Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

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New Rules For Deducting Meals & Entertainment

Posted by taxguru on April 25, 2018

As I mentioned earlier, the big “Tax Reform” law, aka the Tax Cuts and Jobs Act (TCJA), that was passed and signed into law in late December 2017, was so hastily and sloppily written that it contains several areas that are so vague and contradictory that they have everyone puzzled as to how they should be applied in real life.  One of these is the matter of deducting the costs of business meals and entertainment.  While it will most likely take several years to arrive at a firm and definitive interpretation of the law, we who do reside in the real world don’t have the luxury of waiting that long.  We need to know right now how to advise our clients. 

To that end, the fine folks at TaxCoach have assembled a handy chart comparing the rules for deducting various types of meals and entertainment expenses under the old 2017 tax law versus the new 2018 law.  They shared it with us during today’s weekly online strategy meeting.  Theirs was a PowerPoint file, which I have converted to its basic graphic and text components for this blog post.  The following chart and explanation are the creations of TaxCoach

Click on the chart below for a more legible full size version.

TC-M E(17v18)

Here are some changes you probably won’t like. Like a kitchen food processor, the new law slices, dices, and purees some of the most popular deductions for meal & entertainment expenses. The chart summarizes deductions under the old and new law.

For starters, there’s real speculation that the law may have unintentionally eliminated deductions for the classic “three martini” lunch entirely. Under the old rules, meals with prospects, clients, and referral sources were deductible under the same rules governing entertainment expenses. The new law repeals the umbrella deduction for entertainment expenses , which would appear to include business meals. However, the Senate explanation to their version of the bill, which ultimately made it into law, states that “Taxpayers may still generally deduct 50% of the food and beverage expenses associated with operating their trade or business (e.g., meals consumed by employees on work travel).”

So, which is it? Are traditional business meals still deductible or not? Well, we just don’t know. So until we get some guidance, prudence suggests you should continue to document those expenses, including the business purpose of the meal, to protect your deductions if we get clarification on the question. Better to have your ducks in a row and not need them than to need them and not have them!

Transportation expenses to and from business meals are still deductible, as they’re governed by a different section of the code that remains good today.

Unfortunately, there’s no doubt at all that the old “entertainment” deduction is gone. Under the old rules, you could deduct 50% of the cost of any entertainment expenses that took place directly before or after a a substantial, bona fide discussion directly related to the active conduct of your business. Deductions included the face value of tickets to sporting and theatrical events, food and beverages, parking, taxes, and tips. The new law repeals that deduction, regardless of how much business you discuss at the event or what business entity you operate. Now, none of those expenses are deductible – not even transportation to and from the venue.

The new law also tightens rules for deducting the cost of providing food and beverages to your employees under the “convenience of the employer” or “de minimis” fringe benefit rules. The new law cuts those deductions to just 50%, and eliminates them entirely after 2025.

Posted in meals, NewTaxLaws | Leave a Comment »

Tax Related Items in Omnibus Spending Bill

Posted by taxguru on March 31, 2018

As has long been common practice by our rulers in DC, they once again voted on and passed legislation that consisted of over 2,000 pages without giving anyone time to read it beforehand, including themselves.  They have been following the advice of their former leader, Nancy Pelosi, that  “We have to pass the bill so that you can find out what is in it.” 

This kind of reckless behavior has long been one of my many pet peeves about how business is conducted in DC and also in State capitols.  My dream is that there could one day be a law forbidding any public official from voting on any legislation until s/he has signed a sworn affidavit, under penalties of perjury just like we have to do on our tax returns (read the fine print above the signature line on your 1040), before they are allowed to cast a vote.  Only then, will they have a real incentive to reduce the length of their legislation to CliffsNotes size instead of matching the combined lengths of War and Peace and Moby Dick

Who among us would want to hire an attorney who advises his/her clients to just sign every document presented to them and then figure out what those documents mean later on down the road?  Those attorneys would be disbarred and sued out of existence for malpractice.  However, as we know all too well, our elected officials are held to completely different (lower) standards than those of us who work and live in the real world.  Just one of the many perks of elected royalty that our founding fathers definitely didn’t intend.

Back to the monstrous spending bill that Trump begrudgingly signed.  I don’t know anyone who has time to wade through it, looking for the tax related items included in its 2,200 pages.  Staying up to date on new tax laws is even tougher than normal at this time of year, as we are in the home stretch towards the April 17 Tax Day deadline.

