Tax Cuts and Jobs Act | Nesteggg Accounting

Third quarter estimated tax payment due Sept. 16

Online tools at IRS.gov help people stay current

WASHINGTON – With major tax reform now in its second year and taxpayers seeing its full effect on 2018 returns, the Internal Revenue Service today reminded people who pay estimated tax that their third quarter payment for 2019 is due Monday, Sept. 16.

The Tax Cuts and Jobs Act (TCJA), enacted in December 2017, fundamentally changed the way tax is calculated for most taxpayers, including those with income not subject to withholding. By making quarterly estimated tax payments, however, people can better stay up to date with their taxes throughout the year.

Who needs to pay quarterly?

Most often, self-employed people, including many involved in the sharing economy, need to pay quarterly installments of estimated tax. Similarly, investors, retirees and others often need to make these payments as well. That’s because a substantial portion of their income is not subject to withholding. Other income generally not subject to withholding includes interest, dividends, capital gains, alimony and rental income.

Special rules apply to some groups of taxpayers, such as farmers, fishermen, casualty and disaster victims, those who recently became disabled, recent retirees and those who receive income unevenly during the year.

Taxpayers can avoid an underpayment penalty by owing less than $1,000 at tax time or by paying most of their taxes during the year. Generally, for 2019, that means making payments of at least 90% of the tax expected on their 2019 return.

Taxes are pay-as-you-go

This means taxpayers need to pay most of their taxes owed during the year as income is received. There are two ways to do that:

Withholding from pay, pension or certain government payments such as Social Security; and/or
Making quarterly estimated tax payments during the year.

As a result of tax reform or a recent life change such as marriage, many taxpayers may need to raise or lower the amount of tax they pay each quarter through the estimated tax system.

Tax Withholding Estimator

This new and improved tool is now more mobile friendly and replaces the Withholding Calculator on IRS.gov. The new design makes it easier for everyone to do a Paycheck Checkup and have the right amount of tax withheld during the year. The estimator offers workers, as well as retirees, self-employed individuals and other taxpayers a clear, step-by-step method for effectively tailoring the amount of income tax they should have withheld from wages and pension payments.

The IRS urges everyone to use the estimator as soon as possible to make any potential tax withholding adjustments while there is still ample time in 2019. To help people do that most effectively, the IRS is holding a free two-hour webinar on Thursday, Sept. 19 at 2 p.m. Eastern time. Among other things, the webinar will feature step-by-step instructions on how to use the new estimator and a live question-and-answer session. To sign up, visit the webinar’s page on IRS.gov.

IRS, Treasury issue guidance on making or revoking the bonus depreciation elections

The Internal Revenue Service today issued a Revenue Procedure allowing a taxpayer to make a late election, or to revoke an election, under section 168(k) for certain property acquired by the taxpayer after September 27, 2017, and placed in service by the taxpayer during its taxable year that includes September 28, 2017.

The Tax Cuts and Jobs Act made several changes to bonus depreciation. For example, the additional first year depreciation deduction percentage was increased from 50 to 100 percent. The property eligible for the additional first year depreciation deduction was expanded to include certain used depreciable property and certain film, television, or live theatrical productions; the placed-in-service date was extended to before January 1, 2027. Finally, the date on which a specified plant is planted or grafted by the taxpayer was extended to before January 1, 2027.

There are three additional first year depreciation deduction elections. A taxpayer can elect not to deduct the additional first year depreciation for all qualified property that is in the same class of property and placed in service by the taxpayer in the same tax year. Secondly a taxpayer can elect to deduct 50-percent, instead of 100-percent, additional first year depreciation for all qualified property acquired after September 27, 2017, and placed in service by the taxpayer during its taxable year that includes September 28, 2017.

Finally, a taxpayer can elect to deduct additional first year depreciation for any specified plant that is planted after September 27, 2017 and before January 1, 2027, or grafted after and before those dates to a plant that has already been planted. If the taxpayer makes this election, the additional first year depreciation deduction is allowable for the specified plant in the taxable year in which that plant is planted or grafted.

The Revenue Procedure applies to these elections for the taxable year that includes September 28, 2017. If a taxpayer did not make these elections timely for that taxable year, the Revenue Procedure allows the taxpayer to make late elections by filing an amended return or a Form 3115 for a limited period of time. If a taxpayer did make these elections timely for that taxable year, the Revenue Procedure also allows the taxpayer to revoke the elections by filing an amended return or a Form 3115 for a limited period of time.

