#IRS issues #proposed #regulations on #foreign_tax_credits

WASHINGTON — The Internal Revenue Service issued proposed regulationstoday on foreign tax credits for businesses and individuals.

The 2017 Tax Cuts and Jobs Act (TCJA), legislation passed in December 2017, made major changes to the way the U.S. taxes foreign activities. Significant new provisions include a dividends-received deduction for dividends from foreign subsidiaries and the addition of Global Intangible Low-Taxed Income rules, which subject to current U.S. taxation certain foreign earnings that would have been deferred under previous law.

The TCJA also modified the foreign tax credit rules, which allow U.S. taxpayers to offset their taxes by the amount of foreign income taxes paid or accrued, in several important ways to reflect the new international tax rules. These changes include repeal of rules for computing deemed-paid foreign tax credits on dividends on the basis of foreign subsidiaries’ cumulative pools of earnings and foreign taxes, and the addition of two separate foreign tax credit limitation categories for foreign branch income and amounts includible under the new Global Intangible Low-Taxed Income provisions. The TCJA also modified how taxable income is calculated for the foreign tax credit limitation by disregarding certain expenses related to income eligible for the dividends-received deduction and repealing the use of the fair market value method for allocating interest expense. The new foreign tax credit rules apply to 2018 and future years.

Treasury and IRS welcome public comments on these proposed regulations. For details on submitting comments, see the proposed regulations.

Updates on the implementation of the TCJA can be found on the Tax Reform page of IRS.gov.

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What’s new with the #child #tax #credit after tax #reform

Many people claim the child tax credit to help offset the cost of raising children. Tax reform legislation enacted last year made changes to that credit. Here are some important things for taxpayers to know about the changes to the credit.

  • Credit amount. The new law increases the child tax credit from $1,000 to $2,000. Eligibility for the credit has not changed. As in past years, the credit applies if all of these apply:
    • the child is younger than 17 at the end of the tax year, December 31, 2018
    • the taxpayer claims the child as a dependent
    • the child lives with the taxpayer for at least six months of the year
  • Credit refunds. The credit is refundable, now up to $1,400. If a taxpayer doesn’t owe any tax before claiming the credit, they will receive up to $1,400 as part of their refund.
  • Earned income threshold. The income threshold to claim the credit has been lowered to $2,500 per family. This means a family must earn a minimum of $2,500 to claim the credit.
  • Phaseout. The income threshold at which the child tax credit begins to phase out is increased to $200,000, or $400,000 if married filing jointly. This means that more families with children younger than 17 qualify for the larger credit.

Dependents who can’t be claimed for the child tax credit may still qualify the taxpayer for the credit for other dependents.  This is a non-refundable credit of up to $500 per qualifying person. These dependents may also be dependent children who are age 17 or older at the end of 2018. It also includes parents or other qualifying relatives supported by the taxpayer.

More information:

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Some #S_corporations may want to #convert to #C_corporations  

After last year’s tax reform legislation, some S corporations may choose to revoke their S election to be a C corporation because of the new, flat 21-percent C corporation tax rate. Before taking any action, S corporations should consult their tax advisors.

S Corporations and C Corporations are among the types of business structures. A C corporation is taxed on its earnings, and then the shareholder is taxed when earnings are distributed as dividends. S corporations elect to pass corporate income, losses, deductions and credits through to their shareholders for federal tax purposes. Shareholders of S corporations report the pass-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain built-in gains and passive income at the entity level.

The Tax Cuts and Jobs Act includes two changes that affect a corporation’s revocation of an S election to be a C corporation:

  • The corporation should report net adjustments attributable to the revocation over six years. For more information see Revenue Procedure 2018-44.
  • Distributions of cash following the post-termination transition period may be treated as coming out of the corporation’s accumulated adjustments account and accumulated earnings and profits proportionally resulting in part of the distributions being non-dividend distributions from the C corporation. The non-dividend distributions may not be subject to tax at the shareholder level if the shareholder has sufficient stock basis. Additional guidance will be coming.

