WASHINGTON –The Treasury Department and the Internal Revenue Service issued guidance today that provides a safe harbor method for determining depreciation deductions for passenger automobiles that qualify for the 100-percent additional first year depreciation deduction and that are subject to the depreciation limitations for passenger automobiles. 

Under the Tax Cuts and Jobs Act (TCJA), the additional first year depreciation deduction applies to qualified property, including passenger automobiles, acquired and placed in service after September 27, 2017, and before January 1, 2027. 

In general, the section 179 and depreciation deductions for passenger automobiles are subject to dollar limitations for the year the taxpayer places the passenger automobile in service and for each succeeding year.  For a passenger automobile that qualifies for the 100-percent additional first year depreciation deduction, TCJA increased the first-year limitation amount by $8,000.  If the depreciable basis of a passenger automobile for which the 100-percent additional first year depreciation deduction is allowable exceeds the first-year limitation, the excess amount is deductible in the first taxable year after the end of the recovery period.

The guidance provides a safe harbor method of accounting for passenger automobiles. The safe harbor allows depreciation deductions for the excess amount during the recovery period subject to the depreciation limitations applicable to passenger automobiles.  To apply the safe-harbor method, the taxpayer must use the applicable depreciation table in Appendix A of IRS Publication 946.  The safe harbor method does not apply to a passenger automobile placed in service by the taxpayer after 2022, or to a passenger automobile for which the taxpayer elected out of the 100-percent additional first year depreciation deduction or elected under section 179 to expense all or a portion of the cost of the passenger automobile. 

Taxpayers adopt the safe harbor method of accounting by applying it to deduct depreciation of a passenger automobile on their return for the first taxable year following the placed-in-service year.

For more information on the additional first year depreciation deduction, see TCJA, Depreciation. For information about other TCJA provisions, visit IRS.gov/taxreform.

Back to Top

Tax reform eliminated the option to claim “miscellaneous expenses subject to the 2 percent adjusted gross income (AGI) floor” as itemized deductions.  Unreimbursed job expenses were previously part of that miscellaneous expense category. That means as a traditional employee, you can no longer deduct those costs on your tax return. And that includes the cost of:

• meals and entertainment
• travel
• office supplies
• books
• vehicles (actual expenses or the standard mileage rate)

Don’t fret if you’re self-employed or a small business owner! You can still deduct those costs as business expenses. That includes sole proprietorships, farms, and real estate rentals. The new law only eliminated the deduction for work-related expenses for traditional employees.

How do changes to the standard deduction affect itemized deductions?

As you may have heard, the standard deduction for 2018 doubled – or nearly doubled – for taxpayers in all filing statuses. Most people will find it’s not beneficial to itemize their deductions because the new, larger standard deduction provides more benefits.

If you’re not itemizing deductions, it no longer matters whether you can deduct unreimbursed job expenses as miscellaneous itemized deductions.

What should I do if my unreimbursed job expenses are substantial?

If you have a lot of unreimbursed job expenses, the first thing you may want to do is see if your employer will cover the cost. Your employer can still deduct all qualified employee expense reimbursements. That why now is a great time to bring the subject up to your employer so you know what to expect come tax season.

If your employer decides to reimburse your expenses, make sure they use an “accountable plan” that meets all IRS requirements. Using an accountable plan allows your employer to deduct reimbursed expenses and not include the reimbursed amount with your wages on Form W-2. If your employer does not use an accountable plan, any reimbursements must be included on your Form W-2 as taxable income.

Another option is to see if you qualify to work as an independent contractor. If you often have a large number of unreimbursed job expenses, and you meet other independent contractor guidelines set by the IRS, it might be more beneficial to be classified that way. Just be sure you are paid a higher gross amount as a contractor than you were as an employee. That’ll help make up for the lost employer-paid Social Security, Medicare and other benefits lost. “from Tax Act Blog.”

F

Business may find they have questions about how 2017’s tax reform legislation affects their organization and their bottom line. IRS.gov is a great place to find answers. Here are several resources on the IRS website that address tax reform.

Tax reform provisions that affect businesses
This is the main page for businesses. Users can link from this page out to more resources with additional information, which is organized in sections by topic. These sections include a plain language description and links to news releases, notices and other technical guidance. Here are a few of the main tax topics on this page and the subtopics highlighted in each section:

• Income: taxation of foreign income, carried interest, and like-kind exchanges
• Deductions and depreciation: fringe benefits, moving expenses, standard mileage rates, deduction for pass-through businesses, and business interest expenses
• Credits: employer credit for paid family and medical leave, and the rehabilitation tax credit
• Taxes: blended federal income tax and withholding
• Accounting method changes
• Opportunity zones

This page also includes information for specific industries, such as farming, insurance companies, and aircraft management services.