Year-round tax planning includes reviewing eligibility for credits and deductions

Tax credits and deductions can mean more money in a taxpayer’s pocket. Most people only think about this when they file their tax return. However, thinking about it now can help make filing easier next year.

This tip is one in a series about tax planning. These tips focus on steps taxpayers can take now to help them down the road.

Taxpayers should be prepared to claim tax credits and deductions. So, here are a few facts about credits and deductions that can help a taxpayer with their year-round tax planning:

Taxable income is what’s left over after someone subtracts any eligible deductions from their adjusted gross income. This includes the standard deduction. In fact, most individual taxpayers take the standard deduction. On the other hand, some taxpayers may choose to itemize their deductions because it could lower their AGI even more.
The Tax Cuts and Jobs Act made changes to itemized deductions. Many individuals who formerly itemized may find it more beneficial to take the standard deduction.
As a general rule, if a taxpayer’s itemized deductions are larger than their standard deduction, they should itemize. Also, in some cases, taxpayers may even be required to itemize.
Taxpayers can use the Interactive Tax Assistant to see what expenses they may be able to itemize.
Taxpayers can subtract tax credits from the total amount of tax they owe. To claim a credit, taxpayers should keep records that show their eligibility for it.
Here are a few examples of taxpayers who can benefit from certain credits:
- Parents may qualify for credits like the child tax credit and child and dependent care credit.
- Families with students may qualify for the American opportunity credit or lifetime learning credit.
- Low to moderate income taxpayers may qualify for the earned income tax credit.
Properly claiming these tax credits can reduce taxes owed and boost refunds. Taxpayers can check now see if they qualify to claim it next year on their tax return. Some tax credits, like the EITC, are even refundable, which means a taxpayer can get money refunded to them even if they don’t owe any taxes.

Did the 2017 Tax Cuts and Jobs Act discourage you from charitable giving?

A study of the new tax law conducted by the Lilly Family School of Philanthropy at Indiana University posed that the increase in the standardized deduction would dissuade donors who normally write-off those contributions. By now you have probably already done your 2018 taxes – the first year the new law goes into effect. The good news, the standardized deduction just about doubled (to $12,000 for single, and $24,000 for married). The bad news, if you had regularly written of deductions just over and above the old standard deduction then you will have kept all those receipts and records for nothing, right?

In the study, the Lilly Family School of Philanthropy supposes that because a charitable contribution deduction is now not available to most tax payers, donations to charity will be down. And according to Giving USA, charitable contributions were down slightly over 2017 as adjusted for inflation. Of course, if the tax deduction were the only reason to give we might just chuck the receipts, take the standard deduction, and call filing taxes that much easier.

But maybe with a little planning and forethought we might be able to do both? If you regularly give to charity you might bundle a few years worth of donations into one calendar year and then take advantage of itemizing one year, taking a standard deduction the next, and still have that warm and fuzzy feeling of contributing to your community.

Or consider those regular charitable donations you give to be simplified for you (no need to keep track unless you are nearing your standard deduction) and already “written off” and keep getting that warm and fuzzy feeling when you donate. Planning for tax time – even in mid-year – is never too early!

IRS reminder: June 17 is next deadline for those who pay estimated taxes

Upcoming quarterly deadlines include September 16 and Jan. 15, 2020

WASHINGTON – The Internal Revenue Service today reminded taxpayers who pay estimated taxes that Monday, June 17, is the deadline for the second estimated tax payment for 2019.

Examples of those who often need to pay quarterly estimated taxes are self-employed individuals, retirees, investors, and some individuals involved in the sharing economy, among others.

The Tax Cuts and Jobs Act (TCJA), enacted in December 2017, changed the way tax is calculated for most taxpayers, including those with substantial income not subject to withholding. Most TCJA changes took effect in 2018. As a result, many taxpayers ended up receiving 2018 refunds that were larger or smaller than expected, while others unexpectedly owed additional tax when they filed earlier this year. Because of this, taxpayers should consider whether they need to adjust the amount of tax they pay each quarter through estimated tax payments.

Form 1040-ES, available on IRS.gov, is designed to help taxpayers figure these payments simply and accurately. The estimated tax package includes a quick rundown of key tax changes, income tax rate schedules for 2019 and a useful worksheet for figuring the right amount to pay.

A companion publication, Publication 505, Tax Withholding and Estimated Tax, has additional details, including worksheets and examples, which can help taxpayers determine whether they should pay estimated tax. This includes those who have dividend or capital gain income, owe alternative minimum tax or have other special situations.

