IRS increases standard mileage rates for 2018

The Internal Revenue Service released on Thursday the 2018 optional standard mileage rates that taxpayers and tax professionals can use to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
Beginning on Jan. 1, 2018, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be

• 54.5 cents for every mile of business travel driven, up 1 cent from the rate for 2017.
• 18 cents per mile driven for medical or moving purposes, up 1 cent from the rate for 2017.
• 14 cents per mile driven in service of charitable organizations.

The IRS noted that the business mileage rate and the medical and moving expense rates have each increased 1 cent per mile from the rates for this year. The charitable rate, however, is set by statute and stays unchanged.

The standard mileage rate for business comes from an annual study of the fixed and variable costs of operating an automobile, while the rate for medical and moving purposes is based on the variable costs.

The IRS noted that taxpayers also have the option of figuring the actual costs of using a vehicle instead of relying on the standard mileage rates.

However, taxpayers 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 they claim a Section 179 deduction for that vehicle. On top of that, the business standard mileage rate can’t be used for more than four vehicles used simultaneously. The IRS describes those and other requirements in Rev. Proc. 2010-51.

The IRS noted that taxpayers also have the option of figuring the actual costs of using a vehicle instead of relying on the standard mileage rates.
However, taxpayers 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 they claim a Section 179 deduction for that vehicle. On top of that, the business standard mileage rate can’t be used for more than four vehicles used simultaneously. The IRS describes those and other requirements in Rev. Proc. 2010-51.

Year-end planning in light of potential tax reform

Dear Client:

Congress appears poised to enact a major tax reform law that could potentially make fundamental changes in the way you and your family calculate your federal income tax bill, and the amount of federal tax you will pay. This letter is designed to help you cope with the changes Congress is hammering into shape right now—to take advantage of tax breaks that may be heading your way, and to soften the impact of any crackdowns. Keep in mind, however, that while most experts expect a major tax law to be enacted this year, it's by no means a sure bet. So keep a close eye on the news and don't swing into action until the ink is dry on the President's signature of the tax reform bill.

Lower tax rates coming. Both the tax bill passed the House of Representatives and the one before the Senate would reduce tax rates for many taxpayers, effective for the 2018 tax year. Additionally, businesses may see their tax bills cut, although the final form of the relief isn't clear right now.

The general plan of action to take advantage of lower tax rates next year would be to defer income into next year. Some possibilities follow:

• . . . If you are an employee who believes a bonus is coming your way before year end, consider asking your employer to delay payment of the bonus until next year.
• . . . If you are thinking of converting a regular IRA to a Roth IRA, postpone your move until next year. That way you'll defer income from the conversion until next year and hopefully have it taxed at lower rates.
• . . . If you run a business that renders services and operates on the cash basis, the income you earn isn't taxed until your clients or patients pay. So if you hold off on billings until next year—or until so late in the year that no payment can be received this year—you will succeed in deferring income until next year.
• . . . If your business is on the accrual basis, deferral of income till next year is difficult but not impossible. For example, you might, with due regard to business considerations, be able to postpone completion of a job until 2018, or defer deliveries of merchandise until next year. Taking one or more of these steps would postpone your right to payment, and the income from the job or the merchandise, until next year. Keep in mind that the rules in this area are complex and may require a tax professional's input.
• . . . The reduction or cancellation of debt generally results in taxable income to the debtor. So if you are planning to make a deal with creditors involving debt reduction, consider postponing action until January to defer any debt cancellation income into 2018.

Disappearing deductions, larger standard deduction. Beginning next year, both the House-passed tax reform bill and the version before the Senate would repeal or reduce many popular tax deductions in exchange for a larger standard deduction. Here's what you can do about this right now:

