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San Jose tax deduction lawyer real estateUnder the Tax Cuts and Jobs Acts of 2017, certain owners of rental properties may be eligible for a significant tax deduction. The law allows for a 20 percent deduction against “qualified” business income for pass-through businesses. In determining whether someone qualifies for this deduction, a key consideration is whether the taxpayer engages in a “qualified trade or business” for purposes of Section 199A of the Internal Revenue Code. In some cases, it can be difficult to determine whether a business meets these qualifications, and the IRS has issued additional guidance about safe harbor for rental real estate businesses.

Qualifying for Safe Harbor

According to the IRS, the 20% qualified business income (QBI) deduction can only be taken against business income, rather than real estate investments. To achieve the required classification as a qualified trade or business, the IRS has set forth two major requirements for owners of rental real estate.

First, real estate property must be directly owned by an individual taxpayer or by an eligible pass-through entity. Second, the taxpayer must document 250 hours of rental services each year. Rental services encompass numerous activities, such as arranging advertising, collecting rent, supervising employees, and performing maintenance. Such activities that are performed directly by the owner or by an employee, agent, or independent contractor on behalf of the business will count toward the 250-hour requirement.  

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San Jose, CA small business tax credit lawyerThe federal Tax Cuts and Jobs Act of 2017 has brought sweeping changes to many areas of tax law. One change that might have been overlooked by businesses is that employers are now eligible for a tax credit if they offer certain kinds of paid family and medical leave to full and part-time workers. If you act before the end of this year, you may be able to qualify for this tax credit.

Qualifying for Tax Credits

Eligible businesses that enact qualifying paid family leave programs or amend existing ones by the end of this year will be able to claim the employer credit. This tax credit will be available for tax years 2018 and 2019. The credit is retroactive to the beginning of the business’ 2018 tax year for qualifying leave already given.

To qualify for the tax credit, employers must meet the following requirements:

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San Jose small business tax deduction attorneyThe Tax Cuts and Jobs Act (TCJA) of 2017 has made many significant changes to tax laws that affect both individuals and small businesses. Understanding how these changes will affect the taxes a business owner must pay and the deductions they are allowed to take can help avoid tax penalties or audits. 

One area affected by the TCJA is the allowance for deductions for business expenses. This change went into effect for the 2018 tax year. 

Entertainment and Meal Expense Deductions

Business owners should understand that the TCJA removed the deduction for any expenses incurred by a business involving activities generally considered entertainment, amusement, or recreation. Previously, a company was typically allowed a deduction of up to 50 percent of entertainment expenses. To qualify for this deduction, the expense had to relate directly to the active performance of a business or trade. Common examples of ways a business would claim this deduction were for sporting event tickets or club memberships. Under the new rules, these expenses are now non-deductible.  

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San Jose business tax attorney, tax reform bill, net operating losses, US tax law, carrybacksIn December 2017, Congress passed a tax bill that represented the most significant reform to the U.S. tax code in the last 30 years. The Tax Cuts and Jobs Act of 2017 made a large number of sweeping changes to tax law in the United States, affecting nearly everyone in the country, from individual taxpayers to large corporations. While many of the effects of this new law are still being worked out, one change that businesses should be aware of is how net operating losses (NOLs) will be handled going forward.

NOLs, Carryback, and Carryforward

In the past, businesses that reported a net operating loss (that is, the business’s expenses were greater than its revenues) in a tax year were able to use this amount to offset taxable income in other tax years. They would be able to carry the amount back to the two preceding years and receive an immediate refund for taxes paid or carry the amount forward up to 20 years to reduce the amount of taxable income in those years. This allowed businesses to help avoid some of the consequences of taxing their income on an annual basis and effectively pay taxes on an average income over multiple years.

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San Jose business tax attorney, wrapping up a California business, final tax return, tax return filing laws, Franchise Tax BoardWhen a business wraps up due to closure, merger, sale, or reorganization, California requires that certain measures be taken to alert the state that the business is no longer operating in the state.

These steps, as simple as they may be, can be overlooked. In fact, many business owners have faced serious repercussions by not following them. Failure to take these steps can result in future tax liability, including penalties and interest.

Step 1: Inform the Franchise Tax Board of the Entity’s Final Tax Year

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