Like-Kind Exchanges Now Limited to Real Property

For ways to save on taxes on business and investment transactions, please call Kevin M. Sayed, J.D., LL.M., at 252-321-2020. The following materials were originally published by the IRS.

The Internal Revenue Service today reminded taxpayers that like-kind exchange tax treatment is now generally limited to exchanges of real property. The Tax Cuts and Jobs Act, passed in December 2017, made tax law changes that will affect virtually every business and individual in 2018 and the years ahead.

Effective Jan. 1, 2018, exchanges of personal or intangible property such as machinery, equipment, vehicles, artwork, collectibles, patents, and other intellectual property generally do not qualify for nonrecognition of gain or loss as like-kind exchanges. However, certain exchanges of mutual ditch, reservoir or irrigation stock are still eligible.

Like-kind exchange treatment now applies only to exchanges of real property that is held for use in a trade or business or for investment. Real property, also called real estate, includes land and generally anything built on or attached to it. An exchange of real property held primarily for sale still does not qualify as a like-kind exchange.

A transition rule in the new law allows like-kind treatment for some exchanges of personal or intangible property. If the taxpayer disposed of the personal or intangible property on or before Dec. 31, 2017, or received replacement property on or before that date, the exchange may qualify for like-kind exchange treatment.

Properties are of like-kind if they’re of the same nature or character, even if they differ in grade or quality. Improved real property is generally of like-kind to unimproved real property. For example, an apartment building would generally be of like-kind to unimproved land. However, real property in the United States is not of like-kind to real property outside the U.S.

To report a like-kind exchange, taxpayers must file Form 8824, Like-Kind Exchanges, with their tax return for the year the taxpayer transfers property as part of a like-kind exchange. This form helps a taxpayer figure the amount of gain deferred as a result of the like-kind exchange, as well as the basis of the like-kind property received, if cash or property that isn’t of like kind is involved in the exchange. Form 8824 helps compute the amount of gain the taxpayer must report.

For more information about this and other tax reform changes, visit irs.gov/taxreform.

 

After tax reform, many corporations will pay blended tax rate

Please call Kevin M. Sayed, J.D., LL.M., with questions about tax issues, and tax or business planning, at 252-321-2020. The following materials were originally published by the IRS.

Last year’s tax reform legislation replaced the graduated corporate tax structure with a flat 21 percent corporate tax rate. This new maximum tax rate for corporations is effective for tax years beginning after Dec. 31, 2017.

A corporation with a fiscal year that includes Jan. 1, 2018, will pay federal income tax using what is called a blended tax rate. They will not use the flat 21 percent tax rate for their entire fiscal year. To calculate their blended tax rate, these corporations will:

  • First calculate their tax for the entire taxable year using the tax rates that were in effect prior to the Tax Cuts and Jobs Act.
  • Then calculate their tax using the new 21 percent rate.
  • Proportion each tax amount based on the number of days in the taxable year when the different rates were in effect.
  • Take the sum of these two amounts, which is the corporation’s federal income tax for the fiscal year.

The blended rate applies to all fiscal year corporations whose fiscal year includes Jan. 1, 2018.  Fiscal year corporations that have already filed their federal income tax returns that do not reflect the blended rate may want to consider filing an amended return.

This change will affect many tax forms and instructions that corporations use. For a complete list, see the 2017 Fiscal Tax Year Filers Must Use Blended Corporate Tax Rates page on IRS.gov.
More information:
Notice 2018-38

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401(k) contribution limit increases to $19,000 for 2019; IRA limit increases to $6,000

Please call Kevin M. Sayed, J.D., LL.M., with questions about tax issues and tax planning at 252-321-2020.  The following materials were originally published by the IRS.

The Internal Revenue Service today announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2019.  The IRS today issued technical guidance detailing these items in Notice 2018-83.

Highlights of Changes for 2019

The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $18,500 to $19,000.

The limit on annual contributions to an IRA, which last increased in 2013, is increased from $5,500 to $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.

The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs and to claim the saver’s credit all increased for 2019.

