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Thursday May 24, 2018

Washington News

Washington Hotline

Time for a 'Paycheck Checkup'

In IR-2018-120, the Service urged taxpayers to use the Withholding Calculator on www.IRS.gov for a "Paycheck Checkup."

The passage of the Tax Cuts and Jobs Act (TCJA), brought many changes that will affect taxpayers. With the TCJA's higher standard deductions ($12,000 for single taxpayers and $24,000 for married couples filing jointly), many taxpayers will have lower taxable incomes in 2018.

The Withholding Calculator is an excellent way to estimate a taxpayer's appropriate withholding amounts for 2018. If an individual needs to make an adjustment, it is best to do so early in the year rather than during October or November. It would be difficult to make the change at a later date and have it reflect the correct amounts.

While many taxpayers will find their tax returns simplified due to the higher standard deductions, some taxpayers will still decide to itemize. Those who plan to itemize their deductions should consider four substantial tax law changes in 2018.
  1. State and Local Taxes (SALT) - The SALT deduction is limited to $10,000. Homeowners who live in states with substantial state income tax may have a property tax bill total over $10,000. In this case, your SALT deduction will be limited to $10,000.
  2. Home Mortgage Interest - The deduction for interest on a personal residence mortgage is generally limited to $1 million of debt for existing loans and $750,000 of debt on new loans.
  3. Miscellaneous Deductions - The TCJA repealed many deductions such as those for employee business expenses, investment expenses and tax preparation fees. Previously, most of these miscellaneous deductions were permitted if they were over 2% of adjusted gross income.
  4. Charitable Deductions - Gifts of cash are now deductible up to a limit that is 60% of adjusted gross income (the limit was 50% in prior years). Many CPAs are encouraging clients who desire to reduce taxes to increase their charitable deductions in 2018.
The IRS notes the Withholding Calculator does not request "personally-identifiable information, such as your name, Social Security Number, address or bank account numbers." When using the Withholding Calculator, an individual can estimate the proper amount of his or her 2018 withholding.

If you desire to change your withholding amounts, contact your employer and complete a new IRS Form W-4. Because the average 2017 tax year refund was $2,800, many individuals who plan to use the new higher standard deductions may choose to reduce withholding and increase monthly income.

Donor Reliance on Tax Exempt Status


In Rev. Proc. 2018-32; 2018-23 IRB 1 (16 May 2018), the Service updated and superseded four Revenue Procedures and published a comprehensive guide to enable taxpayers to rely on nonprofit exempt status.

The Service regularly issues determination letters on exempt status. Donors may rely on these determination letters to support their deductions under Sec. 170(c) and Sec. 170(b)(1)(A). Under Reg. 1.170A-9(f)(5)(ii), a donor may rely on a determination letter until it is publicly revoked by the Service. An exception applies if the donor is responsible for the loss of tax-exempt status or knows that such loss of status is imminent.

The primary donor reliance method in the future will be the www.IRS.gov "Exempt Organization Select Check" tool. This electronic tool replaces the printed IRS Pub. 78, which has been discontinued.

Another useful database is the "Automatic Revocation of Exemption List". This displays organizations that failed to file IRS Form 990, Form 990-EZ or Form 990-N for three consecutive years.

A new database, "Tax Exempt Organization Search" (TEOS), enables users to view determination letters and Forms 990 filed after January 1, 2018. An addition to reports is a "deductibility code." This code assists taxpayers in determining whether an organization is qualified under Sec. 509(a)(1), Sec. 509(a)(2) or a subparagraph of Sec. 170(b)(1)(A).

The deductibility code assists taxpayers in determining proper gift deduction limits. These deduction limits are substantially different for public charities and private foundations.

There is a safe harbor for donors who are not foundation managers. The safe harbor applies to gifts and grants if the donor provides 25% or less of the aggregate organization support for the prior four taxable years.

There is an additional safe harbor for "unusual grants." If a grant is an unusual size or amount, it may be excluded from the public status determination test. The donor must give cash, marketable securities or assets to further the exempt purpose of the entity. There can be no material restrictions and the donor may not be a manager or in control of the organization.

