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199A Deduction for Qualified Business Income

Posted by Admin Posted on Feb 13 2018


Recent tax legislation added a new tax deduction for business owners.  It permits individuals, estates, and trusts to deduct up to 20% of their “qualified business income.”  You may have heard a lot of talk in the news about a new deduction for “pass-through” income, but it’s actually available for qualified business income from a sole proprietorship (including a farm), as well as from pass-through entities such as partnerships, LLCs, and S corporations.  For taxpayers in the new 37% tax bracket (down from 39.6% in 2017), such income may be taxed at an effective top marginal rate of 29.6%.


Although the new deduction opens the door for planning opportunities for you and your business, the rules are complex. There are various limits that can substantially reduce or eliminate the deduction.  Many of these limits depend on the nature of your business and how high your taxable income will be in 2018.


For example, income from certain service businesses doesn’t qualify for the deduction once your taxable income reaches $415,000 (married filing jointly). These businesses involve the performance of services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, or brokerage services (but not engineering or architecture).  Also, income from a business that participates in investing, trading, or dealing in securities, partnership interests, or commodities is subject to this restriction.



There are other factors that may affect your eligibility for the deduction.  The deduction for income from a nonservice business (a manufacturing business, for example) is subject to limits based on the entity’s total wages and tangible property once your taxable income reaches $415,000 (married filing jointly).  In addition, a limit based on your taxable income may further reduce your deduction.


Given the complexity of the new deduction, it’s best to get a head start on determining how it will affect your tax situation in 2018.  We would love to schedule a planning meeting with you to discuss this new provision, along with other tax law changes that could impact you this year.  Please call our office to schedule that meeting.


Understanding The Differences Between Health Care Accounts

Posted by Admin Posted on Oct 30 2017



Health care costs continue to be in the news and on everyone’s mind.  As a result, tax-friendly ways to pay for these expenses are very much in play for many people.  The three primary players, so to speak, are Health Savings Accounts (HSAs), Flexible Spending Arrangements (FSAs), and Health Reimbursement Arrangements (HRAs).

                All provide opportunities for tax-advantaged funding of health care expenses.  But what’s the difference between these three types of accounts?  Here’s an overview of each one:


  • HSAs.  If you’re covered by a qualified high-deductible health plan (HDHP), you can contribute pretax income to an employer-sponsored HSA– or make deductible contributions to an HSA you set up yourself – up to $3,400 for self-only coverage, and $6,750 for family coverage for 2017.  Plus, if you’re age 55 or older, you may contribute an additional $1,000.

You own the account, which can bear interest or be invested, growing tax-deferred similar to an IRA.  Withdrawals for qualified medical expenses are tax-free, and you can carry over a balance from year to year.


  • FSAs.  Regardless of whether you have an HDHP, you can redirect pretax income to an employer-sponsored FSA up to an employer-determined limit – not to exceed $2,600 in 2017.  The plan pays or reimburses you for qualified medical expenses.

What you don’t use by the plan year’s end, you generally lost – though your plan might allow you to roll over up to $500 to the next year.  Or it might give you a 2 ½-month grace period to incur expenses to use up the previous year’s contribution.  If you have an HSA, your FSA is limited to funding certain “permitted” expenses.


  • HRAs.  An HRA is an employer-sponsored arrangement that reimburses you for medical expenses.  Unlike an HSA, no HDHP is required.  Unlike an FSA, any unused portion typically can be carried forward to the next year.  And there’s no government-set limit on HRA contributions.  But only your employer can contribute to an HRA; employees aren’t allowed to contribute. 

  Please bear in mind that these plans could be affected by health care or tax legislation.  Contact our firm for the latest information, as well as to discuss these and other ways to save taxes in relation to your health care expenses.



5 Keys To Disaster Planning For Individuals

Posted by Admin Posted on Oct 27 2017


Disaster planning is usually associated with businesses.  But individuals need to prepare for worst-case scenarios, as well.  Unfortunately, the topic can seem a little overwhelming.  To help simplify matters, here are five keys to disaster planning that everyone should consider:


  1. 1. Insurance.  Start with your homeowners’ coverage.  Make sure your policy covers flood, wind, and other damage possible in your region and that its dollar amount is adequate to cover replacement costs.  Also review your life and disability insurance.