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or their spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor their spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.) Here are the phase-out ranges for 2019:

  • For single taxpayers covered by a workplace retirement plan, the phase-out range is $64,000 to $74,000, up from $63,000 to $73,000.
  • For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $103,000 to $123,000, up from $101,000 to $121,000.
  • For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $193,000 and $203,000, up from $189,000 and $199,000.
  • For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

The income phase-out range for taxpayers making contributions to a Roth IRA is $122,000 to $137,000 for singles and heads of household, up from $120,000 to $135,000. For married

couples filing jointly, the income phase-out range is $193,000 to $203,000, up from $189,000 to $199,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $64,000 for married couples filing jointly, up from $63,000; $48,000 for heads of household, up from $47,250; and $32,000 for singles and married individuals filing separately, up from $31,500.

Highlights of Limitations that Remain Unchanged from 2018

The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan remains unchanged at $6,000.

Detailed Description of Adjusted and Unchanged Limitations

Section 415 of the Internal Revenue Code (Code) provides for dollar limitations on benefits and contributions under qualified retirement plans. Section 415(d) requires that the Secretary of the Treasury annually adjust these limits for cost of living increases. Other limitations applicable to deferred compensation plans are also affected by these adjustments under Section 415. Under Section 415(d), the adjustments are to be made following adjustment procedures similar to those used to adjust benefit amounts under Section 215(i)(2)(A) of the Social Security Act.

Effective Jan. 1, 2019, the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) is increased from $220,000 to $225,000. For a participant who separated from service before Jan. 1, 2019, the limitation for defined benefit plans under Section 415(b)(1)(B) is computed by multiplying the participant’s compensation limitation, as adjusted through 2018, by 1.0264.

The limitation for defined contribution plans under Section 415(c)(1)(A) is increased in 2019 from $55,000 to $56,000.

The Code provides that various other dollar amounts are to be adjusted at the same time and in the same manner as the dollar limitation of Section 415(b)(1)(A). After taking into account the applicable rounding rules, the amounts for 2019 are as follows:

The limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) is increased from $18,500 to $19,000.

The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $275,000 to $280,000.

The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan is increased from $175,000 to $180,000.

The dollar amount under Section 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a five year distribution period is increased from

$1,105,000 to $1,130,000, while the dollar amount used to determine the lengthening of the five year distribution period is increased from $220,000 to $225,000.

The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) is increased from $120,000 to $125,000.

The dollar limitation under Section 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $6,000. The dollar limitation under Section 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $3,000.

The annual compensation limitation under Section 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost of living adjustments to the compensation limitation under the plan under Section 401(a)(17) to be taken into account, is increased from $405,000 to $415,000.

The compensation amount under Section 408(k)(2)(C) regarding simplified employee pensions (SEPs) remains unchanged at $600.

The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts is increased from $12,500 to $13,000.

The limitation on deferrals under Section 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations is increased from $18,500 to $19,000.

The limitation under Section 664(g)(7) concerning the qualified gratuitous transfer of qualified employer securities to an employee stock ownership plan remains unchanged at $50,000.

The compensation amount under Section 1.61 21(f)(5)(i) of the Income Tax Regulations concerning the definition of “control employee” for fringe benefit valuation remains unchanged at $110,000. The compensation amount under Section 1.61 21(f)(5)(iii) is increased from $220,000 to $225,000.

The dollar limitation on premiums paid with respect to a qualifying longevity annuity contract under Section 1.401(a)(9)-6, A-17(b)(2)(i) of the Income Tax Regulations remains unchanged at $130,000.

The Code provides that the $1,000,000,000 threshold used to determine whether a multiemployer plan is a systemically important plan under Section 432(e)(9)(H)(v)(III)(aa) is adjusted using the cost-of-living adjustment provided under Section 432(e)(9)(H)(v)(III)(bb). After taking the applicable rounding rule into account, the threshold used to determine whether a multiemployer plan is a systemically important plan under Section 432(e)(9)(H)(v)(III)(aa) is increased for 2019 from $1,087,000,000 to $1,097,000,000.

