The Internal Revenue Service offered information Friday about changes from the Tax Cuts and Jobs Act on the rules for moving expenses, vehicle expenses and unreimbursed employee expenses, along with higher depreciation limits for some vehicles.
The TCJA, the tax overhaul that Congress passed last December, suspends the deduction for moving expenses for tax years beginning after Dec. 31, 2017, until Jan. 1, 2026. During that suspension period, the IRS won’t allow deductions for use of an automobile as part of a move using the mileage rate listed in Notice 2018-03. However, the suspension doesn’t apply to members of the armed forces on active duty who move because of a military order related to a permanent change of station.
Unreimbursed employee expense deduction
The new tax law also suspends all miscellaneous itemized deductions subject to the 2 percent of adjusted gross income floor. The change has an impact on expenses such as uniforms, union dues and the deduction for business-related meals, travel and entertainment that the employer isn’t reimbursing.
That means the business standard mileage rate listed in Notice 2018-03, which was issued before the tax overhaul passed, can’t be used to claim an itemized deduction for unreimbursed employee travel expenses in taxable years starting after Dec. 31, 2017, and before Jan. 1, 2026. The IRS issued revised guidance on the matter Friday in Notice 2018-42. It supersedes the earlier notice and includes info about the update to the standard mileage rates, along with details about the suspension of the deduction for operating a vehicle for moving purposes.
2018 standard mileage rates
In Notice 2018-03, which the IRS issued earlier this year, the standard mileage rates for use of a car, van, pickup or panel truck for 2018 remain:
• 54.5 cents for every mile of business travel driven, a 1 cent increase from 2017.
• 18 cents per mile driven for medical purposes, a 1 cent increase from 2017.
• 14 cents per mile driven in service of charitable organizations, which is set by statute and remains unchanged.
The standard mileage rate for business comes from a yearly study of fixed and variable costs of operating an automobile, while the rate for medical purposes depends on variable costs.
Taxpayers can opt to calculate the actual costs of using their vehicle instead of using the standard mileage rates.
A taxpayer can’t use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System or after claiming a Section 179 deduction for that vehicle, however. On top of that, the business standard mileage rate can’t be used for more than four vehicles simultaneously.
Increased depreciation limits
The new tax law ups the depreciation limitations for passenger automobiles that have been placed in service after Dec. 31, 2017, for purposes of calculating the allowance under a fixed and variable rate plan. The maximum standard automobile cost can’t exceed $50,000 for passenger automobiles, trucks and vans that have been placed in service after Dec. 31, 2017. Prior to the change, the maximum standard automobile cost was $27,300 for passenger automobiles and $31,000 for trucks and vans.
Thomson Reuters released a report Tuesday examining how states are imposing corporate income taxes on out-of-state e-commerce sites.
The report comes amid speculation over a high-profile case that the Supreme Court is expected to decide by June that could change the way states collect taxes from e-commerce merchants, potentially overturning the landmark Quill decision from 1992 that imposed a physical presence test on state sales taxes.
Thomson Reuters’ Checkpoint Catalyst editorial team sent a detailed survey to state tax authorities asking for information about how they approach various e-commerce technologies, including cloud computing, digital products, and others. The second annual Checkpoint Catalyst special report, State Corporate Income Tax: E-Commerce Study 2018, examined whether a state can levy taxes on a seller whose only contact with the state is engaging in purely digital transactions and, if so, how the state obtains the receipts.
“This year’s results continue to reflect a broad range of state responses to questions involving corporate income tax nexus and apportionment for pure e-commerce,” said Salim Sunderji, managing director, Checkpoint, with the Thomson Reuters Tax & Accounting business, in a statement Tuesday. “Tax and accounting professionals whose clients engage in these types of transactions will benefit from the high-level overview.”