Luckily, there are dedicated people at the tax publishing companies who have done that research for us and have boiled those 2,200 pages down to the tax related essentials.  Because I use their WebLibrary frequently, once again, the first of these special reports that I have come across is a 13 page PDF from TheTaxBook.  I have posted a copy in one of my online storage drives for your downloading and viewing pleasure.

This may just be the first analysis of the omnibus spending bill by TheTaxBook folks because the very last words on the very last page of this summary are:

Technical Corrections
The new law also amends a number of prior law provisions for technical errors that produced unintended results.

I hope they are planning to give us the specific details on those corrections so that we don’t have to pore over those 2,200 pages ourselves. 

Posted in NewTaxLaws | Comments Off on Tax Related Items in Omnibus Spending Bill

New Tax Law–Informational Brochures

Posted by taxguru on March 19, 2018

As everyone knows who has tried to understand the big Tax Reform law, the Tax Cuts & Jobs Act (TCJA) that was rushed through near the end of December, it is a bit of a mess, to put it mildly.  As is too typical for our rulers of both establishment parties, they were extremely reckless in their writing of the actual legislation.  Last minute modifications in the margins in pen, pencil, and crayon just heightened the absurdity of this process, which has long been compared to the production of sausages.

Conan O’Brien did some parodies of these handwritten tax law details.

Handwritten Additions To The GOP Tax Bill

More Handwritten Additions To The GOP Tax Bill

Even the typed portions of the law were not properly proofread before the law was passed and signed by Trump. New mistakes and ambiguities as to the intentions of our rulers are popping up on almost a daily basis. Supposedly the GOP rulers are trying to pass a technical corrections bill to fix their drafting mistakes, and the Dims are taking their standard obstructionist approach of simply opposing anything the GOP wants; so it’s anyone’s guess whether the mistakes will ever be corrected.  

In the meantime, we in the real world outside of the fantasyland of DC have to do out best to try and comply with the various confusing aspects of the new law.  All of this confusion could be considered as bad or as an opportunity to game the system even more. 

Some of the big areas of confusion that will affect a lot of business owners include:

Whether or not the deduction for all business meals has been killed, or just certain kinds of meals and entertainment.  There are tax experts taking both sides on this.

 

The new deduction for up to 20% of Qualified Business Income (QBI) has been receiving a lot of press and is probably the messiest and hardest to understand part of this entire tax bill.  The attendance at webinars I have been taking on this topic has been huge, compared to presentations on other facets of the new law, illustrating how widespread the confusion is among tax practitioners.  Many tax pros are predicting that ironing out the actual real world application of this portion of the tax law may take several years, as cases make their way to the Tax Court.  Of course, by that time, there could be an entirely new “Tax Reform” law in place, depending on who is in power in DC.

So as of right now, we are all in a learning and adjusting phase.  Rather than try to dig through the entire TCJA in one sitting, some tax publishers have broken it down into more reasonable bite-size pieces.  My favorite tax reference source, TheTaxBook, has taken this approach and has published eight different informational brochures on some of the topics in the TCJA, which I have uploaded to one of my online document storage locations for your downloading and viewing pleasure. 

New Tax Law – This is the first brochure they produced, giving a quick summary of the entire bill.

Individuals

Corporations

Depreciation

Employers

Excess Business Loss & Net Operating Loss

New Business Income Deduction – Covering the new QBI deduction

Retirement & Other Savings Accounts

Posted in NewTaxLaws, taxbook | Comments Off on New Tax Law–Informational Brochures

Joe Bonamassa’s version of TaxMan

Posted by taxguru on March 11, 2018

As I have been doing for decades, I am still collecting and sharing cover versions of George Harrisons classic song that is still just as timely today as when it first debuted on the Beatles’ Revolver album in 1966.

Joe performing the song in concert at the Cavern Club in Liverpool

 

The New Frantics  perform TaxMan using Joe’s arrangement

 

I have just set up a new playlist on my YouTube channel for TaxMan covers and will add new ones as I come across them.

Posted in Music, TaxMan, video | Comments Off on Joe Bonamassa’s version of TaxMan

Interest Rates Rising

Posted by taxguru on March 8, 2018

Another sign of a growing economy is the rising interest rates being paid on bank accounts and charged by creditors.  One of those creditors charging higher interest rates are our friends at the IRS, who are required by law to adjust how much interest they charge and pay each calendar quarter. 

