1. FPA of Greater Indiana
TCJA - Considerations-pitfalls and surprises clients didn’t realize until they filed 2018 taxes…
May 10, 2019
Presented by:
William R. Owen, Jr. CPA, CFP®
BGBC Partners, LLP
300 N. Meridian Street
Indianapolis, IN
(317)
BNN updated

2. “Tax Cuts and Jobs Act” (P.L. 115-97) Overview
President Trump signed into law on December 22, 2017
A sweeping tax reform law that entirely changed the tax landscape...
The largest major tax reform in over three decades…
Promised Simplification!

3. Post Card Return “Tax Cuts and Jobs Act” (P.L. 115-97) Overview
Getty/Drew Angerer Picture
House Speaker Paul Ryan looks on as President Donald Trump discusses tax reform legislation, November 2017.

4. “Tax Cuts and Jobs Act” (P.L. 115-97) Overview
Reality…Pages 1 and 2

5. Reality…Schedules 1 and 2
“Tax Cuts and Jobs Act” (P.L ) Overview
Reality…Schedules 1 and 2

6. Reality…Schedules 3 and 4
“Tax Cuts and Jobs Act” (P.L ) Overview
Reality…Schedules 3 and 4

7. Reality…Schedules 5 and 6
“Tax Cuts and Jobs Act” (P.L ) Overview
Reality…Schedules 5 and 6

8. “Tax Cuts and Jobs Act” (P. L
“Tax Cuts and Jobs Act” (P.L ) Overview Extenders Not Included and Not Renewed
Select Individual Provisions Expired at end of 2017
Exclusion for discharge of indebtedness on a principal residence under Code Sec. 108(a)(1)(E)
Treatment of mortgage insurance premiums as deductible qualified residence interest under Code Sec. 163(h)(3)
Deduction for qualified tuition and related expenses under Code Sec. 222(e)

9. “Tax Cuts and Jobs Act” (P. L
“Tax Cuts and Jobs Act” (P.L ) Overview Extenders Not Included and Not Renewed
Select Business Provisions Expired at End of 2017
Indian employment tax credit under Code Sec. 45A(f)
3-year depreciation for race horses two years old or younger under Code Sec. 168(e)(3)(A)
7-year recovery period for motorsports entertainment complexes under Code Sec. 168(i)(15) and Code Sec. 168(e)(3)(C)(ii)
the alternative 23.8% maximum tax rate for qualified timber gains of C corporations under Code Sec. 631

10. “Tax Cuts and Jobs Act” (P. L
“Tax Cuts and Jobs Act” (P.L ) Overview Extenders Not Included and Not Renewed
Select Energy Provisions Expired at End of 2017
Credit for certain nonbusiness energy property under Code Sec. 25C(g) .
Qualified fuel cell motor vehicle credit under Code Sec. 30B(k)(1) .
Alternative fuel vehicle refueling property credit under Code Sec. 30C(g) .
Credit for 2-wheeled plug-in electric vehicles under Code Sec. 30D(g)(3)(E)(ii)
Credit for construction of new energy efficient homes under Code Sec. 45L(g)
Energy efficient commercial buildings deduction under Code Sec. 179D(h)

11. Still Needed! “Tax Cuts and Jobs Act” (P.L. 115-97) Overview
Guidance is needed
Future legislation?
Technical Corrections Bill
Alignment with Tax Treaties

12. Small Business Considerations
Small businesses use of the Cash Method of Accounting
C corporations, and partnerships with C corporations as partners
"$25 million gross receipts test“
Indexed for inflation for tax years beginning after 2018
Farming businesses, qualified personal service corporations, partnerships without C corporation partners, S corporations, and other pass-through entities still exempt from gross receipts test, as long as the cash method clearly reflects income.

13. Small Business Considerations
Tax shelter descriptions, qualifications, and impact for small businesses
Section 448 retains the prohibition against tax shelters using the cash method of accounting.
Reg § T - tax shelter includes a Syndicate which means a partnership or other entity (other than a C corporation) if more than 35 percent of the losses of the entity are allocated to limited partners or limited entrepreneurs.
A “limited entrepreneur” - a person who has an interest in an enterprise other than as a limited partner, and does not actively participate in the management of such enterprise.

14. Small Business Considerations
Partner Negative Capital Account Reporting
Partnership’s are required to report a partner’s capital account on Sch K-1, Item L.
Capital may report using tax basis, GAAP, Code Sec. 704(b) book, or some other method.
New requirement – If tax capital at beginning or end of year is negative, and other than Tax Basis is reported on Sch K-1, Item L, must now report on line 20 of Schedule K-1, using code AH, the partner’s beginning and ending shares of tax basis capital. This is in addition to the required reporting in Item L.
Failure to report can result in penalties under Code Sec and 6698.

