TaxEsqBlog -by Ronald J. Cappuccio, J.D., LL.M.(Tax)

The “manufacturers’ deduction” isn’t just for manufacturers The Section 199 deduction is intended to encourage domestic manufacturing. In fact, it’s often referred to as the “manufacturers’ deduction.” But this potentially valuable tax break can be used by many other types of businesses besides manufacturing companies. Sec. 199 deduction 101 The Sec. 199 deduction, also called the “domestic production activities deduction,” is 9% of the lesser of qualified production activities income or taxable income. The deduction is also limited to 50% of W-2 wages paid by the taxpayer that are allocable to domestic production gross receipts. Yes, the deduction is available to traditional manufacturers. But businesses engaged in activities such as construction, engineering, architecture, computer software production and agricultural processing also may be eligible. The deduction isn’t allowed in determining net self-employment earnings and generally can’t reduce net income below zero. But ...

Why 2016 may be an especially good year to take bonus depreciation Bonus depreciation allows businesses to recover the costs of depreciable property more quickly by claiming additional first-year depreciation for qualified assets. The PATH Act, signed into law a little over a year ago, extended 50% bonus depreciation through 2017. Claiming this break is generally beneficial, though in some cases a business might save more tax in the long run if they forgo it. However, 2016 may be an especially good year to take bonus depreciation. Keep this in mind when you’re filing your 2016 tax return. Eligible assets New tangible property with a recovery period of 20 years or less (such as office furniture and equipment) qualifies for bonus depreciation. So does off-the-shelf computer software, water utility property and qualified improvement property. And beginning in 2016, the qualified improvement property doesn’t have to be leased It isn’t enough, however, to have acquired the proper...

Can you defer taxes on advance payments? Many businesses receive payment in advance for goods and services. Examples include magazine subscriptions, long-term supply contracts, organization memberships, computer software licenses and gift cards. Generally, advance payments are included in taxable income in the year they’re received, even if you defer a portion of the income for financial reporting purposes. But there are exceptions that might provide you some savings when you file your 2016 income tax return. Deferral opportunities The IRS allows limited deferral of income related to advance payments for: Goods or services, Intellectual property licenses or leases, Computer software sales, leases or licenses, Warranty contracts, Subscriptions, Certain organization memberships, Eligible gift card sales, and Any combination of the above. In the year you receive an advance payment (Year 1), you may defer the same amount of income you defer in an “applicable financial st...

Tax season for individuals starts January 23, 2017 for the 2016 return. Unfortunately, most individuals are facing increasingly complex and confusing tax laws. It is not just businesses that are suffering. The National Taxpayer Advocate has called for Congress to simplify the Internal Revenue Code which takes individuals and businesses more than 6 billion hours a year to comply with filing. The idea espoused by the Taxpayer Advocate the Congress was to have a neutral Tax Code and cut individual tax rates as well as business tax rates. This means that many of the exclusions, exemptions, deductions and credits would be eliminated as the trade-off for simplification and rate reduction.The recommendation is that Congress start with the tax code without any reductions and then only add back deductions, such as exclusion of capital gains on home sales, if the benefits outweigh the complexity of the provision. The idea is to have a simpler compliance mechanism and use tax is for collecting ...

Yesterday, the 115th Congress convened.The Republicans are in charge of both the House and Senate and there is been a lot of talk about tax reduction and "tax reform". Does this mean we will get tax simplification? Since President Reagan signed the Internal Revenue Code of 1986, there have been more than 30,000 changes, excluding Obama care. The fact is the Internal Revenue Code is ridiculously complex and far too much time and money spent in our society both by individuals and businesses in complying and planning for our burdensome tax laws. There definitely will be a push to lower corporate tax rates. This is good but let's also simplify our business tax structure. Even more unnecessary and confusing is the personal side of the Internal Revenue Code. For example the alternative minimum tax, designed to force a few wealthy millionaires of the late 1960s to pay tax, has now resulted in more than 1/4 of the middle class paying this burdensome tax. The AMT must go! Th...