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Individual Taxpayer Identification Number (ITIN) – English | SpanishWASHINGTON — Nearly 2 million Individual Taxpayer Identification Numbers (ITINs) are set to expire at the end of 2019 as the Internal Revenue Service continues to urge affected taxpayers to submit their renewal applications early to avoid refund delays next year.
“We urge taxpayers with expiring ITINs to take action and renew the number as soon as possible. Renewing before the end of the year will avoid unnecessary delays related to their refunds,” said IRS Commissioner Chuck Rettig. “To help with this process, the IRS is sharing this material in multiple languages. We encourage partner groups to share this important information to reach as many people with ITINs as possible.”
Under the Protecting Americans from Tax Hikes (PATH) Act, ITINs that have not been used on a federal tax return at least once in the last three consecutive years will expire Dec. 31, 2019. In addition, ITINs with middle digits 83, 84, 85, 86 or 87 that have not already been renewed will also expire at the end of the year. These affected taxpayers who expect to file a tax return in 2020 must submit a renewal application as soon as possible.
ITINs are used by people who have tax filing or payment obligations under U.S. law but who are not eligible for a Social Security number. ITIN holders who have questions should visit the ITIN information page on IRS.gov and take a few minutes to understand the guidelines.
The IRS continues a nationwide education effort to share information with ITIN holders. To help taxpayers, the IRS offers a variety of informational materials, including flyers and fact sheets, available in several languages, including English, Spanish, Traditional Chinese, Russian, Vietnamese, Korean and Haitian/Creole on IRS.gov.
Who should renew an ITIN
- Taxpayers whose ITIN is expiring and who expect to have a filing requirement in 2020 must submit a renewal application. Others do not need to take any action. ITINs with the middle digits 83, 84, 85 or 86, 87 (For example: 9NN-83-NNNN) need to be renewed even if the taxpayer has used it in the last three years. The IRS will begin sending the CP-48 Notice, You must renew your Individual Taxpayer Identification Number (ITIN) to file your U.S. tax return, in early summer to affected taxpayers. The notice explains the steps to take to renew the ITIN if it will be included on a U.S. tax return filed in 2020. Taxpayers who receive the notice after acting to renew their ITIN do not need to take further action unless another family member is affected.
- ITINs with middle digits of 70 through 82 have previously expired. Taxpayers with these ITINs can still renew at any time, if they have not renewed already.
Family option remains available
Taxpayers with an ITIN that has middle digits 83, 84, 85, 86 or 87, as well as all previously expired ITINs, have the option to renew ITINs for their entire family at the same time. Those who have received a renewal letter from the IRS can choose to renew the family’s ITINs together, even if family members have an ITIN with middle digits that have not been identified for expiration. Family members include the tax filer, spouse and any dependents claimed on the tax return.
How to renew an ITIN
To renew an ITIN, a taxpayer must complete a Form W-7 and submit all required documentation. Taxpayers submitting a Form W-7 to renew their ITIN are not required to attach a federal tax return. However, taxpayers must still note a reason for needing an ITIN on the Form W-7. See the Form W-7 instructions for detailed information.
Spouses and dependents residing outside of the U.S. only need to renew their ITIN if filing an individual tax return, or if they qualify for an allowable tax benefit (e.g., a dependent parent who qualifies the primary taxpayer to claim head of household filing status.) In these instances, a federal return must be attached to the Form W-7 renewal application.
There are three ways to submit the Form W-7 application package. Taxpayers can:
- Mail the form, along with original identification documents or copies certified by the agency that issued them, to the IRS address listed on the Form W-7 instructions. The IRS will review the identification documents and return them within 60 days.
- Work with Certified Acceptance Agents (CAAs) authorized by the IRS to help taxpayers apply for an ITIN. CAAs can authenticate all identification documents for primary and secondary taxpayers, verify that an ITIN application is correct before submitting it to the IRS for processing and authenticate the passports and birth certificates for dependents. This saves taxpayers from mailing original documents to the IRS.
- In advance, call and make an appointment at a designated IRS Taxpayer Assistance Center to have each applicant’s identity authenticated in person instead of mailing original identification documents to the IRS. Each family member applying for an ITIN or renewal must be present at the appointment and must have a completed Form W-7 and required identification documents. See the TAC ITIN authentication page for more details.