No Deduction for Quid Pro Quo Property


In Triumph Mixed Used Investments III LLC et al. v. Commissioner; No. 20412-14; T.C. Memo. 2018-65 (15 May 2018), the Tax Court denied a deduction for a gift of land to a city in exchange for certain development rights.

Triumph Mixed Used Investments III LLC (Triumph) and related companies owned a parcel of land adjacent to Lehi, Utah. After producing a master plan for commercial and residential development, Triumph agreed to deed 764 acres to Lehi as part of that plan.

Appraiser J. Philip Cook valued the 764 acres at $11,040,000. Triumph and related parties claimed a charitable deduction in that amount and did not report any consideration received. The IRS denied the deduction as a quid pro quo transaction.

The Tax Court noted the land transfer "was integral to the city council's approval of both plans." While Triumph claimed that any benefit was "incidental or nonexistent," the Tax Court rejected that determination. It held that the transfer of "real property and the development credits to the city of Lehi" was in exchange for the development plan approval. Therefore, the transfer of the 764 acres did not produce a charitable deduction.

Because Triumph did not make an attempt to adjust the deduction for the consideration received and it received substantial value, the Sec. 6662(a) 20% penalty applied to the transaction.

Applicable Federal Rate of 3.4 for June -- Rev. Rul. 2018-16; 2018-23 IRB 1 (16 May 2018)


The IRS has announced the Applicable Federal Rate (AFR) for June of 2018. The AFR under Section 7520 for the month of June is 3.4%. The rates for May or 3.2% or April of 3.2% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2018, pooled income funds in existence less than three tax years must use a 1.4% deemed rate of return. Federal rates are available by clicking here.

Published May 18, 2018
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Shelby Harder, 2018
Dr. Irving Auld and Dorothy
Roher Auld Scholarship

"Many students take for granted what a university has to offer. However, I am thankful every single day for the opportunity to attend this prestigious school. At Lawrence, you have the ability to engage in Socratic debates about the world we live in at dinner, play recreational or NCAA sports, and talk one on one with brilliant professors. At Lawrence, you don't just 'learn' a subject, you are immersed in it. You dive into the liberal arts and these professors show you the beauty in it all, and how everything is tied together. I am a Biochemistry major with a soft spot for rocket science, philosophy, and evolution. Lawrence is my dream school, and it would have never been possible without the Dr. Irving Auld and Dorothy Roher Auld Scholarship. I am forever grateful for their generosity."

Juliana E. Olsen-Valdez, 2018
Carroll Family Scholarship

"Lawrence University is a great place for students looking to embrace their multi-interested approach to learning. As a Geology major, I have spent many long hours in laboratories. But, I have also had the opportunity to organize and lead students on outdoor backpacking trips, help build a stronger community for International students, participate in dialogues on campus initiatives, attend dozens of musical events, and study abroad in a field-based geology program, all while taking classes in a variety of academic spheres on campus. Lawrence, as an institution and student body, creates a collective of learners, listeners, and leaders who are continuously evolving their understanding of the world around them. I am fortunate to have the support of the Carroll Family Scholarship, so that I can say I am a part of this exceptional community too!"

Weiqi "Vicky" Liang, 2019
Marian H. Cuff Endowed Scholarship

"Lawrence is a special institution with nice people around the campus. I better myself by trying out different things and using new ways to think critically. Even though I am a Philosophy major, I have successfully taken classes in Anthropology, Biology, Economics, and Government. In addition, I still find many great extracurricular opportunities to explore, such as singing with Viking Chorale, even though I am not a music major. While having the great experience of volunteering at the elderly center last year, I became an elder advocacy coordinator at the Volunteer Community Service Center. At Lawrence, I've learned to handle difficult academic problems while looking forward to exploring possible opportunities. I am very grateful to be awarded the Marian H. Cuff Endowed Scholarship for every year I have been here, and appreciate that the scholarship has provided this wonderful Lawrence experience to me."

Anthony Cardella, 2018
Ansorge Family Scholarship

"I am so excited that I am able to attend Lawrence University. I know that I will make great progress studying piano with Dr. Michael Mizrahi. Since being at Lawrence I've already made a lot of progress and I really love it here. I am so grateful for the Ansorge Family Scholarship that made it possible for me to come to Lawrence because without it, I might not have been able to afford the cost of attending a school that is a great fit for me and a place where I will learn so much and go so far."

