Category: News

On November 2, 2017, the House of Representatives released a draft tax reform bill titled the “Tax Cuts and Jobs Act.” The bill would reduce individual and business tax rates, would modify or eliminate a variety of itemized deductions as well as repeal the estate and alternative minimum taxes, and would change the taxation of foreign income. The Ways & Means Committee intends to formally markup the bill the week of November 6 with full House floor consideration planned before Thanksgiving. Most of the provisions would be effective starting in 2018.

Details

Under the House bill, individuals would be subject to four tax brackets at 12, 25, 35, and 39.6 percent. The 39.6 rate would apply at $1 million for married taxpayers filing jointly and $500,000 for other filers. The standard deduction would be increased, from $6,350 to $12,200 for single filers and from $12,700 to $24,400 for married taxpayers filing jointly. Personal exemptions would be repealed; however, the child tax credit would be expanded.

Itemized deductions would be changed significantly by the bill. Deductions for state and local income and sales taxes would be eliminated for individuals, and the deduction for local property taxes paid would be capped at $10,000. Mortgage interest expense deductions would be limited to acquisition indebtedness on the taxpayer’s principal residence of up to $500,000 for new mortgage indebtedness, reduced from the current limit of $1 million (existing mortgages would be grandfathered). Home equity indebtedness would no longer be deductible. Cash contributions to public charities would be limited to 60 percent of the donor’s adjusted gross income, an increase from 50 percent adjusted gross income limitation under current law. Deductions for tax preparation fees, medical expenses, moving expenses, and personal casualty losses would be repealed, but the deduction for personal casualty losses would remain for relief provided under special disaster relief legislation. The overall limitation on itemized deductions would also be removed. The individual alternative minimum tax (AMT) would be repealed. Transition provisions would ensure taxpayers with AMT carryforwards would be able to use the remaining credits between 2018 and 2022.

Notably, most of the reform provisions are effective beginning after 2017; however, the changes to the mortgage interest expense deduction are effective for debt incurred on or after November 2, 2017.

The exclusion of gain from the sale of a principal residence would be phased out for married taxpayers with an adjusted gross income in excess of $500,000 ($250,000 for single filers) but the act changes the use requirements and calls for taxpayers to live in the residence for five of the previous eight years to qualify, up from the current requirement to use the residence for two of the previous five years. The bill further repeals the deduction for alimony payments effective for any divorce decree or separation agreement executed after 2017.

Estate, gift, and generation-skipping transfer (GST) tax exclusions for individuals would be increased to $10 million (as of 2011) and then adjusted for inflation, and the estate and GST taxes would then be repealed after 2023 but would maintain the step-up in basis provisions. Beginning in 2024, the top gift tax rate would be lowered to 35 percent with a lifetime exemption of $10 million and an annual exclusion of $14,000 (as of 2017) indexed for inflation.

Impacting businesses, the corporate tax rate would be reduced from 35 percent to 20 percent, and certain “business income” from pass-through entities would be taxed at 25 percent instead of an owner’s individual rate. Bonus depreciation of 100 percent would be available for qualifying property placed in service before January 1, 2023, new property types would qualify for bonus depreciation and expense amounts would be expanded. The bill proposes to eliminate the Domestic Production Activities Deduction and change other aspects of entertainment expenses, net operating losses, like-kind exchanges, business credits, and small-business accounting methods, among other provisions. The bill would also repeal the corporate alternative minimum tax (AMT) and make existing AMT credit carryforwards refundable over a period of five years.

Taxation of a corporation’s foreign income would change from a worldwide system to an exemption system, with a 100-percent exemption from U.S. tax for the foreign source portion of dividends paid by a foreign subsidiary to U.S. corporate shareholders that own 10 percent or more of the foreign subsidiary. To transition to the exemption system, the bill also includes a transition tax for untaxed foreign earnings accumulated under the current worldwide taxing system. The House bill also includes provisions to prevent base erosion. A separate tax alert discussing in more detail the House bill’s proposals relating to the taxation of foreign income and foreign persons is forthcoming.

The bill would impact tax-exempt entities as well through the expanded application of unrelated business income tax (UBIT) rules and a flat 1.4 percent tax of the net investment income of entities including private foundations.

