To begin tracking the implementation of the Tax Cuts and Jobs Act (TCJA), the IRS has set up a page on its website for updates and resources. We have mirrored that information here and will update this page to reflect new information the IRS will be issuing.

Our standard but stern warning related to taxes | The new law and accompanying regulations and rules are complex. We can’t stress enough the importance of you discussing the changes in the law with your trusted accounting or tax advisor. It will be worth every cent you spend to get the best possible information — related specifically to your personal situation.

Below, you will find links to information about the implementation of the new legislation that is being issued by the IRS. The links will take you to the IRS website. (Clicking on a heading will reveal information related to that topic.) 


Income (including Gains and Losses)

The Tax Cuts and Jobs Act extended the holding period with respect to certain carried interests (i.e. applicable partnership interests) to three years.

Carried interests are ownership interests in a partnership that share in the partnership’s net profits. Carried interests often are issued to investment managers in connection with the investment manager’s services. These interests often result in the holder receiving capital gains which are taxed at a lower rate, rather than ordinary income.

The Tax Cuts and Jobs Act, Section 1031 changed like-kind exchanges and now it applies only to exchanges of real property and not to exchanges of personal or intangible property. An exchange of real property held primarily for sale still does not qualify as a like-kind exchange.

Deductions and Depreciation

Many owners of sole proprietorships, partnerships, trusts, and S corporations may be eligible for a new deduction – referred to as Section 199A – allowing them to deduct up to 20 percent of their qualified business income.

Proposed regulations | On August 8, the IRS  issued proposed regulations for a new provision allowing many owners of sole proprietorships, partnerships, trusts and S corporations to deduct 20 percent of their qualified business income.

The deduction is available for tax years beginning after Dec. 31, 2017. Eligible taxpayers can claim it for the first time on the 2018 federal income tax return they file next year.

The deduction is generally available to eligible taxpayers whose 2018 taxable incomes fall below $315,000 for joint returns and $157,500 for other taxpayers. It’s generally equal to the lesser of 20 percent of their qualified business income plus 20 percent of their qualified real estate investment trust dividends and qualified publicly traded partnership income or 20 percent of taxable income minus net capital gains.

Deductions for taxpayers above the $157,500/$315,000 taxable income thresholds may be limited. Those limitations are fully described in the proposed regulations.

Qualified business income includes domestic income from a trade or business. Employee wages, capital gain, interest and dividend income are excluded.

In addition, Notice 2018-64, also issued on August 8, 2018, provides methods for calculating Form W-2 wages for purposes of the limitations on this deduction. More information in the form of FAQs on Section 199A can be found on IRS.gov.

 

Related information: IR-2018-162 , Section 199A – Deduction for Qualified Business Income FAQs , REG-107892 , Notice 2018-64

Newly amended section 163(j) of the Internal Revenue Code imposes a limitation on deductions for business interest incurred by certain large businesses. For most large businesses, business interest expense is limited to any business interest income plus 30 percent of the business’ adjusted taxable income.

Related information: IR-2018-82


Production Period for Beer, Wine, and Distilled Spirits

The Production Period for Beer, Wine, and Distilled Spirits provision provides an opportunity to deduct the interest expenses occurred during the “aging period” for these beverages (subject to other possible interest deduction limitations included in TCJA).

Related information: Production Period for Beer, Wine, and Distilled Spirits Frequently Asked Questions

Businesses can immediately expense more under the new law. A taxpayer may elect to expense the cost of any section 179 property and deduct it in the year the property is placed in service. The new law increased the maximum deduction from $500,000 to $1 million. It also increased the phase-out threshold from $2 million to $2.5 million.

Related information: FS-2018-9


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

Related information: IR-2018-159 , REG-104397-18

The new law disallows employer deductions for (1) activities generally considered to be entertainment, amusement, or recreation; (2) membership dues for clubs organized for business, pleasure, recreation, or other social purposes; or (3) a facility used in connection with the above items, even if the activity is related to the active conduct of trade or business.

It also disallows deductions for expenses associated with transportation fringe benefits or expenses incurred providing transportation for commuting (except as necessary for employee safety ).

Related information: Employer Update

The new law imposes dollar limitations on the depreciation deduction for the year the taxpayer places the passenger automobile in service and for each succeeding year.

Partner Resources: Revenue Procedure 2018-25

No deduction for certain payments made in sexual harassment or sexual abuse cases.

Related information: Notice-2018-23

Credits

A general business credit employers may claim, based on wages paid to qualifying employees while they are on family and medical leave, subject to certain conditions.

Related information: Tax Reform Tax Tip 2018-69, Frequently Asked Questions about Employer Credit for Paid Family and Medical Leave

The legislation requires taxpayers take the 20-percent credit ratably over five years instead of in the year they placed the building into service and eliminates the 10 percent rehabilitation credit for the pre-1936 buildings. This provision is effective for amounts that taxpayers pay or incur for qualified expenditures after December 31, 2017.

International

Learn more about how international businesses will be impacted by the Tax Cuts and Jobs Act (TCJA).

Taxes

Many U.S. corporations elect to use a fiscal year end and not a calendar year end for federal income tax reporting purposes. Due to a provision in the Tax Cuts and Jobs Act (TCJA), a corporation with a fiscal year that includes Jan. 1, 2018 will pay federal income tax using a blended tax rate and not the flat 21 percent tax rate under the TCJA that would generally apply to taxable years beginning after Dec. 31, 2017.

Related information: Notice 2018-38

Newly enacted section 965 of the Internal Revenue Code imposes a transition tax on untaxed foreign earnings of foreign subsidiaries of U.S. companies by deeming those earnings to be repatriated. Foreign earnings held in the form of cash and cash equivalents are taxed at a 15.5 percent rate, and the remaining earnings are taxed at an 8 percent rate. The transition tax generally may be paid in installments over an eight-year period.

Related information: IR-2017-212, IR-2018-09, IR-2018-25, IR-2018-53, IR-2018-79, IR-2018-158 , REG-104226-18, IR-2018-158 , REG-104226-18

The new law treats a foreign taxpayer’s gain or loss on the sale or exchange of a partnership interest as effectively connected with the conduct of a trade or business in the United States to the extent that gain or loss would be treated as effectively connected with the conduct of a trade or business in the United States if the partnership sold all of its assets.

In this circumstance, the new law also imposes a withholding tax on the disposition of a partnership interest by a foreign taxpayer.

Related information: IR-2018-81, Notice 2018-08, Notice 2018-29

The Treasury Department and the Internal Revenue Service issued Notice 2018-14 and Publication 15, Employer’s Tax Guide to help businesses apply law changes to withholding. These materials are designed to help employers and employees with a variety of withholding matters during and after the transition to new, reduced tax rates and updated withholding tables.

More information is available in Notice 1036 and the IRS Withholding Tables Frequently Asked Questions.

Accounting Method Changes

The Production Period for Beer, Wine, and Distilled Spirits provision provides an opportunity to deduct the interest expenses occurred during the “aging period” for these beverages (subject to other possible interest deduction limitations included in TCJA).

Related information: Production Period for Beer, Wine, and Distilled Spirits Frequently Asked Questions

Changes in accounting periods and method of accounting (Transitional guidance under sec. 451 related to inclusion of income associated with advance payments.)

Related information: Notice 2018-35, Revenue Procedure 2018-29

Other Information

Opportunity Zones are an economic development tool—that is, they are designed to spur economic development and job creation in distressed communities. Opportunity Zones are designed to spur economic development by providing tax benefits to investors.

Partner Resources: Opportunity Zones Frequently Asked Questions


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