Deductible 2017 Passive Property Disaster Losses

2017 was a horrific year for storms and the tourist industry in the Florida Keys was hit hard by Hurricane Irma which caused losses amounting to several $ Billion both in property damage as well as lost tourist revenue. The only saving grace was that, although rental income property operating losses are not deductible, casualty losses such as those suffered by property owners as a result of Hurricane Irma are not considered to be ordinary operating expenses and therefore an exception to the normal tax deduction suspension of rental income property losses.

In short, actual cash losses connected with the cost of replacing destroyed or damaged property which exceeded offsets by insurance ARE DEDUCTIBLE in 2017. To claim this deduction be certain to disclose the fact that you are a victim of a “disaster loss”. In the event that your actual cash casualty loss is greater than your total income for 2017, you may have excess losses that can be carried back to offset prior year income or carried forward, however you should check with your tax advisor regarding possible limitations resulting from the Tax Cut and Jobs Act of 2018.

IF YOU HAVE NOT BEGUN YOUR 2017 TAX RETURN…

The IRS has confirmed that they will begin accepting electronically filed returns on Monday January 29, 2018. However they announced that they will again be delaying any and all tax refunds that include credits for child care or low earned income. Also IRS stated that they will reject all tax returns that is silent regarding household members maintaining health care coverage.

Remember due dates for many tax returns changed last year and IRS and the states are charging (and not waiving) late penalties based on the new schedule.

FBAR-Foreign Bank Account Report-Due April 15

Form 1120S-Small Business Corporation-Due March 15

Form 1120-C Corporation-Due April 15

Form 1065-Partnership-Due April 15

Form 1040-Individual Income Tax Return-Due April 15

The above due dates do not reflect additional time granted for weekends or holidays.

IRS Scammers Still Looking to Get Your Cash

Just heard today from a client that she received a call from someone who claimed to be “the IRS” and she owed them $2,000 and there was a warrant for her arrest and if she did not pay exactly as instructed that she would be arrested within the hour. Well the must be catching fish or else they wouldn’t be fishing anymore.

Don’t be a fish that falls for this phony line. The IRS does not call out of the blue stating that you owe money without first sending you a notice in writing explaining the year, type of tax, amount that they believe that you owe and why. They do not just call out of the blue making threats.

(If they ask you to meet someone at some obscure location with cash agree to meet them but bring a cop with you)

However the scammers are getting wiser as too many people are now waking up to the fact that the scammers have duplicated IRS Form CP2000 letters demanding payment for an adjustment to the tax return. There are ways to spot this but the best was is to go to the IRS website and call the IRS (early in the morning before they get busy) so ask if they mailed you a notice.

Here are a few warning signs that a notice ‘from the IRS’ is fake:

• Appears to be issued from an Austin, Texas, address.
• Says the issue is related to the Affordable Care Act  and requests information regarding 2014 coverage.
• Lists the letter number in the payment voucher as 105C.
• Requests checks made out to I.R.S. and sent to the “Austin Processing Center” at a post office box.

PROBLEM ALERT

There used to be a standard process where the IRS sent a letter of “proposed correction” to your tax return, which showed the amount as filed, the proposed adjustment and the proposed adjusted amount and beneath it the taxes originally reported and proposed assessment. For some reason I am seeing more people claiming to receive notices of tax due without the opportunity to dispute the proposed assessment. So where I used to say that the IRS never sends a final tax bill before a proposed adjustment now it seems that things may have changed here as well. This is why if you receive a letter from what appears to be the Internal Revenue Service, before ignoring the letter either bring it to the attention of your accountant if you have one or call the IRS at 1-800-829-1040.

Also, payments are never made to the IRS. They are made to the United States Treasury.

New York State Taxpayer Protection Act

Governor Andrew Cuomo has proposed NYS tax reform that would eliminate the state income tax on wage earners. Instead, the state would levy a wage tax on the employer. By doing so, the tax burden would shift from workers — who face new limits on their ability to deduct state income taxes — to employers, who could still take full deductions for such payroll taxes. The legislation would spell out which kinds of companies would be eligible for this treatment.

Double taxation has been a basic premise to U.S. income dates, both domestic and international, since income taxes were first enacted by Article 13 of the U.S. constitution and is fundamental to all international tax treaties that the U.S. has signed. It is sad when our elected representatives in Congress sign tax legislation that they don’t understand.