Avoid common errors now and prevent delays next year
Federal tax returns that are submitted in 2020 with an expired ITIN will be processed. However, certain tax credits and any exemptions will be disallowed. Taxpayers will receive a notice in the mail advising them of the change to their tax return and their need to renew their ITIN. Once the ITIN is renewed, applicable credits and exemptions will be restored, and any refunds will be issued.
Additionally, several common errors can slow down some ITIN renewal applications. These mistakes generally center on:
- mailing identification documentation without a Form W-7,
- missing information on the Form W-7, or
- insufficient supporting documentation, such as U.S. residency documentation or official documentation to support name changes.
The IRS urges any applicant to check over their form carefully before sending it to the IRS.
As a reminder, the IRS no longer accepts passports that do not have a date of entry into the U.S. as a stand-alone identification document for dependents from a country other than Canada or Mexico, or dependents of U.S. military personnel overseas. The dependent’s passport must have a date of entry stamp, otherwise the following additional documents to prove U.S. residency are required:
- U.S. medical records for dependents under age 6,
- U.S. school records for dependents under age 18, and
- U.S. school records (if a student), rental statements, bank statements or utility bills listing the applicant’s name and U.S. address, if over age 18.
To expand ITIN services, the IRS continues to encourage more individuals to apply for the Acceptance Agent Program
To increase the availability of ITIN services nationwide, particularly in communities with high ITIN usage, the IRS is actively recruiting Certified Acceptance Agents and accepting applications year-round. Interested individuals are encouraged to review all CAA program changes and requirements and submit an application to become a Certified Acceptance Agent.
For more information, visit the ITIN information page on IRS.gov.
All taxpayers should check their withholding – also known as doing a Paycheck Checkup – as soon as possible. They should do a checkup even if they did one last year.
By checking their withholding, taxpayers can make sure enough is being taken out of their paychecks or other income to cover the tax owed. Here are some things taxpayers should know about withholding and why checking it is important:
- Taxpayers should check their withholding as early in the year as possible. If someone still has not done a Paycheck Checkup, there’s still time to get their withholding on track. They should do a checkup ASAP.
- Taxpayers should also check their withholding when life changes occur. These changes include things like:
- Marriage or divorce
- Birth or adoption of a child
- Purchase of a home
- Retirement
- Chapter 11 bankruptcy
- New job or loss of job
- Some taxable income is not subject to withholding. People with this income who also have income from a job may want to adjust the amount of tax their employer withholds from their paycheck. This includes income from things like:
- Interest
- Dividends
- Capital gains
- Self-employment and gig economy income
- IRA distributions, including certain Roth IRAs
- Some life changes might affect a taxpayer’s itemized deductions or tax credits. The taxpayer should check their withholding if they experience changes to their:
- Medical expenses
- Taxes
- Interest expense
- Gifts to charity
- Dependent care expenses
- Education credit
- Child tax credit
- Earned income tax credit
The best way for taxpayers to check their withholding is to use the Withholding Calculator on IRS.gov.
The IRS is committed to ensuring taxpayers pay no more than the correct amount of tax owed. Taxpayers have the right to pay only the amount of tax legally due, including interest and penalties, and to have the IRS apply all tax payments properly. This is one of 10 basic rights known collectively as the Taxpayer Bill of Rights.
Here are some important things taxpayers should know about their right to pay no more than the correct tax owed. They can:
- File for a refund if they believe they overpaid their taxes.
- Contact the IRS if they believe there is an error on a notice or bill.
- File an amended tax return if an error is discovered after the original return was filed.
- Request that any amount owed be removed if it exceeds the correct amount due.
- Request that the IRS remove interest from the account if the agency caused unreasonable errors or delays.
- Submit an offer in compromise using Form 656-L. Taxpayers use this form to ask the IRS to accept less than the full amount of tax debt. Taxpayers do this if they believe all or part of the debt is not owed.
More information:
What the Taxpayer Bill of Rights Means for You
Topic 653, IRS Notices and Bills, Penalties and Interest Charges
Topic 308, Amended Returns
Taxpayer Advocate Service
Forms and Publications About Your Appeal Rights
Payment Plans, Installment Agreements
Share this tip on social media — #IRSTaxTip: Taxpayers have the right to pay no more than what they owe. https://go.usa.gov/xmHaZ.
Small business owners may qualify for a home office deduction that will help them save money on their taxes, and benefit their bottom line. Taxpayers can take this deduction if they use a portion of their home exclusively, and on a regular basis, for any of the following:
- As the taxpayer’s main place of business.
