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Tuesday, May 28, 2019

IRS Issues 2020 Inflation-Adjusted Amounts For Health Savings Accounts

 
In a new Revenue Procedure (Rev Proc 2019-25, 2019-22 IRB), the IRS has provided the 2020 inflation-adjusted contribution, deductible, and out-of-pocket expense limits for health savings accounts (HSAs). 
 
 
HSA basics. 
Eligible individuals may, subject to statutory limits, make deductible contributions to an HSA. Employers and other persons (e.g., family members) also may contribute to an HSA on behalf of an eligible individual. Generally, employer contributions are treated as employer-provided coverage for medical expenses under an accident or health plan and are excludable from income.
 
In general, a person is an "eligible individual" if he or she is covered under a high deductible health plan (HDHP) and is not covered under any other health plan, unless the other coverage is permitted insurance (e.g., for worker's compensation, a specified disease or illness, or providing a fixed payment for hospitalization). General purpose health accounts, such as flexible spending accounts (FSAs) and health reimbursement arrangements (HRAs), constitute "other coverage" that will usually preclude HSA eligibility. However, exceptions apply for, among other things, FSAs and HRAs that provide only certain benefits, such as dental and vision, and those imposing high annual deductibles.
 
HSA distributions not used to pay for qualifying medical expenses generally are included in income and are subject to a 10% penalty tax.
 
Annual contribution limitations for 2020. 
For calendar year 2020, the limitation on deductions under Code Sec. 223(b)(2)(A) for an individual with self-only coverage under an HDHP is $3,550 (up from $3,500 for 2019). For calendar year 2020, the limitation on deductions under Code Sec. 223(b)(2)(B) for an individual with family coverage under an HDHP is $7,100 (up from $7,000 for 2019).
 
HDHP for 2020. For calendar year 2020, an HDHP is defined under Code Sec. 223(c)(2)(A) as a health plan with an annual deductible that is not less than $1,400 (up from $1,350 for 2019) for self-only coverage or $2,800 (up from $2,700 for 2019) for family coverage, and with respect to which the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, not including premiums) do not exceed $6,900 (up from $6,750 for 2019) for self-only coverage or $13,800 (up from $13,500 for 2019) for family coverage. 
 
 
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Monday, May 13, 2019

2019 IRS Income Tax Deductions For Automobile Costs

 


Businesses that use a car or other vehicle may be able to deduct the expense of operating that vehicle on their taxes.

Businesses generally can use one of the two methods to figure their deductible vehicle expenses:
  • Standard mileage rate
  • Actual car expenses
For 2019, here are the standard mileage rates for calculating the deductible costs of operating an automobile for business, charitable, medical or moving purposes:
  • 58 cents per mile driven for business use
  • 20 cents per mile driven for medical or moving purposes
  • 14 cents per mile driven in service of charitable organizations
Of course, business taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates. Here are some facts to help business owners understand the differences between the two methods of figuring their deductible vehicle expenses:
  • Businesses that want to use the standard mileage rate for a car they own must choose to use the standard mileage rate in the first year they use the vehicle. Then, in later years, they can choose to use either the standard mileage rate or actual expenses.
     
  • If a business wants to use the standard mileage rate for a car they lease, they must use this rate for the entire lease period.
     
  • The business must make the choice to use the standard mileage rate by the due date of their return, including extensions. They can’t revoke the choice.
     
  • A business that qualifies to use both methods may want to figure their deduction both ways to see which gives them a larger deduction.
     
  • Here are some examples of actual car expenses that a business can deduct:
o Licenses
o Gas
o Oil
o Tolls
o Insurance
o Repairs
o Depreciation – limitations and adjustments may apply  

Businesses can see Publication 463, Travel, Gift and Car Expenses, for a full list of actual expenses and how to calculate them.

More Information:

IRS issues standard mileage rates for 2019
IRS Notice 2019-02
National Small Business Week


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Tuesday, April 23, 2019

Six Things Taxpayers Should Know About The Sharing Economy And Their IRS Taxes

 

 

From renting spare rooms and vacation homes to car rides or using a bike…name a service and it’s probably available through the sharing economy. 
 