Who needs to pay quarterly? Most often, self-employed people, including some individuals involved in the sharing economy, need to pay quarterly installments of estimated tax. Similarly, investors, retirees and others – a substantial portion of whose income is not subject to withholding – often need to make these payments as well. Other income generally not subject to withholding includes interest, dividends, capital gains, rental income and some alimony.

Because the U.S. tax system operates on a pay-as-you-go basis, taxpayers are required by law to pay most of their tax liability during the year. For 2019, this means that an estimated tax penalty will normally apply to any party that pays too little tax, usually less than 90 percent, during the year through withholding, estimated tax payments or a combination of the two.

Exceptions to the penalty and special rules apply to some groups of taxpayers, such as farmers, fishermen, casualty and disaster victims, those who recently became disabled, recent retirees, and those who receive income unevenly during the year. In addition, there’s an exception to the penalty for those who base their payments of estimated tax on last year’s tax. Generally, taxpayers won’t have an estimated tax penalty if they make payments equal to the lesser of 90 percent of the tax to be shown on their 2019 return or 100 percent of the tax shown on their 2018 return (110 percent if their income was more than $150,000). See Form 2210 and its instructions for more information.

Employees have a choice

Many employees who also receive income from other sources may be able to forgo making estimated tax payments and instead increase the amount of income tax withheld from their pay. One way they can do this is by first completing the Deductions, Adjustments, and Additional Income Worksheet in the W-4 instructions and then claiming fewer withholding allowances on the Form W-4 they give to their employer. Alternatively, they can ask their employer to withhold an additional flat-dollar amount each pay period on their Form W-4.

Perform a Paycheck Checkup

With many key tax changes now in their second year, the IRS urges all employees, including those with other sources of income, to perform a Paycheck Checkup now. Doing so now will help avoid an unexpected year-end tax bill and possibly a penalty. The easiest way to do this is to use the Withholding Calculator available on IRS.gov.

To use the Withholding Calculator most effectively, users should have a copy of last year’s tax return and recent paystub. After filling out the Withholding Calculator, the tool will recommend the number of allowances the employee should claim on their Form W-4.

Though primarily designed for employees who receive wages, the Withholding Calculator can also be helpful to some recipients of pension and annuity income.

If the Withholding Calculator suggests a change, the employee should fill out a new Form W-4 and submit it to their employer as soon as possible. Similarly, recipients of pensions and annuities can make a change by filling out Form W-4P and giving it to their payer.

Employees who expect to receive long term capital gains or qualified dividends, or employees who owe self-employment tax, alternative minimum tax, or tax on unearned income of minors should use the instructions in Publication 505 to check whether they should change their withholding or pay estimated tax.

How and when to pay

The IRS provides two free electronic payment options, where taxpayers can schedule their estimated and other federal tax payments up to 30 days in advance, with Direct Pay (bank account) or up to 365 days in advance, with the Electronic Federal Tax Payment System (EFTPS). They can also visit IRS.gov/payments to explore options to pay online, by phone or with their mobile device and the IRS2go app. Taxpayers paying by check or money order must make it payable to the “United States Treasury.”

Taxpayers can pay their 2019 estimated tax payments any time before the end of the tax year. Most taxpayers make estimated tax payments in equal amounts by the four established due dates. The three remaining due dates for tax year 2019 estimated taxes are June 17, September 16, and the final payment is due Jan. 15, 2020.

Taxpayers due a refund on their 2018 federal income tax return may be able to reduce or even skip one or more of these payments by choosing to apply their 2018 refund to their 2019 estimated tax. See Form 1040 and its instructions for more information.

Taxpayers in presidentially-declared disaster areas may have more time to make these payments without penalty. Visit the Tax Relief in Disaster Situations page for details.

More information about tax withholding and estimated tax can be found on the agency’s Pay As You Go web page, as well as in Publication 505.

Find out how tax reform affects your businesses’ bottom line at IRS.gov

Find out how tax reform affects your businesses’ bottom line at IRS.gov

Tax reform provisions that affect businesses
This is the main page for businesses. Users can link from this page out to more resources with additional information, which is organized in sections by topic. These sections include a plain language description and links to news releases, notices and other technical guidance. Here are a few of the main tax topics on this page and the subtopics highlighted in each section:

Income: taxation of foreign income, carried interest, and like-kind exchanges
Deductions and depreciation: fringe benefits, moving expenses, standard mileage rates, deduction for passthrough businesses, and business interest expenses
Credits: employer credit for paid family and medical leave, and the rehabilitation tax credit
Taxes: blended federal income tax and withholding
Accounting method changes
Opportunity zones

This page also includes information for specific industries, such as farming, insurance companies, and aircraft management services.

