Helpful IRS Resources for Tax Reform Changes

Below are some resources that you may find useful in navigating the new tax law changes during this filing season.

Information on Tax Cuts and Jobs Act

• Publication 5307 (Tax Reform: Basics for Individuals and Families)
• Publication 5318 (Tax Reform: What’s New for Your Business)
• Tax Reform page on IRS website
• Tax Reform Guidance page on IRS website
• Form 4562 Instructions (Depreciation and Amortization)
• Bonus Depreciation – Pages 5 – 6
• Section 179 Expensing – Page 2 and Pages 3 – 4
• New Auto Limits – Page 13
• Schedule A instructions for changes to itemized deductions
• Publication 17 (Your Federal Income Tax)

Child Tax Credit/Credit for Other Dependents

• What’s New with the Child Tax Credit after Tax Reform
• Form 1040 instructions
• What’s New – Page 6
• Child Tax Credit and Credit for Other Dependents Worksheet – Page 42 – 43

Qualified Business Income Deduction

• Form 1040 instructions
• Explanation – Page 34 & 36
• Simplified Worksheet – Page 37
• Qualified Business Income FAQs
• IRS Notice 2019-07 - Rental Safe Harbor Rule for Qualified Business Income Deduction
• Final Regulations for Qualified Business Income Deduction
• Publication 535 (Business Expenses), Chapter 12 (Qualified Business Income Deduction) Provides detail explanation of deduction and includes worksheets for taxpayers who exceed the $157,500 ($315,000) threshold. Includes explanation of what businesses are considered a specified service trade or business.

2018 Federal Return and Taxpayer Expectations

With the 2019 filing season it is important for preparers to be aware that, due to tax reform and the changes to the withholding tables, some of your clients may receive a surprise when they see the results on their 2018 federal return in the form of a lower refund – some may even show a balance due.

This is because of “Tax Cuts and Jobs Act” changes such as the elimination of exemptions, the increase in the standard deduction, the elimination and limiting of certain itemized deduction and elimination of certain other deductions. The taxpayers that are most likely to be affected are:

• Two wage earner households
• Taxpayers who itemize
• Individuals who have non-wage income as well as W-2 wages
• Individuals with more complex tax situations

Even though the 2018 federal withholding tables reflected the lower tax rates and the increased standard deduction, they could not fully take into account the other tax law changes such as the suspension of dependency exemptions and reduced itemized deductions. This means that for the taxpayers listed above they will have had less tax withheld from their wages than in the past which may result in a lower refund or in some instances switch them from a refund to a balance due.

The IRS encouraged individuals to review their tax situation and adjust their withholding throughout 2018; however, the vast majority of taxpayers did not do this which may result in surprised clients.

By being aware of the situation, preparers can explain to their clients what changed on their return for 2018 and what they can do to change the result of their federal return for 2019.

See the IRS news release of November 14 – For many, time is running out to avoid a tax-time surprise for more information.

Visit the CrossLink Tax Resource Center to learn more.

Reminder of 2018 Itemized Deduction Changes

As the 2019 filing season is almost upon us this is a reminder of the changes to the 2018 itemized deductions.

Here is a summary of the changes:

• Taxes - Total real estate and state and local income taxes/general sales taxes are limited to $10,000.
• Interest

• Home equity loan, home equity line of credit or second mortgage interest is only deductible if it was used to buy, build or substantially improve the home (main or second) that secures the loan.

• Home mortgage interest is limited to $750,000 for homes purchased on or after December 15, 2017. The limit remains at $1,000,000 for homes purchased before that date.

• Home mortgage interest remains deductible for interest paid on loan secured by the taxpayer’s main or second home.

• Personal casualty losses are only deductible if the loss was incurred in a federally declared disaster area.
• The FEMA disaster declaration number will now be required to be entered on Form 4684 (Casualties and Theft).
• Miscellaneous itemized deductions subject to the 2% AGI floor are no longer deductible. This includes the Employee Business Expenses that were reported on Form 2106.
• Medical expense AGI threshold is 7.5% for 2018 for all taxpayers.
• Itemized deductions are no longer limited for higher income taxpayers.
• Charitable Contributions
• The AGI limitation is now 60% of AGI.
• Payments made in exchange for college athletic seating rights are no longer deductible.

