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How does the Tax Cuts and Jobs Act impact homeowners?

The Tax Cuts and Jobs Act (TCJA) will impact the affordability of owning a home or vacation property and using its equity as a means of obtaining lower cost financing for personal expenditures. This will be readily apparent to homeowners when they file their income tax returns for calendar years starting in 2018 in two specific ways.

Impact #1: Deductions for mortgage and home equity loan interest

The TCJA limited the itemized deduction available for homeowners. The original tax code set the limit for this deduction at $1 million for a married couple filing a joint return. The TCJA reduced this limit to $750,000. Under the TCJA, starting in 2018, the limit on acquisition debt is reduced to $750,000 ($375,000 for a married taxpayer filing separately). The $1 million, pre-TCJA limit, however, applies to "acquisition debt" incurred before December 15, 2017, and to debt arising from refinancing such debt, if the refinancing does not exceed the original debt amount. Thus, taxpayers can refinance up to $1 million of pre-Dec. 15, 2017 acquisition debt, without being subject to the reduced limitation

Failure to properly document business loan leads to tax bill

A failure to properly document transactions between parties can result in a surprising tax bill. The Tax Court recently heard on a case involving this type of issue. The case involves an attempt to write off business expenses without proper documentation.

The business at issue was owned by a husband and wife. The husband owned 49 percent of the business, an S-corporation. The wife was the majority owner with 51 percent. The husband also owned two additional businesses. The husband used funds from one of his own businesses to pay off debts of the business owned jointly by himself and his wife in 2010. Shortly thereafter, the husband added a note within his business’ ledgers stating the transaction as a loan. In 2011 the husband made additional payments from his own business to cover a portion of the jointly owned venture’s debts. He listed the transfer as a distribution within his business’ ledgers.

Will 2018 be the year of the dynasty trust?

President Donald Trump’s new tax law has resulted in significant tax changes. These changes apply to tax years 2018 through 2025. Without Congressional intervention, these changes will end.

Even with a potential end date, the wealthy can take advantage of this window with various legal tools. One example: the dynasty trust.

Should you adjust your income tax planning strategy?

The Tax Cuts and Jobs Act of 2017 has changed a number of income tax provisions. As a result, it may be wise to review your income tax planning strategy. Four specific changes to the tax code that may trigger an update to your plan include:

  • Itemized deductions. The new law resulted in several changes to common itemized deductions. These changes specifically impacted the state and local tax deduction, home mortgage interest deduction, charitable deductions, and miscellaneous deductions for tax preparation and unreimbursed employee business expenses, among others. For example, the change to the deduction available for home mortgage interest payments has resulted to a new limit of $750,000 and is only allowed for home equity loans used specifically for home improvements. Another example is W-2 employees, such as sale people, won't be able to deduct their out-of-pocket business expenses such as automobile, telephone and supplies, which are not reimbursed by their employers.

    When can a partnership opt out of the new audit rules?

    The Internal Revenue Service (IRS) has attempted to simplify the process used to audit partnerships. As discussed in a previous post, the rules that govern partnership audits changed as of January 1, 2018. However, the IRS does not require all partnerships to follow these new rules.

    Partnership audit rules in 2018: Four key changes

    As of January 1, 2018, the rules that govern audits of partnerships have changed. In the past, the Tax Equity and Fiscal Responsibility Act (TEFRA) applied to these audits. The law required the Internal Revenue Service (IRS) to allocate the audit adjustments within partnerships amongst the partners.

    This was not financially efficient for the IRS. To reduce this burden, President Barack Obama signed the Bipartisan Budget Act of 2015 into law.

    IRS to end offshore voluntary disclosure program: 3 FAQs

    The Internal Revenue Service (IRS) recently announced the Offshore Voluntary Disclosure Program (OVDP) is coming to a close. The program began in 2009 and modified versions have been used since its inception. It offers United States taxpayers the ability to voluntarily report foreign assets and come into compliance with applicable tax obligations.

    When will the OVDP end? The IRS has scheduled the program to end September 28, 2018.

    Few estate tax returns will be filed in 2018 but many reasons for estate planning

    In 2018, the IRS Statistics of Income predicts that 2.71 million Americans will pass away, and 99.9% of them won't owe Federal estate taxes. In fact, less than 1-in-10,000 estates will have to pay estate taxes - all due to Trump's 2017 new tax law that increased the basic exclusion amount to $11.18 million for each individual. While fewer estate tax returns will be filed, it's expected that the new law will drive more and more wealthy persons to make lifetime transfers of property - thus increasing the need to file gift tax returns.

    Have a high net worth estate? Make the most of the new tax law.

    Changes to tax law can impact one's current and future tax obligations and financial planning strategies. As a result, it is wise to have a basic understanding of the impact of tax reform.

    One particular area of interest for high net worth individuals involves changes to the gift, estate and generation-skipping transfer (GST) tax. President Donald Trump's new tax law increases this tax exemption for United States citizens and residents to $11.18 million. This is almost double the previous rate of $5.49 million for 2017.

    The tax litigation process

    When taxpayers receive notification from the IRS about a tax problem, their main goal is to resolve the issue and make the problem go away. In some cases, when the tax debts are significant or the taxpayer denies the alleged wrong-doing, litigation is the only course of action.

    In tax litigation, unlike other forms of litigation, the opponent is always the IRS. The IRS is a daunting adversary, with their seemingly endless budget and legions of staff. While tax litigation presents a unique set of challenges, cases can be successfully litigated by attorneys defending their client's position.

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