Hello Clients and Friends!
First, I would say Thank You all for your business and good relationships built. Please never hesitate to contact myself or Maureen if anything seems amiss.
End of year planning
Yes, there is still plenty of time for year-end planning meetings, analysis, or even via telephone and email. If you want to get a good grip on the tax outcome early, give us a call!
The IRS is cracking down (audits) on certain Partnerships and S Corporations. Using their tight budget, the IRS is relying more on 3rd party collections and computer data integration. Shorter period times before penalties and bank levies automatically get slapped on. We have been getting warned on keeping good basis records. Many of you, I am sure, heard us asking for basis information this past year. Now the IRS has launched a program audit; it involves:
- Comparing your S Corp/Partnership basis calculations.
- Reviewing size of “officer compensation” along with size of distributions.
- Any distributions? Do they exceed your salary?
- Are you lacking receipts or substantiation for business expenses?
- Do you keep a mileage log? If you have automobile deductions, you should.
Agents tell me that these audits should produce some easily calculated (negative) results for the taxpayer. Cash or items for personal use on the company tab. They both count as distributions, which are fine, so long as the rules are followed. Even if accurate and verifiable, its never worth having an audit just to prove you were right all along.
We are already changing the strategies to avoid these which have already begun. IRS targets 2017/2018 right now, which allows them to audit 3 years of tax returns if necessary.
REAL ESTATE REPORT
A recent move by the Federal Housing Finance Agency is causing Uncle Sam’s footprint in multifamily lending to shrink. They closed loopholes that have previously allowed Fannie Mae and Freddie Mac to exceed their previous caps.
According to Mortgage Bankers Association, lenders have had a 14% increase over 2018 on mortgages secured by malls, hotels, apartments etc. Commercial real estate property loans will continue to increase in 2020.
Also, large real estate losses reported, especially by professional are being eyed by the IRS. To fully deduct their rental losses, “real estate professionals” must satisfy the two time test. They must spend over 750 hours materially participating in real estate activities and over half of the working hours. Very few taxpayers will escape an audit using the “professional” title and deduct unlimited losses. Otherwise, you will get up to $25,000 loss on rental properties, so long as your Adjusted Gross Income doesn’t exceed $150,000. That’s the top end of the loss/phaseout of passive income. Laws still there since the 80’s and never really changed
The new business deduction (started for the 2018 tax returns), is called the 20% “qualified business income deduction” (aka “QBID) may apply if you have income from rental properties. But first, you must meet the QBI requirements. Taxpayers must devote no less than 250 hours to the rental activity, unless owned for four or more years. In that case, the 250-hour requirement must be satisfied within three of the most recent five years. Please be aware that time spent traveling to and from the property and arranging finances are not to be included in hours. Time spent providing tenant services, advertising, property management, collecting rent, and repair and maintenance are counted in the 250-hour requirement.
Are you feeling generous this year? Make the most of your charity donations by contributing appreciated assets (stocks, etc.) In most cases, you can deduct the full value. Donating depreciated (business) assets would be a waste of the capital loss. Be sure to meet timing expectations to lock in your donations for 2019. KEEP RECEIPTS!
CORPORATIONS/BUSINESS SCH C/LLCS
Most taxpayers that operate a business, regardless if Schedule C,E,F, or an S Corporation or Trust. Just a reminder that getting information in to us the earliest in January as possible will help ensure a good return time.
2019 TAX ORGANIZERS
The 2019 tax organizers should be installed soon. Generally, after proofing and IT maintenance our goal is to make those available to you by January 01, 2020. Watch your email from the portal system
NEW FOR 2019 RETURNS
Standard deduction up by $400 Married Filing Jointly; up $200 Single
IRC Section 179 immediate write-off- limit increased to $1,020,000 from $1M in 2018
Gift tax – annual exclusion remains at $15,000, will be same in 2020
IRA limits are up- $6,000; $7,000 (age 50 +)
401K are up too- $19,000; $25,000 (age 50+)
SIMPLE IRA- up $500 ($13,000; to $16,000 if 50 or older)