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Very Important to know regarding New Tax Law

New IRS Sec 199A deduction for tax year 2018 small business. A simplified version of the deduction is 20% of your taxable income but it's a very complicated computation to get the deduction amount. But it's important for all Single Member LLC, Partnerships, and S Corp to know about the deduction. Here is some temporary information for you:

V. Impact of the Tax Cuts and Jobs Act of 2017
The Tax Cuts and Jobs Act (TCJA) replaced the domestic productions activity deduction (DPAD) of §199
with a new pass-through deduction, §199A. The impact of §199A should be considered in tax planning for
continuing operations and sales of a business. Section 199A also affects entity choice, both for new
entities and for existing entities.

A. The pass-through deduction (§199A)
1. Overview of §199A
a. The percentage: As a general rule, the deduction is equal to 20 percent of “qualified
business income,” subject to limitations.
b. Qualified Business Income (QBI): “QBI” is an acronym with which we will become as
familiar in the future as we have been with DPAD. The starting point of the §199A
deduction is to multiply the QBI of each qualified trade or business by 20 percent. So,
what is QBI?
(i) Qualified business income is defined by TCJA as the net amount of qualified
items of income, gain, deduction, and loss with respect to any qualified trade or
business of the taxpayer to the extent such items are --
• Effectively connected with the conduct of a trade or business within the
United States (within the meaning of §864(c), determined by substituting“qualified trade or business (within the meaning of §199A)” for
“nonresident alien individual or a foreign corporation” or for “a foreign
corporation” each place it appears); and
• Included or allowed in determining taxable income for the taxable year.144
For example, if the taxpayer purchases a depreciable asset during the year, the
QBI will be reduced by depreciation allowed during the year, not the purchase
price. Only income effectively connected to the United States under the
provisions of §864(c) is included. Income from sources within Puerto Rico counts
if the income is subject to the United States marginal tax rates.
(ii) Qualified business income does not include specific investment items.
Specifically, QBI excludes:
• Any item of short-term capital gain, short-term capital loss, long-term
capital gain, or long-term capital loss.
• Dividends, income equivalent to a dividend, or payments in lieu of
dividends.
• Interest income other than that which is properly allocable to a trade or
business.
• Excess gain over loss from commodities transactions not pertaining to a
trade or business.
• Excess of foreign currency gains over losses from §988 transactions not
directly related to the needs of the business.
• Net income from notional principal contracts other than clearly identified
hedging transactions that are treated as ordinary.
• Any amount received from an annuity that is not used in the trade or
business of the business activity.
• Qualified REIT distributions, qualified cooperative distributions, and
qualified publicly traded partnership income. They are included in the
calculation of the deduction, but not as part of qualified business
income.

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Small Business Help

MAX S WOODBURY CPA, LLC·FRIDAY, MAY 18, 2018

3 Reads

Business EIN’s allow you to seperate your business bank accounts from your personal bank accounts. This makes it easier to track your business expenses easier. EIN gives you as the taxpayer more privacy; EIN prevents you from sharing your Social Security Number. To get a Business EIN from the IRS fill out Form SS-4 and mail it to the IRS.

Another way to get an EIN for your business is to go to the following website and apply for the EIN online: https://sa.www4.irs.gov/modiein/individual/index.jsp ----Applying for an EIN online is quicker but sometimes the IRS website is down and its difficult to prove your identity because you need to give some information.

To close a business you fill out a BC-100 for the state of Indiana and you file a FINAL tax return for the year you closed the business.

Opening and closing a business is pretty straightforward. Running the business and keeping it open is more difficult and time consuming. QuickBooks help me run my business. I print 2 financial statements every Quarter. The profit/loss statement and the balance sheet. The profit/loss statement tells me what I have earned and what I have spent. I do my budget on this statement. The balance sheet shows me how much I have paid myself in Owner Draws and what my bank balance is currently. Everyone should be financially aware in regards to actual numbers and the budget numbers.

QuickBooks Online

MAX S WOODBURY CPA, LLC·TUESDAY, MAY 15, 20188 Reads

Try connecting your bank account to QBO(QuickBooks Online) before you begin posting checks or deposits manually. Connecting your bank account will save you time and hastle. To connect your bank account. From the “Dashboard” click “Connect Accounts” at the bottom right corner. From there follow the steps.

Posting Checks: Click “Expenses” then “New Transaction” drop down menu, Click “Checks.” You can create “Bill” before posting a check or click “Expense” to post a debit card transaction.

