2019 Year-End Tax Guide

THE MARCUM 2019 YEAR-END TAX GUIDE | www.marcumllp.com

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ALTERNATIVE MINIMUM TAX The alternative minimum tax (AMT) has been eliminated for C corporations, while the AMT exemptions and phase- outs were raised for individuals. When

with the SEC) and any financial statement filed with a governmental organization. Contactors need to communicate with their tax advisors regarding who the end-user of the financial statement will be on a year-to-year basis going forward.

considering method changes for pass-through entities, it is vital to remember that the completed contract method is not an allowable method for AMT. Equalization of the average gross receipts threshold and the elimination of the AMT have made the completed contract method extremely attractive to

The Section 179 maximum deduction has been increased to $1 million, with the dollar-for- dollar phase-out threshold starting at $2.5 million. “ ”

There are fully deductible exceptions for: n Parking expenses incurred for the general public. n Parking expenses incurred for 2% shareholders of S corporations, partners of a partnership, sole proprietors or independent contractors. n Parking benefits that are required The calculation of this disallowance can be quite onerous. If a contractor provides parking to employees, a study should be completed to accurately report this disallowance. DEPRECIATION Effective until 2023, contractors can enjoy the benefit of 100% bonus depreciation on the cost of qualifying assets. Unless Congress passes an extension, this additional benefit will be fully phased out in 2026. Due to the retroactive nature of the law, the IRS has released guidance for taxpayers wishing to modify how assets placed into service between September 28, 2017, and December 31, 2017, were depreciated. A review of the 2017 tax return should be done in light of this new guidance. to be included in an employee’s taxable wages (for any expense incurred over the threshold).

NON-DEDUCTIBLE EXPENSES Meals and Entertainment Prior to TCJA, business meals and most types of entertainment were 50% deductible. Under TCJA, all forms of entertainment are now non-deductible, and the types of meals subject to the 50% limitation have expanded from only business meals to include any meals provided to employees for the employer’s convenience, along with meals provided during employee travel or training. It is recommended that new general ledger accounts are created to separately track each of these categories to ease the burden during tax return preparation or in the case of an IRS examination. Employer Provided Parking Parking benefits provided to employees can be excluded from the employee’s taxable wages to the extent of $260 ($265 for 2019), but are not deductible by the employer. Generally, anyone providing parking to employees (employer-owned parking facilities or employer-leased parking spots) should be making an adjustment for parking- related expenses.

C corporation contractors. With the AMT still in existence for individuals and the negative consequences of recalculating AMT income using the percentage of completion method, the cash method has been the preferred change in method for pass-through entities. INCOME CONFORMITY With the issuance of new revenue recognition rules, income must be recognized for tax purposes the same time that it is recognized for financial statement purposes, with an exception for items that exist in the tax code. Accrual less retainage is a method used widely by contractors, allowing for deferral of income related to outstanding retainage on short-term contracts. Unfortunately, this method has not been codified, nor is it acceptable for GAAP purposes. Therefore, any contractors that have elected accrual less retainage in the past will no longer be allowed to continue this method. Any prior year deferral must be recognized in current income. It is important to note that the income conformity rule only applies to applicable financial statements. This includes GAAP and IFRS statements (such as audited financial statements and filings

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