New Year, New Tax Season: Here’s Your Tax Prep To-Do List

Tax documents, receipts, and updating personal information—there are a lot of tasks to check off for the tax season, but a checklist can help! Thankfully, the tax experts at SD Associates have come up with a helpful checklist to make your tax season much easier this year. 

Organize Your Tax Records
Although organizing your taxes won’t reduce your liability completely, there are some financial benefits you could experience if you get organized this month. However, with all the different tax documents, it’s hard to know which ones you need to gather and organize. Here’s a simple checklist:

  • Keep an eye out for tax documents that come in the mail, like W-2s, 1099s, mortgage interest statements, etc.
  • Gather all the receipts you accumulated over the past fiscal year and organize them by category.
  • Make sure you have the cost basis of those stock that you sold during 2018
  • Schedule out your income and related expense from those rental properties.

Once you have all the documents, make your life easier by grouping similar documents together. When it comes time to file, you’ll be glad you took this extra organizational step sooner rather than later!

Add Funds to a Retirement Account
Did you forget to contribute to your retirement account in 2018? Not to worry! You have until April 15, 2019 to do so—and if you have the funds available, you might want to make that a priority. Not only are you making smart choices for your future but contributing to an IRA or SEP account you are eligible for that tax deduction in 2018.

Make Sure Your Address is Up to Date
If you moved in 2018, it’s important to make sure you update your address with any organization that you know will be sending you tax-related documents. This includes:

  • Former employers for your W-2s
  • Banks for 1099-Int documentation
  • Brokerages for either a 1099-DIV or a 1099-B
  • Lenders for 1098 documents
  • IRS, state tax agency or clients for your 1099-MISC
  • Investments and trusts for K-1s

Name Change? Make Sure It’s Updated
When you get married, there are a lot of new and exciting things that happen, and if you became a newlywed in 2018 (congratulations!), a name change is one of them! Typically, newlyweds remember that they need to change their name on their driver’s license, passport and paychecks, but don’t always remember to notify the Social Security Administration. However, if your name doesn’t match your Social Security Record, you won’t be able to e-file your tax return, so now is the perfect time to review this.

Whether you want help filing your taxes, are looking to maximize your tax deductions or identify tax credits, SD Associates can help! Contact us today to make your upcoming tax season a breeze.

E-Commerce Business Owner PSA: Here are some Tax Considerations for your Online Business

Whether you’re starting a new e-commerce business in 2019 or hoping to handle your e-commerce taxation better for the upcoming tax season, tax considerations are unique for online businesses. While the concept of sales tax seems simple enough, the Supreme Court ruling in South Dakota v. Wayfair Inc. added complications to e-commerce companies doing business nationally. The decision enabled states to charge sales tax to out-of-state sellers, which means you don’t need a physical presence in a state to pay sales tax.

The tax experts at SD Associates are here to help! Here are some tax considerations for your online business to prepare you for the upcoming tax season, so you can stop focusing on e-commerce taxation and more on your e-commerce business.

Know Your Sales Tax Nexus

Even though your business is 100% online, you still need to determine if you have a sales tax nexus (a business connection within a state). If you do have sales tax nexus in a state, then you must pay sales tax to that state. Not sure if you have a sales tax nexus? Here’s what to consider:

  • Physical locations (i.e. offices, warehouses facilities, etc.)
  • Storage units of inventory
  • Personnel (employee, contractor, salesman, etc.)
  • Economic nexus (sale numbers or transactions performed in a state)

Get Crackin’ on Your Sales Tax Collection

Possibly the most important tax consideration for online businesses is setting up your online shopping carts with sales tax. Although every online shopping cart has the option to add sales tax, you must first determine if the state you have nexus in is a destination or origination state. If you’re located in a destination state, the sales tax rate you charge is based on your customer’s shipping address; if you’re located in an origin-based state, the sales tax rate you charge is based on your business location.

Taxable or Not Taxable, That Is the Question

You also must determine if your products are taxable. Typically, nearly all tangible items (jewelry, electronics, shoes, etc.) are taxable. Because taxable products differ from state to state, figuring out if your products are taxable largely depends on which state your business is located in.

