There were a number of important tax developments in the fourth quarter of 2017. The following is a summary of important tax developments that have occurred in the past three months that may affect you, your family, your investments, and your livelihood. Please call us for more information about any of these developments and what steps you should implement to take advantage of favorable developments and to minimize the impact of those that are unfavorable.
Major tax reform. On December 22, President Trump signed into law the “Tax Cuts and Jobs Act” (P.L. 115-97), a sweeping tax reform law that will entirely change the tax landscape.
This comprehensive tax overhaul dramatically changes the rules governing the taxation of individual taxpayers for tax years beginning before 2026, providing new income tax rates and brackets, increasing the standard deduction, suspending personal deductions, increasing the child tax credit, limiting the state and local tax deduction, and temporarily reducing the medical expense threshold, among many other changes. The legislation also provides a new deduction for non-corporate taxpayers with qualified business income from pass-throughs.
For businesses, the legislation permanently reduces the corporate tax rate to 21%, repeals the corporate alternative minimum tax, imposes new limits on business interest deductions, and makes a number of changes involving expensing and depreciation. The legislation also makes significant changes to the tax treatment of foreign income and taxpayers, including the exemption from U.S. tax for certain foreign income and the deemed repatriation of off-shore income.
Standard mileage rates increase for 2018. The optional mileage allowance for owned or leased autos (including vans, pickups or panel trucks) increased by 1¢ to 54.5¢ per mile for business travel after 2017. This rate can also be used by employers to provide tax-free reimbursements to employees who supply their own autos for business use, under an accountable plan, and to value personal use of certain low-cost employer-provided vehicles. The rate for using a car to get medical care increased by 1¢ to 18¢ per mile.
Damage to home’s concrete foundation was deductible casualty. The IRS provided a safe harbor that treats certain damage resulting from deteriorating concrete foundations as a casualty loss, effective for federal income tax returns (including amended federal income tax returns) filed after Nov. 21, 2017. The safe harbor applies to any individual taxpayers who pay to repair damage to their personal residence caused by a deteriorating concrete foundation that contains the mineral pyrrhotite. The safe harbor is available if the taxpayer has obtained a written evaluation from a licensed engineer indicating that the foundation was made with defective concrete containing the mineral pyrrhotite.
For more information, see Weekly Alert ¶ 24 11/30/2017.
Cents-per-mile & fleet average FMV maximums. Thomson Reuters projected the 2018 inflation-adjusted maximum fair market values (FMVs) for employer-provided autos, trucks and vans, the personal use of which can be valued for fringe benefit purposes at the mileage allowance rate (54.5¢ per mile for 2018). For 2018, the FMV can’t exceed $15,600 ($15,900 in 2017) and $17,600 ($17,800 in 2017) for trucks and vans—i.e., passenger autos built on a truck chassis, including minivans and sport-utility vehicles (SUVs) built on a truck chassis. In addition, the 2018 maximum fleet-average vehicle FMVs for autos, trucks and vans for purposes of the use of the annual lease value fringe benefit valuation method for an employer with a fleet of 20 or more vehicles are $20,600 for a passenger auto ($21,100 in 2017), or $23,100 for a truck or van ($23,300 in 2017).
For more information, see Weekly Alert ¶ 30 11/22/2017.
Taxpayer was liable for million dollar FBAR penalty. The Ninth Circuit found that a taxpayer wilfully failed to file a Report of Foreign Bank and Foreign Accounts (FBAR) where IRS assessed a penalty of approximately $1.2 million penalty against the taxpayer for failing to disclose her financial interests in an overseas account. The Court rejected a variety of the taxpayer’s arguments, ranging from the contention that the imposition of the penalty violated the U.S. Constitution’s excessive fines, due process, and ex post facto clauses, to assertions that it was barred by statute of limitations or treaty provisions.