TAX REFORM PROPOSALS – THE STANDARD MILEAGE ALLOWANCE FOR BUSINESS USE OF YOUR CAR

 

Happy Presidents Day – when we celebrate 45 of the 46 Presidents of the United States, and remember the damaging and potentially fatal mistake America made in 2016.
 
Time for another perhaps controversial tax reform proposal.
 
I love the Standard Mileage Allowance deduction for business, medical and charitable auto travel.  But . . .
 
The standard mileage allowance for business use of the taxpayer’s personal auto should NOT include a component for depreciation of the vehicle.   
 
For the most part taxpayers who use their car for business would own a car whether or not one was needed for business. The business use, however extensive, is basically secondary to personal use.   I have always owned a car.  Although a large percentage of my driving is for business, I own the car primarily for personal reasons, and would own a car whether it was needed for business or not.    
 
Currently the standard mileage rate for business is calculated using an annual study of the fixed and variable costs of operating an automobile - including depreciation, insurance, repairs and maintenance, tires, and gas and oil. The rate for medical and moving purposes is based only on the base variable costs, like gas and oil and does not include depreciation.
 
Because the main reason for purchasing a car is personal and not business, depreciating the cost of purchasing the car, based on business use, is not really a true business expense.  Only the business use percentage of actual operating expenses should be allowed as a deduction – because the more miles you drive the more you spend for gas, oil, repairs and maintenance, tires, and insurance.
 
Taxpayers using their car for business would continue to have the option of using the appropriate business use percentage or actual expenses, but without depreciation.  Those who lease a car and use it for business could also use the standard mileage allowance or actual expenses, but this deduction would not include the monthly lease payment.
 
In the case of motor vehicles legitimately used 100% in a business – trucks, vans, limos, cars that are leased out to others (including one’s corporation) or used exclusively by couriers or for deliveries – a deduction should be allowed for 100% of the actual costs of maintaining and operating the vehicle, including depreciation. The standard mileage allowance would not be allowed here.
 
And the Standard Mileage Allowance for charitable travel should be the same as that calculated annually for medical and moving driving.  The current deduction for charitable driving is set by Congress and has been 14 cents per mile for many decades (except for a couple of temporary increases in times of severe national emergency).
 
So, as always, what do you think?
 
TTFN

WHY TRUMP PAID NO INCOME TAX IN 2020

 

We recently learned, with the public release of his tax returns, that Donald T Rump paid no federal income tax in 2020.  Trump claimed a $16 million loss from his real estate businesses. That loss put him almost $5 million in the red for 2020.

New York tax attorney Steven Goldburd said in an email to The Hill, quoted in “Trump’s tax returns show real estate losses, inheritance impact, no 2020 charitable giving” at THE HILL.COM (highlight is mine) –

“These losses can be from actual losses, but more likely from real estate depreciation expenses. These entities may not actually [be] losing money, but in fact have the depreciation that are wiping out the partnership’s income.”

I expect the depreciation deductions for his many properties caused Trump to pay no federal income tax in 2020.  I cannot say whether or not Trump’s specific depreciation deductions are correct (the honesty of everything Trump does is always in question), but I can say depreciation of real estate is a legal business deduction used by everyone who invests in real estate – from the individual or family with a two-family home or vacation rental to billionaire real estate moguls.

The deduction for depreciation of real estate is a “phantom expense” that distorts the economic reality of the investment activity.  This deduction causes an activity producing a positive cash profit to become a deductible tax loss.  For many many years I have been saying we should do away with the tax deduction for depreciation of real estate. 

According to the IRS, depreciation is “an income tax deduction that allows a taxpayer to recover the cost or other basis of certain property. It is an annual allowance for the wear and tear, deterioration, or obsolescence of the property”. 

Let us look at depreciation from the point of view of the Income Statement of a business or rental activity.  Basically, if you purchase an asset (i.e. equipment, a vehicle, or real estate) that will last more than one year you spread the cost of the asset over its “useful life”.  You purchase a new computer.  You certainly do not purchase a new computer each year – you expect that it will continue to provide service for several years.  So, you divide the cost of the computer over a period of years to reflect this fact, and to properly report the “economic reality” of the purchase. 

If you deducted the full cost of the computer in the year of purchase this would distort the true cost of doing business.  Since you generally purchase a new computer every five years, deducting the cost over a five-year period “more better” represents the cost of operations.  Thus, depreciation is used to “recover the cost or other basis of certain property”.

