Tax Cuts and Jobs Act: Key provisions affecting businesses

The recently passed tax reform bill, commonly referred to as the “Tax Cuts and Jobs Act” (TCJA), is the most expansive federal tax legislation since 1986. It includes a multitude of provisions that will have a major impact on businesses.

Here’s a look at some of the most significant changes. They generally apply to tax years beginning after December 31, 2017, except where noted.

• Replacement of graduated corporate tax rates ranging from 15% to 35% with a flat corporate rate of 21%
• Repeal of the 20% corporate alternative minimum tax (AMT)
• New 20% qualified business income deduction for owners of flow-through entities (such as partnerships, limited liability companies and S corporations) and sole proprietorships — through 2025
• Doubling of bonus depreciation to 100% and expansion of qualified assets to include used assets — effective for assets acquired and placed in service after September 27, 2017, and before January 1, 2023
• Doubling of the Section 179 expensing limit to $1 million and an increase of the expensing phaseout threshold to $2.5 million
• Other enhancements to depreciation-related deductions
• New disallowance of deductions for net interest expense in excess of 30% of the business’s adjusted taxable income (exceptions apply)
• New limits on net operating loss (NOL) deductions
• Elimination of the Section 199 deduction, also commonly referred to as the domestic production activities deduction or manufacturers’ deduction — effective for tax years beginning after December 31, 2017, for noncorporate taxpayers and for tax years beginning after December 31, 2018, for C corporation taxpayers
• New rule limiting like-kind exchanges to real property that is not held primarily for sale
• New tax credit for employer-paid family and medical leave — through 2019
• New limitations on excessive employee compensation
• New limitations on deductions for employee fringe benefits, such as entertainment and, in certain circumstances, meals and transportation

Keep in mind that additional rules and limits apply to what we’ve covered here, and there are other TCJA provisions that may affect your business. Contact us for more details and to discuss what your business needs to do in light of these changes.

© 2017

How Olympic Medals are Taxed

Olympians are definitely stuck contending with tax bills resulting from their victories. Most prizes and awards are taxable whether you win $100 at a fishing competition or a dishwasher worth $2,000 on a gameshow. The Olympic committee awards $25,000 to gold medalists, $15,000 to silver, and $10,000 for bronze but what makes Olympic medals an interesting phenomenon is that the winners must pay taxes not just on those cash awards but the actual value of the medal itself.

The gold medals are made mostly of silver with gold plating and worth between $500-600 based on current commodity prices and the fact that Rio's medals are some of the largest and heaviest Olympic medals ever crafted. Silver medals are worth about $300 and because the bronze medals are made mostly from copper and only worth about $4, their value isn't taxed.

The US is one of the few countries that does not lend financial support to Olympians so the athletes must look for endorsement deals, sponsoring from local businesses, stipends from schools or the Olympic Committee, or a day job. Because many Olympians struggle to make it to the competition just to find themselves facing tax burdens as a result of winning, a bill was passed by the Senate to make Olympic and Paralympics medals and prize money federally tax-exempt and is currently being considered by the House.

Unless the bill is passed, Olympic medals and prizes are not tax-exempt.

Even if the Olympic medalists donate their prize money and/or medals to qualified charities, they can take an itemized deduction but it doesn't exempt them from being taxed on the money in the first place. That exclusion only applies to specific educational, artistic, literary, civic, and scientific awards such as donating the award money for winning a Nobel Prize in chemistry.

Healthcare Tax Issues on the Rise

There are a number of tax issues surrounding healthcare that have recently taken center stage. The state of Colorado has proposed, and decided to vote on a single payer healthcare system, which would make it the first state to provide free healthcare for residents. This would be a huge move for the state, which under these provisions would allow residents to choose their healthcare providers, with all expenses paid by the state. Although this is a bold move, a 10 percent payroll tax raise has also introduced to offset the $25 billion a year cost of implementing this program. To pay for state coverage, employers would incur a 6.67 percent payroll tax fee, with employees paying 3.33 percent.

healthcare coverage in coloradoThis comes on the heels of the individual mandates for those who don’t currently carry health insurance. The upcoming tax year will affect a number of individuals who chose not to purchase health insurance will incur an individual shared responsibility payment. This will be an item on the federal tax return for the year in which coverage was not obtained. The fees for this penalty are calculated in two different ways:

  • It will be 2.5% of the household income; or
  • $695 per person, with $347.50 for each child under 18

To pay these taxes under the percentage method, the part of the household income above the yearly tax filing threshold will be counted. The people who will be affected under the per-person method are the individuals who do not currently carry health insurance in the household.

For those individuals who have had coverage for some part of the year, the fees associated will be 1/12 of the amount for each month the insurance has lapsed. Fees are deducted from the federal tax refund, or fees will be paid with the return for the year.

The tax penalties for healthcare coverage will continue to rise with each passing year as an incentive for individuals to sign up for healthcare. Consulting with a personal tax accountant or tax accounting service can help with your healthcare taxes for the current and upcoming year.


