More TCJA!

More TCJA!

The Tax Cuts and Jobs Act, P.L. 115-97 keeps on giving! Relief for small business! Proposed Regulation 132766-18 was issued in July. It addresses the TCJA changes dealing with who can use the cash basis of accounting for tax purposes.

TCJA simplifies recordkeeping for “small business”. If a business has average annual gross receipts of $25 million or less the cash method of accounting may be used for tax purposes (adjusted for inflation to $26 million for 2019 and 2020) (Sec. 448(c)). Also, uniform capitalization to inventory is not required (Sec. 263A), immaterial inventory can be treated as supplies and materials (Sec. 471 (c)), and the percentage of completion method of accounting for long term construction contracts is not required (Sec. 460(e)).

Average annual gross receipts amount is computed using the gross receipts for the three years preceding the tax year in question. Caution, aggregation rules apply at 50% or more common control. Filing a change in accounting method is required.

Not So Fast!

These benefits are not allowed for “tax shelters”. The definition of tax shelters is broad. It includes any non-C corp entity where more than 35% of losses in any tax year are allocated to owners who do not actively participate in management. This includes syndicates. Care is advised because a change in accounting method may generate a loss causing the entity to be classified as a tax shelter. Once this happens the taxpayer will be locked into the accrual method for five years.

Some things don’t change!

Sec 448(c) provides that qualified personal service corporations, farming businesses, partnerships with no C corp partners, and S corps  generally can continue to use the cash method regardless of the gross receipts test as long as they are not “tax shelters”.

Conflicts between code sections have arisen and will require additional clarification.

BoardWatch is Back!

What’s BoardWatch?

Most of us do not have either the time or resources to stay abreast of potential actions being taken by the people who regulate/control our industry and our practices. Actions taken by the Texas State Board of Public Accountancy, (TSBPA), can have a significant impact on licensed practitioners. We should all have the opportunity to help create or refine the rules that affect us and our practice.

BoardWatch is a service of the Texas Association of Certified Public Accountants (TACPA), where members volunteer to attend the public meetings of the Texas State Board of Accountancy (TSBPA). The goal of BoardWatch is to provide our membership with timely information about actions proposed and/or taken at the Board. Using that information, we all can decide if we want to opine in a comment letter to the Board, perhaps contact our state legislator for help, or do nothing at all.

The BOTTOM LINE…?  We want to make you aware of potential changes and give you the opportunity to evaluate them in relation to your practice.  We want you to have the opportunity to provide input to the Board and suggest changes before anything is finalized and/or implemented.

Read BoardWatch Report #1

This service will soon be a member-only benefit. Please consider joining or renewing your membership today! CLICK HERE

If you have any questions or need assistance, contact:
Dave Brown
Executive Director
davebrown@tacpa.net
469-443-0971

IRS – New Scams!

Scammers never sleep!

IR-2019-145, August 22, 2019

The Internal Revenue Service and its Security Summit partners late last week warned taxpayers and tax professionals about a new IRS impersonation scam campaign spreading nationally on email. Remember: the IRS does not send unsolicited emails and never emails taxpayers about the status of refunds.

The IRS this week detected this new scam as taxpayers began notifying phishing@irs.gov about unsolicited emails from IRS imposters. The email subject line may vary, but recent examples use the phrase “Automatic Income Tax Reminder” or “Electronic Tax Return Reminder.”

“The IRS does not send emails about your tax refund or sensitive financial information,” said IRS Commissioner Chuck Rettig. “This latest scheme is yet another reminder that tax scams are a year-round business for thieves. We urge you to be on-guard at all times.”

To read the full article, CLICK HERE.

Data Security

IRS Tax Tip 2019-114, August 21, 2019

Tax pros should review new checklist with steps to protect data

Despite major progress against identity and data theft, these threats still happen. They continue to put tax professionals and their clients at risk. To help combat this, the IRS and its Security Summit partners created a new Taxes-Security-Together Checklist. The checklist includes things tax pros can do now to prevent and recognize data theft. It also gives steps tax preparers can follow if they do experience a data breach

Following this checklist is a great starting point for tax professionals who want to protect their offices, computers and data. This tax tip is the first in a series highlighting the items in this checklist.