15. Small Business Considerations
Notice PENALTY RELIEF REGARDING FORM 1065, SCH K-1 NEGATIVE CAPITAL ACCOUNT INFORMATION
“IRS has become aware that certain partnerships may be unable to comply timely with this new requirement.”
They will waive penalties if both the following conditions are met:
1. The partner Schedules K-1 are timely filed, including extensions, with IRS and furnished to the partners and contain all other required information.
2. The partnership files with IRS no later than 180 days after the six-month extended due date for the partnership's Form 1065 or, for a calendar year partnership, no later than Mar. 15, 2020, a schedule setting forth, for each partner for whom the partnership is required to furnish negative tax basis capital account information, the partner's name, address, taxpayer identification number, and the amount of the partner's tax basis capital account at the beginning and end of the tax year at issue in accordance with instructions and additional guidance posted by IRS on IRS.gov. This 180 day-rule applies whether or not the partnership files Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns. The Notice provides the mailing address for this form.
This penalty relief applies only for a partnership's tax year beginning after Dec. 31, 2017, but before Jan. 1, 2019.

16. Small Business Considerations
Small businesses and the parking deduction
Effective for amounts incurred or paid after Dec. 31, 2017, TCJA provides that no deduction is allowed for the expense of a “qualified transportation fringe,” as defined in Code Sec. 132(f), provided to an employee.
“Qualified transportation fringe“ is defined as:
(1) transportation in a commuter highway vehicle for travel between the employee's residence and place of employment; (2) transit passes; (3) qualified parking; and (4) qualified bicycle commuting reimbursement.
2018 IRS Publication 15-B IRS says no to workaround.

17. Small Business Considerations
Business entertainment deduction
TCJA disallows deductions for the most common business-related entertainment expenses. The following are non-deductible:
(a) tickets to sporting events;
(b) license fees for stadium or arena seating rights;
(c) private boxes at sporting events;
(d) theater tickets;
(e) golf club dues and golf outings for customers; and
(f) company hunting, fishing, and sailing, and similar outings.
Notice IRS clarified business meals continue to be 50% deductible if they meet specific criteria.
Employee meal deduction essentially unchanged.

18. Section 199A – Qualified Business Income (QBI) Deduction
New 20% QBI Pass-through Deduction
Deduction of up to 20% of income from a domestic trade or business operated as a sole proprietorship or through a partnership, S corporation, trust, or estate.
For tax years beginning after 12/31/2017 and before 1/1/2026.
Available in full with taxable income below thresholds of $315,000 for joint returns and $157,500 for other taxpayers.
Generally equal to lesser of:
20% of combined QBI plus 20% qualified REIT Div. plus 20% qualified PTP income or
20% of taxable income less net capital gain.
Final Regs include qualified dividends in net capital gain.
Deduction may be limited for taxpayers above thresholds

19. Section 199A – Qualified Business Income (QBI) Deduction
New 20% QBI Pass-through Deduction
QBI - net amount of qualified items of income, gain, deduction, and loss from any qualified trade or business
does not include qualified REIT Divs or qualified PTP income.
Combined QBI - aggregate of deductible amount for each of a taxpayer’s qualified trades or businesses plus 20% of the taxpayers’ aggregate REIT dividends and income from PTPs.
Deductible amount for each qualified trade or business = lesser of 20% of its QBI, or
Greater of either 50% of its wages, or 25% of its wages plus 2.5% of unadjusted basis immediately after acquisition of all qualified property.
Qualified property is tangible property subject to depreciation under Sec. 167 held and used by the qualified trade or business at the close of the tax year and used during the tax year in the production of QBI

20. Section 199A – Qualified Business Income (QBI) Deduction
Service Business and the QBI Deduction
Specified service trades or businesses (SSTBs) are excluded from being a “qualified trade or business”
SSTBs include performance of services in the fields of:
health, law, accounting, actuarial services, performing arts, consulting, athletics, financial services, brokerage services, investing and investment management services, trading, or dealing in securities, partnership interests, or commodities, or any other trade or business that relies on the reputation or skill of one or more of its employees.
Taxpayers with taxable incomes below the threshold amount with SSTBs are not subject to this exception.

