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.
Wednesday night 6/3/20, the Senate passed House bill HR 7010 which provides relief for PPP loan payback. The 8 week period is extended to 24 weeks. The payroll cost percentage is now 60% as opposed to 75%. Payback period for loan is now 5 years instead of 2. Business may now delay payroll tax payments.
The bill now goes to the President for signature. More to come!
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
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
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.