Now that April 15 has come and gone, have all of our tax reform questions been answered? Many taxpayers (and accountants) are still sifting through the changes and awaiting additional guidance surrounding some areas of uncertainty.
In some situations, taxpayers have extended returns or will need to file amended returns in the future once the IRS issues guidance to clear up ambiguity surrounding the new law. Hopefully, this clarity will be issued by September and October so extended returns can be filed with comprehensive direction.
So, what are we still waiting for?
There are a handful of lingering questions after tax day, leaving some taxpayers in limbo.
The retail “glitch” is one of the main technical concerns for restaurants, retailers and other leaseholders. An unintentional clerical error occurred in the Tax Cuts and Jobs Act of 2017 (TCJA) preventing investments in qualified improvement property from qualifying for bonus depreciation. While not intended, this error caused a significantly greater tax burden than under previous law. Some businesses re-strategized investment approaches and even turned down otherwise pursued opportunities.
In its original form, the TCJA allowed businesses to immediately deduct expenses related to facility improvements instead of having to depreciate the cost over 15 years, as under previous law. However, the error inadvertently indicated that expenses should be depreciated over a 39-period, which undoubtedly affected investments and increased overall costs.
Lawmakers have introduced a bill that would fix the glitch and will take effect as if they were integrated into the original version of the TCJA. The proposal is pending approval.
Another loose end that needs to be tied up is a technical error concerning cooperative (co-op) housing shareholders and the SALT cap. Owners of shares in housing co-ops were left out of the $10,000 cap on state and local income taxes and real estate taxes. While unintentional, taxpayers will need to file an extension or amend their return when the technical corrections bill is passed.
Excess Business Loss Calculation
The excess business loss provision is more complex than it appears on the surface, and questions still loom regarding whether certain items, such as wages, are included or excluded from the calculation. According to the IRS, wage income is considered business income. However, proposed technical corrections submitted earlier this year have removed the treatment of wage income as business income for the excess business loss calculation.
Business Interest Expense Deduction Limits
The application of the Business Interest Expense Deduction Limitation was greatly expanded under the TCJA, and many taxpayers found themselves now subject to these limitations. Where limitations were at the partnership level, the limited interest expense was passed through to the partners to determine the correct treatment on their individual tax returns. However, the statute and the proposed regulations on the statute do not agree in regards to how these limitations should be calculated at the individual level.
This broadening of the limitation has resulted in what is widely believed to be unintended consequences, and a technical correction or relief for small taxpayers has been requested.
There are approximately 29 provisions that have expired in 2017 and 2018, and the remaining are scheduled to expire between now and 2027. Many of these provisions have been routinely extended year after year, but taxpayers are still waiting on final guidance from Congress.
The House Ways and Means Committee published document JCX-8-19 outlining the tax provisions that have expired in 2017 and 2018, as well as those set to expire at the end of 2019. Below is a glimpse of those provisions on the table for potential extension:
- $2,000 credit for the construction of new energy efficient homes
- $1.80 per square foot for energy-efficient commercial buildings
- Incentives for alternative fuels
- Cost recovery provisions for horses, motorsports, Indian reservations property, and film production
- Excise taxes on beer, wine and distilled spirits
- Credit for health insurance costs
- New Market tax credit
- Work opportunity tax credit
- Qualified tuition deduction
Owed Money this Year?
You’re not alone if you owed money to the government this year, even if your tax burden was reduced. According to statistics published by the IRS, to date a million fewer taxpayers received refunds this year. In light of this, we would recommend adjusting your withholdings, starting tax planning earlier, and consulting with your accountant to make tax reform changes work for you and your situation.
While tax day is behind us, there is still much work to be done with extended and amended returns. Tax planning for next year is an important ingredient to balance out the changes in the new tax law to work in your favor. Please contact me at firstname.lastname@example.org or (805) 963-7811 if you have any questions. We’re here to help