• The House-passed tax reform bill would eliminate the deduction for nonbusiness state and local income or sales tax, but would allow an up-to-$10,000 deduction for real estate taxes on your home. The bill before the Senate would ban all nonbusiness deductions for state and local income, sales tax, and real estate tax. If you are an employee who expects to owe state and local income taxes when you file your return next year, consider asking your employer to increase withholding on those taxes. That way, additional amounts of state and local taxes withheld before the end of the year will be deductible in 2017. Similarly, pay the last installment of estimated state and local taxes for 2017 by Dec. 31 rather than on the 2018 due date, or prepay real estate taxes on your home.
• Neither the House-passed bill nor the bill before the Senate would repeal the itemized deduction for charitable contributions. But because most other itemized deductions would be eliminated in exchange for a larger standard deduction (e.g., in both bills, $24,000 for joint filers), charitable contributions after 2017 may not yield a tax benefit for many. If you think you will fall in this category, consider accelerating some charitable giving into 2017.
• The House-passed bill, but not the one before the Senate, would eliminate the itemized deduction for medical expenses. If this deduction is indeed chopped in the final tax bill, and you are able to claim medical expenses as an itemized deduction this year, consider accelerating “discretionary” medical expenses into this year. For example, order and pay for new glasses, arrange to take care of needed dental work, or install a stair lift for a disabled person before the end of the year.

Other year-end strategies. Here are some other “last minute” moves that could wind up saving tax dollars in the event tax reform is passed:

• The exercise of an incentive stock option (ISO) can result in AMT complications. But both the Senate and House versions of the tax reform bill call for the AMT to be repealed next year. So if you hold any ISOs, it may be wise to hold off exercising them until next year.
• If you've got your eye on a plug-in electric vehicle, buying one before year-end could yield you an up-to-$7,500 discount in the form of a tax credit. The House-passed bill, but not the one before the Senate, would eliminate this credit after 2017.
• If you're in the process of selling your principal residence and you wrap up the sale before year end, up to $250,000 of your profit ($500,000 for certain joint filers) will be tax-free if you owned and used the property as your main home for at least two of the five years before the sale. However, under the House-passed bill and the bill before the Senate, the $250,000/$500,000 tax free amounts would apply to post-2017 sales only if you own and use the property as your main home for five out of the previous eight years.
• Under current rules, alimony payments generally are an above-the line deduction for the payor and included in the income of the payee. Under the House-passed tax bill but not the version before the Senate, alimony payments would not be deductible by the payor or includible in the income of the payee, generally effective for any divorce decree or separation agreement executed after 2017. So if you're in the middle of a divorce or separation agreement, and you'll wind up on the paying end, it would be worth your while to wrap things up before year end if the House-passed bill carries the day. On the other hand, if you'll wind up on the receiving end, it would be worth your while to wrap things up next year.
• Both the House-passed bill and the version before the Senate would repeal the deduction for moving expenses after 2017 (except for certain members of the Armed Forces), so if you're about to embark on a job-related move, try to incur your deductible moving expenses before year-end.

Please keep in mind that I've described only some of the year-end moves that should be considered in light of the tax reform package currently before Congress—which, it bears emphasizing, may or may not actually become law. If you would like more details about any aspect of how the proposed legislation may affect you, please do not hesitate to call.

Very truly yours,

Shawn

President Trump signs Disaster Relief bill into law.

On September 29, President Trump signed into law H.R. 3823, the “Disaster Tax Relief and Airport and Airway Extension Act of 2017,” which reauthorizes the Federal Aviation Administration (FAA) for six months and delivers temporary tax relief to the victims of Hurricanes Harvey, Irma, and Maria. One day earlier, on September 28, the House had passed the measure by a vote of 264 to 155; the Senate had then passed the bill by voice vote, with an amendment striking a provision on the development of a private flood insurance market; and the House, by voice vote, had again passed the bill, as amended. 

Tax provisions in the bill make it easier for people with hurricane losses to write them off on their taxes, eliminating a requirement that personal losses must exceed 10% of adjusted gross income to qualify for a deduction. It also gives hurricane victims penalty-free access to retirement funds and temporarily suspends limitations on the deduction for charitable contributions made before year-end for hurricane relief.

