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NOL (Net Operating Loss) Changes for 2018

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A net operating loss (NOL) is when business losses exceed income.

Prior toJanuary 1, 2018, NOLs were able to offset 100% of taxable income. They were allowed to be carried back two years and carried forward for twenty years.  You could affirmatively elect with a timely filed return to NOT carryback (the default) and instead carry forward only (permanent, could not change it for that year).

Under the new law effective in 2018, an NOL can offset only 80% of taxable income in any given tax year. NOLs can be carried forward only. The 20-year carryforward period is changed to an indefinite carryforward period NOLs created in tax years beginning before January 1, 2018 are subject to the old rules. Only NOLs generated in tax years beginning after December 31, 2017 are subject to the new rules.

2018 Can Unreimbursed Employee Expenses be Deducted?

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Can unreimbursed employee expenses be deducted?

            No, not for a W2 employee. Any of the 2017 expenses and years prior that were subject to a 2% of AGI limitation are no longer deductible.

            Yes, for independent contractors.

            Yes, for Statutory employees.

The best example of a Statutory Employee is an outside insurance agent.

Statutory Employees | Internal Revenue Service

https://www.irs.gov/.../statutory-employees

Apr 23, 2018 · Statutory Employees. An individual who works at home on materials or goods that you supply and that must be returned to you or to a person you name, if you also furnish specifications for the work to be done. A full-time traveling or city salesperson who works on your behalf and turns in orders to you from wholesalers, retailers, contractors,...

I have never seen a mortgage agent classified as a statutory employee.

Now, what if you are both a W2 employee AND an independent contractor?

            No for employee expenses.

            Yes for independent contractor expenses.

BUT we are talking about the same business field. It would be fair if unreimbursed expenses should are pro-rated……

i.e. W2 $80k       Form 1099 Independent $5k

Expenses $4k

$80 + $5 = $85k

$4k/85k = 4.7%

4.7% x $4k expenses = $188 Sch C expenses to reduce the $5k F1099.

 

2018 Unreimbursed Mileage - Unreimbursed expenses for W2 Employee

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Assuming you are a W2 employee (not an independent contractor)…..

There no longer is any deduction for unreimbursed employee expenses… GONE!

That means, unfortunately, you have legitimate expenses you cannot deduct.

In an ‘UNACCOUNTABLE’ plan (your allowance), it is suppose to be added to your W2 and taxed for both FICA and Federal Withholding.

It is an unfortunate part of the new tax law.

You know the fees the brokers charge?  Also no longer deductible!

Anything that went on a Schedule A Itemized Deductions that were subject to the 2% of AGI limitation are ALL GONE.

Assuming the employer is doing it correctly (adding it to your W2), they also are paying FICA (employer matching).

A better cheaper plan for all concerned is to have.....

An ‘ACCOUNTABLE’ plan……

You give them an expense report showing documented business mileage.  They reimburse that amount.

It does not go on your W2, no employer matching, etc.  They still get the deduction for what you are paid but you are not taxed on it.

If you are an independent contractor, forget everything I’ve said.  I’ll have different answer.

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.