  2. 2. Asset documentation.  Create a list of your bank accounts, titles, deeds, mortgages, home equity loans, investments and tax records.  Inventory physical assets not only in writing (including brand names and model and serial numbers), but also by photographing or videoing them.

  3. 3. Document storage.  Keep copies of financial and personal documents somewhere other than your home, such as a safe deposit box or the distant home of a trusted friend or relative.  Also consider “cloud computing”-storing digital files with a secure Web-based provider.

  4. 4. Cash.  You may not receive insurance money right away.  A good rule of thumb is to set aside three to six months’ worth of living expenses in a savings or money market account.  Also maintain a cash reserve in your home in a durable, fireproof safe.


5. An emergency plan.  Establish a family emergency plan that includes evacuation routes, methods of getting in tough and a safe place to meet.  Because a disaster might require you to stay in your home, stock a supply kit with water, nonperishable food, batteries, and a first aid kit.


Foreign Bank Account Reports (FBARs)

Posted by Admin Posted on Oct 27 2017


If you have a financial interest in or signature authority over a foreign financial account exceeding certain thresholds, the Bank Secrecy Act may require you to report the account yearly to the Financial Crimes Enforcement Network (FinCEN) by filing FinCEN Report 114, Report of Foreign Bank and Financial Accounts (FBAR).


Specifically, FinCEN Report 114 is required to be filed if during the year-


  1. You had a financial interest in or signature authority over at least one foreign financial account (which can be anything from a securities, brokerage, mutual fund, savings, demand, checking, deposit, or time deposit account to a commodity futures or options, and a whole life insurance or cash value annuity polity) and;

  2. The aggregate value of all such foreign financial accounts exceeded $10,000 at any time during the year.


The FBAR filing deadline is April 15th, with a six-month extension to October 15th allowed.  Earlier this year, FinCEN announced that it will grant filers an automatic extension to October 15th each year- a specific request for extension isn’t required.  The penalty for failing to file Form 114 is substantial- up to $10,000 per violation (or the greater of $100,000 or 50% of the balance in an account if the failure is willful)


FinCEN Report 114 must be filed electronically.  To file it yourself, go to Once there, click on “Become a BSA E-Filer” and then click on “File an Individual FBAR: on the next page and complete the form.


Please give us a call if you have any questions or would like us to prepare and file FinCEN Report 114 for you.


Sharing Economy Tax Implications

Posted by Admin Posted on Oct 25 2017


As you know, the so-called sharing economy uses the Internet and other technology advances to facilitate a variety of transactions, such as car sharing (e.g., Uber and Lyft), vacation property rentals (e.g., Airbnb), apartment rentals, freelance work, and crowdfunding.  Since the sharing economy is now a big deal, the tax issues have become a big deal too.  However, indications are that sharing economy participants need help with those tax issues.  According to a recent survey, 34% of those who reported earning income in the sharing economy did not know they needed to make quarterly estimated tax payments, 36% did not understand what records they should keep for tax purposes, 43% did not set aside money to meet their tax obligations or know how much they owed, and 69% did not receive any tax information from the sharing economy platform they used to earn their income.


Income and Deductions


If you receive income from a sharing economy activity, it is generally taxable-even if the activity is a sideline and even if you are paid in cash and do not receive a Form 1099-MISC (Miscellaneous Income), 1099-K (Payment Card and Third Party Network Transactions), W-2 (Wage and Tax Statement), or other information return that reports income to you and to the IRS.  Those with positive taxable income from sharing economy activities may also face state and local income taxes.  On a positive note, some or all of your sharing economy-related expenses may be deductible as business expenses.


Home Sharing


Special tax rules apply if you rent a property that you also use as your residence during the year.  Rental income must usually be reported in full.  Most expenses must be divided between personal and rental usage, and deduction limits may apply.  Also, those who rent out their properties may owe state and local occupancy taxes, room taxes, or hotel taxes.


Estimated Tax Payments


If you have profits from the sharing economy, you may need to make quarterly estimated tax payments to cover the additional taxable income and related self-employment tax.  Estimated tax payments for the 2017 tax year are due on 4/18/17, 6/15/17, 9/15/17, and 1/15/18.