- As a place of business where the taxpayer meets patients, clients or customers. The taxpayer must meet these people in the normal course of business.
- If it is a separate structure that is not attached to the taxpayer’s home. The taxpayer must use this structure in connection with their business
- A place where the taxpayer stores inventory or samples. This place must be the sole, fixed location of their business.
- Under certain circumstances, the structure where the taxpayer provides day care services.
Deductible expenses for business use of a home include:
- Real estate taxes
- Mortgage interest
- Rent
- Casualty losses
- Utilities
- Insurance
- Depreciation
- Repairs and Maintenance
Certain expenses are limited to the net income of the business. These are known as allocable expenses. They include things such as utilities, insurance, and depreciation. While allocable expenses cannot create a business loss, they can be carried forward to the next year. If the taxpayer carries them forward, the expenses are subject to the same limitation rules.
There are two options for figuring and claiming the home office deduction.
Regular method
This method requires dividing the above expenses of operating the home between personal and business use. Self-employed taxpayers file Form 1040, Schedule C, and compute this deduction on Form 8829.
Simplified method
The simplified method reduces the paperwork and recordkeeping for small businesses. The simplified method has a set rate of $5 a square foot for business use of the home. The maximum deduction allowed is based on up to 300 square feet.
There are special rules for certain business owners:
- Daycare providers complete a special worksheet, which is found in Publication 587.
- Self-employed individuals use Form 1040, Schedule C, Line 30 to claim deduction.
- Farmers claim the home office deduction on Schedule F, Line 32.
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Maintaining high ethical standards is paramount in the world of accounting..
There is no room for error, sloppiness or questionable conduct when it comes to managing other people’s money. As an account, it is critical to hold yourself to a high ethical standard so your work will be beyond reproach. You can choose from a number of ethical conduct codes created for the accounting industry.
Honesty
Integrity is a word commonly used in accounting parlance. Accountants must be honest with their clients and not give them false hope or misrepresent their own credentials. Accountants must honestly report financial data in the proper place and at the appropriate time. Mistakes can happen to anyone, but accountants are expected to act with integrity, own their mistakes and do everything to remedy the errors. Finally, many business leaders rely on the integrity of their accountants when they have to make decisions that don’t have clear-cut answers.
Objectivity
Accountants must never take on a job that has even the appearance of conflict of interest. They must remain objective when dealing with other people’s finances and leave no room for question. Accountants are not allowed, by their own set of rules, to let anyone influence their findings. At the same time, they must not let personal biases or beliefs get in the way of properly executing their obligations.
Confidentiality
Accountants take an oath that’s covered more by the code of ethics than any legally binding agreement. That oath enables businesses to entrust accountants with the most minute details about their finances, leaving nothing out for fear of gossip or loose-lipped financial professionals. Accountants cannot ethically use any information they learn from clients for their own personal gain. Additionally, this rule of confidentiality extends in perpetuity, long after the accountant has severed ties with the client.
Professional
Accountants are required to act professionally at all times. They shouldn’t be involved in any activities, either at work or in their own personal lives, that could bring shame on the profession. They should be courteous at all times and be considerate of their clients’ needs and business practices. Another aspect of professionalism involves maintaining credentials and continuing education. Professional accountants are expected to keep up with changes in the field and maintain any license requirements for their certifications
As taxpayers are completing their 2018 tax returns this year, they must complete the lines related to health care.
For tax year 2018, the IRS will not consider a return complete and accurate if individuals do not do one of the following on their return:
- Report full-year health coverage
- Claim a coverage exemption
- Report and make a shared responsibility payment for everyone on the tax return
The law continues to require taxpayers who do not qualify for an exemption to maintain health care coverage in 2018 or make a shared responsibility payment when they file their tax return.
Most taxpayers have qualifying health coverage or a coverage exemption for all 12 months in the year and will check the box on the front of their tax return. Taxpayers who can check the box don’t have to file Form 8965, Health Coverage Exemptions, to claim any coverage exemptions. This includes the coverage exemption for household income below the filing threshold.
Taxpayers who did not have coverage for the entire year and therefore can’t check the box generally must report a shared responsibility payment when they file. They will report this payment for each month that anyone listed on the tax return didn’t have qualifying health care coverage or a coverage exemption.
