, extends more than 30 tax provisions that have previously languished since the passage of the Tax Cuts and Jobs Act in December 2017 and the SECURE Act which changes the rules for retirement accounts. The SECURE Act changes will be covered in a separate article.

Extender legislation is generally effective retroactively for tax years beginning after December 31, 2017 and through the 2020 year. Exceptions are noted below in the specific provision.

Individual provisions

  1. Exclusion from gross income of discharge of qualified principal residence indebtedness.
  2. Mortgage insurance premiums are again deductible with the deduction now phasing out starting for income above $100,000 ($50,000 for married filing separately.)
  3. Medical deductions threshold is reduced to 7.5% for years beginning after December 31, 2018.
  4. Qualified tuition and related expenses are again deductible above-the-line for individuals, up to $4,000 for married filing jointly individuals earning up to $130,000 or $2,000 for married filing jointly individuals earning up to $160,000.
  5. Nonbusiness energy property credit for 10% of certain qualified energy improvement and fixed amounts for certain energy-efficient property.

Major Business provisions

  1. Employer tax credit for paid family and medical leave provides a credit from 12.5% to 25% of eligible wages paid to qualifying employees with respect to family and medical leave.
  2. Work Opportunity Tax Credit benefits employers who hire one or more of ten targeted groups.
  3. Empowerment zone tax incentives
  4. Energy efficient homes credit allows contractors to claim $1,000 or $2,000 on qualifying new energy efficient home construction.
  5. Energy efficient commercial buildings deduction allows a deduction of $1.80 per square foot on qualified property or $0.60 per square foot if only certain subsystems qualify.
  6. Plus, the law includes a further 25 industry-specific provisions covering everything from racehorses to utilities.

If you are eligible for any of the above for 2019 please let your tax preparer know when you drop off your taxes. And, if you were eligible in 2018, please discuss the details with your tax preparer at that time; it may be worth amending your 2018 return to take advantage of these changes.

 

     By Keelie Bishop          kbishop@bvcocpas.com

 

Many individuals, regardless of generation, face the overwhelming question as to if they will ever be able to afford to retire. Too often many people do not save enough to retire. According to a U.S. Government Accountability Office review, about 48% of households had no retirement savings in 2016 and even when people are saving, their retirements won’t last very long (10-20 years). In response, Congress has made it a point to focus on retirement legislation.

For the first time in over a decade, lawmakers are working on passing comprehensive retirement reform. For example, on May 23, 2019 the U.S. House of Representatives passed the SECURE (Setting Every Community Up for Retirement Enhancement) Act by a margin of 417 to 3. This is legislation that aims to encourage retirement savings by increasing access to retirement plans.

The changes currently include: making it easier for small businesses to band together to offer 401(k) plans, requiring businesses to let long-term, part-time workers become eligible for retirement benefits and repealing the maximum age for making contributions to traditional individual retirement accounts (right now, the age is 70½), and changing the required minimum distribution age to 72 for certain retirement accounts.

The bill is intended to increase the amount of tax credit that the government will give to small businesses for having plans up to a maximum of $5,000 per year, from $500 per year. For businesses that automatically enroll employees, the maximum is $5,500.

This particular bill is now in the Senate, but is not the only bill aiming towards retirement reform. In addition there is also the RESA (Retirement Enhancement and Savings Act) bill and the Social Security 2100 Act currently being worked on. As a result it is expected that there will be significant changes to come.

 

By Brittany Capurro   bcapurro@bvcocpas.com

 

 

Receiving an IRS notice can be stressful. The most important thing to do is not to panic, and to read the entire notice before taking any action. There are a number of different reasons one might receive a notice, so make sure you understand exactly why you received the notice. You also need to verify that the notice is legitimate and not a scam to get your personal information or money from you.

According to the IRS website, the IRS sends notices and letters for the following reasons:

 

Your notice will explain why you received it and instruct you on the steps you need to take to handle the issue. Keep a copy of all IRS correspondences with your tax records. If you are unsure about the information in the notice contact your accountant for help.