Another way to look at depreciation is from the Balance Sheet perspective.  When you purchase an asset that asset has value to you.  You trade the asset of cash for the asset of a computer.  If you sold your business the value of the computer would be included in the value of the business.  As an asset ages its value drops.  A two-year old computer does not have the same value in the market as a comparable brand-new computer.  Depreciation is used to reflect the drop-in value of the asset.  Thus, depreciation is used to reflect the “wear and tear, deterioration, or obsolescence of the property.”

A building has a life of much more than the 27.5 or 39 years over which depreciation is currently allowed.  The building I lived in several years ago was 100 years old at the time, and is still going strong.  And, for the most part, the value of real estate does not drop in value over the years.  If properly maintained its value will generally increase.  My parents purchased their first home for $13,000 and sold it many years later for $75,000 (and they were robbed).  Granted real estate values can go down due to market conditions. But this is the exception and not the rule.

So, for all intents and purposes, real estate does not “depreciate”.  You do not replace a building every few years because it no longer provides the same service or function.  And the value of real estate as a component of the value of a business does not drop as it ages.  So why should we allow a tax deduction for the depreciation of real estate?

Real estate is an investment, just like stocks, bonds, mutual funds, etc.  You invest in rental real estate because you expect the building to increase in value over time, often more so than stocks and mutual funds, and because it generates “dividends” in the form of net “in pocket” rental income.  The deduction for depreciation of real estate is like allowing those who purchase stock to depreciate the purchase price of the stock as a deduction against the dividends paid out.

When a building is sold all depreciation that has been claimed, or should have been claimed (i.e. “allowed or allowable”) over the years must be “recaptured” and added to the actual net taxable gain, or used to reduce the actual net deductible loss, from the sale.  The recaptured depreciation portion of a net gain is taxed at a higher tax rate than the normal “capital gain” rate of 0%, 15% or 20% – and can provide a costly shock to the taxpayer selling a two-family home or vacation property.

Obviously, my belief that we should do away with the tax deduction for depreciation of real estate is not a popular one – but I believe it is a fiscally responsible one.  

What do you think?

TTFN

THIS JUST IN

 

The IRS has announced in Announcement 2022-13 -

“This announcement informs taxpayers that the Internal Revenue Service is modifying Notice 2022-3, 2022-2 I.R.B. 308, by revising the optional standard mileage rates for computing the deductible costs of operating an automobile for business, medical, or moving expense purposes and for determining the reimbursed amount of these expenses that is deemed substantiated. This modification results from recent increases in the price of fuel.

The revised standard mileage rates are:

(1) Business 62.5 cents per mile

(2) Medical and moving 22 cents per mile

The mileage rate that applies to the deduction for charitable contributions is fixed under § 170(i) of the Internal Revenue Code (Code) at 14 cents per mile.

The revised standard mileage rates set forth in this announcement apply to deductible transportation expenses paid or incurred for business, medical, or moving expense purposes on or after July 1, 2022, and to mileage allowances that are paid both (1) to an employee on or after July 1, 2022, and (2) for transportation expenses paid or incurred by the employee on or after July 1, 2022.”

For January – June 2022 the rates are 58.5 cent and 18 cents per mile and for July – December 2022 the rates are 62.5 cents and 22 cents per mile.

TTFN

THIS JUST IN - 2022 STANDARD MILEAGE ALLOWANCE RATES ANNOUNCED

 

The IRS, in Notice 2022-03, has announced the Standard Mileage Allowance rates for calendar year 2022.

Beginning on Jan. 1, 2022, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

·         58.5 cents per mile driven for business use

·         18 cents per mile driven for medical, or moving purposes for qualified active-duty members of the Armed Forces

·         14 cents per mile driven in service of charitable organizations

The business and medical/moving rate is determined each year by the IRS, and the 2022 rates are a bit higher than 2021.

The charity rate is set by Congress and has remained at 14 cents for eons.

TTFN

USING YOUR CAR FOR BUSINESS

 

Do you use your car for business?  Here are some things you should know.

 

(1) Thanks to the GOP Tax Act, for tax years 2018 through 2025 employees can no longer deduct employee business expenses if they itemize on Schedule A.  This includes business use of your personal automobile.  Only self-employed individuals are allowed to deduct the cost of using their car for business travel.

 

(2) If you use your car for business you must keep “contemporaneous” records of your business mileage. This means that you should record the information on the day the trip occurs.  Record each individual business trip separately. Enter the date, location, business purpose and miles driven for each trip in some kind of diary, account book, or expense log. If you do not have EZ Pass you should also note any toll expenses. If you do have EZ Pass, you can identify tolls for business trips on the monthly statement.  I also enter in my travel log the quarter I put in the parking meter while visiting a client or vendor or attending CPE activities.

