October 2018

To Save Taxes, Traders Need To Deal With Unique Issues Before Year-End

October 31, 2018 | By: Robert A. Green, CPA | Read it on

While the 2017 Tax Cuts and Jobs Act did not change trader tax status, Section 475 MTM, wash-sale loss rules on securities, and more, there is still plenty to consider.

To Get The Most Out Of Tax Reform, Traders Need To Act Fast covered critical moves to make before the calendar year expires. But that’s just the tip of the hat. Read on for more action items to initiate sooner, rather than later.

Wash sales: Securities traders must comply with wash-sale loss rules, but the IRS makes it difficult by applying different standards for taxpayers vs. brokers on tax reports and Form 1099-Bs. Taxpayers must report wash sales on substantially identical positions across all accounts, whereas brokers report only identical positions per account. Active securities traders should use a trade accounting program or service to identify potential wash sale loss problems going into year-end. In taxable accounts, break the chain by selling the position before year-end and not repurchasing a substantially identical position 30 days before or after in any of your taxable or IRA accounts. Avoid wash sales between taxable and IRA accounts throughout the year, as that is otherwise a permanent wash sale loss. (Starting a new entity effective Jan. 1, 2019, can break the chain on individual account wash sales at year-end 2018 provided you don’t purposely avoid wash sales with the related party entity.) Read strategies to avoid wash sale losses. Wash sales only apply to securities; not Section 1256 contracts, cryptocurrencies as intangible property, and volatility ETNs structured as prepaid forward contracts.

Wash sale losses might be preferable to capital loss carryovers at year-end 2018 for TTS traders. A Section 475 election in 2019 converts year-end 2018 wash sale losses on TTS positions (not investment positions) into ordinary losses in 2019. That’s better than a capital loss carryover into 2019, which might then give you pause to making a Section 475 election. You want a clean slate with no remaining capital losses before electing Section 475 ordinary income and loss. (Learn more about wash sales and capital loss limitations in a video on our Website and consider our trade accounting service.)

Trader tax status: If you qualify for TTS (business expense treatment — no election needed) in 2018, accelerate trading expenses into that qualification period as a sole proprietor or entity. If you don’t qualify until 2019, try to defer trading expenses until then. You may also capitalize and amortize (expense) Section 195 startup costs and Section 248 organization costs in the new TTS business, going back six months before commencement. TTS is a prerequisite for electing and using Section 475 MTM. (Learn more about trader tax status in a video on our Website.)

Section 475 MTM: TTS traders choose Section 475 on securities for exemption from wash-sale rules and the $3,000 capital loss limitation — and to receive the new 20% QBI deduction. Existing individual taxpayers had to elect Section 475 by April 17, 2018, for 2018 (March 15 for existing S-Corps and partnerships). They need to complete the election process by filing a 2018 Form 3115 with their 2018 tax return. If you missed the 2018 election deadline, then consider the election for 2019. Capital loss carryovers are a concern.

Trading entities: A “new taxpayer” entity can elect Section 475 within 75 days of inception. But it’s getting late to form a new trading entity by the middle of November, and still qualify for TTS in that short period before year-end. Elect 475 once, and it applies in subsequent years in which you are eligible for TTS unless you revoke the election. (Learn more about Section 475 in a video on our Website.)

Net operating losses: Section 475 ordinary losses and TTS business expenses contribute to net operating loss (NOL) carryforwards, which are limited to 80% of taxable income in the subsequent year(s). TCJA repealed two-year NOL carrybacks, except for farmers. For some traders, this is the worst change in TCJA as traders have counted on quick NOL carryback refunds to replenish their trading accounts and remain in business. Get immediate use of NOLs with a Roth IRA conversion before year-end and other income acceleration strategies.

Excess business losses: TCJA introduced an “excess business loss” (EBL) limitation of $500,000/$250,000 (married/other taxpayers), per tax year. Aggregate EBL from all pass-through businesses: A profitable company can offset another business with losses to remain under the limit. EBL is an NOL carryforward. For example, if a single TTS/475 trader has an ordinary loss of $300,000, his EBL is $50,000, and it’s an NOL carryforward.