Do not ignore the notice or wait to take action. These are usually time sensitive with potentially severe consequences if nothing is done in response to a notice. If your notice or letter requires a response by a specific date be sure to comply with this to minimize any additional interest and penalty charges and to preserve your appeal rights if you don’t agree.

The IRS website is a good resource to help you determine if the IRS notice you received is real or if it is scam. The IRS will not initiate contact with a tax payer to request personal or financial information, so if this what the notice is requesting, it is probably a scam.

 

 

 

By David Schaper, CPA  dschaper@bvcocpas.com

 

 

 

Do you have a large capital gain and don’t want to pay tax on this income immediately? Investing in an opportunity zone can be advantageous and the Reno CPAs at Barnard Vogler & Co. can help you with this process.

An opportunity zone is a designated area that has been certified by the U.S. Treasury Department as a low-income community that could benefit from private investment. A map to these areas in Nevada can be found at http://www.diversifynevada.com/programs/opportunity-zones/. An investor can go through a certification process by filing Form 8996 if they own property within this zone that they are planning to develop. An investor can also roll the proceeds of their capital gain, whether stock, business property, or property in California into a corporation or partnership that has already been certified, has property in an opportunity zone anywhere in the country, and is seeking private capital.

The mechanics of the gain and tax deferral are quite simple. If you have a capital gain then these are ordinarily taxed at 15% to 23.8%. If you put any portion of these gains into an eligible opportunity zone investment within 180 days, then the tax is deferred until December 31, 2026 at which time 85% of the deferred gain’s tax is due. If the investment is continued to be held after this date then the remaining gain is not taxable. This is a huge benefit as long as you have cash to pay the 85% of the tax on the original gain in 2026. Do you have any other questions on potential pitfalls or fine print of opportunity zone investments? Then a Nevada CPA at Barnard Vogler & Co is here to help. Call us at (775) 786-6141 or contact us at information@bvcocpas.com.

The Tax Cuts and Jobs Act brought to mainstream attention the use of temporary tax provisions by Congress. As temporary provisions near their expiration dates several options exist for Congress to choose from. Congress may decide to keep the provision temporary by extending the expiration date, make a temporary provision permanent, or simply allow the provision to expire. When a temporary provision has expired, Congress can also extend the provision retroactively; as was the case in 2018 when Congress retroactively extended the majority of 2016 expired provisions with the passing of the Bipartisan Budget Act of 2018.

As in years past, 2017 saw the expiration of many of these temporary provisions. Twenty eight provisions expired at the end of 2017. Of these, twelve were related to business entities, thirteen to energy credits, and three to individuals.

The three individual provisions that expired will impact a large number of taxpayers.

The first of three expired individual provisions was the tuition and fees deduction. We first saw this provision in the Economic Growth and Tax Relief Reconciliation Act of 2001. This provision allowed a qualified individual to take an above the line deduction on up to $4,000 of qualified education expenses. This temporary provision has been extended in the past several times and if you were a qualified individual in 2017 and still a student in 2018 this change will impact your tax return.
The second expired individual provision was the mortgage insurance premium deduction. This provision allowed individuals to deduct the entire premium for mortgage insurance on a qualified residence as an itemized deduction on Schedule A. We first saw this provision in 2006 with the Tax Relief and Health Care Act. Like the tuition and fees deduction, this provision has been extended several times in the past. If you had a qualified mortgage in 2017 and 2018 and paid mortgage insurance, this expiration will impact your tax return in 2018.

The final individual temporary tax provision that expired in 2017 was the exclusion in income of the cancellation of mortgage debt on your primary residence. Typically, when a debtor receives debt forgiveness the IRS requires this to be included as income. This temporary provision allowed for qualified mortgage debt forgiveness to be excluded. We first saw this deduction with the passing of The Mortgage Forgiveness Debt Relief Act of 2007. If you received mortgage forgiveness on a qualified residence in 2018, you will now likely be required to include this in your taxable income in 2018.

