Your Association is Working for You to Save Your Business Money
The Tax Reform Act of 2017 made meaningful change to the Federal tax code that has helped stimulate our country’s economy. It also created some confusion and unknowns. But your Home Builders Association and other associations have been working hard with the IRS to get you some answers and create the best outcome for your businesses.
IRS to Waive 2018 Withholding Penalties for Most Filers
The Internal Revenue Service has announced that it is waiving the tax penalty for many home builders and other small businesses that pay estimated quarterly taxes but whose 2018 federal income tax withholding and/or estimated tax payments fell short of their total tax liability for the year.
Treasury Issues Final Rule on Pass Through Entities
The Treasury Department has issued final regulations for the 20% pass through entity deduction under the Tax Cuts and Jobs Act of 2017. The final regulations concern the deduction for qualified business income under Section 199A of the Internal Revenue Code. This includes individuals, partnerships, S corporations, trusts, and estates engaged in domestic trades or businesses.
(the following content sourced from the National Association of REALTORS)
IRS Provides Clear Test on How 20% Deduction Applies to Rental Income, Exchanges
The IRS has issued final rules on the 20 percent business income deduction that was part of the 2017 Tax Reform Act. The new rule confirms that the deduction applies to your business income, as a real estate agent or broker, if you operate as a sole proprietor or owner of a partnership, S corporation, or limited liability company. It applies even if your income exceeds a threshold set in the law of $157,500 for single filers and $315,000 for joint filers. In addition, the new rule provides guidance on two other provisions: 1) whether any real estate rental income is eligible for the deduction, and 2) how the deduction applies to properties exchanged under Section 1031.
Eligibility of rental income
Rental property income also can qualify for the new deduction, as long as you can show that your rental operation is part of a trade or business. The IRS has released proposed guidelines that include a bright-line test for showing that rental income rises to the level of a trade or business. Under that safe harbor, you can claim the deduction if your rental activities-which include maintaining and repairing property, collecting rent, paying expenses, and conducting other typical landlord activities-total at least 250 hours a year. If your activity totals less than that, you can still try to take the deduction, but you will have to be prepared to show the IRS that your activity is part of a trade or business.
Eligibility of 1031 like-kind exchanges
Under earlier proposed regulations, if your income was above threshold levels set in the tax law–$157,500 for single filers, $315,000, for joint filers–and you had exchanged one property for another to defer taxes under Sec. 1031, the amount of the new deduction might be reduced because of the swap. NAR and other trade groups reached out to the IRS to change this treatment, and the IRS has made the change. Under the final rules, you can use the unadjusted basis of the depreciable portion of the property to claim at least a partial deduction.
Responding to concerns voiced by NAHB members and other groups representing taxpayers, the Treasury Department and the Internal Revenue Service (IRS) have made a taxpayer-friendly change to tax regulations regarding repair and improvement expenses that took effect in 2014.
In general, the new rules require business taxpayers to capitalize, rather than expense or deduct, expenditures used for certain repair or maintenance projects.
Under the first edition of the repair rules, a taxpayer without an applicable financial statement could elect to expense purchases that cost up to $500 on a per-item basis. A separate $5,000 safe harbor was established for taxpayers with applicable financial statements. These safe harbors were created as a taxpayer simplification measure to reduce administrative costs.
Many organizations, including NAHB, provided examples to the IRS indicating that the $500 limit for taxpayers without financial statements was too low given typical costs of computers, machinery or equipment and parts.
In response to these concerns, Treasury and IRS have increased the $500 limit to a $2,500 per item safe harbor for costs incurred after Jan.1, 2016. This is a favorable change for the construction and real estate sectors, which possess a larger concentration of small businesses.
Here’s an example: Suppose a business taxpayer makes a significant repair to the HVAC system of a small apartment building that involves the purchase of a part that costs $2,000.
Assuming that the repair would otherwise require capitalization because the repair is significant and critical to the operation of the system, under the new increase in the safe harbor amount ($2,500), that cost may now be deducted immediately by the taxpayer without financial statements.
Be sure to consult your tax professional regarding this change and the new repair and maintenance rules in general.