Tax Reform Small Business Initiative
This one-stop shop highlights important tax reform topics for small businesses. From this page, users can link to several additional resources.

Tax reform resources
From this page, people can link to helpful products including news releases, tax reform tax tips, revenue procedures, fact sheets, FAQs and drop-in articles. Organizations can share these materials including the drop-in articles with employees, customers and volunteers to help them better understand tax reform.

Tax Cuts and Jobs Act: A comparison for businesses
This side-by-side comparison can help businesses understand the changes the new law made to previous law. It will help businesses then make decisions and plan accordingly. It covers changes to deductions, depreciation, expensing, tax credits, and other tax items that affect businesses.

Tax reform: What’s new for your business 
This electronic publication covers many of the TCJA provisions that are important for small and medium-sized businesses, their owners, and tax professionals to understand. This concise publication includes sections about:

• Qualified business income deduction
• Depreciation: Section 168 and 179 modifications
• Business-related losses, exclusions and deductions
• Business credits
• Corporate tax provisions
• S corporations
• Farm provisions
  
  

Share this tip on social media — #IRSTaxTip: Find out how tax reform affects your businesses’ bottom line at IRS.gov 
https://go.usa.gov/xEkSq

Back to Top

The United States Tax Court’s website (www.ustaxcourt.gov) announced that the Tax Court shut down operations on Friday, December 28, 2018, at 11:59 p.m. and will remain closed until further notice.  The IRS reminds taxpayers and tax professionals the Tax Court website is the best place to get information about a pending case. 

There are some important points for taxpayers and tax professionals to keep in mind. These are some questions and answers to help during the current appropriations lapse.

Q: What should I do if a document I mailed or sent to the Tax Court was returned to me?

A: The Tax Court website indicates that mail sent to the court through the U.S.  Postal Service or through designated private delivery services may have been returned undelivered.  If a document you sent to the Tax Court was returned to you, as the Tax Court website indicates, re-mail or re-send the document to the Court with a copy of the envelope or container (with the postmark or proof of mailing date) in which it was first mailed or sent. In addition, please retain the original.

My case was calendared for trial.  What does the Tax Court’s closure mean for my pending case? 

The Tax Court canceled trial sessions for January 28, 2019 (El Paso, TX; Los Angeles, CA; New York, NY; Philadelphia, PA; San Diego, CA; and Lubbock, TX), February 4, 2019 (Hartford, CT; Houston, TX; San Francisco, CA; Seattle, WA; St. Paul, MN; Washington, DC; and Winston-Salem, NC) and February 11, 2019 (Detroit, MI; Los Angeles, CA; New York, NY; San Diego, CA; and Mobile, AL). The Tax Court will inform taxpayers who had cases on the canceled trial sessions of their new trial dates.

The Tax Court’s website indicates that it will make a decision about the February 25, 2019 trial sessions (Atlanta, GA; Chicago, IL; Dallas, TX; Los Angeles, CA; and Philadelphia, PA) on or before February 7, 2019.  Taxpayers with cases that are scheduled for trial sessions that have not been canceled or that have not yet been scheduled for trial should expect their cases to proceed in the normal course until further notice.

If my case was on a canceled trial session, when will I have an opportunity to resolve my case with Appeals or Chief Counsel after the government reopens? 

After the IRS and Chief Counsel reopen, we will make our best efforts to expeditiously resolve cases. 

Where can I get more information about my Tax Court case? 

If someone is representing you in your case, you should contact your representative. In addition, the Tax Court’s website is the best place for updates.  The IRS Chief Counsel and Appeals personnel assigned to your case may be furloughed and will not be available to answer your questions until the government reopens.  In addition, The American Bar Association (ABA) is conducting a webinar on January 28, 2019, and you can get more information from the ABA Tax Section website (www.americanbar.org/groups/taxation). Taxpayers seeking assistance from Low Income Taxpayer Clinics (LITCs) can find a list of LITCs on the Tax Court’s website (www.ustaxcourt.gov/clinics/clinics.pdf).

During the shutdown, does interest continue to accrue on the tax that I am disputing in my pending Tax Court case? 

Yes. To avoid additional interest on the tax that you are disputing in your pending Tax Court case, you can stop the running of interest by making a payment to the IRS.  Go to www.irs.gov/payments for payment options available to you.  The IRS is continuing to process payments during the shutdown.

What should I do if I received a bill for the tax liability that is the subject of my Tax Court case? 

If you receive a collection notice for the tax that is in dispute in your Tax Court case, it may be because the IRS has not received your petition and has made a premature assessment.  When the government reopens, the IRS attorney assigned to your case will determine if a premature assessment was made and request that the IRS abate the premature assessment. 

Back to Top