The Code also provides that several retirement-related amounts are to be adjusted using the cost-of-living adjustment under Section 1(f)(3). After taking the applicable rounding rules into account, the amounts for 2019 are as follows:

The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for married taxpayers filing a joint return is increased from $38,000 to $38,500; the limitation under Section 25B(b)(1)(B) is increased from $41,000 to $41,500; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $63,000 to $64,000.

The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the Retirement Savings Contribution Credit for taxpayers filing as head of household is increased from $28,500 to $28,875; the limitation under Section 25B(b)(1)(B) is increased from $30,750 to $31,125; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $47,250 to $48,000.

The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the Retirement Savings Contribution Credit for all other taxpayers is increased from $19,000 to $19,250; the limitation under Section 25B(b)(1)(B) is increased from $20,500 to $20,750; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $31,500 to $32,000.

The deductible amount under Section 219(b)(5)(A) for an individual making qualified retirement contributions is increased from $5,500 to $6,000.

The applicable dollar amount under Section 219(g)(3)(B)(i) for determining the deductible amount of an IRA contribution for taxpayers who are active participants filing a joint return or as a qualifying widow(er) increased from $101,000 to $103,000. The applicable dollar amount under Section 219(g)(3)(B)(ii) for all other taxpayers who are active participants (other than married taxpayers filing separate returns) increased from $63,000 to $64,000. If an individual or the individual’s spouse is an active participant, the applicable dollar amount under Section 219(g)(3)(B)(iii) for a married individual filing a separate return is not subject to an annual cost-of-living adjustment and remains $0. The applicable dollar amount under Section 219(g)(7)(A) for a taxpayer who is not an active participant but whose spouse is an active participant is increased from $189,000 to $193,000.

The adjusted gross income limitation under Section 408A(c)(3)(B)(ii)(I) for determining the maximum Roth IRA contribution for married taxpayers filing a joint return or for taxpayers filing as a qualifying widow(er) is increased from $189,000 to $193,000. The adjusted gross income limitation under Section 408A(c)(3)(B)(ii)(II) for all other taxpayers (other than married taxpayers filing separate returns) is increased from $120,000 to $122,000. The applicable dollar amount under Section 408A(c)(3)(B)(ii)(III) for a married individual filing a separate return is not subject to an annual cost-of-living adjustment and remains $0.

 

Treasury, IRS issue proposed regulations on new Opportunity Zone tax incentive

Please call Kevin Sayed, J.D., LL.M., to discuss the opportunity to defer capital gains taxes, or any other tax planning and business matters.  The following materials were originally published by the IRS.

The Treasury Department and the Internal Revenue Service issued proposed regulations for the new Opportunity Zone tax incentive to clarify that almost all of the associated capital gains qualify for deferral.

Opportunity Zones, created by the 2017 Tax Cuts and Jobs Act, are designed to spur investment in distressed communities through tax benefits. A nomination process completed in June resulted in the designation of qualified Opportunity Zones in 8,761 communities in all 50 states, the District of Columbia and five U.S. territories. Investors may defer tax on almost any capital gain up to Dec. 31, 2026 by making an appropriate investment in a zone, making an election after Dec. 21, 2017, and meeting other requirements.

More information on Opportunity Zones is available on IRS.gov/taxreform. This page will also feature updates on the implementation of this and other TCJA provisions.

Click here for a complete list of Opportunity Zones.

New 100-percent depreciation deduction benefits business taxpayers

Please call Kevin M. Sayed, J.D., LL.M., with questions about tax issues, and tax or business planning, at 252-321-2020.  The following materials were originally published by the IRS.

Tax reform legislation passed in December 2017 includes changes that affect businesses. One of these changes allows businesses to write off most depreciable business assets in the year they place them in service.

