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Final Partnership Regulations Issued

 

On January 2, 2018 the IRS issued final regulations on how Partnerships can elect out of the Centralized Partnership Audit Regime.  The final regulations are effective for tax years beginning after December 31, 2017.

An eligible partnership may elect out of the new audit regime on its timely filed income tax return including extensions for the year in which the partnership wants to elect out.  Once the election is made it cannot be revoked without consent from the IRS.

As noted above, to elect out, the partnership must be an “eligible partnership”.  The regulations define an “eligible partnership” as one that has 100 or fewer partners and that each partner is an “eligible partner”.  An “eligible partner” is an individual, C corporation, S corporation, eligible foreign entity, or the estate of a deceased partner.  An S corporation, regardless of whether or not its shareholders are defined as eligible, is still considered an eligible partner for this purpose.  The number of shareholders in an S Corporation must be considered in determining if a partnership has 100 or fewer partners.  The following are not considered eligible partners: partnerships, trusts, a foreign entity that is not otherwise an eligible foreign entity, a disregarded entity, an estate of an individual other than of a deceased partner, or any person that holds an interest in the partnership on behalf of another person.

A partnership that makes an election must notify each of its partners of the election within 30 days of making the election in the form and manner determined by the partnership. Also, a partnership that elects out of the new regime and has an eligible partner that is an S corporation must disclose all of the required information to the IRS about each person who was a shareholder in the S corporation at any time during the tax year of that S corporation.  Finally, the final regulations, just like the proposed, require each partnership to provide a correct U.S. taxpayer id for all partners.

The new audit guidelines for partnerships are very complex.  Reach out to one of our experts at HLB Gross Collins to find out how the new rules effect your partnership interests.

-by Abigail Hampton, CPA

Tax Cuts & Jobs Act Impact on the Real Estate Industry

On December 22, 2017, President Trump signed Tax Cuts and Jobs Act as expected.  This bill is the biggest tax reform the United States has seen in over 30 years.  The bill contains many cuts and provisions related to individuals, businesses, and specific industries.  The real estate industry in particular will be impacted by the provisions related to expensing interest, depreciation and the recovery period for real property.

For tax years beginning after December 31, 2017 business entities, regardless of their form, will generally be subject to a limit on their interest expense deduction.  Unless an exemption applies, net interest expense in excess of 30% of the business’s adjusted taxable income will be disallowed.  The disallowance is determined at the taxpayer level and not the entity level.  For the period of January 1, 2018 through December 31, 2021, adjusted taxable income will be computed without regard to deductions allowable for depreciation, amortization, or depletion.  Exemptions apply for taxpayers with average annual gross receipts that meet a specific threshold and for real property trades or businesses that use Alternative Depreciation System to depreciate applicable real property.

Increased Code Section 179 expensing will allow taxpayers to expense up to $1 million dollars with a phase-out threshold amount increased to $2.5 million for property placed in service in tax years after December 31, 2017.  Additionally, the definition of “qualified real property” eligible for Code Sec. 179 expensing has been expanded to include some of the following improvements to nonresidential real property after the date such property was first placed in service:  roofs, ventilation and air-conditioning property, fire protection and alarm systems, and security systems.  Bonus depreciation, beginning for items placed in service after September 27, 2017 and before January 1, 2023, is increased from a 50% deduction to a 100% deduction.  Bonus depreciation, during this time period, is also expanded to apply to used property meeting specific acquisition requirements whereas under the old law bonus only applied to new.

Under current law improvements to real property fell into many separate definitions including, qualified improvement property, qualified restaurant improvement property, etc.  Each definition was different but all were generally depreciated straight-line over 15 years.  The new law removes the separate definitions.  Property placed in service after December 31, 2017 will now be qualified improvement property.  Assuming a technical correction is made to the final bill, qualified improvement property will be depreciated straight-line over 15 years using the half-year convention.  If no correction is made, all such property will be depreciated as nonresidential real property and depreciated over 39 years.  Additionally, an electing real property trade or business (real property trade or business electing out of the interest deduction limitation) must use MACRS ADS to depreciate any nonresidential real property, residential rental property, or qualified improvement property it holds.

Contact the Real Estate Team at HLB Gross Collins, P.C. to discuss in more detail the provisions identified above.

by Abigail Hampton, CPA

Webinar: The New Tax Laws and How They Impact Business Owners & Exit Planning

 

On December 22, 2017, President Trump signed into law The Tax Cut and Jobs Act the biggest reform to US taxes in several decades. The tax changes impact every corner of the economy, and every American taxpayer and business.

Join us for a webinar on Tuesday January 23, at 2:00 p.m.: Exit Planning Under the New Tax Laws  Among others, Elizabeth Salvati will be a presenter.

Click here to learn more about the webinar and to register.