Make Tax Season Less Painful with these Tax Deductions

As an e-commerce business owner, there’s bound to be business expenses you incur throughout the year that are deductible. Although there are specific criteria for different tax deductions, here is a list of the most common for e-commerce businesses:

  • Home office
  • Internet, cell phone, and video conferencing bills
  • Website domain and hosting costs
  • Travel expenses (gas, flights, car rentals, etc.)
  • Business insurance
  • Shipping costs
  • Office supplies (boxes, printing ink, paper, markers, tape, etc.)

If you’re not sure about which tax deductions you’re eligible for, confused by the concept of sales tax nexus or overwhelmed by filing your taxes in general, then SD Associates can help! With a variety of tax services, such as tax planning, strategy creation, maximizing tax deductions and finding eligible tax credits, the tax experts at SD Associates have everything you need. Contact us today so we can start helping you with your ecommerce business tax needs!

In preparation for the 2019 Tax Season: A couple of things to Know About the New IRS 1040 Tax Forms

Tax season will be here before you know it, but with the introduction of a new 1040 individual tax form by the Internal Revenue Service (IRS), we hope things will be a little different, for all individual filers. Because tax season is hard enough as it is without having to deal with a new tax forms, the tax experts at SD Associates have outlined everything you need to know about the new 1040 tax form, so there’ll be no surprises when April 15th rolls around.

The New Version is Supposed to Be Simpler

Looking to make things easier for taxpayers, the IRS has shortened and simplified the 1040 tax form for the 2019 tax season. To enable 150 million taxpayers to use the same form, the prior three versions of the 1040 tax forms have been consolidated into one, streamlined form. Despite this change, the IRS will still be able to obtain the information they need to determine each taxpayer’s tax liability or refund.

It’s Replacing the 1040-A and 1040-EZ

If you were confused in past tax seasons about whether you should fill out the 1040, 1040-A or 1040-EZ form, the IRS has eliminated this confusion—by eliminating the 1040-A and 1040-EZ forms altogether. Prior to this year, the 1040 was considered the standard form, the 1040-A was for relatively simple tax situations (i.e. not owning a business, no itemizing deductions and having taxable income under $100K) and the 1040-EZ was for the simplest tax situations.

It Features New Tax Tables

In addition to the change in tax forms, there will be new tax tables that you will be subject to.

Certain Tax Items Have Been Eliminated

Due to the new Tax Cuts and Jobs Act, there are a few things that will no longer appear on the 1040 form—these include: the alimony deduction, the personal exemption, moving expenses deduction and miscellaneous deductions (as noted on schedule A).

Still confused by the new 1040 tax form? Let the tax experts at SD Associates take care of your taxes for you! From tax planning to creating a strategy, maximizing tax deductions to finding eligible tax credits, the extensive tax services offered by the SD Associates team will ensure your 2019 tax season is stress-free and achieves all of your tax goals. Contact us today!

What Is the Difference Between a Grandfathered and a Grandmothered Health Plan?

QUESTION: Our company sponsors a group health plan, which is grandfathered for purposes of the Affordable Care Act. We’ve been reading about grandmothered health plans. How are these plans different from grandfathered health plans?

ANSWER: “Grandfathered plans” are group health plans (or health insurance coverage) that were in existence on March 23, 2010, and have not undergone certain prohibited design changes since then. These plans are excused from some of the requirements under the Affordable Care Act (ACA), such as coverage of preventive health services without any cost-sharing and the expanded appeals process and external review, but are subject to other provisions (see our Checkpoint article). Grandfathered status can be maintained indefinitely so long as the plan or coverage has continuously covered someone (although not necessarily the same person) since March 23, 2010; no prohibited plan design changes are made; and the required disclosure and recordkeeping requirements are met. Examples of changes that would cause loss of grandfathered status include any increase (measured from March 23, 2010) in a cost-sharing percentage and elimination of all or substantially all of the benefits to diagnose or treat a particular condition. The grandfathered plan rules apply separately to each benefit package (e.g., PPO or HMO) made available under a group health plan. If grandfathered status is lost, it cannot be regained.