For more details see the final 2018 Schedule A and instructions on the IRS website.

Also, see IRS Publication 5307 (Tax Reform Basics: For Individuals and Families) for more information on the itemized deduction changes and other tax law changes that will affect individuals this filing season.

View the original article on the CrossLink Tax Resources Center.

Qualified Business Income Deduction (20% Deduction for Certain Pass-Through Income)

The Tax Cuts and Jobs Act included a provision that may allow an individual to deduct 20% of their domestic qualified business income from a partnership, S Corporation or sole proprietorship (Schedule C or F). This provision is in effect for tax years 2018 – 2025.

For the vast majority of taxpayers (90%) this deduction is calculated as the lesser of:

• 20% of their net business income or
• 20% of their taxable income excluding capital gains

This means that for most taxpayers, the deduction is calculated based on the Simplified Worksheet on page 37 of the 2018 Form 1040 instructions.

For the remaining 10% of taxpayers whose income exceeds $157,500 ($315,000 for joint filers) the deduction will be limited as follows:

• For “specified service businesses” the deduction begins to be phased out once the income limit is reached.
• Specified Service business is defined on page 34 of the 2018 Form 1040 instructions.
• For all other businesses the deduction is limited to:
• 50% of the W-2 wages paid by the business or
• 25% of the W-2 wages paid by the business plus 2.5% of the unadjusted basis of all qualified property

For these taxpayers the deduction is calculated based on worksheets in the newly revised draft 2018 IRS Publication 535 (Qualified Business Income Deduction).

See the Business owners can claim a qualified business income deduction page on the IRS website for more information.

More information can be found on the CrossLink Tax Resource Center.

IRS confirms tax filing season to begin January 28

Copy of IRS Press Release below:

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IRS confirms tax filing season to begin January 28

IR-2019-01

WASHINGTON ― Despite the government shutdown, the Internal Revenue Service today confirmed that it will process tax returns beginning January 28, 2019 and provide refunds to taxpayers as scheduled.

“We are committed to ensuring that taxpayers receive their refunds notwithstanding the government shutdown. I appreciate the hard work of the employees and their commitment to the taxpayers during this period,” said IRS Commissioner Chuck Rettig.

Congress directed the payment of all tax refunds through a permanent, indefinite appropriation (31 U.S.C. 1324), and the IRS has consistently been of the view that it has authority to pay refunds despite a lapse in annual appropriations. Although in 2011 the Office of Management and Budget (OMB) directed the IRS not to pay refunds during a lapse, OMB has reviewed the relevant law at Treasury’s request and concluded that IRS may pay tax refunds during a lapse.

The IRS will be recalling a significant portion of its workforce, currently furloughed as part of the government shutdown, to work. Additional details for the IRS filing season will be included in an updated FY2019 Lapsed Appropriations Contingency Plan to be released publicly in the coming days.

“IRS employees have been hard at work over the past year to implement the biggest tax law changes the nation has seen in more than 30 years,” said Rettig.

As in past years, the IRS will begin accepting and processing individual tax returns once the filing season begins. For taxpayers who usually file early in the year and have all of the needed documentation, there is no need to wait to file. They should file when they are ready to submit a complete and accurate tax return.

The filing deadline to submit 2018 tax returns is Monday, April 15, 2019 for most taxpayers.  Because of the Patriots’ Day holiday on April 15 in Maine and Massachusetts and the Emancipation Day holiday on April 16 in the District of Columbia, taxpayers who live in Maine or Massachusetts have until April 17, 2019 to file their returns.

Software companies and tax professionals will be accepting and preparing tax returns before Jan. 28 and then will submit the returns when the IRS systems open later this month. The IRS strongly encourages people to file their tax returns electronically to minimize errors and for faster refunds.


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View the original IRS Press Release: www.irs.gov/newsroom/irs-confirms-tax-filing-season-to-begin-january-28