Line items


Deemed personal exemption amount introduced

The IRS plans to propose regulations under which the reduction in the personal exemption amount to zero for the years 2018 through 2025 will not be taken into account in determining whether a person is a qualifying relative under Sec. 152(d)(1)(B). In Notice 2018-70, the IRS said that in defining "qualifying relative" for purposes of various provisions in the Code that refer to the definition of dependent in Sec. 152, the personal exemption amount will be treated as $4,150 in 2018 (and will be adjusted for inflation). Among the provisions that will be affected by this deemed personal exemption amount are the new $500 credit for nonchild dependents under Sec. 24(h)(4) and head-of-household filing status.
 

 

Guidance on automatic method changes for TCJA small business relief

In Rev. Proc. 2018-40, the IRS modified its list of automatic accounting method changes (Rev. Proc. 2018-31) to reflect the expansion by P.L. 115-97, known as the Tax Cuts and Jobs Act (TCJA), of the range of small business taxpayers eligible to use the cash receipts and disbursements method of accounting and to be exempt from requirements to (1) capitalize costs under Sec. 263A (UNICAP), (2) account for certain long-term contracts under Sec. 460, and (3) account for inventories under Sec. 471. The TCJA increased the eligibility ceiling for those purposes, for tax years beginning after Dec. 31, 2017, to $25 million in average annual gross receipts for the three-tax-year period preceding the tax year. Previously, it was $5 million in average annual gross receipts for all prior tax years with respect to the cash, long-term contract, and inventory methods, and $10 million in average annual gross receipts for exemption from the UNICAP rules. The revenue procedure includes limits on applicability and rules on concurrent automatic changes, as well as designated method change numbers and other instructions in completing Form 3115, Application for Change in Accounting Method.
 

Rules issued for elementary and secondary school 529 plan distributions

In Notice 2018-58, the IRS provided guidance on a change by P.L. 115-97, known as the Tax Cuts and Jobs Act (TCJA), allowing distributions from qualified tuition programs under Sec. 529 (529 plans) to pay for tuition of elementary or secondary schools. Under Sec. 529(c)(7), added by the TCJA, qualified higher education expenses include "tuition in connection with the designated beneficiary's enrollment or attendance at an elementary or secondary public, private, or religious school," limited (by Sec. 529(e)(3)) to $10,000 per tax year. According to the notice, planned regulations will specify that the $10,000 limit applies regardless of the number of 529 plans making distributions for the same designated beneficiary. The regulations will define "elementary or secondary" to mean kindergarten through 12th grade as determined under state law, consistent with rules for Coverdell education savings accounts (Sec. 530(b)(3)(B)).

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Get your clients ready for tax season with these year-end tax planning strategies, which address how to make the most of recent tax law changes, such as the new deduction for qualified business income and the cap on the deductibility of state and local taxes.

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