On the other hand, “grandmothered plans” is a term used to describe non-grandfathered health plans that are subject to an HHS transition policy allowing insurers in the individual and small group markets to renew health insurance policies they would otherwise have had to cancel due to noncompliance with certain ACA insurance market reforms (e.g., premium rating rules, guaranteed availability and renewability, and the requirement to provide essential health benefits). The transition relief for grandmothered plans has been extended several times. Under the most recent extension, states may permit insurers that have continually renewed grandmothered plans since January 1, 2014, to renew such coverage again for any policy year beginning on or before October 1, 2019 (see our Checkpoint article). (However, the insurance policies must not extend past December 31, 2019.) An insurer that renews a grandmothered plan is required to provide an annual informational notice explaining the right to retain existing coverage to affected individuals and small businesses.

For more information, see EBIA’s Health Care Reform manual at Sections VI (“Grandfathered Health Plans”) and XIV.A(“Introduction and Understanding Small and Large Group Markets”).

Contributing Editors: EBIA Staff.

 

Top Five TCJA Tax Planning Opportunities for Individuals in 2018


As we enter into the tax planning stage of the year, the focus shifts to helping clients understand the impact of the Tax Cuts and Jobs Act (TCJA) and optimize their tax positions. That is no small task, given that there are over 130 new tax provisions.

Here are the top five TCJA tax planning opportunities for individuals in 2018. (Want to watch the video instead? Click hereor get your TCJA Toolkit.)

#5 — Itemized deductions versus the standard deduction.

The Tax Cuts and Jobs Act roughly doubles the standard deduction. This means that for 2018, joint filers can enjoy a standard deduction of $24,000. However, the new law suspends personal exemption deductions and eliminates or limits many of the itemized deductions. For example, the state and local tax deduction is now capped at $10,000 per year, or $5,000 for a married taxpayer filing separately. Also, the Tax Cuts and Jobs Act temporarily eliminates miscellaneous itemized deductions subject to the 2% floor (like tax preparation fees and employee business expenses) and limits the home mortgage interest deduction to home acquisition debt of up to $750,000, or $375,000 for a married taxpayer filing separately.

So, what does this mean for your clients? For those who typically claim the standard deduction, chances are their tax bill will decrease for 2018. Although personal exemption deductions are no longer available, a larger standard deduction, combined with lower tax rates and an increased child tax credit, may result in less tax. Also, you may find that clients who itemized last year won’t itemize this year, or they may be able to itemize for state income tax purposes but not for federal. You will need to run the numbers to assess the impact for each client. Depending on the results, you may need to adjust your clients’ estimated quarterly tax payments or encourage them to turn in a new Form W-4 to their employers.

#4 — Revisit your qualified tuition plans.

Qualified tuition plans, also called 529 plans, are a great way to ease the financial burden of paying for college. Before the Tax Cuts and Jobs Act, earnings in a 529 plan could be withdrawn tax-free only when used for qualified higher education at colleges, universities, vocational schools, or other post-secondary schools. Thanks to the Tax Cuts and Jobs Act, 529 plans can now be used to pay for tuition at an elementary or secondary public, private, or religious school, up to $10,000 per year. If your clients are paying tuition for their children or grandchildren to attend elementary or secondary schools, encourage them to either set up or revisit their 529 plans. They’ll thank you for it later.

#3 — Watch out for home equity debt interest.

Under the Tax Cuts and Jobs Act, home equity debt interest is no longer deductible. Or so you thought. According to the IRS, interest paid on home equity loans and lines of credit is deductible if the funds were used to buy or substantially improve the home that secures the loan. In other words, it’s treated as home acquisition debt subject to the new $750,000/$375,000 limit. This is good news for homeowners, but it forces you to trace how the proceeds were used. If your client used the cash to pay off credit card or other personal debts, the interest isn’t deductible, even if the payoff occurred prior to 2018.

#2 — Bunch charitable contributions.

The new law temporarily increases the limit on cash contributions to public charities and certain private foundations from 50% to 60% of adjusted gross income. However, the doubling of the standard deduction and changes to key itemized deductions will prevent some clients from itemizing in 2018 and therefore benefiting from this increased limit. One way to combat this is to bunch or increase charitable contributions in alternating years. Suggest that clients set up donor-advised funds. This will allow them to claim a charitable tax deduction in the funding year and schedule grants over the next two years or other multiyear periods. Clients can take advantage of the deduction when they’re at a higher marginal tax rate while actual payouts from the fund can be deferred until later. It’s a win-win situation.

#1 — Maximize the qualified business income deduction.