Tax Reform Small Business Initiative
This one-stop shop highlights important tax reform topics for small businesses. From this page, users can link to several additional resources.

Tax reform resources
From this page, people can link to helpful products including news releases, tax reform tax tips, revenue procedures, fact sheets, FAQs and drop-in articles. Organizations can share these materials including the drop-in articles with employees, customers and volunteers to help them better understand tax reform.

Tax Cuts and Jobs Act: A comparison for businesses
This side-by-side comparison can help businesses understand the changes the new law made to previous law. It will help businesses then make decisions and plan accordingly. It covers changes to deductions, depreciation, expensing, tax credits, and other tax items that affect businesses.

Tax reform: What’s new for your business
This electronic publication covers many of the TCJA provisions that are important for small and medium-sized businesses, their owners, and tax professionals to understand. This concise publication includes sections about:

Qualified business income deduction
Depreciation: Section 168 and 179 modifications
Business-related losses, exclusions and deductions
Business credits
Corporate tax provisions
S corporations
Farm provisions

Share this tip on social media — #IRSTaxTip: Find out how tax reform affects your businesses’ bottom line at IRS.gov
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IRS waives penalty for many whose tax withholding and estimated tax payments fell short in 2018

IRS waives penalty for many whose tax withholding and estimated tax payments fell short in 2018

WASHINGTON — The Internal Revenue Service announced today that it is waiving the estimated tax penalty for many taxpayers whose 2018 federal income tax withholding and estimated tax payments fell short of their total tax liability for the year.

The IRS is generally waiving the penalty for any taxpayer who paid at least 85 percent of their total tax liability during the year through federal income tax withholding, quarterly estimated tax payments or a combination of the two. The usual percentage threshold is 90 percent to avoid a penalty.

The waiver computation announced today will be integrated into commercially-available tax software and reflected in the forthcoming revision of Form 2210 and instructions.

This relief is designed to help taxpayers who were unable to properly adjust their withholding and estimated tax payments to reflect an array of changes under the Tax Cuts and Jobs Act (TCJA), the far-reaching tax reform law enacted in December 2017.

“We realize there were many changes that affected people last year, and this penalty waiver will help taxpayers who inadvertently didn’t have enough tax withheld,” said IRS Commissioner Chuck Rettig. “We urge people to check their withholding again this year to make sure they are having the right amount of tax withheld for 2019.”

The updated federal tax withholding tables, released in early 2018, largely reflected the lower tax rates and the increased standard deduction brought about by the new law. This generally meant taxpayers had less tax withheld in 2018 and saw more in their paychecks.

However, the withholding tables couldn’t fully factor in other changes, such as the suspension of dependency exemptions and reduced itemized deductions. As a result, some taxpayers could have paid too little tax during the year, if they did not submit a properly-revised W-4 withholding form to their employer or increase their estimated tax payments. The IRS and partner groups conducted an extensive outreach and education campaign throughout 2018 to encourage taxpayers to do a “Paycheck Checkup” to avoid a situation where they had too much or too little tax withheld when they file their tax returns.

Although most 2018 tax filers are still expected to get refunds, some taxpayers will unexpectedly owe additional tax when they file their returns.

Additional Information

Because the U.S. tax system is pay-as-you-go, taxpayers are required, by law, to pay most of their tax obligation during the year, rather than at the end of the year. This can be done by either having tax withheld from paychecks or pension payments, or by making estimated tax payments.

Usually, a penalty applies at tax filing if too little is paid during the year. Normally, the penalty would not apply for 2018 if tax payments during the year met one of the following tests:

The person’s tax payments were at least 90 percent of the tax liability for 2018 or
The person’s tax payments were at least 100 percent of the prior year’s tax liability, in this case from 2017. However, the 100 percent threshold is increased to 110 percent if a taxpayer’s adjusted gross income is more than $150,000, or $75,000 if married and filing a separate return.

For waiver purposes only, today’s relief lowers the 90 percent threshold to 85 percent. This means that a taxpayer will not owe a penalty if they paid at least 85 percent of their total 2018 tax liability. If the taxpayer paid less than 85 percent, then they are not eligible for the waiver and the penalty will be calculated as it normally would be, using the 90 percent threshold. For further details, see Notice 2019-11, posted today on IRS.gov.

