Tax Updates Archives

Proposed Rules Address 100-Percent Depreciation Deduction

 

Proposed regulations address the new 100-percent depreciation deduction that allows businesses to write off most depreciable business assets in the year they are placed in service.

Background

The Tax Cuts and Jobs Act (TCJA) ( P.L. 115-97) amended Code Sec. 168(k) to increase the percentage of the additional first year depreciation deduction from 50 percent to 100 percent for property acquired after September 27, 2017. It also expanded the property eligible for the additional first year depreciation to include certain used depreciable property and certain film, television, or live theatrical productions.

Generally, the 100-percent depreciation deduction generally applies to depreciable business assets with a recovery period of 20 years or less and certain other property. Such assets include in part machinery, equipment, computers, appliances, and furniture.

The proposed regulations provide guidance on what property qualifies for the deduction, and rules for qualified film, television, live theatrical productions and certain plants.

Property of a Specified Type

In order to be considered qualified property, the proposed regulations require that property must be:

  • MACRS property that has a recovery period of 20 years or less;
  • computer software as defined in, and depreciated under, Code Sec. 167(f)(1);
  • water utility property as defined in Code Sec. 168(e)(5);
  • a qualified film or television production as defined in Code Sec. 181(d);
  • a qualified live theatrical production as defined in Code Sec. 181(e); or
  • a specified plant as defined in Code Sec. 168(k)(5)(B) and for which the taxpayer has made an election to apply Code Sec. 168(k)(5)(B).

Qualified improvement property acquired after September 27, 2017, and placed in service after September 27, 2017, and before January 1, 2018, also is qualified property.

Placed-in-Service Date

The proposed regulations provide that qualified property must be placed in service by the taxpayer after September 27, 2017, and before January 1, 2027, or before January 1, 2028, in the case of certain aircraft property described in Code Sec. 168(k)(2)(B) or (C).

For specified plants, if the taxpayer has made an election to apply Code Sec. 168(k)(5), the proposed regulations provide that the specified plant must be planted before January 1, 2027, or grafted before January 1, 2027.

The proposed regulations also provide that a qualified film or television production is treated as placed in service at the time of initial release or broadcast as defined under Reg. §1.181-1(a)(7). Further, a qualified live theatrical production is treated as placed in service at the time of the initial live staged performance.

Acquisition Date

The proposed regulations provide the date of acquisition rules for different types of property, including self-constructed qualified film, television, or live theatrical productions, and specified plants.

Under the proposed regulations, the property must be acquired by the taxpayer after September 27, 2017, or acquired by the taxpayer pursuant to a written binding contract after September 27, 2017. The proposed regulations also provide that property that is manufactured, constructed, or produced for the taxpayer by another person under a written binding contract that is entered into before the manufacture, construction, or production of the property for use by the taxpayer in its trade or business or for its production of income is acquired pursuant to a written binding contract.

For self-constructed property, the proposed regulations provide that the acquisition rules are met if the taxpayer begins manufacturing, constructing, or producing the property after September 27, 2017.

The proposed regulations provide that a qualified film or television production is treated as acquired on the date principal photography commences. Qualified live theatrical production is treated as acquired on the date when all of the necessary elements for producing the live theatrical production are secured. These elements may include a script, financing, actors, set, scenic and costume designs, advertising agents, music, and lighting.

For a specified plant, the proposed regulations provide that the specified plant must be planted after September 27, 2017, or grafted after September 27, 2017, to a plant that has already been planted, by the taxpayer in the ordinary course of the taxpayer’s farming business.

Elections

The proposed regulations provide rules for making the election out of the additional first year depreciation deduction. Taxpayers who elect out of the 100-percent depreciation deduction must do so on a timely-filed return. Those who have already filed their 2017 return and either did not claim the mandatory deduction on qualifying property, or did not elect out but still wish to do so, will need to file an amended return.

Applicable Date

These regulations apply to qualified property placed in service or planted or grafted, as applicable, by the taxpayer during or after the taxpayer’s tax year that includes the date that the regulations are adopted as final. Pending the issuance of the final regulations, a taxpayer may choose to apply the proposed regulations to qualified property acquired and placed in service or planted or grafted, as applicable, after September 27, 2017, by the taxpayer during tax years ending on or after September 28, 2017.

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Where to Enter Your Equity and Proper Use of CASH from Me

  • with a dose of Crazy Advice from an Incompetent CPA

 

Question from Cassandra:

Hi Mike, I'm really enjoying your QuickBooksForInvestors system!!

Here's my question....

I have heard you say you don't bother with the Owner Equity account cause you let your CPA deal with that.

From Mike

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Yes, the IRS can impose penalties if a tax return is not timely filed or if a tax liability is not timely paid. As with all IRS penalties, the rules are complex. However, a taxpayer may avoid a penalty if he or she shows reasonable cause.

Failure to file

The penalty for failure to file a timely return is

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Federal PATH ACT Provides Planning Opportunities with Permanent Extensions of Many Tax Incentives
After years of routine temporary extensions, Congress has made permanent a number of previously temporary tax breaks for individuals and businesses as well as extending others. The Protecting Americans from Tax Hikes Act of 2015 (PATH Act), signed into law by President Obama in December, opens the door to new planning opportunities.

 

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Can an S corporation own an interest in another business entity?

An S corporation may own an interest in another business entity.

An S corporation can be a member of an affiliated group by owning 80 percent or more of the stock of a C corporation. The group then can elect to file on a consolidated basis, if other affiliated group rules are met. But the S corporation itself cannot join the consolidated group.

Although in general only individuals can be shareholders in an

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How Do I? Follow the new-for-2015 one-IRA rollover-per-year limit?

As most people know, a taxpayer can take a distribution from an IRA without being taxed if the taxpayer rolls over (contributes) the amount received into an IRA within 60 days. This tax-free treatment does not apply if the individual rolled over another distribution from an IRA within the one-year period ending on the day of the second distribution.

Taxpayers and the IRS both believed that this one-rollover-per-year limit was applied separately to

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POST Election Congress Grapples with Extenders as Lawmakers Plan for 2015

The results of the mid-term elections create a new dynamic in Congress with Republicans poised to take control of both the House and Senate in January. Prospects for tax reform may have brightened for 2015. In the meantime, the lame-duck Congress must deal with some urgent tax bills, most notably the tax extenders.

Expired tax breaks

As the 2015 filing season grows closer, lawmakers are under pressure to renew a package of expired tax incentives, known as tax extenders. There are more than 50 expired extenders that impact individuals and businesses. For individuals, some of the most far-reaching are the...

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Accelerating or Deferring Income / Deductions as Part of a Year End Strategy
 
from Mike Grinnan CPA

The arrival of year end presents special opportunities for most taxpayers to take steps in lowering their tax liability. The tax law imposes tax liability based upon a "tax year." For most individuals and small business, their tax year is the same as the calendar year. As 2013 year end gets closer, most taxpayers have a more accurate picture of what their tax liability will be in 2013 than at any other time during the current year. However, if you don't like what you see, you have until year end to make improvements before your tax liability for 2013 is permanently set in stone.

A good part of year-end tax planning involves techniques to accelerate or postpone income or deductions, as your tax situation dictates. Efforts are generally focused on keeping projected tax liability for 2013 slightly lower than that anticipated for 2014, not overweighing projected tax liability for any one year. Having spikes in taxable income in any one tax year puts you in a higher average tax bracket than you would be in if you had evened out the amount of taxable income between the current and subsequent year.

Right to income versus cash receipt

Generally, a cash-basis taxpayer (which includes most individuals) recognizes income when it is received and takes deductions when

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