APRIL 2019
Khaas Baat : A Publication for Indian Americans in Florida




With the tax-filing deadline fast approaching for most of us, here are few reminders.

Filing deadline

For most taxpayers, the filing deadline is April 15. The IRS gives automatic six-month extension until Oct. 15 by filing a Form 4868 for Automatic Extension of Time to File Individual Income Tax Return. But an extension of time to file your tax return doesn’t grant you any extension of time to pay your taxes, therefore f you expect any tax due, it must be paid with an extension to avoid interest and penalties. Also, 2019 first quarter tax estimates are due on April 15, 2019.

14-day rule

As a general rule, the net rental income you get from renting out your home is subject to tax. But there is a special rule if you use a dwelling unit as a residence and rent it for fewer than 15 days, don’t report any of the rental income and don’t deduct any expenses as rental expenses per the IRS website.

Additional 20% deduction for Qualified Business Income Under Section 199A

The Tax Cuts and Jobs Act (TCJA) allows an individual, a trust, or an estate to deduct 20% percent of domestic qualified business income (QBI) from a partnership, S Corporation, or sole proprietorship. The 20% deduction is subject to a limit based either on wages paid plus a capital element. Specifically, the limitation is the greater of:

- 50% of the wages paid with respect to the qualified trade or business: or

- The sum of 25% of the W-2 wages with respect to the qualified trade or business plus 2.5% percent of the unadjusted basis of all qualified property.

This deduction is effective for tax years beginning after December 31, 2017, and before 2026. The 20% deduction is not allowed in computing taxable income and accordingly does not affect limitations based on adjusted gross income. The 20% deduction is available to taxpayers that itemize deductions as well as those do not. The 50-percent-of-wages limitations does not apply in the case of a taxpayer with taxable income of $315,000 or less for married individual filing jointly ($157,000 for other individuals).

IRS Guidance for Treatment of Rental Estate Under Section 199A

When it comes to Section 199A advantages under new tax reform, many taxpayers engaged in the real estate industry were left waiting to find out if they would qualify for the benefits. Notice 2019-07 provides additional guidance specific to rental real estate activities.


Section 199A was designed to help eligible taxpayers deduct up to 20 percent of their qualified business income. To qualify for the deduction, taxpayers must demonstrate they have “trade or business” income under Section 162, which is defined in the regulations as “any trade or business other than a specified service trade or business (SSTB) or the trade or business of performing services as an employee.”

Rental Real Estate Enterprises

Under the safe harbor rule, a rental real estate enterprise (RREE) is deemed to be a Section 162 trade or business if it satisfies certain specific requirements. RREEs making the safe harbor election may claim the 199A deduction. If an enterprise fails to satisfy the requirements of this safe harbor, the rental real estate enterprise may still be treated as a trade or business for purposes of Section 199A if the enterprise otherwise meets the definition of a trade or business.

The regulations define a rental real estate enterprise, solely for the purpose of the 199A deduction, as “an interest in real property held for the production of rents and may consist of an interest in multiple properties…Taxpayers must either treat each property held for the production of rents as a separate enterprise or treat all similar properties held for the production of rents as a single enterprise. Commercial and residential real estate may not be part of the same enterprise.” The taxpayer or relevant pass-through entity (RPE) has to directly hold the interest or hold the interest through a disregarded entity. Taxpayers are prohibited from changing the treatment of properties after the initial filing.

Safe Harbor Rules

To qualify for the safe harbor election, all of the following requirements set forth in the regulations need to be met:

  1. Books and records need to be maintained separately for each rental real estate enterprise;

  2. For years beginning prior to January 1, 2023, a minimum of 250 hours has to be spent performing rental activities with respect to the rental enterprise in the given year. For years beginning after December 31, 2022, the 250-hour minimum performance requirement is no longer mandatory on an annual basis but needs to be met in any three of the five consecutive years; and

  3. Contemporaneous records must be maintained, including documentation of hours of services performed, description of services performed, dates services were performed, and who performed the services. This applies to tax years beginning after December 31, 2018.

If the taxpayer used any part of the rental property as a personal residence or if the property was leased under a triple net lease, the enterprise is ineligible for this safe harbor.

Reporting Rules

Taxpayers (individuals or RPEs) relying on the safe harbor must attach a statement confirming that the specified information satisfies the safe harbor rules.

IRS Grants Some Penalty Relief for underpayment of taxes for 2018

The last thing taxpayers expected following sweeping tax reform was to receive lower refunds than they had in the past. In fact, some are discovering that instead of a refund they owe the federal government. So what went wrong?

After all, the intent of the Tax Cuts and Jobs Act (TCJA) was to cut taxes for most taxpayers. Many taxpayers are seeing modest increases in their paychecks, but that brings little comfort this time of year.

Part of the issue is that along with increasing the standard deduction, the TCJA also eliminated critical tax breaks, such as overall limit of $10,000 for state and local taxes, and deductions for non-reimbursed business expenses, no personal or dependent exemptions, while creating new benefits for other taxpayers, including business owners.

Another factor is that shifting tax brackets changed the amount of money taxpayers need to have withheld from their paychecks. The Government Accountability Office study estimates that 30 million Americans, or 21 percent of taxpayers, didn’t have enough taken out of their pay. Confusion among taxpayers wasn’t helped when the IRS updated calculations for withholding, but the tables didn’t translate precisely from the old law. The new tables failed to factor in changes, such as exemptions for dependents and reduced itemized deductions.

Not surprisingly, many taxpayers are up in arms, especially those who have received big refunds in the past and had already earmarked tax refund money for specific purposes. Some are blaming the shortfall on the new tax law. Taking a glass is half full approach, the Treasury Department has communicated that smaller refunds mean that taxpayers are having the appropriate amount withheld from their paychecks.

Still, as a concession to the many changes put into effect by the TCJA, the IRS won’t expect those who owe money to pay the entire liability if they can’t. In fact, the agency has offered payment plan options and is even waiving penalties for those who did not have enough withheld from their paychecks. Penalties will be waived for taxpayers who paid at least 80 percent of their total liability through withholding, quarterly estimated payments or a combination.

Still, the IRS is urging taxpayers to adjust withholding for 2019 now to avoid future penalties and any other tax surprises when filing tax returns next year.

Plantation-based Sanjay Gupta, CPA, FCA, has 30 years of experience in accounting and taxes. He can be reached at sanjayg@sanjayguptacpa.com or visit www.sanjayguptacpa.com

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