2018 S-Corp: TTS traders use an S-Corp trading company to arrange health insurance and retirement plan deductions. The S-Corp must execute officer compensation, in conjunction with these employee benefit deductions, through formal payroll tax compliance before year-end. Otherwise, you will miss the boat. TTS is an absolute must since an S-Corp investment company cannot have tax-deductible wages, health insurance, and retirement plan deductions. This S-Corp is not required to have “reasonable compensation” as other types of businesses are, so a TTS trader may determine officer compensation based on how much to reimburse for health insurance, and how much they want to contribute to a retirement plan. Some use a dual-entity solution: An LLC/partnership trading company, and a management company, organized as a C-Corp, or S-Corp. In that case, the management company executes year-end payroll and these employee benefits. (C-Corps can have other types of employee benefits, too.)

TTS traders organized as a sole proprietorship (an unincorporated business), cannot have health insurance and retirement plan deductions because they don’t have self-employment income (SEI) from trading income. A TTS Schedule C does not have a net income, and the IRS does not permit a TTS sole proprietor to pay officer compensation (wages) to themselves as owners. A TTS partnership faces obstacles in attempting to arrange health insurance and retirement plan deductions because the partnership passes through expenses for reducing SEI, whereas, an S-Corp does not pass through expenses or losses for SEI — that’s why the S-Corp works for traders.

An S-Corp formed later in the year can unlock a retirement plan deduction for an entire year by paying sufficient officer compensation in December when results for the year are evident. The S-Corp may only deduct health insurance for the months the entity was operational and qualified for TTS.

Another reason to create officer compensation is to increase the 20% QBI deduction if you are in the phase-out range subject to the 50% wage limitation. (See my other blog posts and Webinars on year-end planning for TTS S-Corps to execute health insurance, make retirement plan contributions, and generate a QBI deduction.)

2019 S-Corp: If you missed out on employee benefits in 2018, then consider an LLC/S-Corp for 2019. Starting 2019 with trading in the new S-Corp is beneficial. That breaks the chain on wash sales with your individual account at year-end 2018. If you start later, you will have tax compliance for your individual return and S-Corp return in dealing with broker 1099Bs and more.

If you wait to start your entity formation process on Jan. 1, 2019, you won’t be ready to trade in an entity account on Jan. 2, 2019. Instead, you can form a single-member LLC by mid-December 2018, obtain the employee identification number (EIN) at irs.gov, and open the entity brokerage account before year-end. If desired, add your spouse as a member of the LLC on Jan. 1, 2019, which means the LLC will file a partnership return. If you want health insurance and retirement plan deductions, then your LLC should submit an S-Corp election for 2019 by March 15. The S-Corp should also consider making a Section 475 MTM election on securities only for 2019 by March 15. (Consider our entity formation service.)

Solo 401(k): A Solo 401(k) retirement plan for a TTS S-Corp must be established (opened) with a financial intermediary before year-end. Plan to pay (or fund) the 2018 elective deferral amount up to a maximum $18,500 (or $24,500 if age 50 or older) executed with December payroll by Jan. 31, 2019. Plan to pay (fund) the 25% profit-sharing plan (PSP) portion of the S-Corp Solo 401(k) up to a maximum of $36,500, by the due date of the 2018 S-Corp tax return, including extensions, which means Sept. 15, 2019. The maximum PSP contribution requires wages of $146,000 ($36,500 divided by 25% defined contribution rate.) A SEP IRA is less attractive; it doesn’t have a 100%-deductible elective deferral, which means a similar contribution requires more compensation that is subject to Medicare taxes.