The three expired individual tax provisions described in this post have been used in tax planning and filing for at least a decade. Many of us have used them in the past, and may have been planning on using them in 2018. It is impossible to determine the impact this may have when combined with the increase of the standard deduction in 2018 without being familiar with your individual tax situation. If you are concerned with the impact these changes may have on your 2018 tax return, consult with your trusted tax professional. For more detailed reading on the subject of this post see Congressional Research Service Report R45347.

By Jarad Clark, CPA     jclark@bvcocpas.com

 

It is no secret that the majority of our friends and family are on social media. But small business is taking on an expanded roll into the usually social environment. “Friend me”, “Follow me” or “Find me on LinkedIn” are the new aged business card exchange. Gone are the days of stacks of business cards on young professional’s desk, now we share LinkedIn profiles for contact information. Here are a few statistics about the power of social media in 2018:

In 2018, there are 3.196 billion global social media users. A 42% penetration of the worlds population.

There are few other platforms that you can reach such a wide array of potential clients with relatively cheap advertising.

These stats show the power that social media has become in the marketing and business development world. Social media is the most likely place that your potential clients, employees, and business partners are going to hear about you. Now is the time to utilize the platforms at hand to gain an edge on your competition.

On December 20, the House approved H.R. 1, the Tax Cuts and Jobs Act, a sweeping tax reform measure. While much still needs to be determined for tax planning opportunities, we can look at the new income tax rates and how they compare to the pre-Act law.

 

2017 2018
Single
Up to 9,325.00 10.0% Up to 9,525.00 10.0%
Up to 37,950.00 15.0% Up to 38,700.00 12.0%
Up to 91,900.00 25.0% Up to 82,500.00 22.0%
Up to 191,650.00 28.0% Up to 157,500.00 24.0%
Up to 416,700.00 33.0% Up to 200,000.00 32.0%
Up to 418,400.00 35.0% Up to 500,000.00 35.0%
Over 418,400.00 39.6% Over 500,000.00 37.0%
MFJ
Up to 18,650.00 10.0% Up to 19,050.00 10.0%
Up to 75,900.00 15.0% Up to 77,400.00 12.0%
Up to 153,100.00 25.0% Up to 165,000.00 22.0%
Up to 233,350.00 28.0% Up to 315,000.00 24.0%
Up to 416,700.00 33.0% Up to 400,000.00 32.0%
Up to 470,700.00 35.0% Up to 600,000.00 35.0%
Over 470,700.00 39.6% Over 600,000.00 37.0%
As you can see, the majority of the tax rates are lower, where we start to see some discrepancies is when we get to Single filers making over $200,000. With the pre-tax law, an individual making in the range of $200,000 – $420,000, will be taxed at a 33% marginal rate. Under the “Tax Cuts and Jobs Act”, a single person making between $200,000-$420,000 will be taxed at a 35% marginal rate. It appears on its face that these individuals will be paying more in taxes. So let’s look at the real world numbers.

It isn’t until we get to $387,000 where we see the 2018 tax surpass that of the 2017 tax rates. From this point on there is a window of taxpayers (Single filers) who make between $387,000 and $417,000 who, with no other changes, will see their taxes go up for 2018. For the remaining filers, it appears that for the next 8 years you should see a tax rate decrease.

 

 

 

Recently I had the delight to visit Graceland, Elvis Presley’s former home and now an excellent place to reflect on Elvis’ life and get taken back in time to the 1970s. There I viewed many of Elvis’ cars including his pink Cadillac, a couple Rolls Royce’s and Mercedes, Lincolns and his Ferrari. His home was just how he left it back in 1977 with his dozen TVs scattered throughout the home, shag carpeting and roof, the colorful kitchen, his dad’s old office, and many other furnishings that were a flashback to the 70s.

