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10 states pass new nexus tax laws in October

The laws governing state taxation of online business transactions is in the process of a major evolution. The change began with a holding from the Supreme Court of the United States (SCOTUS) in June of 2018.

What led to the change? The country began to change state taxation laws in South Dakota v. Wayfair. This case addressed the legal issue of when a state can tax a business for an online transaction.

Business basics: Taking the Section 179 deduction

Businesses can use IRS tax code Section 179 to deduct the purchase price of certain equipment or software for the current tax year. There are some limitations to this deduction.

What are some of the limitations to Section 179 deductions? First, there is a cap. The Tax Cuts and Jobs Act (TCJA) increased this cap from $500,000 to $1,000,000.  

Investing in a 529 plan in 2018? Avoid these 4 mistakes.

A 529 plan is a savings account that is set up to offer tax-advantages for those who invest in their children's higher educational expenses. These plans have evolved over the years, most recently with the passage of the Tax Cuts and Jobs Act (TCJA) at the close of 2017.

One big change that came with the tax reform of the TCJA: 529 plans extend beyond college savings.

How did tax reform change 529 plans? Due to the passage of the TCJA, 529 plans were no longer limited to college expenses. The TCJA expanded these plans to apply to qualifying expenses incurred in private, public and religious schools that range from kindergarten to 12th grade. In addition, students refunded tuition (for example, due to dropping a class) can avoid income taxation on the refunded amount if the refund is recontributed to the 529 account within 60 days of receipt. Future Treasury Regulations will also clarify that the beneficiary's maximum lifetime contribution limit is not impacted by recontributed refunds.

To tax or not to tax: SCOTUS and the online sales tax problem

Online retailers are a major part of our current economy. Everything from small, local businesses to major, global corporations sell their goods online. State governments have struggled to evolve with our shopping habits. One particular area of struggle: the application of a state sales tax in e commerce.

The Supreme Court of the United States (SCOTUS) provided some guidance in 1992 with its ruling in Quill v. North Dakota. In Quill, SCOTUS ruled a state could only require remote retailers to pay a state sales tax if the retailer had a physical presence within the state. It went on to provide examples of physical presence which included the use of a warehouse, brick and mortar store or headquarters within the state.

Tax planning and foreign assets: Avoid hefty penalties

The United States government requires American taxpayers report foreign assets to the Internal Revenue Service (IRS). A failure to meet this obligation can result in hefty monetary penalties and fines as well as potential imprisonment. The severity of these penalties can increase as time passes without compliance. As such, any taxpayers that have yet to come into compliance are wise to do so promptly.

Another reason for prompt compliance: one of the programs that reduces the penalties is about to sunset. The IRS recently announced the end of the Offshore Voluntary Disclosure Program (OVDP). This agency has scheduled this program to close on September 28, 2018.

SLAT may help wealthy make the most of new tax law

The Tax Cuts and Jobs Act (TCJA) roughly doubles the transfer tax exemption from $5.6 million per individual to $11.18 million per individual or $22.36 million per married couple.

The only catch: the exemption amount has an expiration date. The law has scheduled the exemption extension to sunset in 2025. Unless Congress acts to further extend the transfer tax exemption amount, it will return to the previous $5.6 million rate in 2026.

The wealthy can use estate planning tools to make the most of this increased exemption amount, effectively safeguarding the extended amount even if it does sunset as scheduled. One legal tool that can help achieve this goal: the SLAT.

For Taxpayers Who Haven't Filed Their 2017 Income Tax Returns: Losses & the TCJA

Recent tax reform will impact businesses, large and small. This piece focuses on considerations regarding the impact of the change on business losses.

How does the TCJA impact net operating losses?

A taxpayer can choose to carry a 2017 net operating losses (NOLs) back to 2015 or forward to 2018. For the 2018 tax year, a taxpayer must carry NOLs forward, but the Tax Cuts and Jobs Act (TCJA) applies limitations. The law limits pass-through entities to $500,000 in losses for married filing jointly and $250,000 for single filers.

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.

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