Incorrect Tax Forms Cause Major Headaches for 800,000 Americans

One of the biggest changes facing tax filers this year is proving that they have health care coverage due to the requirements of the Affordable Care Act (AFA). Additionally, filers must also prove that their income qualifies them for subsidy payments, which they have already been receiving. Unfortunately, some serious errors by government officials have just made this process even harder. Over 800,000 filers in 37 states, who thought they were prepared to file, have been notified that the government sent them incorrect paperwork. Even worse, at least 50,000 people who have already filed their taxes using the wrong documentation will have to file amend returns once they receive the corrected form.

The Problem

1095 form errorThe error only affects individuals and families who obtained health care coverage through the federal exchange and received subsidies. Subsidies are granted by the government to help individuals under certain income limits pay for their health insurance premiums. The 2014 subsidies were based on the projected household income at the time of enrollment. The government recent mailed out 1095-A forms, which report the average benchmark premium in an individual’s area and the amount of subsidy that they qualified for. The premium amount is how the government determines the amount of premium tax credit filers are eligible to receive. A blog post on the website stated that the initial 1095-A forms contained 2015 premium benchmarks instead of the ones for 2014. Speaking on behalf of the Centers for Medicare and Medicaid Services, Andrew M. Slavitt said that they do not know how or why the mistake occurred. Officials estimate that individuals will receive a corrected Form 1095-A in the first week of March.

Unfortunately, it wasn’t just the federal health care exchange that had reporting issues. James F. Scullary, a spokesman for the California healthcare exchange, said that they were in the process of sending out over 100,000 corrected forms to households in that state.

The Impact

Affected households were notified via email and phone calls as soon as the error was detected. Filers can also login in to their accounts, where they will see a message indicating whether they were affected. Additionally, they can call the federal customer service center at 800-318-2596. The 50,000 tax filers who have already filed their income tax returns will receive special instructions from the Treasury Department as to how they can file amended returns.

These errors are particularly difficult for lower-income families who received subsidies for their heath care premiums. Many of these families rely on their annual tax refunds to pay critical household bills. Waiting to file taxes until a new form is mailed out places them in a tough financial position.

Healthcare Enrollment Extended

In related news, millions of households who are still uninsured are also getting surprises when they file their taxes. Steep penalties are subtracted from a household’s tax refund if they cannot prove that they had health insurance coverage for 2014. The penalty is $95 per adult or 1 percent of income. In 2015, the fees rise to $325 per adult or 2 percent of income. To help mitigate these penalties, President Obama announced a special enrollment period for healthcare that runs from March 15th to April 30th. This allows uninsured individuals to sign up for healthcare on and not have to pay penalties for 2015. These individuals are still responsible for paying the penalties for not having insurance during the 2014 year. Only taxpayers who live in states with a Federally-facilitated Marketplace (FFM) are eligible to take advantage of this special enrollment period.

Tom Brady Avoids Tax Penalty Associated with Giving Chevy to Malcolm Butler

When Chevrolet prepared to give a brand new 2015 Chevy Colorado to New England Patriots quarterback Tom Brady for being Super Bowl XLIX MVP, Brady did the honorable thing and said he would give it to cornerback Malcolm Butler instead. After all, it was Butler who intercepted a pass on the goal line to secure the Patriots' Super Bowl win. However, after considering the tax consequences of Brady giving away the vehicle himself, Chevy decided to give it directly to Butler instead, thus shifting the tax consequences to him.

Gift Tax PenaltyYou see, the IRS considers vehicles a taxable prize under the Internal Revenue Code, section 74. If Brady had received the vehicle and then given it to Butler, Brady would have had to pay $13,500 in income taxes just for receiving it (based on his 39.6 percent tax bracket). Brady would then have had to pay an additional $8,000 to cover the gift tax that the IRS charges when someone gives away items of value. The IRS allows individuals to give away money or property valued at $14,000 each year. If the item or monetary amount is higher than this and the giver must pay it. Now granted, money isn’t a problem for Tom Brady. Taxes in this case, however, would have been almost as much as a new vehicle. Since a new Chevy Colorado only costs $34,000, it begs the question of whether it’s worth it to go through the hassle of dealing with all of the IRS regulations related to gifting one. By giving the vehicle directly to Butler, the gift tax penalty was eliminated for Brady. Additionally, Butler is now the one who must pay income taxes on the vehicle.

It’s not the first time that this issue has arisen for Brady, a Super Bowl veteran. He also gave away the car he received for being the Super Bowl XXXVIII MVP to his high school, which raffled it off to raise money.

This story highlights the serious tax consequences that come with receiving a free gift, especially one valued at $35,000 like the Colorado in this story. While the average American won’t win a car, they do often give relatives property or money for down payments. This means that they are subject to the IRS’s gift tax and income tax regulations. However, there are ways to mitigate the tax implications of giving away high-value property or amounts. Those considering gifting large amounts should talk with a tax professional who can advise you on how to do it with the least amount of tax consequences.