Cryptocurrencies: Report realized capital gains and losses for all sales of cryptocurrencies. The IRS classifies cryptocurrencies as intangible property. Include crypto-to-altcoin sales, crypto-to-currency sales, hard forks if you have control and there is a fair market value and purchases of items using crypto. Many crypto traders inappropriately deferred 2017 income on crypto-to-altcoin sales claiming Section 1031 like-kind deferral treatment. TCJA restricted Section 1031 usage to real property only starting in 2018. Bitcoin, Ethereum and other crypto are not securities so wash sale loss rules, and Section 475 MTM elections do not apply. The SEC recently stated that some ICOs and tokens are securities, but not Bitcoin and Ethereum. The IRS has not changed its designation as intangible property, and I expect updated crypto tax guidance from the IRS soon. (See the cryptocurrencies section of our Website.)

Fill in the gaps in tax brackets

If you own an investment portfolio, you have the opportunity to reduce capital gains taxes via “tax loss selling.” You may wish to sell winning positions to accelerate income, perhaps to use up a capital loss carryover or an NOL. TTS traders want a “clean slate” — meaning no capital loss carryovers — so they can make a Section 475 election in the subsequent tax year.

If you are in the lowest two “ordinary” tax brackets for 2018 (10% or 12%), try to take advantage of the 0% long-term capital gains rate. The 12% ordinary income bracket applies on taxable income up to $37,800/$77,400 (single/married). For example, if your single taxable income is $30,000, you can realize $7,500 of long-term capital gains with zero federal tax.

If you realized significant short-term capital gains year-to-date in 2018 and had open positions with substantial unrealized capital losses, you should consider selling (realizing) some of those losses to reduce 2018 capital gains taxes. Don’t repurchase the losing position 30 days before or after, as that would negate the tax loss with wash-sale-loss rules.

The IRS has rules to prevent deferral of income and acceleration of losses in offsetting positions that lack sufficient economic risk. These rules include straddles, the constructive sale rule, and shorting against the box. Also, be aware of “constructive receipt of income” — you cannot receive payment for services, turn your back on that income, and defer it to the next tax year. (See Some Proprietary Traders Under-Report Income.)

Tax-loss selling is inefficient for short-term positions that reduce long-term capital gains. It’s also a moot point with Section 1256 and Section 475 positions since they are mark-to-market (MTM) positions reporting realized and unrealized gains and losses.

Taxpayers should review tax brackets, Social Security and retirement contribution limits, standard deductions, and more. See Tax Rates, other tax charts, and analysis of TCJA at Tax Foundation. There are differences in filing status.

We recommend discussing year-end planning with your tax adviser by early December. Don’t wait until the last minute! If our firm prepared your 2017 tax return, your Client Copy includes a “Tax Reform Impact Summary,” which shows the impact of TCJA on your 2017 file. Our CPAs and I hope to hear from you soon.

Darren L. Neuschwander CPA contributed to this blog post. 

Webinar: Traders Have Unique Issues For Year-End Planning. Come to the Dec. 5, 2018 event or watch the recording after.


To Get The Most Out Of Tax Reform, Traders Need To Act Fast

October 30, 2018 | By: Robert A. Green, CPA | Read it on

Actions are required before year-end to cash in on some of the tax benefits of the 2017 Tax Cuts and Jobs Act (TCJA).

Defer income and accelerate tax deductions
Consider the time-honored strategy of deferring income and accelerating tax deductions if you don’t expect your taxable income to decline in 2019. Tax rates are the same for 2019, although the IRS adjusts tax brackets for inflation each year. Enjoy the time-value of money with income deferral.

Year-end tax planning is a challenge for traders because they have wide fluctuations in trading results, making it difficult to forecast their income. Those expecting to be in a lower tax bracket in 2019 should consider income deferral strategies. Conversely, a 2018 TTS trader with ordinary losses, hoping to be in a higher tax bracket in 2019 should consider income acceleration strategies.

If you have trader tax status in 2018, consider accelerating trading business expenses, such as purchasing business equipment with full expensing.

Don’t assume that accelerating itemized deductions is also a smart move; there may be two problems. TCJA suspended and curtailed various itemized deductions, so there is no sense in expediting a non-deductible item. Even with the acceleration of deductible expenses, many taxpayers will be better off using the standard deduction of $24,000 married, $12,000 single, and $18,000 other taxpayers — these are roughly doubled by TCJA. There is an additional standard deduction of $1,300 for the aged or the blind. If itemized deductions are below the standard deduction, consider a strategy to “bunch” itemized deductions into one year and take the standard deduction in other years.

