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30% Business Interest Deduction Explained

  • Written by CPA Magazine

The 30% business interest limitation for 2018 can have a significant effect on tax liability, even in years of low profitability.

To determine the limitation you first calculate adjusted taxable income, which is taxable income without considering these five items:

• The new 20% qualified business income deduction;

• Any net operating loss deductions;

• Any business interest expense or income;

• Any non-business income, like the gains from the sale of assets held for investmen;

• And any depreciation, amortization or depletion through 2021.

However, the limitation does not apply to investment interest, electing real property companies, electing farming entities and certain utility companies. Additionally, it does not apply to small businesses with average annual gross receipts over the prior 3 years of $25 million or less.

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Tax Cuts and Jobs Act Changing Professional Sports?

  • Written by CPA Magazine

The Tax Cuts and Jobs Act, known as the Act, may have inadvertently impacted professional sports. Among other changes, the Act limits the tax-free treatment of like-kind exchanges to certain real estate transactions. Prior to the Act, Section 1031 permitted businesses to exchange like-kind properties on a tax-deferred basis for federal taxes.

Professional sports teams often utilized 1031 exchange treatment to avoid the current recognition of income on trades of players. Since professional athletes’ contracts are not real property, 1031 treatment will no longer apply to teams trading players after 2017.

According to The Seward and Kissel Tax Group, the impact may include:

• Fewer trades overall,

• Fewer player-for-player trades,

• And more cash-for-player or player-for-draft pick deals.

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A New Deduction From the Tax Cuts and Jobs Act

  • Written by T. Steel Rose, CPA

The new Tax Cuts and Jobs Act brings a 20% deduction computed on qualified business income (QBI) for pass-through entities and Schedule C businesses. This qualified business income deduction is reduced by long-term capital gain and is limited if tentative taxable income (calculated before this deduction) exceeds $315,000 for joint filers.

If tentative taxable income is greater than the threshold, the QBI amount is limited to the amount of wage expense in the business, and is not available to a business based on the skill of one of its employees including law, accounting, consulting and financial services. After computing the QBI amount for each business a new entity may enhance the amount of 20% QBI deduction and many clients may need to alter their estimated tax payments for 2018.

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Budget Act 2018 Reinstates Tax Breaks

  • Written by T. Steel Rose, CPA

Although the Bipartisan Budget Act of 2018 was not intended to be “tax legislation,” the law reinstated a few 2017 tax breaks including:

• The above the line education deduction for tuition and fees for up to $4,000 if joint income does not exceed $160,000.
• The mortgage insurance premium deduction may be itemized for one more year as a part of the “mortgage interest” deduction.
• The ability to not report the cancellation-of-indebtedness income for homeowners who sold their primary residence in an underwater-mortgage short sale was reinstated for 2017.

Additionally, taxpayers who had a “wrongful or improper IRS levy” against their IRA may now roll the money back into their IRA. And, Disaster relief is provided for those effected by California wildfires in 2017.

Finally, there is a new Form coming in 2019. That’s right, the IRS is directed to create 1040SR to provide a simplified tax filing similar to Form 1040EZ for seniors 65 or older, who also report Social Security benefits, pensions and retirement account distributions.

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New Tax Law Forces CPAs to Reconsider Marketing Tactics

  • Written by CPA Magazine

Businesses may need to scale back on treating clients to sporting events like golf outings and football games after the new tax act ended a tax break for such entertainment. The tax overhaul eliminated a 50% deduction for business-related expenses for “entertainment, amusement or recreation.” This means luxury boxes at stadiums and arenas, along with theater and concert tickets, will be more costly for firms that use them to woo clients. Businesses using entertainment deductions extensively, including law, investment and accounting firms, will have to gauge the effects on their bottom lines.

While eliminating the deduction will restrict professionals who promote their business by entertaining clients, the 50% of meal deduction is still intact.

The loss of the entertainment deduction is a small price to pay after corporate rates were slashed to 21% from 35% and a 20% deduction for many “pass-through” businesses was created.

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