Insights

The release of the House bill represents the first significant and detailed legislative step toward tax reform under the Trump Administration. As drafted, most of the provisions would be effective for the 2018 tax year. The House Ways & Means Committee is expected to formally markup the legislation the week of November 6, with full House consideration planned before Thanksgiving.

There are additional provisions in the proposed legislation effecting education credits, retirement accounts, deferred compensation, and private foundations, among others.

Click HERE to view 2017 Year End Tax Planning

Year-end 2017 presents a unique set of challenges for taxpayers. At the top of the list are the uncertainties created by the possibilities within proposed tax reform legislation – what changes might be made, and whether those changes would be retroactive for 2017.

Highlights of the 2017 Year End Tax Planning include:

• Tax Reform – Different Paths
• Rate Cuts – 2017 or 2018?
• Standard v. Itemized Deductions
• Depreciation Strategies
• Life-Cycle Considerations
• Timing Strategies

The Internal Revenue Service warned people to avoid a new phishing scheme that impersonates the IRS and the FBI as part of a ransomware scam to take computer data hostage.

The IRS said: “The scam email uses the emblems of both the IRS and the Federal Bureau of Investigation. It tries to entice users to select a “here” link to download a fake FBI questionnaire. Instead, the link downloads a certain type of malware called ransomware that prevents users from accessing data stored on their device unless they pay money to the scammers.”

“This is a new twist on an old scheme,” said IRS Commissioner John Koskinen. “People should stay vigilant against email scams that try to impersonate the IRS and other agencies that try to lure you into clicking a link or opening an attachment. People with a tax issue won’t get their first contact from the IRS with a threatening email or phone call.”

I suggest you send employees, friends and family an email about this ransomware attack, you’re welcome to copy/paste/edit:
“Heads-up! The IRS is warning against a new phishing scam that tries to make you download an FBI questionnaire. But if you click the link, your computer will be infected with ransomware instead. The scam email uses the emblems of both the IRS and the Federal Bureau of Investigation.

More than 100 golfers hit the links at Bishops Bay County Club on Monday, Aug. 14 to support Habitat for Humanity of Dane County as part of the First Annual KMA Cares Golf Outing. Hosted by KMA Advisors and Accountants and attended by former UW men’s basketball coach Bo Ryan along with area business leaders, the event raised more than $25,000 toward affordable housing in Dane County.

For additional pictures click HERE

May 15, 2017

KMA BODILLY CPAS & CONSULTANTS WIN WISCONSIN SCHOOL OF BUSINESS 2017 DANE COUNTY SMALL BUSINESS AWARD

Madison, WI May 15, 2017– Wisconsin School of Business awarded KMA a Dane County Small Business Award. These prestigious awards recognize successful small Dane County businesses that have rewarding workplace environments and contribute to the community.

“KMA truly cares about giving back to the community and creating a positive environment for staff to actively participate with local charities,” exclaimed Jason Kadow, Managing Partner who currently serves as the chair of the board for Habitat for Humanity of Dane County.

KMA was started in 2011 by three CPAs who decided to focus on work place culture to create a high quality professional service team. KMA cares about its staff and takes pride in the firm culture. KMA staff enjoy helping clients and the community within Dane County. KMA’s headquarters are located at 1200 John Q. Hammons Drive, Suite 500, Madison, WI 53717. KMA has additional offices in Verona, Waunakee, Lodi and Monona.

If you would like more information about this topic, please contact Alex P. Gibson at 608 664 1040 or email at alex.gibson@cpakma.com.

Article by Eric Ervin

The month of April marks the U.S. tax filing deadline for individuals. For most, this can be confusing – if not dreadful – as taxpayers attempt to make sense of all the moving pieces in their financial lives, especially investments.

To add to the complexity, each security in a portfolio likely gets taxed differently, forcing a careful review of the year’s tax documents with a tax advisor. It is also increasingly important for investors to become familiar with tax terms like cost basis, ordinary income, and Schedule B.

In light of the intricacy of filing taxes, here are a few important takeaways investors should know going forward, especially when creating ETF and mutual fund portfolios.