Meals and Entertainment

Looks as though the new “business friendly” tax reform has eliminated the deduction for M&E expenses

Foreign crypto currency accounts need to be included in…

Just a reminder that the IRS has been clear in stating that crypto currency is akin to a financial investment or medium of exchange and therefore if a U.S. person has a foreign account or owns a controlling interest in the stock of a foreign company that holds crypto currency in any type of wallet or account, the rules pertaining to FBAR and FATCA reporting do apply and if a Form 114 or 8938 is required those accounts need to be reported and the value determined in US dollars must be determined and included.

2018 Tax Reform: Changes to Like Kind Exchanges and…

The new Tax Cuts and Jobs Act, which is effective for years beginning after December 31, 2017, substantially limits Section 1031 Like Kind Exchanges by restricting it’s application to “real” property. Under the new tax law, by eliminating any type of “personal” property from the tax deferral provisions pertaining to exchanges of any “non currency” personal property of similar nature (such as art, rental income property including furniture and fixtures, farm animals such as dairy cows, etc.), exchanges of property that is not deemed “real” property, or real estate, must be valued at the time of the exchange and reported as a capital gain (either short or long term depending on the holding period). Although the U.S. Treasury Department needs to interpret the new law and promulgate regulations and the IRS needs to determine how it is enforced, the complexities are going to be substantial.

One example may affect the “swapping” of rental real estate between landlords or restaurants that include both the land, building as well as other business property. Whereas previously, the holder of one residential or commercial rental income property could enter into a Section 1031 like kind exchange and by following all the rules carry forward the cost basis of the transferred property for the acquired property, paying capital gains tax when the acquired property is actually sold for cash without identifying any personal property (such as furniture and fixtures that are not permanently affixed to the real property), there is a strong possibility that now the transaction will need to be appraised and those properties that are not defined as “real” but rather “personal” may need to be valued and reported as a currently taxable transaction. Although this would be a boom for the appraisers, it is an accounting nightmare that the T.D. and I.R.S. will need to address.

Traders in crypto currencies such as Bitcoins and the many other digital currencies will be affected as well. Although the IRS previously ruled that “cyber currency” is not true currency but rather “other” property, which enabled anyone who traded once digital currency for another without converting it into recognized national currency to defer any gain recognition until the digital “coins” were actually “sold” for dollars, Euro, Yen, etc. at which time capital gain tax would be payable if there is a gain. Under the new law, every time there is an exchange say of Bitcoins for Litecoins or Ethereum or Ripple, etc., the transaction needs to be valued in U.S. dollars and reported to the IRS. Depending on the number of transactions, the accounting could be a nightmare as a typical day trader in digital currency could conceivably exchange twenty different digital currencies in less than an hour. Unlike securities that are accounted for in like kind currency (i.e. shares of Exxon corporate stock on the NYSE which would be in U.S. Dollars or Nissan Motor Co., LTD on the Tokyo exchange in YEN, a trader in digital currency would need to carefully monitor each transaction and spend hours calculating the value of each transaction instead of tracking the dollars invested against dollars withdrawn from their digital wallet (or account).

A WORD TO THE WEARY: Given the high speculative risk involved, this could also spell big trouble for anyone who loses big and never returns to the market to generate future capital gains as the capital loss limitation remains at $3,000 while there is no way to carry the losses back to offset gains in prior years. Thus one could end up accumulating gains by virtue of exchanging digital currency, but when it came time to convert to cash, the value resulted in a cash loss.

While on the subject of digital currency, a reminder that any other transactions whereby goods or services are exchanged for crypto currency is deemed a taxable transaction and has been since 2014 (IR-2014-36, March. 25, 2014). Thus if you receive digital currency from your employer in exchange for your services, not only is the compensation subject to income tax, but also is subject to social security tax and other labor related contributions (i.e. unemployment tax, etc.).

Tax Tips Jan-Feb 2018

Mileage Rates-2018

The 2018 standard mileage rate for business driving will rise to 54.5 cents a mile, up 1 cent from 2017. Businesses with four or fewer vehicles can use this rate, but each vehicle’s basis must be reduced by the depreciation component…25 cents a mile. 

The rate for medical travel and moving will go up 1 cent to 18 cents per mile. For now, the 2018 allowance for charitable driving will stay put at 14 cents a mile because it’s fixed by law, although there is a legislative proposal to annually adjust it. 

You can also claim the cost of parking and tolls. But you can’t add the cost of fuel or repairs. Nor can you use these rates if you depreciated or expensed the car.