Thomson Reuters released a separate Checkpoint special report Monday on the impact of the Tax Cuts and Jobs Act on disclosures of public companies’ financial reporting and disclosure obligations. The report, Effects of the Tax Cuts and Jobs Act on Public Company Disclosures, discusses recent SEC staff guidance, including the accounting obligations of SEC registrants when conducting an assessment for some of the tax effects of the TCJA and the disclosures that registrants are expected to offer about the material financial reporting impacts of the new tax law for which the accounting is incomplete.
For another report released this week, Thomson Reuters commissioned Celent to conduct independent market research on integrated governance, risk and compliance. The findings appear in the report, Achieving Integrated GRC in an Interconnected Digital Age, which examines technologies such as big data, artificial intelligence, machine learning and blockchain. The report indicates risk operations continue to be held back by inflexible technology.
The Internal Revenue Service has issued a revenue procedure providing the 2019 inflation-adjusted amounts for health savings accounts.
In Revenue Procedure 2018-30, the IRS said the annual limitation on deductions for an individual with self -only coverage under a high deductible health plan is $3,500 for calendar year 2019. Also for next year, the annual limitation on deductions for an individual with family coverage under a high deductible health plan is $7,000.
A “high deductible health plan” is defined as a health plan with an annual deductible of no less than $1,350 for self-only coverage or $2,700 for family coverage, and the annual out-of-pocket expenses (deductibles, co- payments, and other amounts, but not premiums) don’t exceed $6,750 for self-only coverage or $13,500 for family coverage for 2019.
Earlier this year, the IRS changed the family coverage contribution limit for 2018 for HSAs from $6,900 to $6,850 in response to the Tax Cuts and Jobs Act, but then reversed course and raised it again to $6,900.
The Treasury Department has been directed to remove two existing regulations for every new one it issues going forward. While these moves are intended to reduce the volume of regulations and to clarify the new law, tax and regulatory executives at businesses of varied sizes are still looking for clarification across many key areas, particularly when it comes to the ramifications of the Tax Cuts and Jobs Act.
While the size, entity type and geographic footprint of a business yields many company-specific questions and tax scenarios, what is known about the implementation of the new tax law today does permit the identification of some broad areas of observation and discussion. Here are several specific examples:
When the Tax Cuts and Jobs Act became law, most of the discussion centered on individual and domestic business tax reform changes. However, several of the international tax provisions in this law may have a significant impact on taxpayers. A new category of income, “global intangible low-taxed income,” or GILTI, will require businesses to recognize a percentage of previously deferred foreign earnings via a minimum tax on a controlled foreign corporation’s income, offset by a 10 percent reduction roughly equal to the adjusted tax basis of the CFC’s depreciable tangible personal property. While conformity laws are expected in some states, not all states may conform to the federal GILTI provisions.
To prepare, taxpayers should analyze their existing foreign structures to ensure they have appropriate expense allocations and add GILTI implications into their tax rate forecasts and provisions. Similarly, as some of the offsets of this provision are only available to C corporations, taxpayers should examine their overall tax position to determine which alternative tax strategies could be required to mitigate the GILTI impact.
2. Section 162(m)
This section of the Tax Code prohibits publicly held corporations from deducting more than $1 million per year in compensation paid to each of certain covered employees. With an eye toward reining in performance-based compensation exceptions, the proposed revisions to this section stem from public outcry in the late 2000s over exorbitant executive bonus structures. Questions remain as to what might be grandfathered in from previous law and what might not. “There was always an exception for performance-based compensation,” said Ronnie Brown, vice president of tax at National Vision Inc., who teaches at Georgia State University’s J. Mack Robinson College of Business. “Those rules have been tightened a bit. Companies may look at their compensation structures more and make sure they look at the 162(m) regime.”