 

In addition to the business miles driven for the year you will also need to know the total of all miles driven for the year.  You should start off the year by entering the total miles on your car on the morning of January 1st in your log – and end the year by entering the speedometer reading after your last trip on December 31st. If you sell the car during the year, enter the total miles on the date of sale and enter the beginning mileage on your new car on the day you drive it off the lot.

 

And you should keep a contemporaneous car maintenance log to record all related expenses for the year – gas, oil changes, tune-ups, repairs, car washes, etc.  The reason is explained in item #3.  

 

(3) You have two options for deducting business use of your car. The simplest way is by using the Standard Mileage Allowance rate.  You multiply the number of business miles driven for the year by this rate.  The rate is set annually by the Internal Revenue Service, based on the variable costs as determined by a study conducted by Runzheimer International.

 

This standard mileage allowance rate applies no matter where in the United States you drive, and no matter what type, model or make of car you drive.  It is available for a car you own or a car that you lease.  It covers all the normal expenses of operating a car, including depreciation, but does not include auto loan interest or state and local personal property taxes.  As a self-employed taxpayer you can deduct the business share of auto loan interest and any related state and/or local personal property tax paid on the auto on Schedule C in addition to the standard mileage allowance.

 

You can also choose to instead claim the business use percentage of the total cost of maintaining your car, which includes –

 

•        auto club membership

•        depreciation

•        gasoline

•        insurance

•        license and registration

•        lease payments

•        repair and maintenance

•        tires

•        wash and wax

 

If you drove a total of 20,000 miles for the year and you have logged 15,000 miles for business purposes you can deduct 75% of these expenses.  There are special limitations on the deduction for depreciation.

 

It is a good idea to keep a car maintenance log to record all related expenses for the year – gas, oil changes, tune-ups, repairs, car washes, etc. – so you will have the information available to make an informed decision on what method to use. This is especially important for a new car, or for the first year you are deducting business use of a car.

 

Obviously, you want to use the method that gives you the greatest tax deductions over the life of the vehicle. 

 

Generally, in order to claim the standard mileage allowance, you must elect to do so in the first year the car is “placed in service” (the year you purchase the car or the first year you use the car for business).  If you claim the standard mileage allowance in the first year you can switch to actual expenses in a later year.  But if you claim actual expenses in the first year you may not be able to use the standard mileage allowance in later years.

 

If you choose to claim the standard mileage allowance on a leased car in the first year of the lease you must use it for the entire period of the lease.

 

The above was taken from my book “AN INTRODUCTION TO SELF-EMPLOYMENT: THE BASICS OF SCHEDULE c”.  If you are planning to start a small business, become a self-employed consultant or engage in any kind of “side hustle” this is a must read.  For more information go here.

 

TTFN

THE SECOND ECONOMIC STIMULUS PACKAGE

 

“The Consolidated Appropriations Act of 2021” was finally signed into law by Trump on Sunday night, December 27.  In addition to the $600 per taxpayer and dependent child Economic Impact Payment (discussed here), the Act includes the following items that affect Form 1040 (and 1040-SR) filers -

FOR 2020 RETURNS

Taxpayers can use their 2019 income to determine eligibility for and calculate the 2020 Earned Income Credit and Additional Child Tax Credit if it results in a bigger credit than actual 2020 income.

FOR 2021 AND BEYOND RETURNS

* Business-related “food or beverages provided by a restaurant” are 100% deductible for 2021 and 2022 (remember - employee business expenses, including employee-paid business meals, are no longer deductible on Schedule A).   

* The "above-the-line" deduction of up to $300 per taxpayer for qualifying charitable contributions for taxpayers who do not itemize on Schedule A, a per return deduction for 2020, is per taxpayer for 2021.  The maximum deduction for a married couple filing a joint 2021 return is $600.

* The 7½% of AGI exclusion for medical expenses on Schedule A is made permanent

* The MAGI-based phase-out amounts for the Lifetime Learning Credit are permanently increased to equal the amounts for the American Opportunity Credit.

* The lifetime $500 credit for 10% of qualified residential energy purchases is extended for 2021.

The Act also included new and extended business and payroll tax relief and other non-1040 items.

TTFN

THIS JUST IN

The IRS has announced the new Standard Mileage Allowance rates for calendar year 2021.