Taxpayers who participate in the sharing economy can find helpful resources in the IRS Sharing Economy Tax Center on IRS.gov. 

Here are six things taxpayers should know about how the sharing economy might affect their taxes:

1. The activity is taxable.
Sharing economy activity is generally taxable. It is taxable even when:

  • The activity is only part time
  • The activity is something the taxpayer does on the side
  • Payments are in cash
  • The taxpayer receives an information return – like a Form 1099 or Form W2

2. Some expenses are deductible.
Taxpayers who participate in the sharing economy may be able to deduct certain expenses. For example, a taxpayer who uses their car for business may qualify to claim the standard mileage rate, which is 58 cents per mile for 2019.

3. There are special rules for rentals.
If a taxpayer rents out their home or apartment, but also lives in it during the year,
special rules generally apply to their taxes. Taxpayers can use the Interactive Tax Assistant tool, Is My Residential Rental Income Taxable and/or Are My Expenses Deductible? to determine if their residential rental income is taxable.

4. Participants may need to make estimated tax payments.
The U.S. tax system is
pay-as-you-go. This means that taxpayers involved in the sharing economy often need to make estimated tax payments during the year. These payments are due on April 15, June 15, Sept. 15 and Jan. 15. Taxpayers use Form 1040-ES to figure these payments.

5. There are different ways to pay.
The fastest and easiest way to make estimated tax payments is through
IRS Direct Pay. Alternatively, taxpayers can use the Electronic Federal Tax Payment System.

6. Taxpayers should check their withholding.
Taxpayers involved in the sharing economy who are employees at another job can often avoid making estimated tax payments by having more tax withheld from their paychecks. These taxpayers can use the
Withholding Calculator on IRS.gov to determine how much tax their employer should withhold. After determining the amount of their withholding, the taxpayer will file Form W-4 with their employer to request the additional withholding.

IRS YouTube Videos:
Your Taxes in the Sharing Economy –
English | ASL

 

 

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How IRS Tax Reform Affects Taxpayers Who Claim The Child Tax Credit

 

Many people claim the child tax credit to help offset the cost of raising children. Tax reform legislation made changes to that credit for 2018 and later. 

Here are some important things for taxpayers to know.

Credit amount. The new law increases the child tax credit from $1,000 to $2,000. Eligibility factors for the credit have not changed. As in past years, a taxpayer can claim the credit if all of these apply:

  • the child was younger than 17 at the end of the tax year
  • the taxpayer claims the child as a dependent
  • the child lives with the taxpayer for at least six months of the year

Credit refunds. The credit is refundable, now up to $1,400. If a taxpayer doesn’t owe any tax before claiming the credit, they will receive up to $1,400 as part of their tax refund.

Earned income threshold. The income threshold to claim the credit has been lowered to $2,500 per family. This means a family must earn a minimum of $2,500 to claim the credit.

Phaseout. The income threshold at which the child tax credit begins to phase out is increased to $200,000, or $400,000 if married filing jointly. This means that more families with children younger than 17 qualify for the larger credit.


New credit for other dependents. Dependents who can’t be claimed for the child tax credit may still qualify for the new credit for other dependents.  This is a non-refundable credit of up to $500 per qualifying person. These dependents may also be dependent children who are age 17 or older at the end of the tax year. It also includes parents or other qualifying relatives supported by the taxpayer.

More information:

Tax Reform Basics for Individuals and Families
Tax Reform Small Business Initiative


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Five IRS Tax Facts About The New Form 1040

 
There are several changes to the 2018 Form 1040. However, taxpayers who file electronically may not notice the changes as the tax return preparation software guides people through the filing process.

The IRS worked closely with its partners in the tax return preparation and tax software industries to prepare for tax reform and tax form changes affecting tax year 2018, including the
Form 1040. This ongoing collaboration ensures that taxpayers can continue to rely on the IRS, tax professionals and tax software programs when it’s time to file their tax returns.

Here are five things taxpayers need to know about the 2018 Form 1040.
  • The 2018 Form 1040 replaces Forms 1040,1040A and 1040EZ with one 2018 Form 1040 that all taxpayers will file.
     
  • Forms 1040A and 1040EZ are no longer available. Taxpayers who used one of these forms in the past will now file Form 1040.
     