As per their latest press release, the IRS interest rate will be going up to Five Percent (5.0%) as of April 1, 2018 from the Four Percent (4.0%) rate that has been in effect since April 1, 2016.  It will stay at that rate of Five Percent at least through June 30, 2018.

As you can see on this useful pdf chart of IRS interest rates since 1991, the last time they charged as much as five percent was in the first quarter of 2009. It’s been either three or four percent ever since then.

Just a reminder that the IRS interest rate is an Annual Percentage Rate (APR).  Many people have the incorrect impression that it is a daily interest rate because it is compounded on a daily basis.  As shown on this interest rate calculator, a debt with a 5.0% APR has an effective interest rate of 5.13% when the interest is compounded on a daily basis.

Even at five percent, IRS is a much more reasonably priced lender than many other sources, such as credit cards, which often charge over 30% APR.  If you owe money to IRS, it will save you a ton of interest by working out an installment payment plan with them rather than committing yourself to the usurious rates of the blood sucking credit card loan sharks.

Another reminder – This discussion has dealt with IRS interest rates on Federal tax debts.  Each State tax agency has its own procedures for adjusting, or not adjusting, what they charge as interest on their overdue taxes.  Some modify the interest rate annually, while some never change their percentage.  Arkansas is an example of the latter.  They have been charging ten percent (10.0%) for as long as I can recall.

Posted in interest, IRS | Comments Off on Interest Rates Rising

Right Under Their Noses…

Posted by taxguru on February 18, 2018

Most people give the IRS more credit for their alleged superpowers to sniff out every little tax mistake or fraud around the country than they deserve.  What kind of all-seeing detection abilities does IRS have if they aren’t even able to detect tax cheats in their own midst?

IRS still paying bonuses to tax cheat employees

Posted in cheats, IRS | Comments Off on Right Under Their Noses…

Retroactive 2017 Extenders

Posted by taxguru on February 13, 2018

How is this for another illustration of how screwed up things are in DC?  As has been covered extensively, our royal rulers passed a huge and very complicated mess of a tax law near the end of December 2017 that takes effect in 2018.  Then, after that, in February of 2018, they passed a law that retroactively, as of January 1, 2017, extends several tax breaks that had expired as of the end of 2016.

It’s like the popular story telling technique used in so many movies and TV shows nowadays, where everything is revealed in strange convoluted order.  Doing things in normal chronological order seems to be too old fashioned for people in these here modern times. 

These extensions are good news for the folks on the TaxBook discussion board, who have been panicking about what to do for their early filing clients and whether or not to charge them for amending returns to pick up the newly restored deductions that they couldn’t claim before now. 

The University of Illinois Tax School has a good eight page PDF summary of this newest retroactive tax law that will affect many 2017 tax returns.  I will post links to other useful explanations and summaries of this newest tax law, as I discover them around the ‘net.

How these retroactive Federal tax changes will affect State tax returns, many of which automatically conform with Federal law, is yet to be seen; but will be certain to add to the confusion of this current Tax Season.

Anyone in DC, Dimm or GOP, who claims that our tax system has been simplified is a 100% certifiable moron.

More info this retroactive legislation:

   From Congress – H.R.1892 – Bipartisan Budget Act of 2018

   From TheTaxBook6 page PDF summary

   From The Tax Foundation: Budget Deal Would Retroactively Extend Several Expired Tax Provisions

   From Intuit’s Tax Pro Center: Government Shutdown Averted and Tax Provisions Providing Tax Relief Passed

Posted in NewTaxLaws | Comments Off on Retroactive 2017 Extenders

Tax Scammers Are Multi-National

Posted by taxguru on February 8, 2018

Tax Season is also Scammers Season.  A number of clients have told us about receiving phone calls from people claiming that the police were coming for them due to tax evasion charges.  A few days ago, we received a couple of those calls, with a robotic voice and each with different Caller ID info, making the same claim. We didn’t waste time calling them back, but I did block their numbers.  I’m sure, just as with many similarly reported scams, they would have demanded payment of the fictitious taxes via some kind of gift cards, which should be a dead tip-off to everyone that this is a huge con job.

Earlier today, I was watching the latest episode of The Checkout, a very funny consumer protection show from Australia.  Illustrating that the phone scammers we have been fighting against here in the USA are pulling the exact same tricks in other countries, it has this segment showing a sweet little old lady purchasing iTunes gift cards in order to pay off a phony tax debt.