21. Section 199A – Qualified Business Income (QBI) Deduction
Service Business and the QBI Deduction
If below the low end of threshold, get full QBI Deduction
SSTB Thresholds
Married Filing Joint
$315,000 - $415,000
$321,400 - $421,400
Married Filing Separate
$157,500 - $207,500
$160,725 - $210,725
All Others
$160,700 - $210,700
If above the upper end of threshold, get no QBI Deduction

22. Section 199A – Qualified Business Income (QBI) Deduction
Rental Real Estate Qualifications and Planning
Is Rental Real Estate Enterprise a “trade or business”?
In addressing the issue in the Final Regs 1.199A-1(b)(14), the IRS opined that:
“Trade or business means a trade or business that is a trade or business under section 162 (a section 162 trade or business) other than the trade or business of performing services as an employee. In addition, rental or licensing of tangible or intangible property (rental activity) that does not rise to the level of a section 162 trade or business is nevertheless treated as a trade or business for purposes of section 199A, if the property is rented or licensed to a trade or business conducted by the individual or an RPE [relevant pass-through entity (i.e., partnership, S corporation, etc.)] which is commonly controlled under §1.199A-4(b)(1)(i) (regardless of whether the rental activity and the trade or business are otherwise eligible to be aggregated under §1.199A-4(b)(1)).”

23. Section 199A – Qualified Business Income (QBI) Deduction
Rental Real Estate Qualifications and Planning
Notice Safe Harbor For Rental Real Estate
Requirements satisfied during the taxable year with respect to the rental real estate enterprise:
(A) Separate books and records are maintained to reflect income and expenses for each
rental real estate enterprise;
(B For taxable years beginning prior to January 1, 2023, 250 or more hours of rental services
are performed (as described in this revenue procedure) per year with respect to the rental
enterprise. For taxable years beginning after December 31, 2022, in any three of the five
consecutive taxable years that end with the taxable year (or in each year for an enterprise
held for less than five years), 250 or more hours of rental services are performed (as
described in this revenue procedure) per year with respect to the rental real estate enterprise;
And
(C) The taxpayer maintains contemporaneous records, including time reports, logs, or similar
documents, regarding the following:
(i) hours of all services performed;
(ii) description of all services performed;
(iii) dates on which such services were performed; and
(iv) who performed the services. Such records are to be made available for inspection at the request
of the IRS. The contemporaneous records requirement will not apply to taxable years
beginning prior to January 1, 2019.

24. Individual Tax Surprises
Withholding issues and reduced refunds
Government Accountability Office (GAO) report estimated nearly 30 million taxpayers could be under withheld in 2018.
Primarily stemmed from the updated federal tax withholding tables in an effort to “allow taxpayers to begin seeing the changes in their paychecks as early as February 2018.”
Adjusted withholding tables could not accurately account for all of the factors, including the elimination of the personal and dependency exemptions or reduced itemized deductions.
Some taxpayers now faced with penalties for the underpayment of estimated taxes.
On Jan. 16, 2019, the IRS released Notice ,
It would waive the underpayment penalty for individuals who paid, by Jan. 15, 2019, at least 85% of the tax due for the current year compared to the usual 90% threshold.

25. Individual Tax Surprises
Withholding issues and reduced refunds
Notice IRS expands penalty relief
Expanded the estimated tax penalty waiver to taxpayers whose total withholding and estimated tax payments are 80% or more of their 2018 taxes-down from 85%.
New penalty waiver doesn't require any estimated payments to be made by the first three installment due dates for 2018.
But it has no effect on determining the amount of each required installment for an individual whose total withholding and estimated tax payments do not equal or exceed 80% of the tax shown on that individual's return for the 2018 taxable year.
Notice also updates procedures for requesting the waiver, and provides procedures for taxpayers who have already paid underpayment penalties but who now qualify for relief to request a refund.

26. Individual Tax Surprises
Loss of Miscellaneous Deductions and how to minimize effect
State and Local Taxes (SALT) limited to $10,000
Miscellaneous itemized deductions are non-deductible
Tax prep and planning fees
Investment advisor and financial planning fees
Standard Deduction at $24,000 for MFJ, $12,000 for others
Minimizing the effects of these changes
Allocate tax prep and planning fees to business expenses on Sch C, E, F if you can support the position.
Have retirement accounts pay their own wealth management fees to pay them with pre-tax dollars. (But not Roth accounts.)
Bunch several years of charitable contributions in one year using a donor advised fund. Then each subsequent year pay the charities with the donor advised fund and use the standard deduction for taxes that year.

27. Individual Tax Surprises
Increased Tax Prep Bills!

28. Questions
This presentation is for information purposes only. BGBC Partners LLP is not providing tax advice to anyone that has not specifically engaged BGBC for tax preparation, consulting, and advisory services. Please consult your tax advisor for determination of how the new rules may impact your tax situation.