Beginning on January 1, 2021, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

* 56 cents per mile driven for business use, down 1.5 cents from the rate for 2020, 

* 16 cents per mile driven for medical or moving (for qualified active duty members of the Armed Forces only) purposes, down 1 cent from the rate for 2020, and 

* 14 cents per mile driven in service of charitable organizations, the rate is set by statute and remains unchanged from 2020.

The standard mileage rate for business use is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs (does not include depreciation).  The rate for charitable driving is set my Congress and has not been increased for decades.

Remember - employees can no longer deduct employee business expenses, including business mileage, as an itemized deduction on Schedule A.

BTW - Trump has refused to sign the new stimulus bill discussed yesterday.  So the second round of checks is not law yet.

TTFN 

IF AT FIRST YOU DON’T SUCCEED TRY, TRY AGAIN

On January 13, 2020, NJ Governor Murphy signed into law “The Pass-Through Business Alternative Income Tax Act”.  This act allows NJ “pass-through” businesses such as partnerships, sub-S corporations and sole proprietorships to elect to pay an entity-level alternative tax and provide partners, shareholders and the proprietor with a tax credit on the NJ-1040.

The new alternative tax election is effective for taxable years of the pass-through entities beginning on or after January 1, 2020.  This does not affect 2019 tax returns.

This is clearly another attempt by NJ to work around the federal $10,000 state and local tax (SALT) itemized deduction limitation enacted by the GOP Tax Act by changing a (perhaps) non-deductible individual income tax into a (hopefully) deductible state business income tax.    

The first attempt failed.  In May of 2018 Murphy signed legislation that would allow a taxpayer to donate to a charitable fund established by their municipality, county or school district. In return for their donation, the taxpayer would receive a credit on their property tax bill of up to 90 percent of the donation.  The assumption was the taxpayer could deduct the full amount of the donation as a charitable contribution on Schedule A, effectively providing a back-door deduction for the property tax.  The IRS was quick to point out that any deduction for a contribution to such a charitable fund must be reduced by the amount of the property tax credit received under the federal Trump (new synonym for “quid pro quo”) rule.  Only 10% of the donation is allowed as an itemized deduction.

I am not sure what the practical implementation of this new law on NJ tax returns will look like.  While NJ partnerships and S-corporations already file a tax form on which they can elect to pay the tax, will sole proprietors who file a federal Schedule C now have to file a new separate NJ business tax return to pay the tax? 

From what I have found in an initial online search the tax the pass-through entity will pay is -

1) 5.525% tax on the first $250,000 of distributive proceeds  

2) 6.37% tax on distributive proceeds between $250,000 and $1M  
3) 8.97% tax on distributive proceeds between $1M and $3M
4) 10.75% tax on distributive proceeds over $3M.

The above tax rates mirror the higher end of the current NJ tax rates for Form NJ-1040. 

I will be interested to see how the IRS responds to this new attempt to help NJ taxpayers evade federal income tax.  It is clear what NJ is doing, and the Service will certainly understand this.  I would think in order for this scheme to work NJ would have to make the entity-level tax mandatory and not optional and exempt from taxation on the NJ-1040 the pass-through income from NJ-based partnerships, sub-S corporations and net profits from business (federal Schedule C).

I will certainly to have more to say about this new tax scheme after the tax filing season when more information becomes available.

TTFN

THIS JUST IN

Finally!

The Internal Revenue Service today issued the 2020 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on January 1, 2020, the standard mileage rates for the use of a car will be:

57.5 cents per mile driven for business use, down one half of a cent from 2019,

17 cents per mile driven for medical or moving purposes, down three cents from 2019, and

14 cents per mile driven in service of charitable organizations.

The charitable rate is set by Congress and remains unchanged.

I do believe this is the latest these rates have been announced.

TTFN

WHEN CHOOSING A BUSINESS ENTITY DON’T FORGET FICA TAXES

An often-overlooked issue when deciding on the type of entity to choose to operate your one-person or closely-held business is the FICA or FICA-equivalent tax (self-employment tax).

If you operate as a sole-proprietor, filing a Schedule C, (or as a partnership) your FICA-equivalent self-employment tax is calculated on net earnings from self-employment BEFORE deducting health insurance premiums and retirement plan contributions.

The net amount on your Schedule C is $100,000.  You also deduct $24,000 in self-employed health insurance and a $15,000 contribution to your SEP retirement plan as adjustments to income.  So, your net “out of pocket” is $61,000.  Your self-employment tax is $14,130 - $100,000 x .9235 = $92,350 x 15.3% = $14,130.  The Schedule C filer is entitled to a tax deduction, as an “adjustment to income”, of $7,065 for half of the self-employment tax.

