Our Most Recent Blog Posts

Accountable vs Unaccountable Vehicle Plans

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Two kinds of vehicle plans

ACCOUNTABLE PLAN

Employee hands employer expense report showing X business miles. Employer reimburses X for that amount up to the approved business mileage rate per mile for that year. Done. Employer gets the deduction. Employee is not taxed.

UNACCOUNTABLE PLAN

Employee receives X per month with no accounting to the employer. Employee is taxed on X for both FICA and Income Tax. The legitimate documented business miles is a deduction for the employee in 2017 and prior years (maybe, depended on a lot of things on his/her personal return as to whether they actually received a tax benefit).

BUT new tax law for 2018 does not allow a W2 employee to deduct anything for unreimbursed employee expenses. So, the employee is taxed on the per diem, period. Employer is deducting the per diem because it is a part of the W2. Employee has no deduction and actually pays tax on otherwise legitimate business deduction.

BEST METHOD

ACCOUNTABLE PLAN IS BEST. Employee is not taxed. Employer deducts the ACTUAL expenses with no payroll reporting.

SUB S OWNERSHIP CHANGE

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If a shareholder terminates his or her interest in an S corporation during the tax year, the S corporation, with the consent of all affected shareholders (including those whose interest is terminated), may elect to allocate income and expenses, etc., as if the corporation’s tax year consisted of 2 separate tax years, the first of which ends on the date of the shareholders termination.

To make the election, the corporation MUST attach a statement to a timely filed original or amended Form 1120S for the tax year for which the election is made. In the statement the corporation must state that it is electing under section 1377(a)(2) and Regulations section 1.1377-1(b) to treat the tax year as if it consisted of 2 separate tax years. The statement must also explain how the shareholder’s entire interest was terminated (e.g., sale or gift), and state that the corporation and each affected shareholder consent to the corporation making the election. A single statement may be filed for all terminating elections made for the tax year. If the election is made, write “Section 1377(a)(2) Election Made” at the top of each affected shareholders Schedule K-1.  If not filed on the original due date, an extension must be filed or else the actual filing will not be considerd timely.

2018 20% Pass-through Deduction

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MUCH CONFUSION NOW!
In general the new tax law allows self-employed and owners of pass-through entities (partnerships and S Corps) to deduct 20% of "qualified business income".
 
The law is COMPLEX with limitations, exceptions and undefined terms.
 
Needs to define "qualified business income" more clearly.  Specified service entities are subject to high income limitations.  There is an issue wit tiered entities and whether or not Schedule E rental income is "qualified business income".
 
Expect guidance (hopefully clear guidance) late this year 2018.
 
 

Canadian Pensions

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U.S. social security benefits paid to a resident of Canada are taxed in Canada as if they were benefits under the Canada Pension Plan, except that 15% of the amount of the benefit is exempt from Canadian tax.
 
According to the IRS, special tax treatment applies to payments received from the Canadian
pension, the Quebec pension plan, and the Old Age Security plan. If the recipient is a resident of the United States, the benefits are taxable only in the United States, treated as US social security benefits for US tax purposes