Perhaps the hottest topic of the Tax Cuts and Jobs Act is the new qualified business income deduction under Section 199A. Individuals who own interests in a sole proprietorship, partnership, LLC, or S corporation may be able to deduct up to 20% of their qualified business income. However, the deduction is subject to various rules and limitations.

Although official guidance is lacking on this new deduction, there are some planning strategies that can be considered now. For example, clients can adjust their business’s W-2 wages to maximize the deduction. Also, it may be beneficial for clients to convert their independent contractors to employees where possible, but make sure the benefit of the deduction outweighs the increased payroll tax burden and cost of providing employee benefits. Other planning strategies include investing in short-lived depreciable assets, restructuring the business, leasing and selling property between businesses, and, yes, even getting married.

New Opportunity: Zone Tax Program

The Opportunity Zones Program, as created in the Tax Cuts and Jobs Act of 2017, enables taxpayers to reduce and temporarily defer federal taxes on the proceeds of selling investments with unrealized capital gains, in exchange for providing equity investments in small businesses and real estate in distressed communities.

Key Provisions

  • Temporary Deferral of Capital Gains Taxes
    You will not be taxed on the gains invested in an Opportunity Fund until you exit the fund or December 31, 2026, whichever comes first. This is similar to a 1031 exchange.
  • Step Up in Basis in Years 5 & 7
    Investments held for a minimum of 5 years will be taxed at reduced rates – 90% for investments held at least 5 years (10% basis increase) and 85% for investments held at least 7 years (15% basis increase).
  • Tax-Free Earnings After Year 10
    If you hold an investment for 10 years, gains accrued on your Opportunity Fund investment during that 10-year period will not be taxed. It’s a permanent exclusion from taxable income.

How SD Associates P.C., CPA’s Can Help

Tax/Accounting Services

  • Tracking basis in the investments
  • IRS compliance with opportunity zone requirements
  • Tax preparation and planning
  • Financial statement preparation
  • Accounting system set up
  • Property valuation assistance

Other Services

  • Project forecasting and projections
  • Bank financing and loan structuring assistance
  • Entity structure review
  • Business planning

7 Smart Reasons for Your Payroll Clients to Use Time Clocks

Looking to enhance your payroll offering? There’s no better way than placing time clocks in your clients’ businesses.

Time clocks are simple to implement; in many cases they integrate with your current payroll software. They also provide an additional revenue stream for your firm, in addition to other benefits we’ll explore in this post.

Benefits of Using a Payroll Time Clock

Here are seven smart, profit-generating and time- and error-saving things you and your clients can do when you implement time clock software in their businesses.

  1. Collect employee data faster — There’s nothing more frustrating to a payroll preparer than waiting for, or chasing down, clients to get what’s needed to process payroll. Time clock applications manage employee changes and hours/time data throughout the pay period in electronic format — much easier than fielding phone calls or emails.
  2. Correct and accurate payroll calculation and reporting — Anytime your team can reduce human error, you’ll spend less time correcting or delaying payroll. Time clocks today are smart devices — they can automatically log out or deduct for meal periods for people who forget to punch in or out, — and technology like data-sharing and use of APIs eliminates double data entry. An automated time system also makes recording hours easier for remote workers, or when employees travel. Depending on the system, reports upload directly into your payroll software, reducing the need for manual entries. The payroll preparer has the benefit of documented client sign-off on the data they submit, and direct import into your payroll application. This eliminates manual data entry and payroll checks are automatically ready for your review.
  3. Re-focus your valuable time on more important business areas — In addition to the peace of mind that comes from knowing you receive approved and accurate payrolls from your clients in a decipherable format, fewer manual entries and corrections means you’ll have more time to focus on other, more valuable areas of your business. (Your client will have more time, too; the only task they’ll have is to review and submit time sheets to you.) In my experience, a manual payroll process takes about 10-15 minutes longer per client per pay period. So if you have 60 payrolls to manage, that’s 15 hours per pay period consumed keying clients’ payroll. What great things could you do for your business with those 15 hours each week?
  4. Develop additional streams of revenue for your business — With such fast and easy payroll calculations, you could easily increase the number of payroll clients without adding additional staff. That means more profits for your business.
  5. Ensure employees are accurately reporting time — With a time clock system, you can set up security parameters to make sure the employee is the one reporting their own hours — and that they’re reporting them accurately. You also have the ability to monitor time in and out, meals, breaks and more. Remember, wages that are overpaid or underpaid can result in liabilities that put your business clients at risk for fraud, with the statute of limitations up to three years.
  6. Comply with Affordable Care Act (ACA) regulations and labor laws — ACA requirements have changed in the last few years — and it’s imperative to comply in order to avoid a penalty. A time clock will help you track the number of employees you have and the hours worked, so you’ll know if your clients are reaching the threshold of offering health insurance. You can also track and monitor time to make sure your clients are in compliance with standard labor laws, especially if they employ a minor.
  7. Track time and projects to streamline workflows — Your clients can monitor how many hours are worked, as well as the employee pay rate to make sure they’re on budget with their payroll costs. Your clients can see time off entered by employees and monitor, approve or deny a request. The client also has the ability to create and assign a client task or project to an employee, to know where their time is being spent. And it’s helpful for employees, too. They can request time off, and see the details of a project including what tasks need to be completed.