  • The 2018 Form 1040 uses a “building block” approach and allows taxpayers to add only the schedules they need to their 2018 tax return.
     
  • The most commonly used lines on the prior year form are still on the form. Other lines are moved to new schedules and are organized by category. These categories include income, adjustments to income, nonrefundable credits, taxes, payments, and refundable credits.
     
  • Many taxpayers will only need to file Form 1040 and no schedules. Those with more complicated tax returns will need to complete one or more of the 2018 Form 1040 Schedules along with their Form 1040. These taxpayers include people claiming certain deductions or credits, or owing additional taxes.
Electronic filers may not notice any changes because the tax return preparation software will automatically use their answers to the tax questions to complete the Form 1040 and any needed schedules.

For taxpayers who filed paper returns in the past and are concerned about these changes, this year may be the year to consider the benefits of
filing electronically. Using tax software is convenient, safe and a secure way to prepare and e-file an accurate tax return.

More information:

About the Form 1040, U.S. Individual Income Tax Return
Questions and Answers About the 2018 Form 1040
Get Ready for Tax Filing Season
Publication 5307, Tax Reform: Basics for Individuals and Families
Publication 17, Your Federal Income Tax for Individuals
IRS Tax Map


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IRS Provides A Safe Harbor Method Of Accounting For Passenger Automobiles That Qualify For The 100-Percent Additional First Year Depreciation

 

WASHINGTON –The Treasury Department and the Internal Revenue Service issued guidance that provides a safe harbor method for determining depreciation deductions for passenger automobiles that qualify for the 100-percent additional first year depreciation deduction and that are subject to the depreciation limitations for passenger automobiles.

Under the Tax Cuts and Jobs Act (TCJA), the additional first year depreciation deduction applies to qualified property, including passenger automobiles, acquired and placed in service after September 27, 2017, and before January 1, 2027.

In general, the section 179 and depreciation deductions for passenger automobiles are subject to dollar limitations for the year the taxpayer places the passenger automobile in service and for each succeeding year.  For a passenger automobile that qualifies for the 100-percent additional first year depreciation deduction, TCJA increased the
first-year limitation amount by $8,000.  If the depreciable basis of a passenger automobile for which the 100-percent additional first year depreciation deduction is allowable exceeds the first-year limitation, the excess amount is deductible in the first taxable year after the end of the recovery period.

The guidance provides a safe harbor method of accounting for passenger automobiles. The safe harbor allows depreciation deductions for the excess amount during the recovery period subject to the depreciation limitations applicable to passenger automobiles.  To apply the safe-harbor method, the taxpayer must use the applicable depreciation table in Appendix A of IRS Publication 946.  The safe harbor method does not apply to a passenger automobile placed in service by the taxpayer after 2022, or to a passenger automobile for which the taxpayer elected out of the 100-percent additional first year depreciation deduction or elected under section 179 to expense all or a portion of the cost of the passenger automobile.

Taxpayers adopt the safe harbor method of accounting by applying it to deduct depreciation of a passenger automobile on their return for the first taxable year following the placed-in-service year.
For more information on the additional first year depreciation deduction, see
TCJA, Depreciation. For information about other TCJA provisions, visit IRS.gov/taxreform.


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How To Pay Your IRS Federal Income Taxes

 
The IRS offers several payment options where taxpayers can pay immediately or arrange to pay in installments. 

Taxpayers can pay online, by phone, or with their mobile device and the IRS2Go app.

Taxpayers should pay in full whenever possible to avoid interest and penalty charges.   


Here are some electronic payment options for taxpayers:
  • Electronic Funds Withdrawal. Taxpayers can pay using their bank account when they e-file their tax return. EFW is free and only available through e-File.
     
  • Direct Pay. Taxpayers can pay directly from a checking or savings account for free with IRS Direct Pay. Taxpayers receive instant confirmation after they submit a payment. With Direct Pay, taxpayers can schedule payments up to 30 days in advance. They can change or cancel their payment two business days before the scheduled payment date. Taxpayers can choose to receive email notifications each time they make a payment.
     
