Federal Tax Posts

Business owners can generally deduct losses on their tax returns. But the activity must show a profit motive by operating in a businesslike manner. The U.S. Tax Court denied loss deductions to one beauty consultant due to a lack of a profit motive. She had no financial statements or records of time spent on the activity. She also had no expertise in the industry and [...]

The IRS just issued guidance on the new business deduction that goes into effect this year. The deduction allows sole proprietors, partnerships and S corps to write off 20% of their qualified business income (QBI). The IRS issued proposed reliance regulations that explain the operation and calculation of the QBI deduction (also called the pass-through or Section 199A deduction). The tax agency also issued Notice [...]

The U.S. Tax Court rejected a grandmother’s charitable contribution deductions of more than $85,000 for clothing she gave to Goodwill. The taxpayer bought heavily discounted clothing from a clothing store, often using customer “reward points.” She then deducted the full retail price on her federal tax returns. For example, she’d buy an item originally priced at $99 for $10, donate it and deduct $99. The [...]

The IRS has updated automatic accounting method changes to reflect the Tax Cuts and Jobs Act (TCJA). Revenue Procedure 2018-40 provides procedures by which a small business taxpayer may obtain automatic consent to change its method of accounting to a new method established under the TCJA. The method increases the availability of the cash method of accounting and eases qualification for the small business exception [...]

The IRS announced it intends to issue proposed regs on ABLE accounts to comply with the Tax Cuts and Jobs Act (TCJA). ABLE accounts are state-run programs for the benefit of blind or disabled persons. Contributions are nondeductible, but account earnings grow tax-deferred. Distributions equal to the total of qualified expenses are tax-free. Under the TCJA, changes include requiring the account beneficiary to ensure compliance [...]

The U.S. Treasury Dept. has issued proposed regulations on the new 100% depreciation deduction that is part of the Tax Cuts and Jobs Act. The deduction lets businesses write off the full cost of most depreciable business assets, such as machinery, equipment, computers and furniture, in the year they’re placed in service. The proposed regs provide guidance on the rules for qualified film, television and [...]

The U.S. Senate approves additional funding for the IRS. The Senate has passed The Interior, Environment, Financial Services, and General Government Appropriations Act, 2019, which provides $11.26 billion for the IRS. This is an increase of $186 million above 2018 funding levels. Of this amount, $77 million is dedicated to implement tax reform. The bill provides an additional $31 million for initiatives including fraud prevention [...]

Married taxpayers who file a joint tax return are “jointly and severally liable” for the tax due on the return. However, spouses may be eligible for “innocent spouse” relief if they can prove they didn’t know about an understatement of tax. In one new case, the U.S. Tax Court ruled that a husband was granted relief from a portion of tax due on a joint [...]

When taxpayers use their residences to conduct business or store business inventory, they may qualify for home office tax deductions, under certain conditions. The owner of a smog inspection business was required to maintain records for 3 years. He used his nearby personal garage to store the records and extra smog equipment and claimed tax deductions for the space. The IRS denied the claim and [...]

A business arrangement didn’t rise to the level of a partnership. The U.S. Tax Court ruled that a husband and wife, who had a loose business arrangement with another couple, failed to prove the existence of a partnership under the criteria established by the court. The two couples formed a mortgage business that the court said “was run very informally.” They wanted it to be [...]