These law changes only apply to a C corporation that:

  • Was an S corporation on December 21, 2017,
  • Revokes its S corporation election after December 21, 2017, but before December 22, 2019, and
  • Has the same owners of stock in identical proportions on the date of revocation and on December 22, 2017.

For more information, see the Corporate Methods of Accounting topic on the Tax Reform – Businesses page.

Additional resources:
Tax Reform Business Comparison page

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#New IRS publication helps #taxpayers Get Ready for #tax #reform

The IRS issued a new publication to help taxpayers learn about tax reform and how it affects their taxes. Taxpayers can access Publication 5307, Tax Reform Basics for Individuals and Families, on IRS.gov/getready.

While last year’s Tax Cuts and Jobs Act includes tax changes for both individuals and businesses, this publication is specifically geared to individual taxpayers. It breaks down the law in easy-to-understand language. The publication highlights the changes that taxpayers will see on their 2018 federal tax returns they file in 2019.

This new publication provides important information about:

  • Increasing the standard deduction
  • Suspending personal exemptions
  • Increasing the child tax credit
  • Adding a new credit for other dependents
  • Limiting or discontinuing certain deductions

Taxpayers can also go to IRS.gov/getready to find other information about tax reform. This includes the steps taxpayers can take now to help make filing their taxes smoother next year. Following these steps will also help taxpayers avoid surprises when they file their returns.

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#401(k) contribution limit increases to $19,000 for 2019; #IRA limit increases to $6,000

WASHINGTON — The Internal Revenue Service today announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2019.  The IRS today issued technical guidance detailing these items in Notice 2018-83.

Highlights of Changes for 2019

The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $18,500 to $19,000.

The limit on annual contributions to an IRA, which last increased in 2013, is increased from $5,500 to $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.

The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs and to claim the saver’s credit all increased for 2019.

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or their spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor their spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.) Here are the phase-out ranges for 2019:

  • For single taxpayers covered by a workplace retirement plan, the phase-out range is $64,000 to $74,000, up from $63,000 to $73,000.
  • For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $103,000 to $123,000, up from $101,000 to $121,000.
  • For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $193,000 and $203,000, up from $189,000 and $199,000.
  • For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

The income phase-out range for taxpayers making contributions to a Roth IRA is $122,000 to $137,000 for singles and heads of household, up from $120,000 to $135,000. For married

couples filing jointly, the income phase-out range is $193,000 to $203,000, up from $189,000 to $199,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $64,000 for married couples filing jointly, up from $63,000; $48,000 for heads of household, up from $47,250; and $32,000 for singles and married individuals filing separately, up from $31,500.

Highlights of Limitations that Remain Unchanged from 2018

The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan remains unchanged at $6,000.

Detailed Description of Adjusted and Unchanged Limitations

Section 415 of the Internal Revenue Code (Code) provides for dollar limitations on benefits and contributions under qualified retirement plans. Section 415(d) requires that the Secretary of the Treasury annually adjust these limits for cost of living increases. Other limitations applicable to deferred compensation plans are also affected by these adjustments under Section 415. Under Section 415(d), the adjustments are to be made following adjustment procedures similar to those used to adjust benefit amounts under Section 215(i)(2)(A) of the Social Security Act.

Effective Jan. 1, 2019, the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) is increased from $220,000 to $225,000. For a participant who separated from service before Jan. 1, 2019, the limitation for defined benefit plans under Section 415(b)(1)(B) is computed by multiplying the participant’s compensation limitation, as adjusted through 2018, by 1.0264.

The limitation for defined contribution plans under Section 415(c)(1)(A) is increased in 2019 from $55,000 to $56,000.

The Code provides that various other dollar amounts are to be adjusted at the same time and in the same manner as the dollar limitation of Section 415(b)(1)(A). After taking into account the applicable rounding rules, the amounts for 2019 are as follows:

The limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) is increased from $18,500 to $19,000.

The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $275,000 to $280,000.

The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan is increased from $175,000 to $180,000.

The dollar amount under Section 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a five year distribution period is increased from

$1,105,000 to $1,130,000, while the dollar amount used to determine the lengthening of the five year distribution period is increased from $220,000 to $225,000.