Here are some facts about this deduction to help businesses better understand how to claim it:

  • The 100-percent depreciation deduction generally applies to depreciable business assets with a recovery period of 20 years or less and certain other property.
  • Machinery, equipment, computers, appliances and furniture generally qualify.
  • The 100-percent depreciation deduction applies to qualifying property acquired and placed in service after Sept. 27, 2017.
  • Taxpayers who elect out of the 100-percent depreciation deduction for a class of property must do so on a timely filed return. Those who have already timely filed their 2017 return and did not elect out can still do so. These taxpayers have six months from the original filing deadline, to file an amended return. For calendar-year corporations, this means Oct. 15, 2018.
  • The IRS issued proposed regulations with guidance on what property qualifies and rules for qualified film, television and live theatrical productions, and certain plants.
  • For details on claiming the 100-percent depreciation deduction or electing out of claiming it, taxpayers should refer to the proposed regulations or the instructions to Form 4562, Depreciation and Amortization.

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IRS Extends Deadlines per Hurricane Florence

The IRS extended deadlines that apply to filing returns, paying taxes, and performing certain other time-sensitive acts for certain taxpayers affected by Hurricane Florence in the counties Beaufort, Bladen, Brunswick, Carteret, Columbus, Craven, Cumberland, Duplin, Harnett, Hoke, Hyde, Johnson, Lee, Lenoir, Jones, Moore, New Hanover, Onslow, Pamlico, Pender, Pitt, Richmond, Robeson, Sampson, Scotland, Wayne and Wilson in North Carolina and Dillon, Horry, Marion and Marlboro counties in South Carolina. The extension applies to deadlines – either an original or extended due date – that occurred on or after September 7, 2018 and before January 31, 2019.

For more information, please visit https://www.irs.gov/newsroom/help-for-victims-of-hurricane-florence.

All material originally published by the IRS. For help with tax planning, business planning, or estate planning contact Kevin M Sayed, J.D., LL.M. Taxation, at 252-321-2020, or ksayed@ck-attorneys.com.

 

IRS warns of scams related to natural disasters

Please call Kevin M Sayed, J.D., LL.M., with questions about tax issues and business planning at 252-321-2020.  The following was originally published by the IRS.

WASHINGTON ― In the wake of Hurricane Florence, the Internal Revenue Service is reminding taxpayers that criminals and scammers try to take advantage of the generosity of taxpayers who want to help victims of major disasters.
Fraudulent schemes normally start with unsolicited contact by telephone, social media, e-mail or in-person using a variety of tactics.
• Some impersonate charities to get money or private information from well-intentioned taxpayers.
• Bogus websites use names similar to legitimate charities to trick people to send money or provide personal financial information.
• They even claim to be working for or on behalf of the IRS to help victims file casualty loss claims and get tax refunds.
• Others operate bogus charities and solicit money or financial information by telephone or email.
Help for disaster victims
Comprehensive information on disaster-related tax issues, including provisions for tax relief, can be found on the disaster relief page on IRS.gov. In the case of a federally declared disaster, affected taxpayers may also call the IRS Special Services Help Line, 866-562-5227, with disaster-related tax questions. Details on available relief can be found on the disaster relief page on IRS.gov.
Donate to real charities
To help taxpayers donate to legitimate charities, the IRS website, IRS.gov, has a search feature, Tax Exempt Organization Search, that helps users find or verify qualified charities. Donations to these charities may be tax-deductible.
• Contribute by check or credit card. Never give or send cash.
• Don’t give out personal financial information — such as Social Security numbers or credit card and bank account numbers and passwords — to anyone who solicits a contribution.
Taxpayers suspecting fraud by email should visit IRS.gov and search for the keywords “Report Phishing.” More information about tax scams and schemes may be found at IRS.gov using the keywords “scams and schemes.”

 

Clarification for business taxpayers: Payments under state or local tax credit programs may be deductible as business expenses

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Please call Kevin M Sayed, J.D., LL.M., with questions about tax issues and business planning at 252-321-2020.  The following was originally published by the IRS.

WASHINGTON — Business taxpayers who make business-related payments to charities or government entities for which the taxpayers receive state or local tax credits can generally deduct the payments as business expenses, the Internal Revenue Service said today.