Like last year, the IRS urges everyone to check their withholding for 2019. This is especially important for anyone now facing an unexpected tax bill when they file. This is also an important step for those who made withholding adjustments in 2018 or had a major life change to ensure the right tax is still being withheld. Those most at risk of having too little tax withheld from their pay include taxpayers who itemized in the past but now take the increased standard deduction, as well as two-wage-earner households, employees with nonwage sources of income and those with complex tax situations.

To help taxpayers get their withholding right in 2019, an updated version of the agency’s online Withholding Calculator is now available on IRS.gov. With tax season starting Jan. 28, the IRS reminds taxpayers it’s never too early to get ready for the tax-filing season ahead. While it’s a good idea any year, starting early in 2019 is particularly important as most tax filers adjust to the revised tax rates, deductions and credits.

Although the IRS won’t begin processing 2018 returns until Jan. 28, software companies and tax professionals will be accepting and preparing returns before that date. Free File is also now available.

The IRS also reminds taxpayers there are two useful resources for anyone interested in learning more about tax reform. They are Publication 5307, Tax Reform: Basics for Individuals and Families, and Publication 5318, Tax Reform What’s New for Your Business. For other tips and resources, visit IRS.gov/taxreform or check out the Get Ready page on IRS.gov.

2018 Businesses Tax Reform can affects Bottom Line

Businesses can visit IRS.gov to find out how tax reform affects their bottom line

Business may find they have questions about how 2017’s tax reform legislation affects their organization and their bottom line. IRS.gov is a great place to find answers. Here are several pages on the IRS website that address tax reform. Businesses can bookmark these pages and check back often, as the IRS regularly updates them with new information.

Income: taxation of foreign income, carried interest, and like-kind exchanges
Deductions and depreciation: fringe benefits, moving expenses, standard mileage rates, deduction for passthrough businesses, and business interest expenses
Credits: employer credit for paid family and medical leave, and the rehabilitation tax credit
Taxes: blended federal income tax and withholding
Accounting method changes
Opportunity zones

This page also includes information for specific industries, such as farming, insurance companies, and aircraft management services.

Some S corporations may want to convert to C corporations

Some S corporations may want to convert to C corporations

After last year’s tax reform legislation, some S corporations may choose to revoke their S election to be a C corporation because of the new, flat 21-percent C corporation tax rate. Before taking any action, S corporations should consult their tax advisors.

S Corporations and C Corporations are among the types of business structures. A C corporation is taxed on its earnings, and then the shareholder is taxed when earnings are distributed as dividends. S corporations elect to pass corporate income, losses, deductions and credits through to their shareholders for federal tax purposes. Shareholders of S corporations report the pass-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain built-in gains and passive income at the entity level.

The Tax Cuts and Jobs Act includes two changes that affect a corporation’s revocation of an S election to be a C corporation:

The corporation should report net adjustments attributable to the revocation over six years. For more information see Revenue Procedure 2018-44.
Distributions of cash following the post-termination transition period may be treated as coming out of the corporation’s accumulated adjustments account and accumulated earnings and profits proportionally resulting in part of the distributions being non-dividend distributions from the C corporation. The non-dividend distributions may not be subject to tax at the shareholder level if the shareholder has sufficient stock basis. Additional guidance will be coming.

These law changes only apply to a C corporation that:

Was an S corporation on December 21, 2017,
Revokes its S corporation election after December 21, 2017, but before December 22, 2019, and
Has the same owners of stock in identical proportions on the date of revocation and on December 22, 2017.

For more information, see the Corporate Methods of Accounting topic on the Tax Reform – Businesses page.

Tax Reform changes depreciation limits on luxury automobiles

Tax Reform changes depreciation limits on luxury automobiles

The Tax Cuts and Jobs Act changed depreciation limits for passenger vehicles placed in service after Dec. 31, 2017. If the taxpayer doesn’t claim bonus depreciation, the greatest allowable depreciation deduction is:

$10,000 for the first year
$16,000 for the second year
$9,600 for the third year
$5,760 for each later taxable year in the recovery period

If a taxpayer claims 100 percent bonus depreciation, the greatest allowable depreciation deduction is:

$18,000 for the first year
$16,000 for the second year
$9,600 for the third year
$5,760 for each later taxable year in the recovery period

This change applies to property placed in service after Dec. 31, 2017.