New tax legislation eliminated the tax deferral on exchanges of like-kind exchanges of property, except for real estate. This change (generally effective in 2018) may apply to more transactions than you think. For instance, it comes into play when you trade in one business car for another.
 
Here's what matters for business vehicles

Under prior law, no current tax was due on an exchange of like-kind properties, like vehicles, if certain requirements were met. You only had to pay tax on any "boot" you received (e.g., cash on a car trade-in). But now taxpayers must contend with a convoluted set of rules that could result in a taxable gain.

Let's look at an example involving a trade-in before and after the new law:

• Before the new law: You bought a truck for your business for $50,000 that has been fully depreciated. So your "basis" for computing any gain or loss is zero. If you trade in the truck for a new one costing $55,000 and give the dealer $30,000 in cash, no current tax is due on the like-kind exchange. Your adjusted basis equals your basis plus any additional amount you pay. As a result, your adjusted basis going forward is $30,000.

 

• After the new law: Assume the same scenario above. Although you're eligible to claim favorable depreciation deductions for the vehicle, especially in the first year of ownership, your adjusted basis under the new rules is $55,000. Therefore, you must report a $25,000 taxable gain.

There are other tax complications, but you get the basic idea.
 
Keep these new rules in mind when you negotiate the price of a new business vehicle and the trade-in value of your old one. Alternatively, you might sell the vehicle personally and pay the full price for a new one. Call for help determining your best approach.

​Last year’s Tax Cuts and Jobs Act made significant changes to the tax law that affect small businesses. The IRS posted two new resources on IRS.gov to help taxpayers understand how these changes affect their bottom line.

Here are some details about these resources:
 
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New publication: 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:

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

New webpage: Tax Reform for Small Business
This one-stop shop highlights important tax reform topics for small businesses.

Users can link to several resources, which are grouped by topic:

• New deduction for qualified businesses
• Withholding
• Deductions, depreciation and expensing
• Employer deduction for certain fringe benefits
• Like-kind exchanges
• Real estate rehabilitation tax credit
• Changes in accounting periods and methods of accounting
• Corporate methods of accounting
• Blended federal income tax
• Employer credit for paid family and medical leave
• Farmers and ranchers

More information:
Tax Reform Small Business Initiative

After the new law repealed deductions for entertainment expenses, many business people figure their write-offs for treating customers or clients to meals are gone for good. But interim guidance handed down by the IRS provides some light at the end of the tunnel.
 
You may continue to deduct 50 percent of the cost of business meals if these conditions are met:

• The expense is an ordinary and necessary business expense.
• The expense isn't "lavish or extravagant" under the circumstances.
• You or one of your employees is present when the food or beverages are served.
• The food and beverages are provided to a current or potential business contacts.
• Any food and beverages provided during or at an entertainment activity are purchased separately or the cost is stated separately from the entertainment cost on a bill, invoice or receipt.

​Here are three scenarios you may find yourself in and how the new business meals rules apply:

• You travel to a distant location on business and stay overnight. While you're at the hotel, you pay for your meals. Despite the new law clarifications, you can still deduct 50 percent of the cost of the meals when you're away from home on business.
• After you wrap up a business deal, you treat a client to dinner and then a show. Although you can no longer deduct the entertainment following the dinner, it appears you may write off 50 percent of the entire meal cost.
• Instead of a show after a business meeting, you get tickets to a big game in a luxury box. If the cost of the tickets includes food and beverages, no deduction is allowed. But you can claim a 50 percent deduction for food and beverages invoiced separately.

​The IRS is expected to issue proposed regulations with more details soon. Until then, you can rely on the interim guidance. Call if you have questions about your business deductions.

Qualified Opportunity Zones were created by the 2017 Tax Cuts and Jobs Act. These zones are designed to spur economic development and job creation in distressed communities throughout the country and U.S. possessions by providing tax benefits to investors who invest eligible capital into these communities. Taxpayers may defer tax on eligible capital gains by making an appropriate investment in a Qualified Opportunity Fund and meeting other requirements.

In the case of an eligible capital gain realized by a partnership, the rules allow either a partnership or its partners to elect deferral. Similar rules apply to other pass-through entities, such as S corporations and its shareholders, as well as estates and trusts and its beneficiaries.

To qualify for deferral:

• Capital gains must be invested in a QOF within 180 days.
• Taxpayer elects deferral on Form 8949 and files with its tax return.
• Investment in the QOF must be an equity interest, not a debt interest.

If a taxpayer holds its QOF investment at least five years, the taxpayer may exclude 10 percent of the original deferred gain. If a taxpayer holds its QOF investment for at least seven years, the taxpayer may exclude an additional five percent of the original deferred gain for a total exclusion of 15 percent of the original deferred gain. The original deferred gain – less the amount excluded due to the five and seven year holding periods – is recognized on the earlier of sale or exchange of the investment, or December 31, 2026. If the taxpayer holds the investment in the QOF for at least 10 years, the taxpayer may elect to increase its basis of the QOF investment equal to its fair market value on the date that the QOF investment is sold or exchanged. This may eliminate all or a substantial amount of gain due to appreciation on the QOF investment.