Taxpayers can determine if they are eligible for a coverage exemption or are responsible for the individual shared responsibility payment by using the Interactive Tax Assistant on IRS.gov.
In addition, taxpayers may be eligible for the premium tax credit if they purchased health coverage through the Health Insurance Marketplace. Anyone who needs health coverage can visit HealthCare.gov to learn about health insurance options that are available for them and their family.
Under the Tax Cuts and Jobs Act, the shared responsibility payment is reduced to zero for tax year 2019 and all subsequent years. See Publication 5307, Tax Reform Basics for Individuals and Families, for information about the shared responsibility payment for tax year 2019.
Taxpayers can visit IRS.gov/aca for more information about the Affordable Care Act and filing a 2018 tax return.
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The 2018 Form 1040 replaces prior year Forms 1040, 1040A and 1040EZ. The 2018 Form 1040 uses a building-block approach that allows individuals to file only the schedules they need with their federal tax return. Many people will only need to file Form 1040 and no schedules.
Electronic filers may not notice these changes as the tax software will automatically use their responses to complete the Form 1040 and any needed schedules. For taxpayers who filed paper returns in the past and are concerned about the 2018 changes, this may be the year to consider the benefits of filing electronically.
While commonly used lines on the prior year form are still on the 2018 Form 1040, other lines are now Schedules 1 through 6 and organized by category. The six new numbered schedules are in addition to the existing schedules, such as Schedule A, Itemized Deductions, or Schedule C, Profit or Loss from Business.
Here’s a guide to help taxpayers determine what schedules they may need to file with the 2018 Form 1040:
Schedule 1, Additional Taxes and Adjustments to Income
- Taxpayers use this schedule to report income or adjustments to income that can’t be entered directly on Form 1040. This includes capital gains, unemployment pay, prize money, and gambling winnings. This also includes the student loan interest deduction, self-employment tax, or educator expenses.
Schedule 2, Additional Tax
- This scheduled is used by taxpayers in specific situations. Those who owe alternative minimum tax or need to make an excess advance premium tax credit repayment will file this schedule.
Schedule 3, Nonrefundable Credits
- Taxpayers use this schedule to report nonrefundable credits other than the child tax credit or the credit for other dependents. These include the foreign tax credit, education credits, and general business credit.
Schedule 4, Other Taxes
- Taxpayers use this schedule to report certain taxes. These include self-employment tax, household employment taxes, tax-favored accounts, and additional tax on IRAs and other retirement plans.
Schedule 5, Other Payments and Refundable Credits
- Taxpayers who claim specific refundable credits or have other payments withheld will file this schedule. These other payments include:
- Payment made when the taxpayer requests an extension.
- Payment of excess social security.
Schedule 6, Foreign Address and Third-Party Designee
- Taxpayers use this schedule to enter a foreign address. Anyone who wants to allow someone other than their paid preparer to discuss their tax return with the IRS will also file Schedule 6.
More information:
About the Form 1040, U.S. Individual Income Tax Return
Questions and Answers About the 2018 Form 1040
Get Ready for Tax Filing Season
Publication 17, Your Federal Income Tax for Individuals
The December 2017 Tax reform legislation affects almost every taxpayer. The IRS is working closely with partners in the tax return preparation and tax software industries to prepare for tax reform affecting tax year 2018. This ongoing collaboration ensures that taxpayers can continue to rely on the IRS, tax professionals and tax software programs when it’s time to file their returns.
As people prepare to file their 2018 tax returns this year, they can visit IRS.gov for answers to their questions about tax reform. Here are several of the resources that will help taxpayers find out how this law affects them:
Tax reform provisions that affect individuals
This is the main tax reform page with information for individual taxpayers. It includes dozens of links to more information on topics from withholding and tax credits to deductions and savings plans.
Tax reform basics for individuals and families
This publication provides information to help individual taxpayers understand the Tax Cuts and Jobs Act and how to comply with federal tax return filing requirements.
Tax reform resources
On this page, taxpayers can find helpful products including news releases, tax reform tax tips, revenue procedures, fact sheets, FAQs and drop-in articles.
Steps to take now to get a jump on next year’s taxes
This page has dozens of resources and tools that people can visit now or any time before they file their 2018 tax returns.
Paycheck Checkup
This page has information for people doing a Paycheck Checkup to see if they’re withholding the right amount of tax from their paychecks. Taxpayers can perform a Paycheck Checkup at the beginning of 2019 to make sure their withholding is correct for the rest of the year.
