Monthly Archives: December 2017

Tips

Top Lessons Learned in 2017

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A favorite client and my local grocery store, The Dill Pickle Food Co-op, recently published their General Manager’s “Top Lessons Learned in 2017”. Given that it’s been a year of unprecedented change for them — taking on a move and a major expansion — I felt the list fit well. Then I realized that it also fit any small business or individual experiencing change… which is probably all of us. So I asked permission from Sharon Hoyer to share her words with you here as we close out 2017.

It’s been a year of unprecedented change for all of us, and in the time-honored tradition of year-end lists, I’d like to include in this last post of 2017 the top lessons learned in the year we took an itty bitty store and transformed it into Chicago’s flagship co-op.

  1. Know how to ask for help: from peers, from mentors, from your community. Even when you don’t know exactly what it is you need, ask. Someone out there has been through it before and has advice or assistance they’re happy to give. It’s the heart of cooperation!
  2. Invite critique. Don’t just embrace it when it comes your way, seek it out…and really listen. Folks willing to share candid feedback are giving you pure gold. Thoughtfully heeding thoughtful criticism is the fastest way to make real change.
  3. Communicate more. It doesn’t matter how frequently and to what depth you’re doing it, it’s probably not enough. If your organization triples in size, that’s like six times the communication that needs to happen. At least.
  4. Don’t fear new ways of doing things. Truly, the only constant is change. Something not working? Try something new. It might not work either, but that’s okay. You can always try something else. Trust, delegate, pick up new skills.
  5. Express gratitude. It’s in short supply these days, despite how much we all have to be thankful for. No one is alone, and when we keep that in mind not only do we feel a whole lot better, but we open up endless possibilities for collaboration. “Thank you” is as often the beginning of a great project as it is the finish to one.

Wishing you and yours a very happy 2018!

Source: The Dill Pickle Food Co-op

IRS

The New ‘20% Qualified Business Income Deduction’

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NOTE: UPDATED JAN 2, 2018

Clients and long-lost friends have been calling incessantly and I’ve been overwhelmed by emails and facebook posts since the new tax legislation was passed. Most of the questions I’m getting are on the topic of an attempt at ‘parity’ between the new, permanently lower C-corp tax rates, and the tax rates paid by sole proprietors and flow-through entities.

So thank goodness that my favorite tax writer, Tony Nitti, has done it again. He’s managed to make the most asinine, overly-complex piece of tax law comprehensible. Well, mostly. Given that the congressmen that passed the law have clearly never read any of it, there’s only so far you can go.

Tony’s recent article in Forbes, Tax Geek Tuesday: Making Sense Of The New ‘20% Qualified Business Income Deduction’, does its best to interpret, analyze, and instruct on the topic of the new mysterious 20% income deduction for flow-through entities. Tony states:

On its surface, Section 199A will allow owners of sole proprietorships, S corporations and partnerships — and yes, even stand-alone rental properties reported on Schedule E —  to take a deduction of 20% against their income from the business. The result of such a provision is to reduce the effective top rate on these types of business income from 40.8% under current law to 29.6% under the new law (a new 37% top rate * a 20% deduction= 29.6%).

Courtesy of this new deduction, sole proprietors and owners of flow-through businesses retain their competitive rate advantage over C corporations: it is 10% under current law, and will be 10% under the new law (39.8% versus 29.6%).

He reviews the following areas, being careful to note what we don’t know (given the rushed passing of this law and the lack of precedent or regulations, there’s a lot of that):

  • Overview of the QBI Deduction
  • Qualified Business Income
  • W-2 Limitations
  • Exception to W-2 Wage Limitations
  • Phase-In of W-2 Limitations
  • Treatment of “Specified Service Trades or Businesses”
  • Phase-Out of Deduction for Specified Service Businesses
  • Ancillary Issues

He somehow manages to do this all with illustrations using various scenarios and examples, and above all — humor. Again, he stresses that “Section 199A, however, is in its infancy. We don’t have regulations.” There are “definitional debates” all over the internet already… and without any precedent from court cases on some of the related topics, we’re likely to see a lot of loopholes until this section makes its way through the justice system.

At 10,000 words, it’s a long one, but it’s worth the read. This is the shortest, clearest, and most entertaining description I’ve seen so far of this particularly messy section of the new tax code. As Tony says, “with no regulations, no form instructions, and most unfortunate of all, no one who helped craft the bill or vote on the thing who actually understands what it says, it may be a while before clarity is forthcoming.”

UPDATE: January 2, 2018 — some clarity and additional explanation of complex areas came out in another Nitti article, a follow-up to the one noted above, in which he interviews a former IRS attorney about this new section of the law. It fills in some gaps in the last article, and the two of them discuss additional potential issues, as well as a timeline for technical corrections. My biggest take-away is that this thorny section of the code will be causing us all massive headaches well into 2019.

IRS, Tips

Prepaid Real Property Taxes May Be Deductible in 2017

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I mentioned this in a recent blog post, but it’s now been officially sanctioned by the IRS, so it bears repeating. If you have property taxes that would usually be due in 2018, which are assessed and paid before 2017 year-end, then you can deduct them on your Schedule A with the rest of your property taxes for 2017 as an itemized deduction.