As you can see, a time clock system will not only save your firm and your clients time and money, it will help reduce input errors and even give your clients’ employees peace of mind that they’re being paid for their time accurately.

Favorable U.S. tax ruling gives limited boost to big-box retailers

Complying with a U.S. Supreme Court ruling on Thursday that forces online retailers to collect sales tax just like their brick-and-mortar counterparts will be a heavy burden for smaller e-commerce businesses.

But the ruling may not be a big blow to Amazon.com Inc , which already collects sales tax on items it sells directly to consumers, nor will it bring much advantage to large chains like Walmart Inc, Target Corp and other retailers with brick and mortar stores.

The Supreme Court on Thursday allowed states to make online retailers collect sales tax, siding against e-commerce companies like Wayfair Inc and Overstock.com Inc in their high-profile fight with South Dakota.

Before the ruling only retailers with stores had to collect sales tax while e-commerce retailers could skip collecting them, which helped them lower prices.

Thursday’s ruling comes after President Donald Trump’s criticism of Amazon.com Inc on issues including taxes.

The judgement levels the playing field between online and physical retailers and offers relief for U.S. states looking for additional revenue.    Some tax experts said the ruling could turn out to be almost as significant for American businesses as the recent rewrite of the U.S. federal tax code.

But for large retail chains that operate stores, the benefits are likely to be limited, according to tax and retail consultants.    “I don’t see brick and mortar stores seeing a big benefit from this ruling vis-a-vis their key online competitors,” said Brian Kirkell, a principal at RSM that offers audit, tax and consultancy services to businesses including retailers.

“Large online retailers who compete with the likes of Walmart and Target have already been collecting and remitting sales tax for some time now because they saw the writing on the wall.”

For example, Amazon collect sales tax on sales from its own inventory and on a portion of sales by third-party merchants who use its platform.

The point is further reinforced by analysts like the ones from Baird Equity Research who said they expected a “limited impact on Amazon” from the ruling which means less upside for its rivals.

Even the likes of Wayfair said it collects and remit sales tax on approximately 80 percent of its orders in the United States while Overstock.com said the decision will have no appreciable impact on its business.    Deborah White, the general counsel of the Retail Industry Leader’s Association, which led the fight on behalf of big retailers for a level playing field, said the “decision is not going to be a panacea for how retail operates,” but expects it to put an end to the competitive disadvantage suffered by retail stores when consumers visit them but opt to buy online.

Consultants like Mark Grinis, partner, global real estate at EY, said he did not expect a surge in demand for stores even if prices ticked up for online businesses.

“Online retailers still have a lot of pricing power because their overhead costs are low and that would make it hard for those with stores to benefit substantially.” What would further complicate outsized gains from the ruling is a growing culture of convenience that comes with online shopping, traders and investors said.

“If this had come out 10 years ago, it would be a bigger factor than it is today,” said Mark Kepner, an equity trader at Themis Trading. “The internet is ingrained as part of commerce today. It’s not changing any time soon.”

IMPACT ON SMALLER ONLINE SELLERS

While the decision does not significantly change the fortunes of big chains or e-commerce retailers, the impact from the decision is likely to be felt by smaller online businesses.

These small retailers will be less impacted by an uptick in prices as they will be able to pass that on to the consumer.

But the cost increase for them will come in the form of a heavy compliance burden trying to navigate the more than 10,000 tax jurisdictions in the U.S. as 45 of the 50 states impose sales taxes on purchases that range between 4.5 percent to 10 percent.