IRS Withholding Calculator
One way taxpayers can do a Paycheck Checkup is to use the Withholding Calculator. Checking withholding can help taxpayers protect against having too little tax withheld and facing an unexpected tax bill or penalty at tax time.
Taxpayer Advocate
The Taxpayer Advocate Service’s Tax Reform Changes website, available in Englishand Spanish, explains what is changing and what is not this year for individuals. Its interactive information can be reviewed by tax topic or line by line using a Form 1040 example and is updated to show the new 2018 Form 1040 references.
Tax reform
The main tax reform webpage on IRS.gov features information for individuals, but also takes users directly to info for people who are self-employed. It is also a great resource for anyone who does taxes or accounting for a business or charity.
Share this tip on social media — #IRSTaxTip: Individuals can find answers to their questions about tax reform on IRS.gov. https://go.usa.gov/xE53m
Last year’s Tax Cuts and Jobs Act made significant changes to the tax law that affect small businesses. The IRS posted two new resources on IRS.gov to help taxpayers understand how these changes affect their bottom line.
Here are some details about these resources:
New publication: Tax reform: What’s new for your business
This electronic publication covers many of the TCJA provisions that are important for small and medium-sized businesses, their owners, and tax professionals to understand. This concise publication includes sections about:
- Corporate tax provisions
- Qualified business income deduction
- Depreciation: Section 168 and 179 modifications
- Business-related losses, exclusions and deductions
- Business credits
- S corporations
- Farm provisions
New webpage: Tax Reform for Small Business
This one-stop shop highlights important tax reform topics for small businesses. Users can link to several resources, which are grouped by topic:
- New deduction for qualified businesses
- Withholding
- Deductions, depreciation and expensing
- Employer deduction for certain fringe benefits
- Like-kind exchanges
- Real estate rehabilitation tax credit
- Changes in accounting periods and methods of accounting
- Corporate methods of accounting
- Blended federal income tax
- Employer credit for paid family and medical leave
- Farmers and ranchers
More information:
Tax Reform Small Business Initiative
Share this tip on social media — #IRSTaxTip: New IRS resources on IRS.gov help businesses understand tax reform. https://go.usa.gov/xE35v
(All individual tax changes expire on December 31, 2025)
(Final regulations to be issued by United States Treasury Department)
| Current Tax Law | New Tax Law | |||||||
| Personal tax rates |
|
Seven tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, 37%;
35% bracket starts at $200,000 (single)/$400,000 (married) of taxable income and 37% bracket starts at $500,000 (single)/$600,000 (married) |
||||||
| Personal long-term capital gains and qualified dividend tax rate | Up to 23.8% | Unchanged | ||||||
| Passthrough income | Taxed at ordinary income tax rate up to 39.6% | Taxed at ordinary rate with a potential deduction equal to the lesser of 20% of qualifying business income or 50% of wages paid; deduction is limited for service-oriented business | ||||||
| Standard deduction | Married filing jointly: $12,700 Head of household: $9,350 Single: $6,350 |
Married filing jointly: $24,000 Head of household: $18,000 All others: $12,000 |
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|
Personal exemption
|
$4,050 |
|
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| Head of Household (HOH) filing status | Due diligence required to claim HOH status; $500 preparer penalty for noncompliance |
|
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| Child tax credit |
|
|
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| Personal state income tax, sales tax, and property tax | Allowable in full as itemized deductions |
|
| Current Tax Law | New Tax Law | |||
| Mortgage interest | Interest deductible on up to $1 million of mortgage debt (including second residence); home equity interest deductible on up to $100,000 loan balance |
|
||
| Medical expenses | Deductible to the extent they exceed 10% of AGI | Deductible to the extent they exceed 10% of AGI (7.5% of AGI for 2017 and 2018) | ||
| Miscellaneous itemized deductions (such as unreimbursed employee job expenses, tax preparation fees, investment expenses, gambling losses and hobby expenses) | Allowable as an itemized deductions if deductions exceed 2% of AGI | All 2% itemized deductions are eliminated | ||
|
Cash charitable contributions
|
Allowed up to 50% of AGI | Allowed up to 60% of AGI | ||
| Investment interest expense | Allowed as an itemized deduction up to amount of net investment income | Final bill was silent on this; deduction is presumed to still be allowed | ||
