There are concerns due to the taxes and the government shutdown. There are changes to the taxation codes due Bipartisan Act of 2018 and Jobs Act of 2017. Let me clarify the updates and status of the tax issues, thus IRS policy updates. This can cause some delay in refunds and payment issues.
Tax Codes Updates
Tax Form Updates
Tax Code Updates
Publication 535 and QBI
In mid-December, final regulations (1545-BO71 and 1545-BP12) were sent to the Office of Information and Regulatory Affairs (OIRA), under the Office of Management and Budget, for final review. The Department of Treasury did not designate the final regulations as economically significant. That means OIRA has 45 days to review the regulations. With the shutdown, it’s unclear if it will take longer for approval.
In the meantime, the IRS released a draft version of Publication 535, Business Expenses. Despite what the initial QBI proposed regulations stated, the publication notes that brokerage services, including arranging transactions between a buyer and a seller for a commission or fee such as stockbrokers, real estate agents and brokers, insurance agents and brokers, and intellectual property brokers are included as a “specified service trade or business” (SSTB) and would qualify for QBI. Please note, this publication is not final, nor are the regulations. Details could change.
2019 W-4 Released
In September, following feedback from the payroll and tax communities, the Treasury Department and the IRS announced that it’ll incorporate important changes into a new version of the Form W-4, Employee’s Withholding Allowance Certificate, for 2020. The final 2019 W-4 is similar to the final 2018 version.
The IRS continues to strongly urge taxpayers to review their tax withholding situation as soon as possible to avoid having too little or too much withheld from their paychecks.
Tax Form UPDATE
Deprecation and Section 179 Expenses
Revenue Procedure 2019-08 provides guidance on deducting expenses under Section 179(a) and on deducting depreciation under Section 168(g). These rules, as amended by the TCJA, generally apply to tax years beginning after 2017.
Section 179 allows taxpayers to deduct the cost of certain property as an expense when the property is placed in service. For tax years beginning after 2017, the TCJA increased the maximum Section 179 expense deduction from $500,000 to $1 million. The phase-out limit increased from $2 million to $2.5 million. These amounts are indexed for inflation for tax years beginning after 2018.
The Section 179 deduction applies to tangible personal property such as machinery and equipment purchased for use in a trade or business, and if the taxpayer elects, qualified real property. The TCJA amended the definition of qualified real property to mean qualified improvement property and some improvements to nonresidential real property, such as roofs; heating, ventilation and air-conditioning property; fire protection and alarm systems; and security systems. Revenue Procedure 2019-08 explains how taxpayers can elect to treat qualified real property as Section 179 property.
For tax years beginning after 2017, the TCJA also expanded the list of businesses that must use the alternative depreciation system under Section 168(g) (ADS). A farming business can elect out of the interest deduction limit of Section 163(j). If it does, the business must use the ADS for a property with a recovery period of 10 years or more. A real property trade or business can also elect out of Section 163(j) limit. If it does, the business must use the ADS for nonresidential real property, residential rental property, and qualified improvement property. Revenue Procedure 2019-08 explains how electing real property trades or businesses or farming businesses change to the ADS for property placed in service before 2018, and provides that it is not a change in accounting method.
Finally, the TCJA changed the ADS recovery period of the residential rental property. For property placed in service after 2017, the recovery period is 30 years. It was formerly 40 years. Revenue Procedure 2019-08 provides an optional depreciation table for residential rental property depreciated under the ADS with a 30-year recovery period.
Upcoming Filing Deadline for Wage Statements
Wage statements and independent contractor forms must be filed with the government by Jan. 31. An extension of time to file is no longer automatic. The IRS will only grant extensions for very specific reasons.
The PATH Act includes a requirement for employers to file their copies of Form W-2 and Form W-3 with the Social Security Administration by the end of January. This deadline also applies to certain Forms 1099-MISC filed with the IRS to report non-employee compensation to independent contractors.
Failure to file these forms correctly and time may result in penalties.