The Difference Between ETFs And Mutual Funds: Capital Gains

Conventional wisdom says ETFs are more tax efficient than mutual funds, but what does that mean exactly? Both mutual funds and ETFs are baskets of different investments, which may change based on market conditions. But, mutual fund managers often buy or sell securities in an effort to outperform the market. If a mutual fund sells an underlying investment that has increased in value, it can result in a capital gain – a taxable event. Mutual funds are legally required to make these profitable distributions to investors, passing taxable capital gain payouts to investors, creating a tax liability for the mutual fund investor.

ETFs, on the other hand, are generally intended to track an underlying index/benchmark. To this end, ETF managers rarely buy and sell investments in their baskets. Therefore, ETF distributions are usually dividends from underlying investments, as opposed to a combination of both dividends and capital gain distributions. In recent years, the average capital gains distribution for small, large, and mid-cap funds surpassed 5% of a mutual funds’ net asset value, while ETFs are usually less than 1% on capital gain distributions.

Why is this important? Quite simply, taxes on dividends can be lower than taxes from capital gains payouts. If a mutual fund sells a profitable underlying investment that was held for less than one year, the capital gain payout is considered short-term, and taxed at ordinary income rates, which can be up to 39.6%.

Long-term capital gain rates may be less painful than short-term capital gains, but this rate is not guaranteed with holding mutual funds. If a mutual fund is held in a non-retirement account, one could potentially face an unanticipated tax expense, stemming from the fund’s capital gain payout.

Dividends, on the other hand, can be considered “qualified” if the U.S. stock or ETF was held for at least 60 days during the 121-day period surrounding the ex-date. Qualified dividends are taxed at a rate from 0% to 20% max, depending on one’s income bracket for that tax year. Comparatively, dividends can potentially allow investors to keep more of a portfolio’s generated income than other income-producing investments.

What About My Bond Interest?

Read More

Article by Gail MarkJarvis Chicago Tribune.

Taxes are due April 18.

What should you do if you can’t finish your tax return on time or if you don’t have the money to pay your taxes now?

There is a common belief that you should be among the masses filing by the April deadline so you don’t draw attention to yourself from the IRS and bring on an audit. (This year’s federal tax deadline, by the way, falls three days later than usual because of Easter Sunday and Emancipation Day, a legal holiday that will be observed in the District of Columbia on April 17.)

But there’s a difference of opinion among tax professionals about whether the belief about audits is valid. Taxpayers who can’t meet the deadline can file for an extension that will let them submit their tax return later. And they should file for an extension if they can’t get their tax return done right in time for the April filing date, said San Francisco tax attorney Robert Wood.

Article by John Rampton from DUE

Whether you’re ready or not, we’re quickly approaching 2017. This means in just a few weeks, we’ll not only have a new president, but also a new set of tax laws and codes that will influence how we conduct business.

Since it’s always best to be well-prepared when it comes to taxes, here are some of the new changes that you should be aware-of. As with anything to do with the government or taxes — if you really want to stay-top of this information, meet with your tax advisor and frequently check for updates on IRS.gov.

Keep in mind, this isn’t legal advice as I’m not in that space… but more a few new tax laws for 2017 that I’ve noticed that business owners should pay attention too. (Read More)

[fusion_builder_container hundred_percent=”yes” overflow=”visible”][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][fusion_text]10 Can’t Miss Tax Deductions For Small Businesses & Self-Employed Persons Kelly Phillips Erb, Forbes Staff

“American business is overwhelmingly small business.” That’s the word from the Small Business & Entrepreneurial Council which cfigured that the number of small businesses with fewer than 20 workers together with the number of nonemployer businesses makes up 97.9% of the businesses in America (remember those are numbers of businesses and not numbers of employees).

Data from the Internal Revenue Service (IRS) supports the notion that small businesses are making a significant economic impact. Of the nearly 148 individual income tax returns filed in 2014 (the last year for which complete data is available, downloads as a pdf), 46 million – or 1/3 – of tax returns reported income from a sole proprietorship, pass-through business entity (like an s corporation, partnership or LLC), rents/royalties, or farms. That’s 1 in 3 individual taxpayers who filed an individual tax return reporting business-related income. It’s no wonder that a number of the questions in our last #AskForbes Twitter chat focused on deductions for small business. To help you out, here are 10 can’t miss tax breaks for small businesses and self-employed persons:

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