​More information:

• Opportunity Zones
• Frequently asked questions
• Tax Reform

The IRS urges everyone with any type of online account to review new, stronger standards to protect their passwords. Doing so will help protect against savvy cybercriminals who wants to access people’s accounts and steal their identities.

Here are three steps people can follow to build a better password:

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• Step 1: Leverage powers of association. People can identify associated items that have personal meaning and use them in their passwords.

• Step 2: Make unique associations. Passphrases should be words that can go together in your head, but no one else would ever suspect.
  • Good example: Items in a living room such as BlueCouchFlowerBamboo.
  • Bad example: Names of children or pets.

• Step 3: Create a passphrase that you can picture in your head. The key is to create a passphrase that is hard for a cybercriminal to guess, but easy for the user to remember.

In addition to creating strong passwords, people can:

• Use a different password or passphrase for each account. People can consider using a password manager if necessary for multiple accounts.

• Use multi-factor authentication whenever possible. They should not rely on the passphrase alone to protect sensitive data. Multi-factor authentication means returning account holders need more than just their username and password to access an account. They also need, for example, a security code sent as text to a mobile phone.

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• Change all factory-set passwords. They should do this for wireless devices such as printers and routers. 

The IRS reminds holiday shoppers to protect their tax and financial data from identity thieves. All it takes is a few extra steps to prevent cybercriminals from stealing sensitive data, such as financial account information, Social Security numbers, and credit card information. Thieves could use this data to file a fraudulent tax return in 2019.
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This tip is part of National Tax Security Awareness Week. The IRS is partnering with state tax agencies and its partners in the Security Summit to remind to taxpayers and tax professionals about the importance of protecting data.

Cybercriminals want to turn stolen data into quick cash. They do this by draining financial accounts, charging credit cards, creating new credit accounts or even using stolen identities to file a fraudulent tax return for a refund.

Here are seven steps taxpayers can follow to help protect their accounts and their money:
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• Avoid unprotected Wi-Fi. Unprotected public Wi-Fi hotspots may allow thieves to view transactions.

 

• Shop at familiar online retailers. Generally, sites using the “s” designation in “https” at the start of the URL are secure. User can also look for the “lock” icon in the browser’s URL bar. That said, some thieves can get a security certificate, so the “s” may not always vouch for the site’s legitimacy. Beware of purchases at unfamiliar sites or clicks on links from pop-up ads.

 

• Learn to recognize and avoid phishing emails. Thieves send these emails, posing as a trusted source, such a financial institution. or the IRS. The criminal’s goal is to entice users to open a link or attachment. The link may take users to a fake website that will steal usernames and passwords. An attachment may download malware that tracks keystrokes.

 

• Keep a clean machine. This applies to computers, phones and tablets. Taxpayers should use security software to protect against malware that may steal data and viruses that may damage files.

 

• Use passwords that are strong, long and unique. Experts suggest a minimum of 10 characters but longer is better. People should also avoid using a specific word in the password. They should also use a combination of letters, numbers and special characters.

 

• Use multi-factor authentication when available. This means users may need a security code, usually sent as a text from a financial institution or email provider to a mobile phone. People use this code in addition to usernames and passwords.

 

• Encrypt and password-protect sensitive data. If keeping financial records, tax returns or any personally identifiable information on computers, this data should be encrypted and protected by a strong password.

Did you know the IRS is prohibited from releasing information you report, except in limited circumstances? You have to grant specific authorization to allow someone to discuss your return with the IRS, receive copies of your returns or tax notices, or negotiate with the IRS on your behalf.
 
For example, say you receive an IRS notice, and you want your tax preparer to resolve the issue for you. The only way your preparer can help is if you have given permission allowing an exchange of information with the IRS.
 
Here are three ways to grant authority for access to certain tax information:

1. Third-party designation. You may think of this as the "checkbox" authorization found near the signature area of your tax return. By checking the box and completing the requested information, you grant limited authority for the receipt or inspection of your tax information for that particular return.

The person you authorize will not automatically receive copies of IRS notices, but can review your information for the specific tax period. The authorization expires one year from the original due date of the return.

Form 8821, Tax Information Authorization. This form is a disclosure authorization that allows the person you choose to automatically receive notices and other information about your taxes for periods you specify. You can revoke the authorization by submitting a signed copy of the original with the word "Revoke" written across the top.  

Form 2848, Power of Attorney and Declaration of Representative. The power of attorney lets someone who is eligible to practice before the IRS represent you and, in some cases, sign agreements and other documents on your behalf. You can revoke a power of attorney by filing a new one for the same tax period, or by sending a signed copy of the original with the word "Revoke" written across the top. ​
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Other forms may be required, depending on the type of tax information and how much authority you want to grant. Give us a call for help granting authorization.