  • Credit or debit cards. Taxpayers can also pay their taxes by debit or credit card online, by phone, or with a mobile device. Card payment processing fees vary by service provider and no part of the service fee goes to the IRS. Telephone numbers for service providers are at IRS.gov/payments.
     
  • Pay with cash. Taxpayers can make a cash payment at a participating retail partner. Taxpayers can do this at more than 7,000 locations nationwide. Taxpayers can visit IRS.gov/paywithcash for instructions on how to pay with cash.
     
  • Installment agreement. Taxpayers who are unable to pay their tax debt immediately may be able to make monthly payments. Before applying for any payment agreement, taxpayers must file all required tax returns. They can apply for an installment agreement with the Online Payment Agreement tool, which also has more information about who’s eligible to apply for a monthly installment agreement.
Anyone wishing to use a mobile device should remember they can access the IRS2Go app to pay with either Direct Pay or by debit or credit card. IRS2Go is the official mobile app of the IRS and is available for download from Google Play, the Apple App Store or the Amazon App Store.
Taxpayers can also visit
IRS.gov/account and log in to their account. From here, they can view their taxes owed, payment history, federal tax records, and key information from their most recent tax return as originally filed.

More information:

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Taxpayers should choose their tax return preparer wisely.  

 

This is because taxpayers are responsible for all the information on their income tax return. That’s true no matter who prepares the return.


Here are ten tips for taxpayers to remember when selecting a preparer:

  • Check the Preparer’s Qualifications. People can use the IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications. This tool helps taxpayers find a tax return preparer with specific qualifications. The directory is a searchable and sortable listing of preparers.
  • Check the Preparer’s History. Taxpayers can ask the Better Business Bureau about the preparer. Check for disciplinary actions and the license status for credentialed preparers. For CPAs, people can check with the State Board of Accountancy. For attorneys, they can check with the State Bar Association. For Enrolled Agents, taxpayers can go to the verify enrolled agent status page on IRS.gov or check the directory.
  • Ask about Service Fees. People should avoid preparers who base fees on a percentage of the refund or who boast bigger refunds than their competition. When asking about a preparer’s services and fees, don’t give them tax documents, Social Security numbers or other information.
  • Ask to E-File. Taxpayers should make sure their preparer offers IRS e-file. The quickest way for taxpayers to get their refund is to electronically file their federal tax return and use direct deposit.
  • Make Sure the Preparer is Available. Taxpayers may want to contact their preparer after this year’s April 15 due date. People should avoid fly-by-night preparers.
  • Provide Records and Receipts. Good preparers will ask to see a taxpayer’s records and receipts. They’ll ask questions to figure things like the total income, tax deductions and credits.
  • Never Sign a Blank Return. Taxpayers should not use a tax preparer who asks them to sign a blank tax form.
  • Review Before Signing. Before signing a tax return, the taxpayer should review it. They should ask questions if something is not clear. Taxpayers should feel comfortable with the accuracy of their return before they sign it. They should also make sure that their refund goes directly to them – not to the preparer’s bank account. The taxpayer should review the routing and bank account number on the completed return. The preparer should give you a copy of the completed tax return.
  • Ensure the Preparer Signs and Includes Their PTIN. All paid tax preparers must have a Preparer Tax Identification Number. By law, paid preparers must sign returns and include their PTIN.
  • Report Abusive Tax Preparers to the IRS. Most tax return preparers are honest and provide great service to their clients. However, some preparers are dishonest. People can report abusive tax preparers and suspected tax fraud to the IRS. Use Form 14157, Complaint: Tax Return Preparer. If a taxpayer suspects a tax preparer filed or changed their return without the taxpayer’s consent, they should file Form 14157-A, Return Preparer Fraud or Misconduct Affidavit.

More information:

Understanding Tax Return Preparer Credentials and Qualifications

Tax Topic 254 - How to Choose a Tax Return Preparer

Choosing a Tax Professional

How to Make a Complaint About a Tax Return Preparer

How to Report Suspected Tax Fraud Activity

IRS Tax Pro Association Partners

 

 

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The December 2017 Tax reform legislation affects almost every taxpayer.

 

Taxpayers can continue to rely on the IRS, tax professionals and tax software programs when it’s time to file their returns.