Milwaukee-Downer Scholarships and Professorships

Some of the many recipients of Milwaukee-Downer scholarships gather for a photo with Carolyn King Stephens M-D'62 and Marlene Crupi-Widen M-D'55 in January 2014 at the annual scholarship luncheon.

Rosamund Victoria Bille Adler Scholarship
Dr. Charles E. Albright Scholarship
Helen Daniels Bader Scholarship
James G. and Ethel M. Barber Scholarship
Catharine Beecher Endowed Fund for Downer Women
Bessie A. Bell Scholarship
Berk Scholarship
Frederick C. Best Scholarship
Beta Study Club Scholarship
Lynde Bradley Scholarship
Lucia R. Briggs-Alumnae Scholarship
Edith Lange Brooks Scholarship
Anne Barman Caldwell Scholarship
Alice Miller Chester Scholarship
City of Milwaukee Student Funds Scholarship
Milwaukee-Downer Class of 1940 Fund
Milwaukee-Downer Class of 1942 Fund
College Endowment Association Scholarship
Janet Cope Crawford Scholarship
Jessie Mabbott Daniels Scholarship
F. T. Day Scholarship
Rufus Dodge Scholarship
Julia P. Ely and Hannah R. Vedder Memorial Scholarship
General Endowed Scholarship - M-D College
Dr. Alfred W. and Mrs. Ada F. Gray Scholarship
Berenice E. Hess Scholarship Endowment
Lucille Ray Hibbard Scholarship
Belle Austin Jacobs Scholarship
Helen McDermott Jurack and Ronald J. Mason Scholarship
Marjorie S. Logan Scholarship
Nellie Maxwell Scholarship
S. Annabelle & Paul McGuire Scholarship
Memorial Scholarship Fund - Milwaukee-Downer
Milwaukee-Downer Class of 1953 Scholarship
Milwaukee-Downer Class of 1955 Scholarship
Milwaukee-Downer Class of 1956 Scholarship
Milwaukee-Downer Class of 1957 Scholarship
Milwaukee-Downer Class of 1958 and 1959 50th Reunion Scholarship
Milwaukee-Downer Club Scholarship
Milwaukee-Downer/Lawrence College Consolidation 50th Anniversary Scholarship
Francis Evelyn Kelley Morgan Memorial Scholarship
O'Neill-Anderson Family Scholarship Endowment
Elizabeth A. Olson Scholarship
Gilbert Haven Peirce, Sr. and Emma Elizabeth Manor Peirce Milwaukee-Downer Scholarship
Aleida J. Pieters Scholarship
Matilda Siefert Puelicher Scholarship
Elizabeth Ann Richardson Scholarship
William M. Ross Memorial Scholarship
Elizabeth Rossberg Scholarship
Charles Frederic Sammond Scholarship
Mildred L. Schroeder Scholarship
Sivyer Educational Fund for Women
Marion Merrill Smith Scholarship
Dr. Elizabeth A. Steffen Scholarship
W. Mead and Elizabeth McKone Stillman Scholarship
Strzelczyk Family Scholarship
Clare Scherf Sweetman Scholarship
Raymond H. and Jane K. Taylor Scholarship
Jerline E. Walfoort Memorial Scholarship
Barbara E. Wehr Fund
Harmony Weissbach Scholarship
Martha and Frances Wheelock Scholarship
James G. and Ethel M. Barber Professorship of Theatre and Drama
T. A. Chapman Professorship in Music
Alice G. Chapman Professorship in Physics
Alice G. Chapman Librarianship
Milwaukee-Downer College and College Endowment Association Professorship

Angela Small Fry Intia, 2019
Maurine Campbell Scholarship

"Thanks to the Maurine Campbell scholarship, I have been able to attend the amazing school that is Lawrence University. With the help from this scholarship, I have been able to pursue my dream career in chemistry working with the outstanding and extremely helpful faculty here. Even outside of chemistry I take the time for exploration into my interests and want to give back through my work as a resident life advisor, stock room assistant, and student supervisor at Bon Appetit. Everything I have learned here, academically or not has forever molded the person I am today."

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