Posting Deposits: Click “Sales” then “New Transaction” drop down menu, Click “Sales Receipt.” If you know you will receive money at a later date and don’t want to forget to post it or want to post it early click “Delayed Charge” from the “New Transaction” drop down menu.

The goal when using QuickBooks is to post as much detail as possible if you want more information from the reports. Or post as little as possible and get it done faster and maybe you don’t need a vendor address list report or vendor phone number list report. Sometimes its best to keep it simple. Just post basic transactions so you can run the Profit/Loss Statement and the Balance Sheet. These are the only 2 reports you need to file your tax return. Other detail will allow you to get info such as Profit/Loss by Class. If you want to classify $5000 in rental income to 500 west property and $1000 rental income to 2234 drive property, you use by class to seperate the income and give you more detail.

QuickBooks Online Preferences

MAX S WOODBURY CPA, LLC·TUESDAY, MAY 15, 20188 Reads

Preferences are the options you can change inside of QuickBooks. To access preferences click on the gear icon in the upper right hand corner of the screen.

The preferences I encourage everyone to review: 1. Accounting Method cash or accrual 2. Chart of Accounts- Enable Account Numbers 3. Track Classes.

To change these 3 items A. Click the gear icon B. Click “Account and Settings” C. Click “Preferences.”

“Manage Users” in the gear icon allows you to add an accountant user or an employee user. Inside “Manage Users” you (the Admin) may add “New” user and limit user access as well as print reports showing the date and time the user accessed your QBO account. Very helpful.

“Chart of Accounts” is probably the most important preference in the gear icon. After clicking on “Chart of Accounts” you may add or delete accounts you want or don’t need. I recommend deleting Miscellaneous Account. Every transaction seems to be posted into this account. To edit all the accounts quickly, click the pencil icon. To import your Chart of Accounts into QBO from Excel, Click “New” drop down menu, click “Import.”

To Import or Export Vendor or Customer details such as address and phone numbers click the gear icon, then click “Import” or “Export” under Tools heading.

Common Deductions/Credits

Personal

1. Medical Expenses
1. Mileage
2. Prescriptions
3. Co-Pays
4. Doctor, Hospital
5. Dentist, Eye Doctor
6. Equipment
2. Real Estate Taxes Paid
3. Mortgage Interest Paid
4. PMI and Points Paid
5. Vehicle Excise Tax Paid
6. Donations Cash & Other
1. Mileage
7. Safe Deposit Box Fee
8. Investor Fees
9. Unreimbursed Employee Expense
10. Union Dues
11. Tax Preparation Fee
12. Child Care Paid
13. Student Loan Interest Paid
14. Educator Expenses Paid
15. Tradition IRA/401k/SEP contributions
16. Foreign Taxes Paid
17. College Tuition Paid
18. Rent Expense on Indiana State tax return
19. 529 plan contribution on Indiana State tax return
20. Indiana College Contribution on Indiana State tax return
21. Private School or Home School on Indiana State tax return
22. Military deductions

Business

1. Purchases
2. Labor paid
3. Advertising paid
4. Mileage
5. Cell phone
6. Rent paid
7. Interest Paid
8. Insurance Paid
9. Meals & Entertainment
10. Uniforms
11. Professional Fees
12. Office Supplies
13. Travel
14. Utillities
15. Self-Employed Health Insurance
16. Equipment/Depreciation
17. Wages
18. Payroll taxes
19. Repairs & Maintenance
20. Gifts
21. Continuing Education
22. Home Office

Proposed 2018 tax brackets

Married Filing Jointly Proposed Tax Brackets for tax year 2018:

Taxable income of $1million or more 39.6%
Taxable income between $260,000 and $1 million 35%
Taxable income between $90,000 and $260,000 25%
Taxable income below $90,000 12%

Key Provisions
Deduction for state and local income and sales taxes repealed
Property tax deduction capped
Mortgage interest deduction limited
Personal exemptions repealed
Estate tax reduced, then repealed in 2024
Alternative minimum tax repealed--This is amazing, so glad this is happening

Deductions

We don't recommend you go into debt for the interest deduction.  You are paying the bank to save from paying the IRS.

May 15th Deadline

Personal Property Tax returns are due May 15th for those of you who have a small business.  Make a list of all the equipment you own purchased for more than $2,500.  If all your equipment adds up to less than $20,000, you can file an exemption.  All others must file form 103 or 104.