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Meals Continue to be Deductible Under New Guidance

The IRS on Wednesday issued guidance clarifying that taxpayers may generally continue to deduct 50% of the food and beverage expenses associated with operating their trade or business, despite changes to the meal and entertainment expense deduction under Sec. 274 made by the tax law known as the Tax Cuts and Jobs Act (TCJA), P.L. 115-97 (Notice 2018-76). According to the IRS, the amendments specifically deny deductions for expenses for entertainment, amusement, or recreation, but do not address the deductibility of expenses for business meals. This omission has created a lot of confusion in the business community, which the IRS is addressing in this interim guidance. Taxpayers can rely on the guidance in the notice until the IRS issues proposed regulations.

Under the interim guidance, taxpayers may deduct 50% of an otherwise allowable business meal expense if:

  • The expense is an ordinary and necessary business expense under Sec. 162(a) paid or incurred during the tax year when carrying on any trade or business;
  • The expense is not lavish or extravagant under the circumstances;
  • The taxpayer, or an employee of the taxpayer, is present when the food or beverages are furnished;
  • The food and beverages are provided to a current or potential business customer, client, consultant, or similar business contact; and
  • For food and beverages provided during or at an entertainment activity, they are purchased separately from the entertainment, or the cost of the food and beverages is stated separately from the cost of the entertainment on one or more bills, invoices, or receipts.

The IRS will not allow the entertainment disallowance rule to be circumvented through inflating the amount charged for food and beverages.

The notice contains three examples illustrating how the IRS intends to interpret these rules. All three examples involve attending a sporting event with a business client and having food and drink while attending the game. The examples follow the AICPA’s recommendation that meal expenses be deductible when their costs are separately stated from the cost of the entertainment.

The IRS plans to issue proposed regulations and is requesting comments by Dec. 2 on the notice. It is also asking for comments on:

  • Whether further guidance is needed to clarify the interaction of Sec. 274(a)(1)(A) entertainment expenses and business meal expenses.
  • Whether the definition of entertainment in Regs. Sec. 1.274-2(b)(1)(i) should be retained and, if so, whether it should be revised.
  • Whether the objective test in Regs. Sec. 1.274-2(b)(1)(ii) should be retained and, if so, whether it should be revised.
  • Whether the IRS should provide more examples in the regulations.

New Jersey Sales Tax on Rental of Transient Accommodations beginning October 1st, 2018

New Jersey Governor Phil Murphy has signed a bill into law that imposes the same lodging taxes on short-term rentals that hotels and motels pay. As of October 1, 2018, a new law imposes Sales Tax, the State Occupancy Fee, and the Meadowlands Regional Hotel Use Assessment on charges associated with the rental of transient accommodations. The change means operators of short-term rentals that are booked through companies such as Airbnb, VRBO, HomeAway, or others are now required to add these taxes to guests’ bills and remit them to the state. Rentals that are for a period of 90 consecutive days (permanent resident exemption) are excluded from the tax.

“Transient accommodation” means a room, group of rooms, or other living or sleeping space for the lodging of occupants, including but not limited to residences or buildings used as residences. This definition includes rentals made through “transient space marketplaces” as well as rentals that are made directly by the homeowner through classified listing sites, local newspaper ads, referrals from friends/family, or placing a sign on the home, etc.

However, it does not include:

1) a hotel or hotel room;
2) a room, group of rooms, or other living or sleeping space used as a place of assembly;
3) a dormitory or other similar residential facility of an elementary or secondary school or a college or university;
4) a hospital, nursing home, or other similar residential facility of a provider of services for the care, support and treatment of individuals that is licensed by the state;
5) a campsite, cabin, lean-to, or other similar residential facility of a campground or an adult or youth camp;
6) a furnished or unfurnished private residential property (i.e., condominiums, bungalows, single-family homes and similar living units) where no common hotel services are made available (i.e., maid, room, or linen changing services) and where the keys to the property, whether a physical key, access to a keyless lockingmechanism, or other means of physical ingress, are provided at the location of an offsite licensed real estate broker; or
7) leases of real property with a term of at least 90 consecutive days.