Responding to taxpayer inquiries, the IRS clarified that this general deductibility rule is unaffected by the recent notice of proposed rulemaking concerning the availability of a charitable contribution deduction for contributions pursuant to such programs. The business expense deduction is available to any business taxpayer, regardless of whether it is doing business as a sole proprietor, partnership or corporation, as long as the payment qualifies as an ordinary and necessary business expense. Therefore, businesses generally can still deduct business-related payments in full as a business expense on their federal income tax return.

Updates on the implementation of the Tax Cuts and Jobs Act (TCJA) can be found on the Tax Reform page of IRS.gov.

 

What do I do if I receive a threat from the IRS to seize my property?

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If the IRS has threatened to initiate a levy on your property, call 252-321-2020 today to ask for assistance from attorney Kevin Sayed.  All material here originally published by the Internal Revenue Service.

Taxpayers now have more time to challenge a levy

The IRS reminds individuals and businesses that they have additional time to file an administrative claim or bring a civil action for wrongful levy or seizure. Tax reform legislation enacted in December extended the time limit from nine months to two years.

Here are some facts about levies and the extension of time to file a claim or civil action:

  • An IRS levy permits the legal seizure and sale of property to satisfy a tax debt. For purposes of a levy, the term “property” includes wages, money in bank or other financial accounts, vehicles and real estate.
  • The timeframes apply when the IRS has already sold the property it levied. Taxpayers can make an administrative claim for return of their property within two years of the date of the levy.
  • If an administrative claim is made within the extended two-year period, the two-year period for bringing suit is extended for one of two periods, whichever is shorter:o Twelve months from the date the person filed the
    claim.
    o Six months from the date the IRS disallowed the
    claim.
  • The change in law applies to levies made before, on or after December 22, 2017, as long as the previous nine-month period hadn’t yet expired.
  • Anyone who receives an IRS bill titled, Final Notice of Intent to Levy and Notice of Your Right to A Hearing, should immediately contact the IRS. By doing so, a taxpayer may be able to make arrangements to pay the liability, instead of having the IRS proceed with the levy.

More Information:

Please call Kevin M. Sayed, J.D., LL.M. Taxation, with Colombo Kitchen Attorneys for help with IRS tax issues.  

Enforced Collection Actions

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The IRS recently decided to begin a campaign to aggressively levy wages and income, bank accounts, and other payments and assets that serve as cash or cash equivalents. For the last few years the IRS would routinely intercept federal payments (which will continue) to businesses or individuals. The IRS will soon begin aggressive collection campaigns on cash or payments. See the website below for common types of levy and collection and enforcement actions available to the IRS.

https://www.irs.gov/businesses/small-businesses-self-employed/enforced-collection-actions

If taxes are not paid timely, and the IRS is not notified why the taxes cannot be paid, the law requires that enforcement action be taken, which could include the following:

  • Issuing a Notice of Levy on salary and other income, bank accounts or property (legally seize property to satisfy the tax debt)
  • Assessing a Trust Fund Recovery Penalty for certain unpaid employment taxes
  • Issuing a Summons to the taxpayer or third parties to secure information to prepare unfiled tax returns or determine the taxpayer’s ability to pay

Note: To collect delinquent tax debts, certain federal payments (vendor, OPM, SSA, federal salary, and federal employee travel) disbursed by the Department of the Treasury, Bureau of Fiscal Service (BFS) may be subject to a levy through the Federal Payment Levy Program (FPLP).

Important Information for Employers

Employment taxes are:

  • The amounts an employer should withhold from employees for income, social security, and Medicare taxes (also called withheld or trust fund taxes), plus
  • The amount of social security tax and Medicare taxes an employer pays on behalf of each employee

Paying employment taxes late, or not including payment with a return if required, could result in additional penalties and interest on any unpaid balance. Failure to Deposit (FTD) penalties of up to 15 percent of the amount not deposited may be charged, depending on how many days the payment is late.

Enrolling in and making current tax deposits through the Electronic Federal Tax Payment System (EFTPS) can help employers stay up-to-date with their payment requirements.

If you need help with employment or contracts, business or corporate matters, or business tax optimization, call Kevin M. Sayed, J.D., LL.M. Taxation at Colombo Kitchin attorneys, 252-321-2020.