Here’s a rundown of the Taxes-Security-Together checklist:

Follow these steps, known as the “Security Six” measures

  • Activate anti-virus software.
  • Use a firewall.
  • Use two-factor authentication.
  • Use backup software or services.
  • Use drive encryption.
  • Create and secure virtual private networks.

Create a data security plan

  • Federal law requires all professional tax preparers to create and maintain an information security plan for client data. 
  • The security plan requirement is flexible enough to fit any size of tax preparation firm. 
  • Tax professionals should focus on risk areas. These include employee management and training, information systems, and detection and management of system failures.

Be on the lookout for common email scams

Recognize the signs of client data theft

  • Clients receive IRS letters about tax returns someone else filed using their name.
  • More tax returns are filed with a tax pro’s Electronic Filing Identification Number than the preparer actually submitted.
  • Clients receive tax transcripts they did not request.

Create a data theft recovery plan including

  • Contact the local IRS Stakeholder Liaison immediately.
  • Assist the IRS in protecting clients’ accounts.
  • Work with a cybersecurity expert to help prevent and stop thefts.

Meals – On the Table!

Deductions for business meals are back on the table.

Allaying initial fears, the IRS recently provided clarification concerning food and beverage deductions under the Tax Cuts and Jobs Act (TCJA) in Notice 2018-76. Based on this guidance, many of your business clients may still qualify for some write-offs.

Significantly, the TCJA eliminated the traditional 50% deduction for business entertainment and meals, effective in 2018. Therefore, clients can no longer write off expenses relating to entertainment, recreation or amusement like the cost of a play or concert tickets following a substantial business discussion. However, the TCJA generally preserved the other rules for food and beverage expenses under Section 274, including the strict substantiation requirements.

This led to arguments in the tax community as to whether certain business meal expenses would remain deductible. (Clearly, deductions for meals are still available for taxpayers traveling away from home on business.) Under the interim guidance provided in Notice 2018-76, the IRS says that a 50% deduction is allowed for food and beverage expenses if the following conditions are met:

Under the interim guidance provided in Notice 2018-76, the IRS says that a 50% deduction is allowed for food and beverage expenses if the following conditions are met:
• The expense is an ordinary and necessary business expense under Section 162(a) paid or incurred during the tax year when carrying on any trade or business;
• The expense isn’t lavish or extravagant under the circumstances;
• The taxpayer, or an employee of the taxpayer, is present when the food or beverages are furnished;
• The food and beverages are provided to a current or potential business customer, client, consultant or similar business contact; and
• For food and beverages provided during or at an entertainment activity, they are purchased separately from the entertainment, or the cost of the food and beverages is stated separately from the cost of the entertainment on one or more bills, invoices or receipts.

Furthermore, the IRS indicated it won’t allow the crackdown on entertainment and meal deductions to be circumvented by inflating the amount charged for food and beverages.

Notice 2018-76 contains three examples illustrating how the IRS intends to interpret these rules. All three examples involve attending a sporting event with a business client and having food and drink while attending the game.

  1. Taxpayer A takes a customer to a baseball game and buy the hot dogs and drinks. The tickets are nondeductible entertainment, but Taxpayer A can deduct 50% of the cost of the hot dogs and drinks purchased separately.
  2. Taxpayer B takes a customer to a basketball game in a luxury suite. During the game, they have access to food and beverages, which are included in the cost of the tickets. Both the cost of the tickets and the food and beverages are nondeductible entertainment.
  3. The facts involving Taxpayer C are the same as they are for Taxpayer B, except that the invoice for the basketball game tickets separately states the cost of the food and beverages. As a result, Taxpayer C can deduct 50% of the cost of the food and beverages.

The IRS has announced it plans to issue proposed regulations on this issue. It is requesting comments by December 2, 2019.

With thanks to:
Sanford Zinman, CPA
National Tax Chair, NCCPAP
sandy@zinmantax.com

Join TACPA now – http://www.tacpa.net/join


Questions or concerns, please contact me
Dave Brown
Executive Director
469-443-0971
davebrown@tacpa.net