| Itemized deduction phaseout | Certain itemized deductions phased out for taxpayers with high income (Pease limitation) | Pease limitation repealed | ||
| Alternative Minimum Tax (AMT) | Supplemental tax imposed on taxpayers whose taxable income, adjusted by disallowing certain deductions, exceed certain exemption amounts | Unchanged, but limitations on state and local tax deductions in addition to higher exemption and phaseout amounts will subject fewer taxpayers to the AMT | ||
|
AMT exemption amounts
|
$54,300 single
$84,500 MFJ $42,250 MFS $24,100 trusts and estates |
$70,300 single
$109,400 MFJ $54,700 MFS $24,100 trusts/estates |
||
| AMT exemption phaseouts | AMT exemption reduced by 25% when Alternative Minimum Taxable Income (AMTI) exceeds:
$120,700 single $160,900 MFJ $80,450 MFS $75,000 trusts/estates |
AMT exemption reduced by 25% when AMTI exceeds: $500,000 single $1 million MFJ $500,000 MFS $75,000 trusts/estates
|
| Current Tax Law | New Tax Law | |||
| IRA recharacterizations | Individual allowed the recharacterize IRA contribution from regular IRA to Roth IRA or vice-versa before the due date of the 1040; both regular IRA contributions and Roth IRA conversions are allowed to be recharacterized | Roth conversions cannot be recharacterized | ||
| Alimony |
|
Not deductible to payor and not taxable to recipient for decrees executed or modified after 12/31/18 | ||
| Individual health insurance mandate | Individuals penalized for failure to carry minimum essential health insurance coverage | Repealed | ||
| Exclusion of gain on sale of principal residence | Can exclude up to $250,000/$500,000 of gain on sale of principal residence if used as principal residence for 2 out of the previous 5 years | Unchanged | ||
| 1031 exchanges | Allowed for almost any type of like-kind property used in a trade or business or held for investment purposes | Only allowed for real estate not held primarily for sale | ||
| Amounts paid for college athletic seating rights | Taxpayer may treat 80% of donation to college as charitable deduction even if they received tickets/seating rights in return | No charitable deduction allowed for any donation in which tickets or seating rights are received in return | ||
| 529 plans | Distributions may only be used for qualified higher-education expenses | Distributions allowed for tuition at elementary or secondary public, private or religious schools up to $10,000 | ||
| Income from equity grants | Income from equity grants transferred to an employee in connection with the performance of services is generally recognized when the stock vests | Employee may elect to defer income from stock options exercised or RSUs settled for up to five years |
| Current Tax Law | New Tax Law | |
| Estate tax, gift tax and generation skipping tax (GST) | Maximum tax rate of 40%; lifetime exemption of $5.49 million per individual; heirs receive stepped-up basis for inherited assets | Lifetime exemption increases to $11.2 million for 2018 and will increase for inflation each year until 2025; maximum tax rate remains at 40%; step-up in basis retained |
|
Annual gift tax exclusion
|
$14,000 | $15,000 |
KEY BUSINESS TAX CHANGES FOR 2018
| Current Tax Law | New Tax Law | |||||||
|
Maximum C-corporation tax rate
|
35% | 21% | ||||||
| Corporate AMT rate | 20% | Repealed after 2017; AMT credits refundable from 2018 through 2021 | ||||||
| Section 179 depreciation deduction | Up to $510,000 for new and used equipment purchases; deduction reduced when total equipment purchases in a single year exceed $2.03 million | Up to $1 million for new and used equipment purchases; deduction reduced when total equipment purchases in a single year exceed $2.5 million | ||||||
| Bonus depreciation | 50% expensing of the cost of new equipment and qualified assets | 100% expensing of the cost of new and usedequipment and qualified assets for assets purchased after 9/27/17 | ||||||
| Depreciation of real estate | Non-residential real estate depreciated over 39 years and residential real estate depreciated over 27.5 years | Unchanged | ||||||
| Net operating losses (NOL) |
|
Carryback repealed except for farms (two years); indefinite carryover deduction limited to 80% of pre-NOL income for losses generated after 2017 | ||||||
| Excess business loss | No provision | Net businesses losses in excess of $500,000 ($250,000 single) are disallowed in the current tax year and become a NOL carried over to the next year | ||||||
| Business interest paid or accrued |
|
Business interest deduction limited to 30% of adjusted taxable income; limitation determined at the entity level; excess deduction carried forward indefinitely; limitation does not apply to businesses with average three-year gross receipts < $25 million |
| Current Tax Law | New Tax Law | |||||
| Cash method of accounting |
|
Gross receipts threshold increased to $25 million of average three-year gross receipts | ||||