As a CPA and tax guy, I was also fascinated with the financial documents that were displayed detailing many of Elvis’ large purchases and even his dad’s tax return after he was born showing he paid 1% tax on his income . Elvis must have trusted his dad immensely as there were dozens of checks signed by Elvis’ father Vernon as Vernon took care of all of his son’s finances. This is surprising given that Vernon spent a year in jail during Elvis’s childhood for check forgery and only had an eighth grade education.

Elvis would have benefited immensely if he would have utilized a CPA to assist his dad in tax planning and financial management. Even though Elvis was the largest U.S. taxpayer in 1973 and the highest paid entertainer for many years, he died with an estate worth “only” $10.2 million dollars. Apparently Elvis didn’t like to utilize pertinent tax deductions and had a horrible deal with his manager Colonel Tom Parker, who received over 50% of Elvis’ earnings . Parker even convinced Vernon to pay him 50% of the income from the Elvis’ estate after he died! With this mismanagement, Elvis’ estate lost $9 million in value over two years, and was only worth $1 million in 1979.

Many lessons can be learned with Elvis, but one financially is the importance of trusts for estate planning in which attorneys can be invaluable and utilizing competent and qualified CPAs to assist with tax, estate and financial planning.

On May 11, 2017, the Tax Court issued a Memorandum Decision (TC Memo 2017-79) that addressed, among other things, the Taxpayer arguing that the software “lured” him into claiming too many deductions on his tax return.

There were a number of issues on this return that caught the eye of the IRS: alimony paid deduction, interest deduction, and deduction for other expenses. When examined by the IRS, the Taxpayer did not have much in the way of paperwork to support his positon for the deductions reported.

In addition to disallowing the majority of the deductions taken, the Taxpayer was assessed an accuracy related penalty for substantial understatement of income tax. For this penalty, the burden shifts to the Taxpayer to show that his mistakes were reasonable and in good faith. “He admitted during trial that he deducted items he shouldn’t have, and that he overstated certain losses. He tried to blame TurboTax for his mistakes, but tax preparation software is only as good as the information one inputs into it,” the Court concluded.

Tax preparation software must be used correctly to be useful for purposes of showing reasonable cause and good faith as a defense to accuracy related penalties. The majority of court cases have rejected this defense.

It is the taxpayer’s responsibility to review the output as well as the input when using tax software. Remember the old adage: Garbage In Garbage Out.

When preparing your return, ensure you are reviewing the return before filing it. I just received a phone call this week from someone that was asking if his tax software was properly calculating the tax on rental property he had sold. A first for him. I commend him for wanting to understand what he was filing.

Remember: You can’t blame the software!

 

Reno, Nevada CPAs in the office of Barnard Vogler & Co. can assist individuals in many ways. We offer the traditional CPA services of 1040 preparation and tax planning. More specifically, our Reno CPAs have tax experience with California residency issues, cancellation of debts of recourse and nonrecourse, Chapter 11 bankruptcy tax matters and various trusts issues beyond just the preparation of the tax return.

Our CPAs in Reno, Nevada are also versed in a wide array of business matters. Some areas of expertise are the customary services that Certified Public Accountants typically provide such as financial statement preparations, compilations, reviews and audits. Additionally, we have assisted businesses with a congressional tax audit returning to the taxpayer a multimillion dollar tax refund, entity selections to provide the most beneficial business types, or controller/CFO services of remote bookkeeping, budget assistance and development of accounting policies and procedures. At our downtown Reno, Nevada location CPAs have also helped unravel and report on multimillion dollar frauds, been Chapter 7 bankruptcy examiners, and performed business valuation and expert witness testimony.

Give our office a call if you need a Reno CPA for yourself or your business.

 





CONTACT DETAILS

Barnard Vogler & Co.
100 W. Liberty St., Suite 1100
Reno, NV 89501

T: (775) 786-6141
F: (775) 323-6211
E: information@bvcocpas.com
LOCATION MAP

FOLLOW US






©2021 Barnard Volger & Co. All Rights Reserved.