“Residence” means a house, condominium, or other residential dwelling unit in a building or structure that is designed, constructed, leased, rented, let or hired out, or otherwise made available for use as a residence.

Beginning October 1, short-term rentals will be subject to the state’s 6.625 percent sales tax and 5 percent hotel occupancy fee, although the occupancy fee is lower in cities that have their own municipal tax on accommodations. That includes Atlantic City, Jersey City, and Newark, where the state fee is 1 percent, and the Wildwoods, where it’s 3.15 percent.

Many municipalities in New Jersey also levy their own municipal occupancy taxes on hotels. The new law allows municipalities the option to impose new taxes and fees on short-term rentals, including: hotel occupancy fee, Atlantic City luxury tax, Atlantic City promotion fee, Cape May County tourism sales tax, Cape May County tourism assessment, sports and entertainment facility tax, and Meadowlands regional hotel use assessment.

Short-term rental operators must register with the state for tax purposes before they can start collecting lodging taxes from guests. All other New Jersey short-term rental hosts will be responsible for registering for a tax ID number, collecting all lodging taxes from guests, filing lodging tax returns, and remitting collected taxes.

Ransomware and Email Scams

Over the past month there have been a few local companies that have been affected by ransomware and email scams and some of them are in bad shape. Don’t know what ransomware is? Ransomware is when a hacker or a cyber terrorist steal your information or hack into your system and hold your system or information hostage for money. In most cases they ask for bitcoins which are untraceable and the FBI often does not catch these suspects making it near impossible to police.

How do you defend yourself against this?

  • Regular backups of your server and website.
  • Stronger password management – NEVER use your office computer or office email password for any online passwords.
  • Antivirus software.
  • Employee training on what to watch for in potential email scams.

If you want more information about security and backups, call us or visit g3cpa.com and we will assist you in developing a strategy to protect your information.

Is hiring a CPA worth it in 2018?

Some individuals will continue to feel comfortable using tax preparation software, but there are circumstances where “you don’t know what you don’t know,” requiring you to call in the help of a CPA. A great CPA can provide much more value than just the peace of mind that comes from knowing that your forms are correct. They can provide planning and tax advisory services, consultation, business and international accounting, forensic accounting, business valuation and more.

Read on to learn four reasons why it’s worth hiring a CPA.

  1. To better understand your big financial picture

There are a variety of questions to determine if a CPA is right for helping you assess your overall financial well-being:

  • Do I have a clear grasp of my financial situation and how the new law will shape it?
  • When will I reach my savings or investment goals? Should I set new ones now?
  • How does tax reform affect decisions such as selling my house, retiring, taking a sabbatical, supporting a favorite charity, or sending my kid (or me) to college or grad school?

Figuring this out on your own is tough. Having a trusted adviser in your corner who knows all about your circumstances and looks at the big picture can make a critical difference. A CPA can help you start thinking about strategic timing and next steps, so you don’t miss out on important opportunities.

  1. To help you save for the big stuff

If saving up for education expenses, a baby or retirement seems daunting, you’re not alone. Some frequently asked questions in this area are:

  • My spouse wants to go to grad school. Can we swing this?
  • What is the best way to contribute to my children’s’/nieces’/nephews’/grandchildren’s college costs?
  • Am I saving enough to retire early? Is that even possible?

A CPA will help you strategize, whether you’re saving for school or saving for retirement. For example, under the new law, 529 funds can be used to pay private school tuition. A CPA can recommend the best way to fund the 529 and how and when to use it. A CPA can also assist in evaluating investment options that would be the most tax efficient to maximize your return in retirement.

  1. To make the most of your retirement

Your ideal retirement might be sipping a cocktail on the beach, or it might be trekking across America in an RV. Either way, there are specific questions to ask yourself in order to make the most of this next life stage, such as:

  • When should I start receiving Social Security benefits? What are the tax implications?
  • What is the best way to draw down retirement funds to minimize taxes and prevent financial problems?
  • Is my estate planning in order?