They will have to examine and retrofit operations to determine where they have to collect tax, whether their goods are taxable, and how they will handle tax computation, filing, and remittance, consultants said.

“We are talking about middle-market businesses that have a CFO and maybe no tax department and that rely on an accounting firm to be their tax department,” RSM’s Kirkell said.

The chief executive of a medium-sized sporting goods company based in San Diego, who did not wish to be identified to avoid making his company a target for state tax collectors, said it was unreasonable to expect small and medium sized businesses to deal with thousands of jurisdictions.

“I think the bigger worry though for businesses here is if these states will come back for back taxes,” he said.

International Tax Institute Discusses Group Financing Following U.S. Tax Reform

On June 11, 2018, the International Tax Institute (ITI) held a session on “Tax Reform Issues Related to Group Financing – 163j, 267A, BEAT and GILTI Issues.” The speakers included James Tobin, Senior Tax Partner at EY and Kevin Glenn, Tax Partner at King & Spalding.

The discussion focused on current financing structures for inbound and outbound transactions, and the impact that the international provisions of the U.S. Tax Cuts and Jobs Act (TCJA) will have on these structures.

Outbound structuring

In a typical outbound structure, the U.S. Parent holds various controlled foreign corporations (CFCs) (i.e., “Fincos,” “Holdcos,” “Opcos”). CFC Fincos are generally located in low-tax jurisdictions. CFC Holdcos and Opcos are generally located in high-tax jurisdictions. Fincos loan money to Holdcos and Opcos. As a result, the Holdcos and Opcos deduct the interest expense at a higher rate, while the Fincos are taxed on the interest income at a lower rate.

The TCJA introduced the global intangible low-taxed income (GILTI) provision. Under this provision, U.S. shareholders of CFCs must include GILTI in gross income for the taxable year. See section 951A. For the relevant taxable year, GILTI is defined as the excess of the U.S. shareholder’s net CFC tested income over its net deemed tangible income return (i.e., excess of 10% of the aggregate pro rata share of tangible assets of each CFC over interest expense).

Under the GILTI calculation, a higher interest expense leads to a higher GILTI inclusion for the U.S. shareholder. Therefore, U.S. MNEs should be mindful of structures where CFCs are deducting interest expense at a high tax rate. In addition, taxpayers are prohibited from carrying back or forward any foreign taxes paid or accrued on GILTI. (See section 904(c)).

Under section 245A, the U.S. provides a 100% dividends-received deduction (DRD) on distributions from a CFC to its U.S. shareholder. Section 245A(e)(1) disallows the deduction where the CFC distributes a “hybrid dividend” (i.e., where the CFC received a deduction (or other tax benefit). A situation where this may arise is when a Luxembourg holding company (e.g., CFC) is funded by Convertible Preferred Equity Certificates (CPECs). CPECs are hybrid instruments that are typically treated as debt in Luxembourg and as equity in the U.S.

Section 267A disallows a deduction for any interest or royalty paid or accrued to a related party if the amount is not included in the related party’s income in the foreign jurisdiction, or if the related party can take a deduction in the foreign jurisdiction. See BEPS Action 2. An exception arises where the payment is included in the U.S. shareholder’s gross income under section 951(a). Section 267A(e) grants Treasury broad regulatory authority, and taxpayers should consider the possibility of a retroactive effective date of future regulations.

One benefit of the tax reform is that U.S. corporate taxpayers can take advantage of the reduced corporate tax rate of 21% on Subpart F income.

Inbound structuring

A typical inbound structure has a Foreign Parent holding U.S. and foreign subsidiaries. A foreign Finco subsidiary may loan money to the U.S. subsidiary, which pays interest expense to Finco. With the addition by the TCJA of the base erosion and anti-abuse tax (BEAT), the taxpayer may need to consider whether these deductible payments are “base erosion payments” under section 59A(d) (e.g., deductible amount paid or accrued by the taxpayer to a foreign related party). For purposes of calculating the base erosion minimum tax amount, deductions for base erosion payments are added back to determine the modified taxable income.