 

As people prepare to file their 2018 tax returns this year, they can visit IRS.gov for answers to their questions about tax reform. Here are several of the resources that will help taxpayers find out how this law affects them:

 

Tax reform provisions that affect individuals

This is the main tax reform page with information for individual taxpayers. It includes dozens of links to more information on topics from withholding and tax credits to deductions and savings plans.

 

Tax reform basics for individuals and families

This publication provides information to help individual taxpayers understand the Tax Cuts and Jobs Act and how to comply with federal tax return filing requirements.

 

Tax reform resources

On this page, taxpayers can find helpful products including news releases, tax reform tax tips, revenue procedures, fact sheets, FAQs and drop-in articles.

 

Steps to take now to get a jump on next year’s taxes

This page has dozens of resources and tools that people can visit now or any time before they file their 2018 tax returns.

 

Paycheck Checkup

This page has information for people doing a Paycheck Checkup to see if they’re withholding the right amount of tax from their paychecks. Taxpayers can perform a Paycheck Checkup at the beginning of 2019 to make sure their withholding is correct for the rest of the year.

 

IRS Withholding Calculator

One way taxpayers can do a Paycheck Checkup is to use the Withholding Calculator. Checking withholding can help taxpayers protect against having too little tax withheld and facing an unexpected tax bill or penalty at tax time.

 

Taxpayer Advocate

The Taxpayer Advocate Service’s Tax Reform Changes website, available in English and Spanish, explains what is changing and what is not this year for individuals. Its interactive information can be reviewed by tax topic or line by line using a Form 1040 example and is updated to show the new 2018 Form 1040 references.

 

Tax reform

The main tax reform webpage on IRS.gov features information for individuals, but also takes users directly to info for people who are self-employed. It is also a great resource for anyone who does taxes or accounting for a business or charity.

 

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List Of 2018 Expired IRS Federal Tax Provisions

As we enter tax season, here is a listing of those federal IRS tax provisions, that, as noted in a recent report by the Joint Committee on Taxation (JCT), have not been extended to 2018.


Background. The Code contains dozens of temporary tax provisions—i.e., provisions with a fixed termination date. Often, these expiring provisions are temporarily extended for a short period of time (e.g., one or two years).

 

Many of these extender provisions would have been extended through the end of 2018 by a the Retirement, Savings, and Other Tax Relief Act of 2018 and the Taxpayer First Act of 2018 (H.R. 88). However, on Dec. 10, 2018, that bill was revised so as to not include those extensions.

 

On January 15, Charles Grassley (R-IA), Chairman of the Senate Finance Committee stated that his goal is to guide extenders legislation to final enactment. However, he acknowledged that he does not have a specific plan and that no hearings on the subject have been scheduled.

 

List of extenders that haven't been extended to 2018. On January 19, the JCT released its annual report on the temporary individual, business, and energy tax extender provisions. This report contains a section that serves as a reminder of the extender provisions that expired at the end of 2017.

 

The provisions can be fit into three categories—those primarily affecting individuals, those primarily affecting businesses, and being energy-related provisions.

 

The expired individual provisions are:

 

  • The above-the-line deduction for certain higher-education expenses, including qualified tuition and related expenses, under Code Sec. 222;
  • The treatment of mortgage insurance premiums as qualified residence interest under Code Sec. 163(h)(3)(E); and
  • The exclusion from income of qualified canceled mortgage debt income associated with a primary residence under Code Sec. 108(a)(1)(E).

The expired business provisions are:

 

  • The Indian employment tax credit under Code Sec. 45A(f);
  • Accelerated depreciation for business property on Indian reservations under Code Sec. 168(j)(9);
  • The American Samoa economic development credit (P.L. 109-432, Sec. 119);
  • The railroad track maintenance credit under Code Sec. 45G(f);
  • 7-year recovery for motorsport racing facilities under Code Sec. 168(i)(15);
  • The mine rescue team training credit under Code Sec. 45N(e);
  • The election to expense advanced mine safety equipment under Code Sec. 179E(g);
  • Special expensing rules for film, television, and live theatrical production under Code Sec. 181;
  • Empowerment zone tax incentives under Code Sec. 1391(d)(1)(A);
  • 3-year depreciation for race horses two years or younger under Code Sec. 168(e)(3)(A)(i); and

