Newsletter Topics

CAPITAL LEASE v TRUE LEASE

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There are two kind of leases.

 

Let’s say you “lease” a copier for three years. Sales tax is paid (per Florida lease rules) and at the end of the three years you can buy it for one dollar. That is called a CAPITAL LEASE. It is really just another form of financing. In that case you set up the ASSET and LIABILITY using an imputed interest rate. You bought it so you can depreciate it.

 

The other lease is the one mostly used on vehicles. You pay a monthly “lease” (including Florida sales tax). You have agreed in advance to the option to purchase the vehicle at an agreed upon fair market value at the end of the lease. That is a “TRUE LEASE”. You don’t really have ownership until you purchase it.  In this case you can expense the entire monthly lease payment.  You don't own it.

Mileage Deduction 2020

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The 2020 standard mileage rate for business driving falls to 57.5¢ a mile.

The mileage allowance for medical travel and military moves declines to 17¢ a mile

in 2020. But the charitable driving rate stays put at 14¢ a mile. It’s fixed by law.

Why does the 1040 reflect a different figure than the K-1?

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Sometimes the loss on the K-1 is not totally deducted on the 1040 due to basis limitation…. And the unused basis limitation is carried forward in those computations. 

 

i.e.   You put $10k into new business.

               

The business has a loss of $12k on the first K-1

 

                BUT the 1040 will only show up to $10k being deducted (can only deduct up to the skin you have in the game).

               

                Year 2 we have gain of $50k and do not take any distributions.

 

                $50k is on the K-1 but the 1040 now reflects $48k ($50k profit this year plus we now have basis so can deduct prior year unused loss)

               

                Distributions would reduce the basis.  If the basis is reduced to below zero due to distributions,

                those distribuitons are considered to be a taxable dividendD

                      

GILTI - be careful - international investments

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You may be subject to GILTI if:

  • U.S. Shareholder – United States Person (citizens, residents, domestic entities) owning at least 10%, directly or indirectly, of the foreign corporation’s voting stock or value (Prior toTCJA only consideration was voting stock).
  • Controlled Foreign Corporation (CFC) – any foreign corporation of which more than 50% of the vote or value is owned by U.S. shareholders on any day during a given year.
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  • GILTI - Global Intangible Low Taxed Income (think it is mis-named as it implies INTANGIBLES... but it is way more than that).....  if you have any international investments (not in United States) be sure you understand whether you are required to deal with this.