Taxpayers also need to consider the limitation on deductions for business interest under section 163(j). Deductions cannot exceed the sum of: (1) business interest income; (2) 30 percent of adjusted taxable income (ATI); and (3) floor plan financing interest. This limitation applies to business interest on related and third-party debt. For taxable years beginning prior to January 1, 2022, ATI is computed without regard to any deduction allowable for depreciation, amortization, or depletion. This is in line with other countries, as well as BEPS Action 4, which recommends a limitation on net deductions for interest, and payments economically equivalent to interest, of 10% – 30% of earnings before interest, taxes, depreciation, and amortization (EBITDA). For taxable years beginning on or after January 1, 2022, the U.S. will switch to EBIT, which penalizes its taxpayers compared to the rest of the world. It remains to be see whether future Treasury Regulations will be retroactive.

Click here for more information on our BEPS research and technology solutions to address your immediate and ongoing needs.

New Jersey Enacts Shared Responsibility Payment for Tax Payers

The New Jersey Health Insurance Market Preservation Act, replaces the shared responsibility payment established by the federal Affordable Care Act (ACA), which has been repealed for tax years beginning after 2018, with its own very similar shared responsibility payment. (​ L. 2018, A3380​, effective for tax years beginning on or after January 1, 2019.)

Under pre-Tax Cuts and Jobs Act (TCJA) law, for each tax year, the shared responsibility payment (penalty) imposed by ​IRC § 5000A​ was the lesser of (a) the sum of the monthly penalty amounts, or (b) the sum of the monthly national average bronze plan premiums for the shared responsibility family plan. The monthly penalty amount for any taxpayer for any month during which a failure occurred was equal to 1/12 of the greater of the flat dollar amount or the excess income amount. The flat dollar amount was generally equal to the lesser of (1) the sum of the applicable dollar amounts for all individuals included in the taxpayer’s shared responsibility family, or (2) 300% of the applicable dollar amount for the calendar year the tax year ends. The applicable dollar amount for the 2017 tax year was $695 for adults and $347.50 for persons under age 18. The excess income amount was the product of the excess of the taxpayer’s household income over the taxpayer’s applicable filing threshold multiplied by 2.5%.  For tax years beginning on or after January 1, 2019, the TCJA eliminated the shared responsibility payment for individuals.

The amount of the New Jersey shared responsibility tax is the same as the above pre-TCJA federal rules except that instead of the sum of the national average bronze plan premiums, the the New Jersey average premium for qualified health plans which provide a bronze-level of coverage is used.

The law requires the State Treasurer to establish a program for determining whether to certify that an individual is entitled to an exemption from either the individual responsibility requirement or the shared responsibility tax by reason of religious conscience or hardship. The threshold to qualify for a hardship exemption is determined based on an individual’s required contribution for health insurance coverage under the ACA as it was in effect on December 15, 2017, i.e., prior to the TCJA. For the 2017 tax year, the instructions to Form 8965 (Health Coverage Exemptions)  state that coverage was unaffordable if the cost of the coverage exceeded 8.16% of the taxpayer’s household income. Thus, if coverage cost even $1 more than 8.16% of the taxpayer’s household income, the shared responsibility payment rules did not apply.

The law requires the State Treasurer to determine the income threshold for minimum essential coverage to be considered unaffordable. The shared responsibility tax is not imposed for any month during a calendar year if the taxpayer’s gross income is below the state minimum taxable threshold. If a taxpayer is subject to the state shared responsibility tax and the federal penalty, the taxpayer is allowed a credit against the taxpayer’s state gross income tax obligation for that taxable year, in the amount of the taxpayer’s federal penalty payment, but not to exceed the amount of the taxpayer’s state tax imposed by the bill in the taxable year. For purposes of administering the tax, the bill requires applicable entities, including employers, insurers, and the Department of Human Services (with respect to the Medicaid and NJ FamilyCare programs), that provide minimum essential coverage to an individual during a calendar year to submit a return to the State Treasurer with information about individuals and their coverage. To minimize the reporting burden, the return may also be in the form of a return required under the pre-TCJA ACA. Finally, the bill requires the State Treasurer, in consultation with the Commissioner of Banking and Insurance, to send a notification containing information on the services available to obtain minimum essential coverage to each gross income taxpayer who files a gross income tax return indicating that the taxpayer or one of their dependents is not enrolled in what is classified as minimum essential coverage.

The shared responsibility payment will not be applicable for any tax year in which the premium tax credit is repealed.