If you operate as a corporation and take $55,000 as a salary your FICA tax is $4,207.50 - $55,000 x 7.65% = $4,207.50.  The corporation matches this and also pays $4,207.50, so the total cost is $8,415.  As a corporation you are $3,000 -$5,000 less (the $5,715 in reduced FICA tax less the tax savings you would have received from the self-employment tax adjustment to income) out of pocket.

If the business has a $100,000 net gain, as per the Schedule C, and pays out $55,000 in wages, $39,000 in employee benefits (the owner’s health insurance premiums and pension contribution) and $4,208 in FICA tax the net taxable income of the corporation is $1,792.  The federal corporate income tax if a “C” corporation is $376.  If it is an “S” corporation the taxpayer may be allowed an additional $358 “Section 199a” deduction and pay federal income tax as an individual on $1,434 - $315 for a taxpayer in the 22% bracket.

Clearly the Schedule C filer pays substantially less in FICA-equivalent taxes than the corporation pays in FICA taxes.

However, regarding the 20% Section 199a deduction – for a “C” corporation there is no deduction allowed, for the “S” corporation the deduction is on the net business income reported on K-1 and does NOT include the sole-shareholder’s wages, but for a sole-proprietorship filing a Schedule C the deduction is allowed on the net amount reported on Schedule C less the adjustments to income for self-employment tax, self-employed health insurance and retirement income contributions.  In the above example the taxpayer’s “Qualified Business Income” (QBI) eligible for the 20% deduction is $53,935 - $100,000 less $24,000 less $15,000 less $7,065 = 53,935 – which could result in a deduction that reduces net taxable income by $10,787.

So, a Schedule C filer could pay less federal income tax on his or her net “in pocket”.

Obviously, the payroll tax cost, or the QBI deduction, is not the only consideration to be reviewed when choosing a business entity.  There are additional filing and administrative costs associated with operating as a corporation – when creating the corporation, during its operation, and when terminating/dissolving it.  There will probably be additional state payroll tax costs – unemployment, disability and/or family leave insurance contributions – and may be required worker’s compensation insurance premiums for the owner being paid as an employee that would not exist for a sole-proprietor.  And the management and administration of a corporation is more time consuming and requires more detailed recordkeeping and federal, state and local government filings.

As a point of information – operating as a corporation provides the owner with “limited liability”, but so does registering your Schedule C sole-proprietorship as a “Limited Liability Company” (LLC).  And if you are an LLC you can file your taxes as either a sole proprietor on Schedule C (or as a partnership if more than own owner) or a corporation, either “C” or “S”.

In terms of the Social Security component of the FICA payroll tax, paying the tax on a lower earnings base may affect the benefits you receive when you begin to collect.  In the above example the Social Security earnings for the Schedule C filer is $92,350, but is only $55,000 for the corporate employee.  Social security benefits are based on your 40 highest-earning years.  FYI - there is a maximum wage/earnings cap on the Social Security component of FICA tax, which applies to both wages and net earnings from self-employment.

What I am saying is that choosing a business entity is a serious and complicated matter involving many important issues – both tax and non-tax.  There is no “one size fits all” answer – regardless of what a lawyer may tell you.  When deciding on the entity you should consider the difference in payroll tax costs, and now under the GOP Tax Act the potential savings from the Section 199a QBI deduction.  Do multiple calculations based on various amounts of anticipated income.

And consult a tax professional BEFORE you consult an attorney!

TTFN

THIS JUST IN - MORE BREAKING NEWS!

The IRS has announced the new standard mileage rates for 2019.

Beginning on Jan. 1, 2019, the standard mileage rates for the use of a car will be:

* 58 cents per mile for business use, up 3.5 cents from 2018,
* 20 cents per mile for medical or moving purposes, up 2 cents from 2018, and
* 14 cents per mile in service of charitable organizations.

It is important to remember that thanks to the GOP Tax Act, taxpayers can no longer claim a miscellaneous itemized deduction for unreimbursed employee business expenses. The standard mileage rate for business is only available to self-employed taxpayers filing a Schedule C, C-EZ or F, and for reimbursement of employees by employers under an accountable plan. 

Taxpayers also can no longer claim a deduction for moving expenses, except for members of the Armed Forces on active duty moving under orders to a permanent change of station.  

The standard mileage rate for business use is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.  The charitable rate is set by Congress and hasn’t changed in a dog’s age. 

