Western CPE Blog
Breaking tax and accounting news and analysis from the experts at Western CPE.
Is My Rental Property a Qualified Trade or Business? October 9, 2019
By: 
& IRS PROVIDES A FEW MORE ANSWERS IN REV. PROC. 2019-38The 20% QBI deduction is only allowed for qualified trade or business income. The bothersome question since §199A was enacted was if and when a rental activity is a trade or business. The IRS issued Rev. Proc. 2019-38 that provides a safe harbor for determining if a rental activity is a trade or business for purposes of the §199A deduction.SAFE HARBORTo use the safe harbor the taxpayer is required to:Maintain separate books and records for each rental activity (or the combined enterprise if aggregated together),Demonstrate that 250 hours or more of “rental services” per …
Paying Wages to Minor Children Reaps Tax Benefits If Done Correctly October 2, 2019
Tax planning often includes a recommendation to the small business owner that he or she pay wages to their minor children. Wages to the kids may mean (1) using the child’s standard deduction to provide some tax free money, (2) shifting income from the parent’s high tax bracket to the child’s lower bracket, (3) saving FICA/SE tax on wages paid by a parent to the minor child, and (4) allowing the parent (or child) to fund a Roth IRA.The Tax Cuts and Jobs Act made paying kids a wage from the business even better when the new law doubled the …
Multiple Employer Pension Plan – The Rules Have Changed September 25, 2019
DOL Changes Who Can Participate in a Multiple Employer Pension Plan38 million US employees do not have pension plans. President Trump hoped to reduce those numbers with an August 31, 2018 executive order which directed the Department of Labor (DOL) to “expand the circumstances under which United States employers, especially small and mid-sized businesses, may sponsor or adopt a multiple employer plan (MEP) as a workplace retirement option for their employees…”A multiple employer plan is a plan maintained by two or more unrelated employers who are not members of a controlled group. The MEP requires some form of commonality among the …
IRS Draft of 2020 Form W-4 – What You Need to Know September 18, 2019
Because of withholding problems in 2018, the IRS proposed a massive change to the 2019 Form W-4. The early draft of the 2019 Form W-4 had 11 pages of instructions. The expansive instructions resulted in a “projected 1040.”Draft of 2020 Form W-4While this method may have resulted in more accurate withholding, gathering the information and completing the calculation would have been burdensome for many taxpayers, and impossible for some. It also would have provided the employer with more income information than many employees wanted to give. After many complaints and criticisms, the IRS withdrew its 2019 draft and replaced it …
36 Years Later – New Non-Employee Compensation Reporting Form September 10, 2019
September 10, 2019Form 1099-NEC has been resurrected by the IRS after 36 years on the shelf. Non-employee compensation paid in 2020 will be reported on Form 1099-NEC instead of Form 1099-MISC.New Non-Employee Compensation Reporting Coming for 2020The 2020 Form 1099-NEC is due to the contractor and the IRS by January 31, 2021.As you can guess, this change will help the IRS better target misclassified workers. If you need a brief summary of the employee versus independent contractor rules to send to a client, see the IRS’s fact sheet here.If you think that your client has a problem with misclassified workers and …
Are You a One-Percenter? September 4, 2019
We constantly hear from the media about the “one-percenters,” those Americans who report the top 1% of income. Sometimes we hear about how good the “one-percenters” are for our economy and job creation and sometimes we hear about the harm they cause to our environment and society. What does it take to be in the top 1%?No matter your opinion on which is right, do you want to know if you are a “one-percenter?”Let’s see how rarified the air is for the “rich” and how much income you need to be in the 1% of income earners.1NATIONAL AVERAGESTo be in the …
IRS News – Fax No More August 27, 2019
The IRS ended its tax transcript faxing service June 28, 2019. Taxpayers can access Get Transcript Online at IRS.gov, and after identifying themselves, immediately download or print a transcript.This is an easy solution if the taxpayer is in your office. The taxpayer can get a transcript by mail (usually within ten days) if they go to Get Transcript by Mail at IRS.gov. If it’s easier for your client, they can submit Form 4506-T or 4506T-EZ for a transcript by mail.Tax Professionals can obtain tax transcripts as follows:Request that the IRS mail a transcript to the taxpayer’s address of record, orUse e-Services’ Transcript Delivery System online …