COLLIER 'BED TAX' INCREASES TODAY

Collier County’s tourist development tax, also known as the bed tax, increases from 4 to 5 percent effective today, according to a news release from the Naples, Marco Island, Everglades Convention and Visitors Bureau. The formula for how those funds are allocated now shifts to accommodate payments for the county’s planned amateur sports complex along with increased funds for beach renourishment, funding county museums up to a fixed amount, and maintaining the current level of funding for tourism marketing and promotion. That brings the total tax paid on hotel rooms, campgrounds and short-term vacation rentals to 11 percent when combined with the existing six percent sales tax. A room rate of $200 per night would increase from $220 to $222 with both the tourist and sales taxes applied. It is the responsibility of owners and rental agents to collect a tourist tax on all accommodations that are rented for six months or less. Any property owner or agent with questions should call (239) 252-TTAX (8829), or email toursttax@colliertax.com.

Summer Client Letter

Dear Client:

The following is a summary of important tax developments that have occurred in the past three months that may affect you, your family, your investments, and your livelihood. Please call us for more information about any of these developments and what steps you should implement to take advantage of favorable developments and to minimize the impact of those that are unfavorable.

Healthcare bill moves through Congress. On May 4, the House of Representatives passed along party lines the American Health Care Act (AHCA), the Republican plan to repeal and replace the Affordable Care Act (ACA, also known as Obamacare), as amended. The House-passed bill would need to be reconciled with the Senate's version of health reform legislation.

The AHCA would repeal virtually all of the ACA tax provisions, including the following. (Except as otherwise provided, the repeal would go into effect in 2017).

        . . . The penalty on individuals who don't carry adequate insurance, retroactively effective beginning in 2016.

        . . . The employer shared responsibility penalty (i.e., the penalty that applies to certain employers who don't offer health care coverage for its full-time employees, or offers minimum essential coverage that is unaffordable or does not provide minimum value). The repeal would be retroactively effective beginning in 2016.

        . . . The premium tax credit that makes health insurance premiums more affordable for certain low-income taxpayers. The repeal would be effective in 2020 (and a modified, age-based tax credit would be provided pending its repeal).

        . . . The 3.8% net investment income tax (NIIT) on certain higher income individuals.

        . . . The 0.9% additional Medicare tax on certain higher income individuals, effective 2023.

        . . . The higher floor beneath medical expense deductions. Under current law, the floor is 10% (effective in 2013 for taxpayers under age 65 and in 2017 for taxpayers 65 and older). The AHCA would reduce the floor to 5.8% for all taxpayers beginning in 2017.

        . . . The small employer health insurance credit, effective 2020.

        . . . The dollar limitation (currently $2,700) on health Flexible Spending Account (FSA) contributions.

        . . . The disallowance of any deduction for compensation in excess of $500,000 for certain health insurance executives.

The 40% excise tax (the so-called "Cadillac" tax) on high cost employer-sponsored health plans, would be delayed until 2026, but would not be repealed.

On July 13, the Senate leadership released its healthcare draft bill, the Better Care Reconciliation Act of 2017 (BCRA), as amended, for consideration. It left many of the provisions of the House-passed bill intact, but notably retained the ACA's premium tax credit, albeit in modified form. and did not call for the repeal of the ACA's 3.8% NIIT, the 0.9% additional Medicare tax, or the disallowance of any deduction for compensation in excess of $500,000 for certain health insurance executives.

Still time to make expensing election on amended returns. The tax law's expensing rules allow a business to elect to currently deduct the cost of business machinery and equipment-up to a dollar limit-instead of recovering its cost via depreciation over a number of years. The Protecting Americans from Tax Hikes Act of 2015 (the PATH Act) made a number of important improvements to the expensing break. The main changes were that the $500,000 annual expensing limitation and $2 million investment ceiling amount were retroactively extended and made permanent (they were to have expired after 2014). Additionally, the PATH Act made the following changes to the expensing break, effective after 2015: the $500,000 annual expensing limitation and $2 million investment ceiling amount was made subject to inflation indexing; expensing of qualified real property was made permanent without a complex carryover limitation that applied under prior law; the $250,000 expensing limitation that applied to qualifying real property under prior law was eliminated; and certain air conditioning and heating units became newly eligible for expensing.

Noting that there has been taxpayer confusion about making an expensing election for tax years that begin after 2014, the IRS announced that, for any tax year that begins after 2014, a taxpayer may make an expensing election for any expensing-eligible property without the IRS's consent on an amended Federal tax return for the tax year in which the taxpayer places in service the expensing-eligible property.

