Net operating losses (NOLs) have traditionally been allowed as a deduction for businesses. The Tax Cuts and Jobs Act brought changes to the carryover and carryback rules, as well as a new limitation on NOL utilization.
Under prior law, NOLs were generally eligible for a two year carryback and twenty year carryforward. NOL carryovers and carrybacks could fully offset taxable income of the taxpayer if not otherwise limited under the Internal Revenue Code.
The amendments to the prior law disallow the carryback of NOLs but allow for the indefinite carryforward of those NOLs. The new rules apply to any NOL arising in a taxable year ending after December 31, 2017.
The Act also provides for a limitation on the amount of NOLs that a corporation may deduct in a single year equal to the lesser of the available NOL carryover or 80% of a taxpayer's pre-NOL deduction taxable income (the "80-percent limitation"). The historic rules appear applicable for taxpayers with prior NOLs.
For example, if calendar year corporation XYZ has $100 million in NOLs generated through December 31, 2017 and incurs a $20 million NOL in the tax year ending December 31, 2018, the applicable NOL rules would require XYZ to track the 2017 and prior NOLs separately from the 2018 NOL, which is subject to the limitation. If in 2019 XYZ generated $100 million in income, it would appear that the entire $100 million of 2017 and prior NOL would be available.
FKC Client Alert: Big Changes for Sales Tax
August 26, 2019
To all our clients who pay sales tax and generate revenue across state lines:
With the recent U.S. Supreme Court ruling, if you generate revenue outside of your home state, you may be responsible for collecting and paying sales tax to the other state.
Historically, sales tax was only required to be paid in the state in which you had a physical presence. The physical presence requirement has been eliminated.
If you have over $100,000 in annual revenue or 200 transactions to a state, you need to be aware of each state’s requirements regarding sales tax.
Please review your sales by state and contact us for the specifics for collecting sales tax for each state.
Let us help you navigate this change and avoid unnecessary penalties and interest.
IRA Withdrawal Planning Strategies & the Qualified Charitable Distribution (QCD)
Congress made the Qualified Charitable Distribution (QCD) permanent in the tax code in the "Protecting Americans from Tax Hikes Act of 2015."
A QCD is a direct transfer from your IRA to a qualified charity (501(c)(3)). The QCD can be counted toward satisfying your required minimum distribution (RMD) for the year. By making a QCD in lieu of receiving a required minimum distribution you will lower your adjusted gross income which may impact certain tax credits and deductions, including lower taxable Social Security and lower Medicare premiums. Fewer taxpayers qualify for itemized deductions because of the changes to the standard deduction, reducing the tax impact of charitable deductions. A QCD is a way for you to benefit from the charitable deduction indirectly.
Traditional, Rollover and Inherited IRAs along with an inactive SEP and inactive Simple Plan are eligible for a QCD. A qualified employer plan that allows employees to make contributions to a "deemed IRA" also qualifies.
You must meet the following requirements for a charitable deduction to qualify:
• You must be 70 1/2 or older to be eligible to make a QCD.
• QCDs are limited to the amount that would otherwise be taxed as ordinary
income. This excludes non-deductible contributions.
• The maximum annual amount that can qualify for a QCD is $100,000. This
applies to the sum of QCDs made to one or more charities in a calendar year.
(If, however, you file taxes jointly, your spouse can also make a QCD from his or her own IRA within the same tax year for up to $100,000.)
• For a QCD to count towards your current year's RMD, the funds must come out of your IRA by your RMD deadline, generally by December 31.
Taxpayers may not take a deduction for any amount paid as a QCD. However, QCDs must satisfy the substantiation requirements. Contributions of $250 or more must be substantiated with a written acknowledgment from the donee organization.
Any amount donated above your RMD does not count toward satisfying a future year's RMD. There is no carryover provision for any amount not used in a given year.
Funds distributed and payable directly to you, the IRA owner, and which you then give to charity do not qualify as a QCD. A check payable to the charity and delivered by the IRA owner is considered a direct trustee payment.
Contribution and Out-of-Pocket Limits for Health Savings Accounts and High-Deductible Health Plans
529 College Savings Plans
A 529 College Savings Plan is a great way to save for the cost of qualified college education costs. Under prior tax law, qualified expenses were limited to the cost of post-secondary schools such as college or universities.
Since 2017, tax reform has allowed the use of funds to include elementary and secondary expenses up to $10,000 per year.
One of the benefits of saving for a child or grandchild's future education is that contributions are considered gifts for tax purposes. In 2019 the annual gift exclusion is $15,000 per individual. This means that you and your spouse can gift up to $15,000 each to each of your children or grandchildren per year.
There is a 5-year election to "front loan" the plan. You may contribute up to $75,000 to a 529 plan in the current year and treat it as if it were paid over 5 years. The 5-year election must be reported on federal form 709 annual gift return.
Under federal law, there are maximum aggregate limits which vary by plan. The plan balances cannot exceed the expected cost of the beneficiary's qualified education costs. This amount ranges from $235,000 - $529,000 depending on the state.
If the balance is close to the limit you are precluded from contributing any more to the plan. Future earnings allow for the balances to exceed the limit.
Although there is no federal income tax deduction for contributions to a 529 plan, certain states allow for income tax credit or deduction.
The withdrawal of funds from a 529 plan and its accumulated earnings are tax-free as long as the proceeds are used for qualified education expenses.
Another benefit of 529 plans is that you are allowed to change the beneficiary to another qualifying family member. When deciding on a beneficiary be sure to avoid skipping generations, which could trigger a tax penalty.
Journal of Accountancy - Quick Guide for tax year 2018
FYI: Scam Alert! Clients organized as Limited Liability Companies (LLCs) should beware of a form requiring a payment of a $110 annual report fee". No payments should be made to Workplace Compliance Services, please refer to link above.
Required Minimum Distributions (RMD)
Many taxpayers determine their withdrawals based on need and start prior to age 70 ½. We have seen many taxpayers continue to work past “normal” retirement age. This allows for the delay in the use of retirement funds.
Your required minimum distribution is calculated by taking your account balance at December 31st of the previous year and dividing it by your life expectancy.
We are providing you with a withdrawal schedule based on age and how much you need to take in order to meet the RMD. And please don’t forget, your RMD is subject to federal income taxes and in some cases state income taxes as well.
We would be happy to assist you in determining the appropriate income taxes to be withheld.
Table: Withdrawal percentages under the IRS required minimum distribution (RMD)
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