Tax Penalties


Those who participate in the sharing economy and fail to meet their federal tax filing and payment obligations can face a host of potentially expensive penalties, such as the penalty for failure to make adequate estimated tax payments, the late payment penalty, the failure-to-file penalty, accuracy-related penalties for faulty tax return filings, and more.


Business Entity Considerations


When a sharing economy activity become significant, you may want to establish a liability-limiting entity to operate the activity.  Different entities have different tax implications.




We can assist you with all these sharing-economy related tax issues. Please contact us if you have any questions or want more information.  We are here to help.


Tax Credits for Residential Solar Energy Equipment and Electric Vehicles

Posted by Admin Posted on Oct 25 2017

Some "green energy" tax breaks for individual taxpayers expired at the end of 2016, while others are still on the table for 2017 and beyond.


Residential Solar Energy Credit


You can still claim a federal incomes tax credit equal to 30% of expenditures to buy and install qualifying energy-saving solar equipment for your home.  Since this gear is expensive, it can generate big credits.  There are no income limits.  The 30% credit is available through 2019.  In 2020, the credit rate drops to 26% and then to 22% in 2021.  After that, the credit is scheduled to expire.  The credit can be used to reduce your regular federal income tax bill and any Alternative Minimum Tax (AMT) bill.


Qualified Expenditures.  The credit equals 30% of qualified expenditures (including costs for site preparation, assembly, installation, piping, and wiring) for the following:


  • Qualified solar electricity generating equipment for your U.S. residence, including vacation home.

  • Qualified solar water heating equipment for your U.S. residence, including your vacation home.  To qualify for the credit, at least half of the energy used to heat water for the property must be generated by the solar water heating equipment.  You cannot claim the credit for equipment used to heat a swimming pool or hot tub.


State and Local Incentives May Be Available.  You might also be eligible for state and local tax benefits, subsidized state and local financing deals, and utility company rebates.


Expanded 30% Credit Opportunities for 2016 Installations


For 2017 and beyond, the 30% credit is limited to expenditures for qualified solar electricity generating equipment and solar water heating equipment.  For 2016 instillations, you can claim a 30% credit for the following expenditures:


  • Qualified wind energy equipment for U.S. residence, including a vacation home.

  • Qualified geothermal heat pump equipment for a U.S. residence, including a vacation home.

  • Qualified fuel cell electricity generating equipment for a U.S. principal residence.  The maximum credit is limited to $500 for each half kilowatt of fuel cell capacity.


   $500 Credit for More Modest 2016 Installations


A much more modest residential energy credit also expired at the end of 2016.  It had a lifetime maximum of $500 and covered qualified expenditures for advanced main air circulating fans; natural gas, propane, and oil furnaces and hot water boilers; electric heat pumps; electric heat pump water heaters; biomass fuel stoves; high-efficiency central air conditioners; natural gas, propane, and oil water heaters; energy-efficient windows, skylights, and doors; energy-efficient roofing products; and energy-efficient insulation.


Credit for New Plug-in Electric Vehicles


Another “green energy” break that is still on the books for 2017 and beyond is the federal income tax credit for qualifying new (not used) plug-in vehicles.  The credit can be worth up to $7,500.


Eligibility Rules.  To be eligible for the credit, a vehicle must draw propulsion from a battery with at least four kilowatt hours of capacity; use an external source of energy to recharge battery (thus the term plug-in); be used primarily on public streets, roads, and highways; have four wheels; meet applicable federal emission and clean air standards; and be used primarily in the U.S.  It can be either fully electric or a plug-in electric/gasoline hybrid.  Finally, the vehicle must be new and be purchased rather than leased.  If you lease an eligible vehicle, the credit belongs to the manufacturer, which may be factored into a lower lease payment.


The credit equals $2,500 for a vehicle powered by a four kilowatt-hour battery, with an additional $417 for each kilowatt hour of battery capacity beyond four hours.  The maximum credit is $7,500.  Buyers of qualifying vehicles can rely on the manufacturer’s or distributor’s certification of the allowable credit amount.  The credit can be used to offset your regular federal income tax liability and any AMT that you owe.  There are no income restrictions.


State Incentives May be Available.  You may be eligible for state income tax credits, rebates, or reduced vehicle taxes and registration fees for buying or leasing qualifying electric vehicles.


Depending on your situation, these “green-energy” credits could be lucrative.  Contact us if you have questions or want more information.