IRS issues proposed regulations on new 20 percent deduction for passthrough businesses

IR-2018-162, Aug. 8, 2018

WASHINGTON — The Internal Revenue Service issued proposed regulations today for a new provision allowing many owners of sole proprietorships, partnerships, trusts and S corporations to deduct 20 percent of their qualified business income.

The new deduction — referred to as the Section 199A deduction or the deduction for qualified business income — was created by the Tax Cuts and Jobs Act. The deduction is available for tax years beginning after Dec. 31, 2017. Eligible taxpayers can claim it for the first time on the 2018 federal income tax return they file next year.

The deduction is generally available to eligible taxpayers whose 2018 taxable incomes fall below $315,000 for joint returns and $157,500 for other taxpayers. It’s generally equal to the lesser of 20 percent of their qualified business income plus 20 percent of their qualified real estate investment trust dividends and qualified publicly traded partnership income or 20 percent of taxable income minus net capital gains.

Deductions for taxpayers above the $157,500/$315,000 taxable income thresholds may be limited. Those limitations are fully described in the proposed regulations.

Qualified business income includes domestic income from a trade or business. Employee wages, capital gain, interest and dividend income are excluded.

In addition, Notice 2018-64, also issued today, provides methods for calculating Form W-2 wages for purposes of the limitations on this deduction. More information may be found at www.IRS.gov.

Taxpayers may rely on the rules in these proposed regulations until final regulations are published in the Federal Register.

Written or electronic comments and requests for a public hearing on this proposed regulation must be received within 45 days of publication in the Federal Register.

IRS and Treasury preview postcard-size Form 1040

The Internal Revenue Service and the Treasury Department unveiled Friday a draft version of the postcard-size Form 1040 that was promised from last year’s tax reform effort.

For the 2019 tax season, the shorter Form 1040 will replace the current Form 1040, along with the Form 1040A and the Form 1040EZ. The IRS plans to work with the professional tax community to finalize the streamlined Form 1040 over the summer.

“As part of the historic Tax Cuts and Jobs Act, this Administration committed to making taxes simple and fair for American families. We are delivering on this promise,” said Treasury Secretary Steven T. Mnuchin in a statement. “The new, postcard-size Form1040 is designed to simplify and expedite filing tax returns, providing much-needed relief to hardworking taxpayers.”

Front of "simplified" Form 1040

Mnuchin promised last week to release the form this week (see Postcard-size 1040 tax form to be released next week). While there is an image of the front and back of the form shown on a web page on the Treasury Department’s website, the Form 1040 form was still unavailable as of early Friday afternoon on the IRS’s draft tax form page, although there’s a message that it will be posted on IRS.gov soon.

Back of "simplified" Form 1040

The simplified Form 1040 aims to streamline the tax prep process so all 150 million taxpayers can file the same type of form. The new form consolidates the three versions of the 1040 into a single form. The IRS will still get the information from each taxpayer needed to determine their tax liability or refund.

Although the form is postcard-size, it still asks for a taxpayer’s Social Security number, so it should still be mailed in an envelope to protect taxpayer privacy. With the popularity of electronic filing, it’s unclear how many taxpayers will opt to mail in the paper form anyway. Also, while the form itself has been shortened it may not actually simplify the tax prep process since it now requires attaching five other schedules, in addition to Schedule A for taxpayers who choose to itemize rather than taking the expanded standard deduction that was doubled by the Tax Cuts and Jobs Act.

Sen. Ron Wyden, D-Ore., the ranking Democrat on the Senate Finance Committee, criticized the new tax form. “The administration’s new tax form is a smokescreen designed to conceal paperwork, additional calculations and Trump’s broken promise to simplify the tax code,” he said in a statement. “It won’t take long for America to realize this postcard isn’t simple – it’s simply complicated. Just like the rest of Trump’s tax law the middle class is not going to fall for this con.”

President Trump marked the six-month anniversary of the passage of the Tax Cuts and Jobs Act with an event at the White House on Friday. “Six months ago, we unleashed an economic miracle by signing the biggest tax cuts and reforms,” he said.

The IRS said the new Form 1040 uses a “building block” approach, in which the tax return is reduced to a simple form. The form can then be supplemented with additional schedules if needed, but taxpayers with straightforward tax situations would only need to file the new “simplified” 1040 with no additional schedules.

Since more than nine out of 10 taxpayers use software or a tax preparer, the IRS said it will be working with the tax community to prepare for the streamlined Form 1040. That will also help provide a smooth transition for people who are familiar with tax prep software products and the interview process used to prepare tax returns.

Taxpayers who file on paper would use the new streamlined Form 1040 and supplement it with any schedules they needed.

