This is a reprint of a blog I wrote over three years ago, but it still makes sense today. So, you have filed your income tax return with the IRS and your state, and are now waiting for the refund the government(s) owe you. You are thinking of all the things you can do with that money when you get it. Here are some things to think about as you wait: 1. These refunds are in effect interest-free loans you have made the government(s) over the year through excess withholding. They are just paying you back the money you earned over the previous year that won’t even earn interest unless you file an extension and wait even longer for your money. This is even worse than that bet that your buddy owes you because at least you know where to find him if he doesn’t pay you right away. With our government you call on the phone and wait an hour for them to tell you that the refund is being processed or go on their website and find out there is a problem and you have to call anyway! 2. You could be earning some income on this [...]
Tax Musings of a Burbank CPA: How Home and Security Ownership Is Affected by Tax Reform
In 2018, The Tax Cuts and Jobs Act of 2017 will create tax changes to home and securities ownership by changes to itemized deductions on Schedule A. If you own or are buying a residence and/or second home, you may have the following limitations on your itemized deductions: 1. The combination of real estate and state income or sales taxes paid each year will be limited to a maximum deduction of $10,000. This will be a killer in high state and local tax states. State and local taxes (SALT) normally include state income taxes or state sales taxes (usually the higher of the two) and state and local property taxes, which can include real estate and personal property tax. 2. Interest limitations on new home purchases in 2018. Interest on new home loans has been limited to mortgages of $750,000. If you have a mortgage of $600,000 on your principal residence before 2018, you can only add another $150,000 in 2018 to the loans that deductible mortgage interest would be allowed on a purchase of a second home (meaning if you buy a second home for $300,000, only half the interest on the loan would be deductible on Schedule A.) [...]
Tax Musings of a Burbank CPA: What Entities Qualify for the New Sec 199A Business Writeoff?
In 2018, a new tax write-off has been created for qualifying businesses – the Section 199A Business Deduction. This deduction equates to 20% of Qualified Business Income assuming you meet income and salary limitations. Also, shareholder reasonable compensation, interest, dividends and capital gains and losses don’t qualify. But if you meet these requirements, exactly what entities and businesses have Qualified Business Income? Based on my research, here are the qualifying businesses: 1. Sole Proprietorships – Schedule Cs. 2. Individual Owners of Rental Properties – Schedule Es. 3. S-Corporations (net of reasonable compensation to shareholders.) 4. Partnerships and LLCs (on form 1065.) 5. Trusts having business income or Rental Property income. 6. S-Corporations, Partnerships and Trusts owning any of the above pass-through entities (future regulations will give guidance on how to determine the deduction in case of tiered entities.) Basically, any non-C-Corporation will probably qualify for the Section 199A deduction. It is interesting that rental property income will qualify for this tax benefit. What it means is that with proper planning, the new deduction can significantly benefit many types of small businesses going forward. So now you have the information; now you need to see your tax preparer to see how this will benefit you and your business(es). [...]