Accelerate income and defer certain deductions
A TTS trader with substantial losses that are not subject to the capital loss limitation should consider accelerating income to soak up the business loss, instead of having an NOL carryover. TCJA repealed the two-year NOL carryback rule starting in 2018. Try to advance enough income to fully utilize the standard deduction and take advantage of lower tax brackets. Be sure to stay below the thresholds for unlocking various types of AGI-dependent deductions and credits.

Roth IRA conversion: Convert a traditional IRA into a Roth IRA before year-end to accelerate income. The conversion income is taxable in 2018, but you avoid the 10% excise tax on early withdrawals. One concern is that TCJA repealed the recharacterization (reversal) option. There isn’t an income limit for making Roth IRA conversions, whereas, there is for making contributions.

Sell winning positions: Another way traders can accelerate income is to sell open winning positions to realize short-term capital gains. Consider selling long-term capital gain positions, too. In the bottom two ordinary tax rates of 10% and 12%, the long-term capital gains tax rate is zero.

Business expenses, and itemized deduction vs. standard deduction

Business expenses: TTS traders are entitled to deduct business expenses and home-office deductions from gross income. The home office deduction requires income, except for the mortgage interest and real estate portion. The SALT cap on state and local taxes does not apply to the home office deduction. TCJA expanded full expensing of business property; traders can deduct 100% of these costs in the year of acquisition, providing they place the item into service before year-end. If you have TTS in 2018, considering going on a shopping spree before Jan. 1. No sense deferring TTS expenses, because you cannot be sure you will qualify for TTS in 2019.

Itemized deductions: TCJA suspended all “miscellaneous itemized deductions subject to the 2% floor” including investment fees and expenses, unreimbursed employee business expenses, and tax compliance fees. (See Investment Fees Are Not Deductible But Borrow Fees Are.)

Net investment tax: Investment fees and expenses remain deductible for calculating net investment income for the 3.8% net investment tax (NIT) on unearned income. NIT only applies to individuals with net investment income (NII) and modified adjusted gross income (AGI) exceeding $200,000 (single), $250,000 (married filing jointly), or $125,000 (married filing separately). The IRS does not index these thresholds for inflation. (Learn more on my website.)

Retirement plans: If you engage outside investment advisors for managing your retirement accounts, try to pay the advisors from traditional retirement plans, but not Roth IRAs. An expense in a traditional tax-deferred retirement plan is equivalent to a tax-deferred deduction. (Roth IRAs are permanently tax-free, so you don’t need deferred deductions in Roth plans.) A postponed deduction is better than a suspended itemized deduction, which is not deductible. Some brokerage firms might not cooperate unless you engage the firm’s wealth management service. Consider a retirement plan custodian or intermediary who is more accommodating on these expense payments. Don’t allow your retirement plan to pay investment fees to you, or close family members: It’s self-dealing, a prohibited transaction, which might blow up your retirement plan. If you don’t have TTS, consider trading in your retirement plan, instead of taxable accounts.

Employee business expenses: Ask your employer if they have an “accountable plan” for reimbursing employee-business expenses. You must “use it or lose it” before year-end. TTS traders allocate a portion of tax compliance fees to TTS business expense.

Short-selling stock borrow fees, remain deductible under TCJA as “other miscellaneous deductions” on Schedule A (Itemized Deductions) line 28. If you qualify for TTS, short-selling expenses are business expenses. (See Investment Fees Are Not Deductible But Borrow Fees Are.)

Investment interest expense: TCJA did not change investment-interest expense rules: This itemized deduction is limited to investment income, and the excess is carried over to the subsequent tax year(s). TTS traders deduct margin interest expenses on trading positions as a business expense. TCJA curtailed business interest expenses for larger companies only.