Taxpayer First Act – What’s New and Missing August 20, 2019
A bipartisan IRS reform bill, Taxpayer First Act (HR3151) was signed into law by President Trump on July 1, 2019. This is the first legislation in 20 years aimed at modernizing the IRS and strengthening taxpayer rights. The Taxpayer First Act:requires IRS to develop a plan to improve customer service;establishes an Independent Appeals Process and allows eligible taxpayers access to the IRS’s administrative file;includes provisions to improve IRS protections for ID theft;makes reductions to the threshold for e-filing;clarifies process is de novo (a new look at facts and law by the court) for innocent spouse relief from joint liability;bars collection of …
The Supreme Court Decides a Tax Case 9-0 August 15, 2019
By: It seems everything is an argument. Listen to the news. Watch C-SPAN televise speeches in the House or the Senate. It seems the Democrats can’t agree on much of anything in their Presidential debates. So when we see a unanimous decision from what we have been told is a politically divided Supreme Court, the decision is worth noting.A Unified CourtIn a 9-0 opinion, the US Supreme Court upheld lower court findings that taxation of undistributed income from The Kimberly Rice Kaestner 1992 Trust by North Carolina based solely on the residence of the trust’s beneficiaries in North Carolina violated the Due Process …
What You Need to Know about Qualified Business Income Deduction for 2019 August 8, 2019
Taxpayers claiming a Qualified Business Income deduction (QBI deduction) on their 2019 tax returns will be required to complete new Form 8995 or new Form 8995-A.No form was required for 2018 tax returns. The IRS instead provided worksheets in Publication 535 “to be retained for your records.”New Forms for 2019 – Qualified Business Income DeductionWe discussed in last year’s tax update classes that without a required form, the most the IRS could do in selecting returns for audit was (1) check that the deduction wasn’t more than 20% of the modified taxable income, or (2) simply audit based on the amount of …
Virtual Currency Update – What Your Clients Need to Know August 1, 2019
The IRS has begun sending letters to taxpayers with virtual currency transactions that potentially failed to report income and pay the resulting tax from virtual currency transactions or did not report their transactions properly. By the end of August, 10,000 “educational letters” will be delivered to taxpayers telling them to amend their returns to report their virtual currency transactions. There are three versions of the letter, often called a soft notice — fix the problem or we’ll audit you — Letter 6173, Letter 6174 and Letter 6174-A.Coinbase Inc. lost its bid in Federal court to stop the IRS from examining its customer …
The 2019 Form 1040 – Drafts Show Improvement July 25, 2019
The IRS has released drafts of the 2019 Form 1040. Say bye-bye to the “postcard” — sort of.For 2018, the idea of a postcard tax return resulted in the old and trusted Form 1040 transforming into an eight-page problem. The first two pages were each printed on a half sheet of paper to resemble a postcard-sized Form 1040 (although many software companies received IRS permission to cram the two half pages into one). Six schedules to support the “postcard” followed.For 2019, there have been some improvements. First, the six 2018 schedules have been cut to three for 2019. Schedule 1 reports additional income and adjustments …
Lease Accounting Alert – FASB Codification 842 July 23, 2019
By: Jeff Sailor, CPA
Valuable Planning Time Extended Last week, the FASB gave private companies a wonderful surprise. On Wednesday, July 17, the board proposed to delay the effective date of the new lease standard under FASB Codification 842 for one year. The effective date was to be for fiscal years beginning after December 15, 2019. This would have made the standard essentially effective for the 2020 calendar year. The proposal would make the new effective date for periods beginning after December 15, 2020.While this is only a proposal at this time, there are only administrative issues before it becomes an actual update.While most accountants …
Tax Implications of Remote Work – Be Aware July 16, 2019