The IRS said in an email to tax professionals Friday that they can submit comments about the draft Form 1040 to WI.1040.Comments@IRS.gov.

Published
  • June 29 2018, 12:49pm EDT

Don’t panic! What to do when you get a letter from the IRS

While we’re all hopefully aware that any phone purporting to be from the IRS is, in all likelihood, actually a scam, the same cannot be said for any letter a taxpayer may receive.

The IRS sends out millions of letters every year (many of them automated), and most of them don’t need to be the subject of fear. In fact, to help ease taxpayers’ minds on the subject, the service put together the following list of do’s and don’ts to help relieve some of the fear and uncertainty.

Read More Here

IRS adjusts health savings account limits for 2019

The Internal Revenue Service has issued a revenue procedure providing the 2019 inflation-adjusted amounts for health savings accounts.

In Revenue Procedure 2018-30, the IRS said the annual limitation on deductions for an individual with self -only coverage under a high deductible health plan is $3,500 for calendar year 2019. Also for next year, the annual limitation on deductions for an individual with family coverage under a high deductible health plan is $7,000.

A “high deductible health plan” is defined as a health plan with an annual deductible of no less than $1,350 for self-only coverage or $2,700 for family coverage, and the annual out-of-pocket expenses (deductibles, co- payments, and other amounts, but not premiums) don’t exceed $6,750 for self-only coverage or $13,500 for family coverage for 2019.

Earlier this year, the IRS changed the family coverage contribution limit for 2018 for HSAs from $6,900 to $6,850 in response to the Tax Cuts and Jobs Act, but then reversed course and raised it again to $6,900.

Michael Cohn

Michael Cohn, editor-in-chief of AccountingToday.com, has been covering business and technology for a variety of publications since 1985.

Firms giving back: Sax gifts $15K to ‘sustainable’ nonprofit

Sax honors local, “sustainable” nonprofit with 1st annual “Founder’s Award” ceremony

Clifton, N.J.-based accounting firm Sax announced that its first annual Founder’s Award, which looks to highlight a local New Jersey nonprofit with a $15,000 gift for being an example of sustainability, was awarded to Imagine: A Center for Coping with Loss, an organization based in Mountainside, N.J. The award was gifted at the Founder’s Award ceremony on January 25 at The Chart House in Weehawken.

Approximately 190 nonprofit organizations submitted essays and videos explaining how they’re driving sustainability or looking to build a sustainable system in the future. A panel of four independent judges reviewed all submissions before deciding on the winner. The Founder’s Award was created by Sax partner Todd Polyniak to honor the principles of Sax’s founders by supporting nonprofit organizations success.

“When I first saw the application for Sax’s Founder’s Award, I was hopeful because sustainability is something we’ve been focused on since day one of our founding,” said Mary Robinson, Imagine founder and executive director who penned the nonprofit’s winning essay, per a statement. “However, when I heard there were over 180 applicants I knew it would be tough to stand out among so many other worthy not-for-profit organizations. When we heard the news from Stu [Arnold, Imagine’s chairman] that we were selected we were thrilled! It was so incredibly validating of our focus and philosophy, and we know in our hearts our mission is one worth sustaining”.

The Imagine Center provides free, year-round support for families and children dealing with loss or life-altering physical illnesses.

“We’ve come a very long way, and we serve hundreds of families now with our support services for children who are grieving and who need a place to feel comfortable, safe and warm,” said Stuart Arnold, Imagine’s board chair upon receiving the award, per a release. “[It’s] a place where they can relate to people who are going through a similar situation. Thank you for helping us, because the work we are doing changes the trajectory of young people’s lives.”

“I would love to see all our competition imitate this event,” stated Todd Polyniak, partner at Sax. “If I can spur people into copying us, and donating money to not-for-profits, great – because this event was to help people. The for-profit world needs to support the not-for-profit world because their positive impact benefits us all.”

Two runner-ups were also announced at the event: Partners for Women and Justice, which provides free legal assistance to victims of domestic violence, received second place. Spectrum360, which provides educational and therapeutic programs for individuals affected with autism, received third place.

Fortune and its research partner Great Place to Work recently listed their 2018 Best Workplaces for Giving Back rankings, which included a number of accounting firms and related businesses.

The rankings utilized feedback from more than 386,278 employees at “Great Place to Work–certified” organizations. An anonymous survey was distributed, complete with questions on how proud the staff is of their community efforts, if they feel they make a difference, and whether they believe their work has “special meaning.”

Great Place to Work also considered factors such as paid time off for volunteering, community outreach and corporate donations when compiling the rankings.

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