Knowing how to handle Social Security benefits is critical. In 2017, 50% of married couples and 71% of single people aged 65 and older relied on Social Security for at least half of their income. A CPA can fill you in on what you need to know and work with you to develop an action plan.

Similarly, he or she can work with you and other professionals to create an estate plan that honors your wishes and minimizes taxes for your beneficiaries. Tax reform greatly reduced the number of taxpayers subject to federal estate tax, but only through 2025. If your state taxes estates, you will need to take that into consideration. Thinking about the distribution of your assets can be difficult; however, you can enjoy the peace of mind that comes with knowing everything is in order.

  1. To prepare you for whatever life throws at you

We all know the reality of the Forrest Gump quote – “Life is like a box of chocolates: you never know what you’re going to get.” Here are some important questions to consider before “life happens”:

  • If a natural disaster hits my home or business, do I have a plan for financial recovery?
  • Am I handling my health care expenses correctly to save the most money?
  • If I am injured or become seriously ill, do I know how I can pay the bills?

So, if your particular box of chocolates sticks you with the coconut-filled one you hate, how can a CPA help? Many CPAs are knowledgeable about insurance, such as long-term disability and property, and can advise you on what you need to be prepared. And if they don’t offer this service directly, they most likely partner with an expert in the area so they can oversee your full financial picture. They also know about the tax incentives related to health care that may help you save and pay for medical expenses.

Next step: Making the Decision

If you’re not sure you’re on the right financial path, or what your path should even be, seriously consider contacting a CPA. To quote entrepreneur and business philosopher Jim Rohn, “You cannot change your destination overnight, but you can change your direction overnight.”

Of course, as a CPA, I’m biased. I’m extremely proud of my profession and believe deeply that people will benefit from our expertise. So let me share a more impartial comment from Manny, one of our readers in response to a much earlier blog, Is Hiring a CPA Worth it?: “Hiring a CPA may be a little costly in the beginning but will pay off in the long run. Tax planning and account management can be really confusing. Having a business and personal adviser will help save your time and money.”

For more information on working with a CPA, visit 360finlit.org. And to find one near you, visit cpasdotax.com.

April Walker, CPA, CGMA, Lead Manager Tax Practice & Ethics, Association of International Certified Professional Accountants

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12 Tax Deductions for Realtors

Tax season is difficult for everyone. For those working as independent real estate agents, things can be even messier. If realtors are aware of these 12 tax deductions, their lives will be much easier when tax time comes around. Take a look at a few tax deductions that will help to save some money.

Vehicle Mileage
Much of a realtor’s time is spent driving clients to and from properties. Realtors in the United States alone drive billions of miles each year. Vehicle mileage is deductible as long as date, time, distance, and purpose of the trip are logged. The IRS determined the 2018 mileage rates to be 54.5 cents for every mile of business travel driven. By multiplying the total miles driven by the mileage rate, one can determine the deduction.

Home Office Deduction
If you have a designated office in your home, you can deduct up to 300 square feet in taxes. The prescribed rate of $5.00 must be multiplied by the square footage of the office. Writing off a home office also takes rent, mortgage, furniture, and other expenses into account. See more on simplifying home office deductions here.

Entertainment, Meals and Gifts for Clients
Taking clients out for lunch to discuss business and dining out on business trips are both acceptable to write off up to 50% if business was the proven highlight of the meal. Keeping track of receipts and other information is crucial, so don’t forget to log your business expenses!

Marketing Materials/Advertising
Traditional forms of advertising such as business cards, yard signs, flyers, and letterhead, as well as digital forms of advertising are all tax deductible.

Uber/Taxi/Lyft Fees
Showings in the city can be a hindrance if you are driving and parking your own vehicle. To save time and money, realtors often use other means of transportation to get their clients to and from different properties.

Office Supplies
Realtors can write off office supply purchases that range from decorations to paper clips.

Desk Fees
The payment agreement between a realtor and his or her broker is deductible. Keep in mind that either the desk fee or the home office fee can be deducted, not both.

Legal or Professional Services
Realtors can deduct any professional service that they hire to make their lives easier, whether it be a law firm, marketing agency, or an accounting firm.