Taxpayers still have the option of calculating the actual costs of using their vehicle and apply the appropriate percentage for business, medical or moving use instead of using the standard mileage rates.  The rules for which method is available for business use (for Schedule C, Schedule C-EZ or Schedule F) has not changed.

TTFN

DEALING WITH TAX MYTHS ABOUT THE GOP TAX ACT

My legitimate ongoing concern about the “urban tax myth” that CPAs are automatically 1040 tax exports by virtue of their initials (they are most certainly NOT) doesn’t mean that online CPA-related sources do not provide excellent and timely information and commentary on 1040 issues.

Case in point “Tax Reform Myths and Facts for 2019: What the TCJA Really Means for Taxpayers” by Dave Duval, EA (you will note that he is an EA and not a CPA) at CPA PRACTICE ADVISOR.

Dave makes some excellent points in his piece, beginning with – “As tax practitioners, we wear many hats: tax aficionado, document sorter, government form translator, timekeeper, empathetic ear, and counselor.”

The article deals with the “plethora of information (and more pointedly, misinformation) about the Tax Cuts and Jobs Act of 2017” that is out there.  

Here are some of the good “take-aways” from Dave’s discussion (highlights are mine) –

* State Income Taxes: “Depending on the state, there may be full conformity {with the GOP Tax Act} or none at all. For example, in California taxpayers will still be able to deduct unreimbursed employee business expenses that are over 2% of their federal adjusted gross income. It will be crucial communicating to our clients that states may or may not have conformed to the federal changes, and it is still important to continue to retain documentation on certain deductions that may have been eliminated at the federal level but still apply at the state level. Retaining the documentation may result in lower state taxes, thereby easing the sting of losing the deductions on the federal return.”

NJ residents can still deduct out of pocket medical expenses, including some expenses that may be “pre-tax” for federal tax purposes but not for NJ state taxes, in excess of 2% of NJ Gross Income whether or not they itemize on the federal return.  And PA residents are able to deduct most employee business expenses without any income limitation.

* Alimony: The changes to the rules for reporting and deducting alimony “is only true for divorce or separation instruments executed on or after January 1, 2019. Alimony that is paid pursuant to a divorce or separation agreement executed before January 1, 2019, will still adhere to the alimony rules in place before TCJA. Divorce or separation agreements that were in place before January 1, 2019, and are modified after December 31, 2018, will still follow the old alimony rules unless the modified agreement specifically states it now follows the new rules.”

* Home Equity Interest: “As tax practitioners, we may need to spend more time with our homeowner clients discussing the difference between acquisition and equity loans, and performing interest tracking on how the proceeds were used. Additionally, we may need to request additional paperwork from our clients, such as the loan documents, and hope they recall where they spent the money.”

It is the responsibility of the taxpayer, and not the tax preparer, to separately track acquisition debt and home equity debt.  The importance of doing this cannot be stressed strongly enough.  Taxpayers should begin to work on this task NOW.  Check out my “Mortgage Interest Guide”. 

* Section 199a Deduction: “Many small business taxpayers are anticipating a big tax break this year due to the new 20% qualified business income deduction. Those small businesses that are organized as C corporations may be wanting to switch to a sole proprietorship or S corporation in order to take advantage of the deduction as fast as possible. Hopefully, these taxpayers will be contacting us first and not an online legal site where they can make the switch themselves {very, very important – consult your tax professional before you do anything regarding a change of business entity – rdf}. Many small business owners are not aware of the limitations and complexities to this deduction. Furthermore, there may have been very important reasons why a business formed as a C corporation that goes beyond taxes. By switching entities, these reasons may fall by the wayside.”

The Section 199a deduction is ridiculous, and ridiculously complicated, and unnecessary.  More proof that the members of Congress are idiots.

* The New “Postcard” 1040: “Some taxpayers will be lulled into a false sense that this means taxes are now simpler, and therefore the fee to prepare the return will be lower. As we know, expensive things can come in small packages. With all the changes courtesy of TCJA and state nonconformity, this tax season may be one of the most complicated we have seen. As such, we will need to educate our clients on this and caution them that the preparation fee may be larger this year.”

The “postcard” 1040 is perhaps the stupidest idea I have seen in over 45 years of preparing tax returns. 

Dave’s bottom line truly tells it like it is –

“One thing is for certain about the upcoming tax season − just about every tax return is going to take extra time and care.”

Thanks to Dave for an excellent discussion that should be read by all taxpayers and tax preparers (not just CPAs).

TTFN