January/February Dates to Remember

January 16 

Individuals. Make a payment of your estimated tax for 2017 if you did not pay your income tax for the year through withholding (or did not pay enough in tax that way). Use Form 1040-ES. This is the final installment date for 2017 estimated tax. However, you don’t have to make this payment if you file your 2017 return and pay any tax due by January 31, 2018.

Employers. For Social Security, Medicare, withheld income tax, and nonpayroll withholding, deposit the tax for payments in December 2017 if the monthly rule applies.

January 31

All businesses. Give annual information statements (Forms 1099) to recipients of certain payments you made during 2017. Payments that are covered include the following: compensation for workers who are not considered employees; dividends and other corporate distributions; interest; rents; royalties; profit-sharing distributions; retirement plan distributions; original issue discounts; prizes and awards; medical and health care payments; payments of Indian gaming profits to tribal members; debt cancellations (treated as payment to debtor); and cash payments over $10,000. There are different forms for different types of payments.

Employers. Give your employees their copies of Form W-2 for 2017. If an employee agreed to receive Form W­2 electronically, have it posted on a website and notify the employee of the posting.

For nonpayroll taxes, file Form 945 to report income tax withheld for 2017 on all nonpayroll items, such as backup withholding and withholding on pensions, annuities, and IRAs. Deposit or pay any undeposited tax. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the year in full and on time, you have until February 12 to file the return.

For Social Security, Medicare, and withheld income tax, file Form 941 for the fourth quarter of 2017. Deposit and pay any undeposited tax. If your tax liability is less than $2,500, you can pay it in full with a timely filed return.  If you deposited the tax for the year in full and on time, you have until February 12 to file the return.

For federal unemployment tax, file Form 940 for 2017. If your undeposited tax is $500 or less, you can either pay it with your return or deposit it. If it is more than $500, you must deposit it. However, if you already deposited the tax for the year in full and on time, you have until February 12 to file the return.

 

February 15 

All businesses. Give annual information statements (Forms 1099) to recipients of certain payments you made during 2017. Payments that are covered include (1) amounts paid in real estate transactions;(2) amounts paid in broker and barter exchange transactions; and (3) payments to attorneys. 

Employers. For Social Security, Medicare, withheld income tax, and nonpayroll withholding, deposit the tax for payments in January if the monthly rule applies.

Individuals. If you claimed exemption from income tax withholding last year on the Form W-4 you gave your employer, you must file a new Form W-4 to continue your exemption for another year. 

February 16 

Employers. Begin withholding income tax from any employee’s pay who claimed exemption from withholding in 2017, but did not provide a new Form W-4 to continue the exemption for 2018.

Reduce the Impact of a Catastrophic Event

From East Coast to West Coast, hurricanes and wildfires recently created huge losses of lives, property, and emotional wellbeing. In the middle of the United States, crippling natural disasters can range from blizzards to river flooding to tornadoes. News reports naturally focus on homes and families, but local businesses also are among the victims.

There may be little a small company can do when it’s in the path of record winds or a wall of flames. However, there are steps a business owner can take when things are calm to reduce the impact of catastrophic conditions in the future.

Be sure about insurance

For example, relevant insurance should be in place. Whether you rent or own the facilities you use, you should have adequate property insurance from a well-established company. Business interruption coverage may provide cash if revenue producing operations are curtailed for any length of time. Your firm also may obtain special flood or earthquake insurance (or both) if that’s deemed necessary.

You probably won’t have the time or the inclination to evaluate all the coverage you might need. Therefore, you should work with an experienced agent or insurance consultant who can provide expertise. This professional also can suggest the scope of personal insurance needed by you and your employees, payable after a natural disaster. In the wake of a dreadful event, the less time people spend worrying about personal losses, the sooner your firm can get back to operating at full speed.

Staying online

Business interruption policies may or may not cover problems that disable information technology systems, which are vital to many small companies. Special cyber policies might be available. Besides insurance coverage, there are things you can do to proactively keep data and other records intact, even in worst case scenarios.

Backing up computer files is an obvious yet vital procedure. Store the backups offsite or use a cloud-based solution. If your company operates in different areas, one place might store backup records for the other place. Some small companies have gone from desktop computers and related accessories to laptops, which are easier to move quickly, if circumstances require swift action.

Power play

As we’ve seen, some storms bring high winds that can bring down power lines. Hurricane Irma impaired electricity for millions of users in Florida and surrounding states. If you have a generator that can supply emergency power for critical usage, that can reduce the time operations cease altogether.

Again, during and immediately after a disastrous event, it’s vital for employees to have power at home so they can go on with their lives and perhaps get some work done. Your company might inform key people about sources of backup power and even provide a financial incentive to have a residential generator installed.

These steps can serve as part of a natural disaster plan. To create a complete course of action, take on the role yourself or assign an employee to head this effort. The leader’s first job might be to find a local consultant or other expert to create a formal policy for your company. Asking your own company’s executives and staffers for suggestions can lead to valuable input from all areas of the firm. Once a plan has been adopted, it should be circulated to all employees so they know what to do and who to contact in case of a true emergency.

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