SALT: TCJA’s most contentious provision was capping state and local income, sales and property taxes (SALT) at $10,000 per year ($5,000 for married filing separately). Many high-tax states continue to contest the SALT cap, but they haven’t prevailed in court. The IRS reinforced the new law by blocking various states’ attempts to recast SALT payments as charitable contributions, or payroll tax as a business expense.

Estimated income taxes: If you already reached the SALT cap, you don’t need to prepay 2018 state estimated income taxes by Dec. 31, 2018. Pay federal and state estimated taxes owed by Jan. 15, 2019, with the balance of your tax liabilities payable by April 15, 2019. (You can gain six months of additional time by filing an automatic extension on time, but late-payment penalties will apply.)

AMT: In prior years, taxpayers had to figure out how much they could prepay their state without triggering alternative minimum tax (AMT) since state taxes are not deductible for AMT taxable income. It’s easier for 2018 with SALT capped at $10,000 and because TCJA raised the AMT exemption. If you are subject to AMT for 2018, then don’t accelerate AMT preference items.

Standard deduction: TCJA roughly doubled the standard deduction and suspended and curtailed several itemized deductions. Many more taxpayers will use the standard deduction for 2018, which might simplify their tax compliance work. For convenience sake, some taxpayers may feel inclined to stop tracking itemized deductions because they figure they will use the standard deduction. Don’t overlook the impact of these deductions on state tax return where you might get some tax relief for itemizing deductions. Plus, certain repeals and curtailed itemized deductions might be deductible on other parts of your tax return.

20% deduction on qualified business income
This deduction might be one of the most crucial TCJA changes to consider for 2018, and you should take action before year-end.

The IRS recently issued proposed reliance regulations (Proposed §1.199A) for the TCJA’s 20% deduction on qualified business income (QBI) in pass-through entities. The proposed regulations confirm that traders eligible for TTS are a “specified service activity,” which means if their taxable income is above an income cap, they won’t get a QBI deduction. The taxable income (TI) cap is $415,000/$207,500 (married/other taxpayers). The phase-out range below the cap is $100,000/$50,000 (married/other taxpayers), in which the QBI deduction phases out for specified service activities. The W-2 wage and property basis limitations also apply within the phase-out range. Hedge funds eligible for TTS and investment managers are specified service activities.

QBI likely includes Section 475 ordinary income, whereas, TCJA expressly excluded capital gains and losses from it. (See How Traders Can Get 20% QBI Deduction Under IRS Proposed Regulations.)

TCJA favors non-service businesses, which are not subject to an income cap. The W-2 wage and property basis limitations apply above the TI threshold of $315,000/$157,500 (married/other taxpayers). The IRS will adjust TI income cap, phase-out range, and the threshold for inflation in each subsequent year. Calculate QBI on an aggregate basis.

You might be able to increase the QBI deduction with smart year-end planning. If your taxable income falls within the phase-out range for a specified service activity, you might need wages, including officer compensation, to avoid a 50% wage limitation on the QBI deduction. Try to defer income to get under the TI threshold and use up less of the phase-out range.

Consult your tax advisor well before year-end. The QBI deduction is complicated, and questions are pending with the IRS. Accountants are going to be very busy in December, so get on their schedule early.

Married couples should compare filing joint vs. separate
Each year, married couples choose between “married filing joint” (MFJ) vs. “married filing separate” (MFS). TCJA fixed several inequities in filing status, including the tax brackets by making single, MFJ, and MFS brackets equivalent, except for divergence at the top rate of 37%. See the ordinary tax brackets: MFJ/MFS enter the top 37% rate at $600,000/$300,000 vs. $500,000 for single. TCJA retains the marriage penalty at the top rate only.

Married couples may be able to improve QBI deductions, AGI and other income-threshold dependent deductions, and credits with MFS in 2018. It’s wise to enter each spouse’s income, gain, loss and expense separately and have the tax software compare MFJ vs. MFS. In a community property state, there are special rules for allocating income between spouses.