IRS Provides Tax Relief to South Carolina Flood Victims; Oct. 15 Tax Deadline Extended to Feb. 16
WASHINGTON ––South Carolina flood victims, including individuals and businesses that previously received a tax-filing extension to Oct. 15, will have until Feb. 16, 2016, to file their returns and pay any taxes due, the Internal Revenue Service announced today. All workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization also qualify for relief.
Following this week’s disaster declaration for individual assistance issued by the Federal Emergency Management Agency (FEMA), the IRS said that affected taxpayers in Berkeley, Charleston, Clarendon, Dorchester, Georgetown, Horry, Lexington, Orangeburg, Richland, Sumter and Williamsburg Counties will receive this and other special tax relief. Other locations may be added in coming days, based on damage assessments by FEMA.
The tax relief postpones various tax filing and payment deadlines that occurred starting on Oct. 1, 2015. As a result, affected individuals and businesses will have until Feb. 16, 2016, to file these returns and pay any taxes due. Besides the Oct. 15 extension deadline, this also includes the Jan. 15, 2016, deadline for making quarterly estimated tax payments. A variety of business tax deadlines are also affected including the Nov. 2, 2015, and Feb. 1, 2016, deadlines for quarterly payroll and excise tax returns.
The IRS will abate any interest, late-payment or late-filing penalty that would otherwise apply. The agency automatically provides this relief to any taxpayer with an IRS address of record located in the disaster area. Taxpayers need not contact the IRS to get this relief.
Beyond Designated Disaster Areas
The IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227.
Individuals and businesses who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either last year’s or this year’s return. Claiming these casualty loss deductions on either an original or amended 2014 return will get the taxpayer an earlier refund but waiting to claim them on a 2015 return could result in greater tax savings depending upon other income factors.
In addition, the IRS is waiving late-deposit penalties for federal payroll and excise tax deposits normally due on or after Oct. 1 and before Oct. 16 if the deposits are made by Oct. 16, 2015. Details on available relief can be found on the disaster relief page on IRS.gov.
The tax relief is part of a coordinated federal response to the damage caused by severe storms and flooding and is based on local damage assessments by FEMA. For information on disaster recovery, visit disasterassistance.gov.
Disaster victims in other parts of the country also qualify for tax relief, based on federal disaster declarations issued earlier this year. Currently, individuals and businesses in parts of California, Kentucky, Texas and the Northern Mariana Islands may qualify for filing and payment relief. See the IRS Disaster Relief page for details.
Thank you to the IRS Newswire for sending this information and providing the details in issue number IR-2015-112.
We continue our series about how your HBA and its affiliate, NAHB, have logged significant victories advocating for members in the legal, legislative and regulatory arenas during 2012.
Our advocacy efforts have saved the typical home builder about $7,250 per housing start in 2012, including both single-family and multifamily.
Our advocacy on form 1099 reporting requirements saved each member $230 per year. Another example of savings comes in tax policy. Expanded 1099 reporting requirements in the tax code would have required companies to file a 1099 form for every corporate purchase over $600 in 2012. NAHB strongly objected to the reporting requirement, and it was removed. This saved members roughly $230 – and countless administrative headaches – per year.
If you are an Independent Contractor, or you hire independent contractors, you may want to analyze your records and methods of operation because the IRS and Department of Labor have recently teamed up and are now on the lookout for appropriate use of Independent Contractor Status.
According to the IRS website an Independent Contractor is someone who is self- employed and not controlled by an employer (dictating how a job will be done and what will be done). If this description is not cut and dry for you there are several scenarios and categories to look into. Visit the IRS website by clicking here to review ways to determine which category applies to you.
Based on which type of Independent Contractor scenario you fall into you will want to take a look at the employment tax obligations that may help you avoid future issues. These can also be found at the IRS website mentioned above.
Review these common tax issues to help ensure that an auditor isn’t standing in your office.
- Proper documentation of time worked. Track overtime and not have back pay due to an employee
- Taxes due for both the company and the employee on income from cash payments.
By taking a look now you can hopefully avoid any issues in the future.