Recent Tax Changes to Keep in Mind For 2019
Now that tax season is over, it is important to look at some
recent tax changes that affect compliance and planning for 2019. These changes have been brought about by the
Tax Cuts and Jobs Act (TCJA), new regulations, revenue procedures, notices, and
Medical deduction: The threshold for deducting medical expenses
on Schedule A is increased to 10% for 2019.
Donations: For those clients who have made more than $5,000 in
non-cash donations and are required to have an appraisal, they must hire
someone who meets the new qualified status. A Qualified Appraiser is a person
with verified education and experience in valuing the type of property being
donated (1.170A -17(b)). An appraiser satisfies this new rule if they have
- completed professional or college-level course work
and have at least two years of experience in valuing the type of donated
- have a
recognized appraiser designation for the type of property donated.
Section 199A: There are
three ways to secure the 199A deduction for our clients that have real estate rentals: The safe harbor, self-rental to a trade or
business, and having a rental activity that rises to the level of a trade or
business. For that last category the client
may want to consider issuing 1099’s.
Consider this statement by the service “Taxpayers should consider the
appropriateness of treating a rental activity as a trade or business for
purposes of section 199A where the taxpayer does not comply with the information
For the safe harbor a client will need to keep
contemporaneous records of the work performed, dates, and who performed the
work. This was not a requirement in 2018 because the safe harbor rules were not
published until 2019.
Another consideration is if it feasible to separate a regular
business from a service business so as to secure the 199A deduction for the
non-service activity. The rules now state that for a business with $25 million
or less of income a business is not a Specified Service Trade or business if
less than 10% of the gross receipts are derived from service. The threshold
drops to 5% for businesses with sales over $25 million.
At a minimum the client will have to keep separate books.
But this may not be enough. An example in the regulations shows a company that
provides veterinarian services and sells its own line of pet food. In addition to keeping separate books the
company separately invoices and has separate employees for each activity.
For new clients we need to be careful to look at the prior
year before giving advice on 199A for 2019. If the client had an overall
business loss in 2018, that amount carries over to reduce eligible business
income for 2019. For example, suppose the overall 2018 business loss was
$30,000. There was no 199A deduction for 2018. In 2019 the business shows a
$100,000 profit. The Qualified Business Income for 2019 is $70,000.
We need to keep in mind the aggregation rules. Just because
the client was able, or unable, to aggregate in 2018 does not mean the same
will be true in 2019. The right change in ownership could either knock a
business out or create an opportunity to include a business.
Generally, the election to aggregate cannot be made on an
amended return. However, for 2018 an initial election can be made on an amended
return. Remember this for new clients.
Opportunity Zones: Although this program officially started
last year, in reality it is just ramping up.
The Opportunity Zone program allows investors to defer the recognition
of capital gains on gains they invest into an Opportunity Zone (OZ) Fund. If
the investment in the fund is held at least seven years the deferred gain can
be reduced by 15%. For those investments held 5-7 years the reduction is 10%.
Since there is a deemed sale on December 31, 2026, the investment must be made
by December 31, 2019 to secure the full 15% reduction in gain.
A separate tax benefit relates to the investment in the fund itself. If the investment is held at least ten years there is no taxable gain when the investment is sold. Housing Allowance: The Seventh Circuit just reversed the District Court ruling in Gaylor v. Mnuchin. The court held that housing allowance provided to clergy is not a violation of the first amendment. This is good news for those in ministry.