The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) is increased from $120,000 to $125,000.

The dollar limitation under Section 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $6,000. The dollar limitation under Section 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $3,000.

The annual compensation limitation under Section 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost of living adjustments to the compensation limitation under the plan under Section 401(a)(17) to be taken into account, is increased from $405,000 to $415,000.

The compensation amount under Section 408(k)(2)(C) regarding simplified employee pensions (SEPs) remains unchanged at $600.

The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts is increased from $12,500 to $13,000.

The limitation on deferrals under Section 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations is increased from $18,500 to $19,000.

The limitation under Section 664(g)(7) concerning the qualified gratuitous transfer of qualified employer securities to an employee stock ownership plan remains unchanged at $50,000.

The compensation amount under Section 1.61 21(f)(5)(i) of the Income Tax Regulations concerning the definition of “control employee” for fringe benefit valuation remains unchanged at $110,000. The compensation amount under Section 1.61 21(f)(5)(iii) is increased from $220,000 to $225,000.

The dollar limitation on premiums paid with respect to a qualifying longevity annuity contract under Section 1.401(a)(9)-6, A-17(b)(2)(i) of the Income Tax Regulations remains unchanged at $130,000.

The Code provides that the $1,000,000,000 threshold used to determine whether a multiemployer plan is a systemically important plan under Section 432(e)(9)(H)(v)(III)(aa) is adjusted using the cost-of-living adjustment provided under Section 432(e)(9)(H)(v)(III)(bb). After taking the applicable rounding rule into account, the threshold used to determine whether a multiemployer plan is a systemically important plan under Section 432(e)(9)(H)(v)(III)(aa) is increased for 2019 from $1,087,000,000 to $1,097,000,000.

The Code also provides that several retirement-related amounts are to be adjusted using the cost-of-living adjustment under Section 1(f)(3). After taking the applicable rounding rules into account, the amounts for 2019 are as follows:

The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for married taxpayers filing a joint return is increased from $38,000 to $38,500; the limitation under Section 25B(b)(1)(B) is increased from $41,000 to $41,500; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $63,000 to $64,000.

The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the Retirement Savings Contribution Credit for taxpayers filing as head of household is increased from $28,500 to $28,875; the limitation under Section 25B(b)(1)(B) is increased from $30,750 to $31,125; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $47,250 to $48,000.

The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the Retirement Savings Contribution Credit for all other taxpayers is increased from $19,000 to $19,250; the limitation under Section 25B(b)(1)(B) is increased from $20,500 to $20,750; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $31,500 to $32,000.

The deductible amount under Section 219(b)(5)(A) for an individual making qualified retirement contributions is increased from $5,500 to $6,000.

The applicable dollar amount under Section 219(g)(3)(B)(i) for determining the deductible amount of an IRA contribution for taxpayers who are active participants filing a joint return or as a qualifying widow(er) increased from $101,000 to $103,000. The applicable dollar amount under Section 219(g)(3)(B)(ii) for all other taxpayers who are active participants (other than married taxpayers filing separate returns) increased from $63,000 to $64,000. If an individual or the individual’s spouse is an active participant, the applicable dollar amount under Section 219(g)(3)(B)(iii) for a married individual filing a separate return is not subject to an annual cost-of-living adjustment and remains $0. The applicable dollar amount under Section 219(g)(7)(A) for a taxpayer who is not an active participant but whose spouse is an active participant is increased from $189,000 to $193,000.

The adjusted gross income limitation under Section 408A(c)(3)(B)(ii)(I) for determining the maximum Roth IRA contribution for married taxpayers filing a joint return or for taxpayers filing as a qualifying widow(er) is increased from $189,000 to $193,000. The adjusted gross income limitation under Section 408A(c)(3)(B)(ii)(II) for all other taxpayers (other than married taxpayers filing separate returns) is increased from $120,000 to $122,000. The applicable dollar amount under Section 408A(c)(3)(B)(ii)(III) for a married individual filing a separate return is not subject to an annual cost-of-living adjustment and remains $0.

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