IRS releases next year's inflation adjustments for health savings accounts (HSAs). Eligible individuals may, subject to statutory limits, make deductible contributions to an HSA. Employers, as well as other persons (e.g., family members), also may contribute on behalf of an eligible individual. A person is an "eligible individual" if he is covered under a high deductible health plan (HDHP) and is not covered under any other health plan that is not a HDHP, unless the other coverage is permitted insurance (e.g., for worker's compensation, a specified disease or illness, or providing a fixed payment for hospitalization).

The IRS has released the annual inflation-adjusted contribution, deductible, and out-of-pocket expense limits for 2018 for HSAs. For calendar year 2018, the limitation on deductions is $3,450 (up from $3,400 for 2017) for an individual with self-only coverage. It's $6,900 (up from $6,750 for 2017) for an individual with family coverage under a HDHP. Each of these amounts is increased by $1,000 if the eligible individual is age 55 or older. For calendar year 2018, an HDHP is a health plan with an annual deductible that is not less than $1,350 (up from $1,300 for 2017) for self-only coverage or $2,700 (up from $2,600 for 2017) for family coverage, and with respect to which the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $6,650 (up from $6,550 for 2017) for self-only coverage or $13,300 for family coverage (up from $13,100 for 2017).

IRS's private debt collection program kicks off. IRS announced that beginning in April, 2017, it would start sending letters to notify "a relatively small group of individuals" with overdue federal tax that their accounts had been assigned to one of four private collection agencies (PCAs). The assignments were authorized by legislation enacted in 2014. PCAs are authorized to discuss payment options, including setting up payment agreements with taxpayers. But, as with cases assigned to IRS employees, any tax payment must be made, either electronically or by check, to the IRS. The IRS also warned taxpayers to be wary of scammers posing as PCAs and to keep in mind that a legitimate PCA will only be calling about a tax debt that the person has had-and has been aware of-for years and had been contacted about previously in the past by IRS.

Reissued proposed regulations explain new partnership uniform audit rules. A law enacted in 2015 (The Bipartisan Budget Act of 2015, signed into law on Nov. 2, 2015) eliminated the TEFRA unified partnership audit rules (so-called because they were introduced in the Tax Equity And Fiscal Responsibility Act of '82) and the electing large partnership rules, and replaced them with streamlined partnership audit rules. Under the new centralized partnership audit regime, any adjustment to items of income, gain, loss, deduction, or credit of a partnership for a partnership tax year (and any partner's distributive share thereof) generally is determined, and any tax attributable thereto is assessed and collected, at the partnership level. The applicability of any penalty, addition to tax, or additional amount which relates to an adjustment to any such item or share is also be determined at the partnership level. The new rules generally are effective for returns filed for partnership tax years beginning after Dec. 31, 2017, but taxpayers can elect to apply them earlier. Additionally, certain small partnerships can elect out of the new partnership regime.

Proposed regulations on the new partnership uniform audit rules were issued in January of this year, but were withdrawn by the IRS for further review and approval after President Trump instituted a "regulatory freeze." Now the IRS has reissued the proposed regulations explaining the new partnership uniform audit rules. These regulations would have a substantial impact on affected partnerships.

New 5.8% Rate on Florida Commercial Rents' Sales Tax

Beginning July 1, 2017, commercial rents billed and paid after July 1, 2017 for commercial properties located in Florida, will be taxed at a rate of 5.8%. Any billed but not received rents, including billings for occupancy prior to June 30, 2017 must collect and remit at 6% rate.  Taxpayers must file a return to qualify for the reduced tax rate.

IRS Warns of New Phone Scam

The IRS warns of a new scam linked to the Electronic Federal Tax Payment System (EFTPS), in which fraudsters call to claim that certified letters were sent but undeliverable and to demand an immediate tax payment through a prepaid debit card. The scam is being reported across the country. The IRS reminds taxpayers that it never demands immediate payment of taxes due with one specified method. Generally, the IRS will first mail a bill to any taxpayer who owes taxes.