Miscellaneous considerations for individuals
• Becoming familiar with all of the changes in TCJA is crucial. TaxFoundation.Org is an excellent resource.
• Note inflation adjustment increases to rate brackets and more.
• Consider estimated tax payment rules including the safe-harbor exceptions. If you accelerate income, you may need to pay Q4 2018 estimated taxes by Jan. 15, 2019.
• Alternatively, increase tax withholding on wages to avoid estimated tax underpayment penalties.
• If you still need to avoid estimated tax underpayment penalties, arrange a rollover distribution from a qualified retirement plan with significant tax withholding before year-end. Next, roll over the gross amount into a rollover IRA. The result is zero income and avoidance of an estimated tax penalty.
• Sell off passive-loss activities to unlock and utilize suspended passive-activity losses.
• Maximize contributions to retirement plans. That lowers AGI, which can unlock more of a QBI deduction, reduce net investment tax, and unlock AGI dependent benefits.
• The IRS has many obstacles to deferring income including passive-activity loss rules, a requirement that certain taxpayers use the accrual method of accounting and limitations on charitable contributions. TCJA allows more businesses to use the cash method.
• Consider a charitable remainder trust to bunch charitable contributions for itemizing deductions. (Ask Fidelity or Schwab about it.)
• Donate appreciated securities to charity: You get a charitable deduction at the FMV and avoid capital gains taxes. (This is a favorite strategy by billionaires, and you can use it, too.)
• Retirees must take required minimum distributions by age 70½. Per TCJA, consider directing your retirement plan to make “qualified charitable distributions” (QCD). That satisfies the RMD rule with the equivalent of an offsetting charitable deduction, allowing you to take the standard deduction rather than itemize.
• TCJA improves family tax planning: Consider “kiddie tax” rules with increased gift exclusions. Section 529 qualified tuition plans now can be used to pay for tuition at an elementary or secondary public, private or religious school, up to $10,000 per year; the annual gift exclusion is $15,000; the unified credit for estate tax is significantly higher at $11.18 million per person, and “step-up in basis” rules still avoid capital gains taxes on inherited appreciated property. TTS traders should also consider hiring adult children as employees.
• Make sure to fund FSAs and HSAs before year-end fully.

See my next blog post for more info: To Save Taxes, Traders Need To Deal With Unique Issues Before Year-End.

Darren L. Neuschwander, CPA contributed to this blog post. 

Webinar: How Traders Can Save Taxes Before Year-End. Come to the Nov. 7, 2018 event or watch the recording after.


Congress & IRS Offer Help to Hurricane & Wildfire Victims

October 12, 2018 | By: Robert A. Green, CPA

Follow latest IRS updates on hurricanes and wildfire tax relief:

– Disaster victims in Florida, Georgia, Virginia, North Carolina, and South Carolina qualify for tax relief from Hurrican Michael.

“IRS has announced on its website that victims of Hurricane Michael in counties of Georgia and victims of Hurricane Florence in Virginia that are designated as federal disaster areas qualifying for individual assistance, as well as additional victims of Hurricane Florence in counties of South Carolina and North Carolina and additional victims of Hurricane Michael in counties of Florida, that have been similarly designated, have more time to make tax payments and file returns. Certain other time-sensitive acts also are postponed. This article summarizes the relief that’s available and includes up-to-date disaster area designations and extended filing and deposit dates for all areas affected by storms, floods and other disasters in 2018.” (Thomson Reuters/Tax & Accounting). See additional information on Hurricane Michael disaster tax relief here.

– IRS extends Oct. 15 and other upcoming deadlines provides expanded tax relief for victims of Hurricane Michael. Click here.

– IRS extends upcoming deadlines, provides tax relief for victims of Hurricane Florence

Sept. 15, 2018: WASHINGTON — Hurricane Florence victims in parts of North Carolina and elsewhere have until Jan. 31, 2019, to file certain individual and business tax returns and make certain tax payments, the Internal Revenue Service announced today. (See IR-2018-187.)

This relief applies to 2017 partnership and S-Corp tax returns, and 2018 third-quarter estimated taxes due September 17, 2018.