The expired energy provisions are:

 

  • The beginning-of-construction date for nonwind facilities to claim the production tax credit (PTC) or the investment tax credit (ITC) in lieu of the PTC under Code Sec. 45(d) and Code Sec. 48(a)(5);
  • The special rule to implement electric transmission restructuring under Code Sec. 451(k);
  • The credit for construction of energy efficient new homes under Code Sec. 45L;
  • The energy efficient commercial building deduction under Code Sec. 179D;
  • The nonbusiness energy property credit under Code Sec. 25C;
  • The alternative fuel vehicle refueling property credit under Code Sec. 30C(g);
  • Incentives for alternative fuel and alternative fuel mixtures under Code Sec. 6426(d)(5) and Code Sec. 6427(e)(6)(C);
  • Incentives for biodiesel and renewable diesel under Code Sec. 40A(a), Code Sec. 6426(c)(6), Code Sec. 6426(e)(3) and Code Sec. 6427(e)(6)(B);
  • Second generation (cellulosic) biofuel producer credit under Code Sec. 40(b)(6)(J);
  • Credit for production of Indian coal under Code Sec. 45(e)(10)(A);
  • Special depreciation allowance for second generation (cellulosic) biofuel plant property under Code Sec. 168(l);
  • The credit for qualified fuel cell vehicles under Code Sec. 30B; and
  • The credit for 2-wheeled plug-in electric vehicles under Code Sec. 30D(g)(3)(E)(ii).

Tax forms and instructions. A sampling of the relevant 2018 tax forms/instructions, as they existed at the time we went to press, indicates that those forms/instructions reflect the fact that the above extenders do not apply for 2018 tax years.

 

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IRS Issues Final Regulations And Other Guidance On Section 199A Qualified Business Income Deduction

 
Treasury, IRS issue final regulations, other guidance on new qualified business income deduction; Safe harbor enables many rental real estate owners to claim deduction

 

The Treasury Department and the Internal Revenue Service issued final regulations and three related pieces of guidance, implementing the new qualified business income (QBI) deduction (section 199A deduction).

The new QBI deduction, created by the 2017 Tax Cuts and Jobs Act (TCJA) allows many owners of sole proprietorships, partnerships, S corporations, trusts, or estates to deduct up to 20 percent of their qualified business income.  Eligible taxpayers can also deduct up to 20 percent of their qualified real estate investment trust (REIT) dividends and publicly traded partnership income. 

The QBI deduction is available in tax years beginning after Dec. 31, 2017, meaning eligible taxpayers will be able to claim it for the first time on their 2018 Form 1040.
The guidance, released today includes:

  • A set of regulations, finalizing proposed regulations issued last summer, A new set of proposed regulations providing guidance on several aspects of the QBI deduction, including qualified REIT dividends received by regulated investment companies
     
  • A revenue procedure providing guidance on determining W-2 wages for QBI deduction purposes,
     
  • A notice on a proposed revenue procedure providing a safe harbor for certain real estate enterprises that may be treated as a trade or business for purposes of the QBI deduction

The proposed revenue procedure, included in Notice 2019-07, allows individuals and entities who own rental real estate directly or through a disregarded entity to treat a rental real estate enterprise as a trade or business for purposes of the QBI deduction if certain requirements are met.  Taxpayers can rely on this safe harbor until a final revenue procedure is issued.

The QBI deduction is generally available to eligible taxpayers with 2018 taxable income at or below $315,000 for joint returns and $157,500 for other filers. Those with incomes above these levels, are still eligible for the deduction but are subject to limitations, such as the type of trade or business, the amount of W-2 wages paid in the trade or business and the unadjusted basis immediately after acquisition of qualified property. These limitations are fully described in the final regulations.

The QBI deduction is not available for wage income or for business income earned by a C corporation.

For details on this deduction, including answers to frequently-asked questions, as well as information on other TCJA provisions, visit
IRS.gov/taxreform.

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Gary L. Britt, CPA, J.D.
Attorney At Law
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Plaza 1, Suite 500
Austin, Texas   78759

 

Phone: (512) 481-2886
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