3. Transition taxes
To offset potential revenue from transitioning to a quasi-territorial tax regime, a one-time deferred income inclusion on previously deferred and untaxed income will be subject to a mandatory transition tax in the United States at either an 8 percent tax rate for illiquid assets or a 15.5 percent tax rate for earnings attributable to liquid assets measured at Nov. 2, 2017, or Dec. 31, 2017, whichever is higher. New sourcing rules also change where activities are considered taxed. The law changes the current worldwide taxation system (with some deferrals) to a participation exemption (via a dividend received deduction) with current taxation of some types of income. This tax will affect U.S. persons who own 10 percent of the vote or value of a specified foreign corporation. Therefore, this provision could impact not just U.S. corporations owning foreign subsidiaries, but also foreign private equity funds and their U.S. owners.
The relatively low rates of the transition tax are designed to facilitate the return of the estimated $2.5 trillion in accumulated foreign earnings – earnings that, under the higher tax rates of the prior tax law, were largely left tax-deferred in foreign subsidiaries. Early trends indicate that the law is achieving its desired impact. However, some companies may still not be able to bring this money back to the United States due to the working capital needs in their foreign operations, as well as withholding tax at the local level.
4. Section 163(j)
The deductibility of net business interest expense generally will be limited to 30 percent of adjusted taxable income. Moreover, there is no grandfather provision for loans made prior to the enactment of the law, so interest on these prior loans will also be subject to this new limitation. This may result in less borrowing by businesses with a corresponding turn to equity transactions, as not only will the interest deduction be limited but the deduction itself is not as valuable now that the corporate tax rate has been reduced to 21 percent. Additionally, the law does not address whether a consolidated group is treated as a single taxpayer in the calculation of this deduction, which requires further clarification.
5. Conformity laws
For companies operating across numerous states, new federal regulations present challenges if states do not conform with the federal provisions. The state income tax implications of the new legislation vary widely depending on states’ automatic or fixed conformity to the Internal Revenue Code and based on states’ appetite for amending their tax laws after the law’s enactment. Generally, however, the tax reform will have the effect of increasing most businesses’ effective state income tax rate due to the broadened federal income tax base without a corresponding reduction in the state tax rate. For example, Georgia recently enacted HB 918, which resulted in GILTI income being subject to tax despite Georgia’s historical stance of not subjecting foreign dividend income to taxation.
Shortly after taking office last January, the Trump administration set in motion a process requiring the Treasury to identify and reduce tax regulatory burdens. The Treasury has responded by proposing the removal of hundreds of burdensome or obsolete regulations. Under the requirement to remove two old regulations for every new one, the Treasury now can issue regulations to answer the many questions and provide the clarity that corporations will need as they plan for and comply with the provisions of the most significant tax legislation in the last 30 years.
The Internal Revenue Service released guidance Friday to provide relief for some small employers that want to claim the Small Business Health Care Tax Credit for 2017 and later years.
The Small Business Health Care Tax Credit is supposed to help small employers that offer health insurance to employees under the Affordable Care Act. The businesses typically have to provide employees with a qualified health plan from a Small Business Health Options Program, or SHOP, Marketplace to qualify for the tax credit. Small businesses can only claim the credit for two years in a row.
The relief announced Friday by the IRS helps employers who first claim the credit for all or part of 2016 or a later taxable year for coverage offered through a SHOP Marketplace, but who don’t have SHOP Marketplace plans available that they can offer to employees for all or part of the rest of the credit period because the county where the employer is located doesn’t have any SHOP Marketplace plans available.
In many parts of the country, insurance companies have elected to drop their Obamacare policies, either because they don’t see the business as profitable or they are worried about the lack of support for the ACA in the Trump administration.
The relief provided by the IRS will enable small employers to claim the credit for health insurance coverage provided outside a SHOP Marketplace for the rest of the credit period if that coverage would have qualified under the rules that applied before Jan. 1, 2014.
In Notice 2018-27, the IRS is offering guidance about figuring the credit under these circumstances. The notice does not affect previous transition relief for the credit that was separately provided for 2014, 2015, and 2016.
For more information on whether a county had or has coverage available through a SHOP Marketplace, check out the “Who Gets the Credit” section of the Questions and Answers about the Small Business Health Care Tax Credit page on the IRS website.
Source: accountingtoday.com Written by: Michael Cohn