– Retirement plans can make loans, hardship distributions to wildfire, Hurricane Maria victims.

Nov. 1, 2017, Thomson Reuters Checkpoint: “In an Announcement, IRS has announced that employer-sponsored retirement plans can make loans and hardship distributions to victims of Hurricane Maria and the California wildfires and members of their families. And, while IRA participants are barred from taking out loans, they may be eligible to receive distributions under liberalized procedures. But, IRS is not waiving the 10% penalty that applies to early withdrawals. Ann. 2017-15, 2017-47 IRB.”

– Tax Relief for Victims of California Wildfires: Extension Filers Have Until Jan. 31 to File

Oct. 17, 2017, Thomson Reuters Checkpoint: “The IRS has provided tax relief for the victims of wildfires affecting parts of California. Currently, the IRS is providing relief to seven California counties: Butte, Lake, Mendocino, Napa, Nevada, Sonoma, and Yuba. The tax relief postpones various tax filing and payment deadlines that occur starting on 10/8/17. Affected individuals and businesses now have until 1/31/18 to file returns and pay any taxes that are originally due during the relief period. This includes quarterly estimated tax payments, extended 2016 income tax returns, and quarterly payroll and excise tax returns. The IRS noted that tax payments related to 2016 individual tax returns were originally due on 4/18/17, and therefore, not eligible for this relief. The relief is automatically available to any taxpayer with an IRS address of record located in the disaster area. Therefore, the taxpayer does not need to contact the IRS to get this relief. Firefighters and aid workers assisting in the relief efforts that are affiliated with a recognized organization and live outside the disaster area also may qualify for the relief by contacting the IRS. News Release IR 2017-172.”

Oct. 13, 2017: Per IRS.gov, “Victims of wildfires ravaging parts of California now have until Jan. 31, 2018, to file certain individual and business tax returns and make certain tax payments. This includes an additional filing extension for taxpayers with valid extensions that run out this coming Monday, Oct. 16.”

– Tax Provisions in the 2017 Disaster Tax Relief Bill

Per Thomson Reuters CheckPoint: On September 29, President Trump signed into law P.L. 115-63, the “Disaster Tax Relief and Airport and Airway Extension Act of 2017.” The Act, which had been passed by Congress the day before, provides temporary tax relief to victims of Hurricanes Harvey, Irma, and Maria. Businesses that qualify for relief may claim a new “employee retention tax credit” of up to $2,400 for qualified wages paid to eligible employees. Relief for individuals includes, among other things, loosened restrictions for claiming personal casualty losses, tax-favored withdrawals from retirement plans, and the option of using current or prior year’s income for purposes of claiming the earned income and child tax credits. H.R. 3823, the “Disaster Tax Relief and Airport and Airway Extension Act of 2017.”

Relief for casualty losses
The Act exempts qualified disaster-related personal casualty losses from the 10% AGI threshold. Victims don’t have to itemize; they can add this casualty loss to their standard deduction, and that part is deductible for AMT. The Act increases the $100 per-casualty floor to $500. Congress doesn’t want to disenfranchise victims from taking these important tax deductions.

Eased access to retirement funds
The Act allows victims to make “qualified hurricane distributions” from their retirement plans of up to $100,000, with exemption from the 10% early withdrawal penalty. Taxpayers can spread this income over a 3-year period.

Charitable deduction limitations suspended
To help spur more donations to victims, the Act suspends the majority of charitable deduction limitations.

– IRS Offers Help to Hurricane Victims: A Recap of Key Tax Relief Provisions Available Following Harvey, Irma and Maria

IR-2017-160, Sept. 26, 2017

WASHINGTON – The Internal Revenue Service today offered a rundown of key tax relief that has been made available to victims of Hurricanes Harvey, Irma and Maria.

In general, the IRS is now providing relief to individuals and businesses anywhere in Florida, Georgia, Puerto Rico and the Virgin Islands, as well as parts of Texas. Because this relief postpones various tax deadlines, individuals and businesses will have until Jan. 31, 2018 to file any returns and pay any taxes due…(Read more.)


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