| Accounting for inventories | Businesses must generally use the accrual method if inventories are present, unless average three-year gross receipts are < $1 million | Businesses with less than $25 million of gross receipts are not required to account for inventories; inventories may be treated as non-incidental materials and supplies or accounted for in conformity with businesses’ financial accounting treatment of inventories | ||||
| Income recognition | Amount included in income (cash or accrual) is determined without regards to when it is included in income for financial accounting purposes | Taxpayer must recognize income no later than the tax year when it is recognized as income in an Applicable Financial Statement (AFS) or other financial statement specified by the IRS in § 451(b); does not apply to taxpayer that does not have a financial statement under
§ 451(b)(1)(B)(i) |
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| UNICAP rules – § 263A | Businesses with < $10 million of average three-year gross receipts do not have to add certain manufacturing costs to inventory or basis of certain property produced under
§ 263A |
Gross receipts threshold increased to $25 million; exceptions to § 263A not based on gross receipts are retained (i.e. R&E expenses, long-term contracts, etc.) | ||||
| Accounting for long-term contracts | Construction companies can opt out of the percentage-of -completion method (PCM) if average three-year gross receipts < $10 million | Taxpayers can opt out of PCM if the contact is expected to be completed in under two years AND average three-year gross receipts are < $25 million at the time the contact is entered into |
| Current Tax Law | New Tax Law | |
| Partnership technical termination | A partnership is technically terminated under § 708(b)(1)(B) if there is a sale or exchange of more than 50% of the total interest in partnership capital and profits within a 12-month period | 50% technical termination rule of § 708(b)(1)(B) is repealed; a partnership will still technically terminate if the partnership ceases to carry on any business activity § 708(b)(1) |
| Domestic production activities deduction (DPAD) | Domestic producers eligible for a deduction equal to the lesser of 9% of their qualifying income or 50% of wages paid | Repealed after 2017 |
| Meals and entertainment expenses | Deduction allowed for 50% of business-related meals and entertainment expenses | Deduction disallowed for entertainment expenses.
Beginning after 2025 disallows expenses associated with meals provided for convenience of employer |
| Electing Small Business Trust (ESBT) | Nonresident alien may not be a beneficiary of an ESBT | Nonresident alien restriction repealed |
| Carried interest | Carried interest to fund managers is taxed at capital gains rate |
3-year holding period required for long-term capital gain rate
|
| Intangible property | Self-created intangible assets (patents, designs, secret formulas, etc.) are taxable as capital gains when sold | Taxed as ordinary income. |
| Executive compensation | Publicly traded covered employee compensation limited to $1M per year, not including commissions, performance-based compensation, retirement plan contributions and excludable amounts from gross income. | Exceptions for commissions and performance-based compensation are repealed. Covered employees include CEO, CFO and the three highest paid officers. |
| Nonprofit executive compensation | No excise tax imposed on nonprofit executive compensation | 21% excise tax imposed on nonprofit executive compensation over $1 million |
| Research or experimentation expenses | Deduct currently capitalize and recover over the useful life of research but not less than 60 months or elect to recover over 10 years | R&E after 2021 must be capitalized and amortized ratably over a 5 year period. 15 years if conducted outside the US. |
| Sexual harassment claims subject to nondisclosure agreement | Generally deductible along with legal fees | Amounts incurred after 12/27/17 for claim on fees are not deductible |
| Rehabilitation credit | 20% credit for qualified rehabilitation expenditures for certified historic structure.
10% credit on pre – ‘36 buildings |
10% credit to pre – ’36 buildings is repealed.
20% credit can be claimed ratably over a 5 year period |
| New credit for employer paid family and medical leave | No credit | For years beginning after 12/31/2017, but not beginning after 12/31/19, allows businesses to claim a general business credit equal to 12.5% qualifying wages |
| Dividend-received deduction | If a corporation owns 20% of stock, an 80% DRD is allowed; otherwise 70% | 80% reduced to 65%
70% reduced to 50% |
| Exclusions from contributions of capital | Contributions of capital is not incurred in income | If property is acquired by a corporation and is not contributed by a shareholder as such the adjusted basis of the property is zero if cash must reduce the basis. |