Business Losses Were Not Passive Even Though Owner Lived out of State(Fred and Lisa Barbara v. Comm., TCM 2019-50)Fred Barbara sold his trucking business for tens of millions of dollars. Mr. Barbara used the proceeds from the sale to start a money-lending business. The office of the lending business was in Chicago and was staffed by two full-time employees–an accountant and a secretary. During the years 2009 through 2012, Mr. Barbara split his time between Chicago and Florida, living in Florida 60% of the year.IRS thinks losses are passive. The lending business losses were large; Mr. Barbara lived out of state …
Missing Entry on Appraisal Summary Nixes Charitable Deduction July 10, 2019
Missing Entry on Appraisal Summary Nixes Charitable Deduction (RERI Holdings I, LLC v. Comm., US Court of Appeals for the District of Columbia, No. 17-1266 (5-24-2019)RERI I, LLC paid $2.95 million in Mar. 2002 to acquire a remainder interest in a data center leased to AT&T and located in Hawthorne, California. On Aug. 27, 2003, RERI assigned the remainder interest to the University of Michigan. On its 2003 Form 1065, RERI claimed a charitable deduction of $33,019,000.Tax practitioner point. A quick look at the facts shows that the taxpayer paid a little less than $3 million for the remainder interest just …
Electric Vehicle Credit Starts to Phase Out for Tesla and General Motors (IR-2019-57) June 13, 2019
Electric Vehicle Credit Starts to Phase Out for Tesla and General Motors (IR-2019-57)Section 30D provides a credit for Qualified Plug-in Electric Drive Motor Vehicles including passenger vehicles and light trucks. For vehicles acquired after Dec. 31, 2009, the credit is equal to $2,500 plus, for a vehicle which draws propulsion energy from a battery with at least 5 kilowatt hours of capacity, $417, plus an additional $417 for each kilowatt hour of battery capacity in excess of 5 kilowatt hours. The total amount of the credit allowed for a vehicle is limited to $7,500. The credit begins to phase out …
Taxpayer Will Remember 2019 Memorial Day – from Behind Bars June 4, 2019
Taxpayer Will Remember 2019 Memorial Day — from Behind BarsRichard Spencer owns RS Sewing, a company that makes American flags and sells them to veterans’ groups and large retailers throughout the country. Spencer was convicted of failing to withhold taxes from workers he knowingly and willfully misclassified as independent contractors. For workers classified as W-2 employees, Spencer failed to pay over to the IRS taxes the company withheld from its employees’ wages. Judge Patricia Gaughan of the US District Court in Cleveland sentenced Spencer to two years in prison and three years of supervised release. In addition Spencer must pay …
Sixteen Points of Interest from the Final §199A Regulations May 20, 2019
The final §199A regulations are 247 pages. There are many points of interest in these newly released regulations. Here is a brief summary of a few that were clarified or changed between the August proposed regulations and the final January regulations:Treatment of other deductions. Deductions for items such as ½ of self-employment tax,self-employed health insurance, and retirement contributions reduce QBI to the extent the income from the business was taken into account to determine those deductions (pages 43-44).Note. All references to page numbers refer to pages in the final regulations linked above for your convenience.Example. Mark’s Net Schedule C income is …
IRS Expands 2018 Estimated Tax Penalty Waiver March 22, 2019
Because of changes to the withholding tables, the IRS is generally waiving the penalty for anytaxpayer who paid at least 80% of their 2018 total tax liability during the year through federalincome tax withholding, quarterly estimated tax payments or a combination of the two. Torequest the waiver, an individual must file a Form 2210, complete Part I, and check the waiverbox (Part II, Box A).If the client already paid an estimated tax penalty based on the prior IRS notice allowing a waiverif 85% of taxes had been prepaid, a refund can be claimed on Form 843. Include the statement”80% waiver …
Final §199A Regs Help Clarify the De Minimis Rule for a Business with SSTB Income January 28, 2019
Final §199A Regs Help Clarify the De Minimis Rule for a Business with SSTB Income (REG-107892-18)Individuals with taxable income above $157,5001 ($315,000 MFJ) are not entitled to a QBI deduction if their business income is from a specified service trade or business (SSTB). But wonder if your client has two sources of income in her LLC – income from a specified service business and income from a non specified service business. Does the LLC have all specified service income and, thus, the pass-through owner has no QBI deduction? Or can you report two business activities and qualify the LLC owner for …