Posted in scams | Comments Off on Tax Scammers Are Multi-National

Checking out the new tax law…

Posted by taxguru on January 31, 2018

I intentionally avoided discussing the new tax law over the past several months as it went back and forth between the House and the Senate and was lied about in the press. Besides the heavy doubts surrounding the ability of the GOP in DC being able to pass any significant legislation, it would have been a big waste of everyone’s time dissecting and analyzing provisions that wouldn’t become part of the actual law.

With all of the promises that this latest reform of the tax code would make everything so simple and fair that doing our taxes would be so much fun, this gave me such a case of deja vu because it exactly mirrored the analogy I have been using for decades to describe how tax laws are created and the changes they undergo as they move through the legislative processes.  The poster I designed decades ago to graphically illustrate this is just as relevant to this latest handiwork by our rulers as it was back in the 1980s.     

Now that a unified bill has been passed and signed into law, it’s time to take some serious looks at exactly what it contains.  Just like our rulers in DC who voted on this bill, those of us in the real world don’t have time to read and try to interpret all 500 or so pages of the actual legislation; so we rely on professionals who have done that and produced easy to follow summaries.

While there is a very good chance that many people will save some money on their tax returns because of the new law, the actual amounts will vary on a case by case basis.  The figures being bandied about by our rulers in DC, as well as the calculated "costs" of the new law have been pulled out of their recta, as are all such predictions from everyone in DC, including the GAO, OMB, CBO, WTF, et al.  They have never been right when it comes to comparing their supposedly detailed calculated predictions with the real world results and there is there is absolutely no reason to expect these latest predictions to be any more accurate.   

One thing is certain.  This new law does not simplify the tax game one bit.  As always, every attempt by our rulers in DC to make taxes so simple that we practitioners will have no more work ends up doing the exact opposite.  It’s another case of increased job security for those of us in the tax profession.  All of these new changes to the Tax Code actually give us many more more opportunities to help clients structure things to save on the amount of taxes they pay. 

There may be some different rules for the Tax Game, but there are still plenty of ways to "game the system," to borrow a favorite phrase of the Left.  Even with robots and other forms of automation taking over various occupations, there is no way any kind of artificial intelligence can replace the tax saving abilities of a skilled and knowledgeable professional tax advisor, especially one who utilizes the tax savings strategies of the TaxCoach system

As I have done in previous years when significant new tax laws have been enacted, I am planning to post links to handy summaries of those laws to share with readers.  If anyone has seen a good summary that they would like to share, please send me a link to it and I will include it here. 

While the pickings are a bit sparse right now, during the traditionally slow holiday season, I do know that most tax research services, including the fine folks at TaxCoach, are planning to release their analyses in the early part of January.

Here is what I have come across so far:

From my favorite tax reference service, The TaxBook19 Page PDF Summary

From Forbes: Tax Geek Tuesday: Making Sense Of The New ‘20% Qualified Business Income Deduction‘ (31 page PDF version)  Thanks to Ohio CPA Dana Stahl for passing this along to me.

From TaxCoach: They are planning a lot of detailed guides, which I will be sharing here.  Here is their first one page summary.  

From RIA (another thanks to Dana Stahl):

Special Study on Business Tax Changes in the "Tax Cuts and Jobs Act" (20 page pdf)

Special Study on Individual Tax Changes in the "Tax Cuts and Jobs Act" (23 page pdf)

Special Study on S corp, partnership & other changes in the "Tax Cuts and Jobs Act" (11 page pdf)

A new two page brochure from The TaxBook.

The National Association of Realtors has published an analysis of the new tax law as it affects Realtors, homeowners and real estate investors.  I learned about this 1/31/18 from the weekly marketing webinar with the TaxCoach group, which has been on the forefront of learning how to utilize the new tax law to help clients minimize their taxes. 

     23 Page PDF downloadable version

     Web Version

From Intuit: Tax Reform Law: What Clients Should Know  (1 page PDF)

Posted in NewTaxLaws | Comments Off on Checking out the new tax law…

CRA-App

Posted by taxguru on January 30, 2018

Americans aren’t the only ones who love to joke about their tax agency, as we can see in this skit from a recent episode of the CBC’s news satire show, This Hour Has 22 Minutes

I have never had any first-hand experience dealing with the CRA, but it does appear that there are some similarities to our IRS.

Posted in CRA, humor, video | Comments Off on CRA-App