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BPAA Federal Policy Update - June 29
Michael Best Strategies
6/29/2018 7:52:00 AM
Tax Law Headaches: Three Planning Problems for Small Businesses
: Small businesses are happy with some of the 2017 tax act’s perks, but many are struggling with speed bumps—such as the complexity of the new deduction for pass-throughs—especially in the absence of guidance, tax professionals said. Taxes were the “single most important issue” for 17 percent of small business owners during the month of May, compared to 22 percent in November, according to a survey by the National Federation of Independent Business released June 12. While that’s a one percentage point drop from the lobbying group’s April figure, it’s an increase from March, when 13 percent of small business owners named taxes as their top problem—and February, when the tally stood at 15 percent. “I can tell you that we’re getting an unusual number of calls asking for advice,” said Anne Zimmerman, a small business CPA and a business owner in Cincinnati. “Unfortunately, we’re up to our ears in keeping up with our current clients because they all need tax planning work that they never needed before,” Zimmerman, who is co-chair of Businesses for Responsible Tax Reform, told Bloomberg Tax. Three areas, in particular, are causing the biggest headaches for small businesses:
‘Cracking and Packing’ With 199A: The 2017 tax act (Pub. L. No. 115-97)
created a 20 percent deduction for pass-through businesses—those in which income flows to the owners, who are taxed as individuals. Lawmakers intended for the provision to help level the playing field between small companies and C corporations, which are taxed separately from their owners and received a 14 percentage point rate reduction in the tax overhaul. But the deduction, under new tax code Section 199A, came with a restriction based on wages and capital for pass-through owners earning income above certain thresholds. Pass-through owners in service-related fields, including health, law, and accounting, among others, are barred from the deduction above certain income levels as well. Those limitations have left relatively small and mid-sized businesses with income above the thresholds—$157,500 for single filers and $315,000 for married taxpayers filing jointly—unsure of whether they qualify for the 20 percent write-off, absent guidance from the IRS.
Expensing Glitch Awaits Fix:
One of the tax act’s most popular perks, including for small businesses, was the ability to immediately write off the costs of new and used property under amended Section 168(k). But when lawmakers attempted to group three categories of property into one for new bonus depreciation rules, they assigned those property types a longer cost recovery period, rendering them ineligible for full expensing. Those hit hardest were restaurants, retailers, and businesses that had made interior renovations to their commercial property, as many had planned for a benefit they didn’t in fact receive. More than 100 retailers, restaurant companies, and their industry groups recently wrote to leaders of the House Ways and Means and Senate Finance committees to ask them to correct the expensing provision.
Health Care Costs Slated to Rise:
Likely the most universal worry for small businesses is the expected uptick in the cost of health care following the repeal of the Affordable Care Act’s individual mandate—a requirement that individuals purchase health insurance or face a tax to help subsidize the health care system, Lewis said. “The average business owner may not understand the qualified improvement property problem,” he said, referring to the technical error in Section 168(k). “But every business owner is aware of this.” In a November 2017 report, the Congressional Budget Office estimated that due to the repeal of the individual mandate, average premiums in the non-group, or individual, market “would increase by about 10 percent in most years of the decade (with no changes in the ages of people purchasing insurance accounted for) relative to CBO’s baseline projections.”
Bloomberg Government Tax: IRS Signals 2019 Withholding Changes With Draft Form W-4:
References to withholding allowances on the 2019 draft Form W-4, Employee’s Withholding Allowance Certificate, were eliminated except for the name. The 2019 draft W-4 was released June 6, with the draft form indicating that it is the current draft as of June 5. The changes are being made because the 2017 tax code overhaul (Pub. L. No. 115-97) eliminated personal exemptions, which had been the basis of withholding allowance amounts claimed on the form for decades. The draft
signals that the IRS will revamp 2019 federal income tax withholding tables so they do not include withholding allowance amounts in calculations, triggering required reconfiguration of systems that employers use to calculate withholding amounts. Among the numerous changes on the draft from the current 2018 version of the form:
The draft form has 13 data fields and is an entire page; the 2018 form has 10 lines and filled less than half of a page.
The 2018 form’s Line 5 for total number of allowances is to be replaced by the 2019 version’s lines 5, 6, 7, and 8, for employees to indicate specific dollar amounts.
The 2018 form’s Line 6 was renumbered as Line 9 of the 2019 version, and the wording of the line, which is with regard to additional amounts to withhold, was unchanged.
The 2018 form’s Line 6 was renumbered as Line 9 of the 2019 version, and the wording of the line, which is with regard to additional amounts to withhold, was unchanged.The 2018 form’s Line 7 was renumbered as Line 10 of the 2019 version, and the wording of the line, which is with regard to claiming exemption from federal income tax withholding, was unchanged with the exception of referencing 2019 instead of 2018.
Alcohol study failed to seek FDA approval, possibly violating federal rules:
The controversy surrounding a study of whether moderate drinking might prevent cardiovascular disease isn’t over: If one interpretation of federal regulations is correct, the study may be in violation of Food and Drug Administration requirements meant to protect the health of research volunteers. STAT has learned that the study’s leaders failed to seek a form of regulatory approval intended to protect study participants and ensure they understand the possible health risks of the research. By not seeking approval from the FDA, said public health researcher Dr. Michael Siegel of Boston University, the study “is in violation of federal law.” But the hospital whose physician designed the trial said he asked the FDA whether the investigational new drug (IND) application was required and was told no. Other experts said the requirement for an IND in this case is not crystal clear. Of seven additional researchers or regulatory consultants interviewed by STAT, four agreed with Siegel that FDA approval via an IND was required and the others weren’t sure.
Read more at StateNews.com.
There's not a single US state where a minimum wage worker can afford a 2-bedroom rental, a report says:
There's not a single state, county or metropolitan area in the entire United States where a full-time worker earning the federal minimum wage of $7.25 an hour can afford a modest 2-bedroom apartment. And if those workers wanted to? They'd have to work 122 hours a week. Every week. All year. This is according to
a new report
from the National Low Income Housing Coalition, or NLIHC, which calls attention to the gap between low-income wages and the high cost of rent throughout much of the United States. The NLIHC found US workers need to earn $22.10 an hour to afford a "modest" two-bedroom rental. That's about three times the federal minimum wage.
Read more at CNN.
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BPAA Federal Policy Update - October 30, 2020
BPAA Biweekly State Policy Updates - May 17, 2019
September 14th Individual Tax Reform
BPAA Federal Policy Update - May 22, 2020
BPAA State Policy Update - December 4
BPAA Biweekly State Policy Updates - January 25
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