This may be important for those that:

  1. will no longer itemize starting in 2018, because the new standard deduction is higher than their combined allowable itemized deductions; or
  2. who will continue to itemize in 2018, but will find themselves affected by the new $10,000 cap on deductible property + state income tax.

But caution: there are situations where the pre-payment deduction will not hold up — as this NYT article does a good job of outlining.

More here, direct from the IRS: IRS Advisory: Prepaid Real Property Taxes May Be Deductible in 2017 if Assessed and Paid in 2017 | Internal Revenue Service

Illinois, Tips

Illinois to Require E-filing of W-2 & 1099 Forms

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The State of Illinois has announced that all employers and third-parties (including payroll providers) are now required to electronically file Forms W-2 and 1099 with Illinois.

MyTax Illinois, the state’s online account filing and management program, may be used to submit Forms W-2, W-2c, W-2G, 1099-R, and 1099-MISC. If you don’t already have a MyTax Illinois account, you must create one. Using this method, you must enter the information on MyTax Illinois for each form, one-at-a-time.

Alternatively, forms may be filed electronically through the Illinois FIRE Electronic Transmittal Program.

All forms must be filed by January 31, 2018.

Failure to file electronically, without receiving approval from the Department for an electronic filing waiver, can result in a $5 penalty per form.

If you are unable to file electronically, you may request a waiver, Form IL-900-EW, Electronic Filing Waiver Request, by calling the Taxpayer Assistance Division at 1-800-732-8866 or 217-782-3336.

http://www.revenue.state.il.us/Publications/Pubs/PUB-110.pdf

IRS, Tips

Year-End Tax Planning Moves to Make Now

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UPDATED 12/19/17 — at the last minute, Congress decided to explicitly forbid prepayment of state income tax (but not property tax), so unfortunately, #5 below now only refers to making 4Q 2017 estimated payments, not any payments for 2018.

With tax “reform” looming, there is still a great deal of uncertainty in terms of what the new year will bring. However, there are some tips that are worth taking, given what we do know. I’ve attended three tax update webinars this month and read quite a few articles on the topic, and reduced the list to these essentials:

  1. Defer Income into 2018
  2. Accelerate Deductions into 2017
  3. Boost Donations to Charities in 2017
  4. Prepay Property Taxes in 2017
  5. Prepay State Estimated Taxes in 2017 (see update above)
  6. Harvest Investment Losses Against Capital Gains in 2017
  7. Max-Out Retirement Contributions in 2017
  8. Pay Deductible Medical Expenses in 2017
  9. Pay Miscellaneous Deductible Expenses in 2017
  10. Pay For Your Move in 2017

Please click on the links below for more information:

Accounting Today: Six ways taxpayers can make the new tax bill work for them, if they act fast

CNBC: Year-end tax moves to make before tax reform kicks in

Fox Business: Top year-end tips for taxpayers

And for the most astute, intelligent, comprehensible, and clever coverage of the tax bill, I suggest you follow Tony Nitti’s column in Forbes. Here’s his latest: The Tax Bill Is Finalized: Who’s Happy, And Who’s Not?

This particular article breaks it down section by section and identifies the winners and losers. Excellent coverage.

IRS, Tips

IRS Issues 2018 Standard Mileage Rates

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From today’s Journal of Accountancy:

The optional standard mileage rates for business use of a vehicle will increase slightly in 2018, after decreasing in the two previous years, the IRS announced Thursday (Notice 2018-3). For business use of a car, van, pickup truck, or panel truck, the rate for 2018 will be 54.5 cents per mile, up from 53.5 cents per mile in 2017.

Taxpayers can use the optional standard mileage rates to calculate the deductible costs of operating an automobile.

Driving for medical or moving purposes may be deducted at 18 cents per mile, which is one cent higher than for 2017. (The medical and moving expense deductions may be affected by the pending tax reform legislation.) The rate for service to a charitable organization is unchanged, set by statute at 14 cents per mile (Sec. 170(i)). The portion of the business standard mileage rate that is treated as depreciation will be 25 cents per mile for 2018, unchanged from 2017.

Forbes made some interesting points about how the current debate on looming tax reform may limit the use of these rates, however.

The current tax reform proposals would eliminate the mileage deduction for moving expenses and job-related business mileage deductions for employees filing a Schedule A. In addition, both proposals would disallow – on the employer’s side – favorable tax treatment for employer reimbursement of employee moving expenses. However, under Senate version of the bill, the tax treatment of these deductions would sunset, which means that the treatment of expenses would go back to the way the law is now (in 2017) beginning in 2026.

Both proposals would retain the charitable donation deduction, including for charitable miles. And in good news, under the House proposal, the mileage rate for charity would finally be indexed for inflation (it’s been 14 cents per mile since the Clinton era).

Both proposals would continue to allow you to deduct business miles related to your trade or business (for more on the difference between a Schedule A and a Schedule C, click here).

Remember: These are the rates effective at the beginning of 2018 for the 2018 tax year. Assuming that they still apply to you, that means they’ll show up on your 2018 returns (the ones you’ll file in 2019). However, you can still use the 2017 standard mileage rates for the tax return that you’ll submit in 2018. Even if the tax reform bills eliminate certain deduction as of January 1, 2018, those deductions are still applicable for the 2017 tax year.

If you’re looking for 2017 tax rates, including the standard deduction and other tax items, you’ll find them here.