How should C corporations tackle year-end tax planning amid uncertainty?

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As the year end approaches, C corps should decide when and how to shift income and deductions between 2017 and 2018. Despite the uncertainty in tax reform proposals (nobody knows when a law might be enacted and what net effect the new rules may have), the best year-end tax planning strategy may be to follow the time-honored approach of deferring income to 2018 and accelerating deductions into this year to minimize 2017 taxes. Contact us for the best path forward in your situation.

Critics see flaws in Trump tax plan

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After the release of a “framework” for tax reform by the Trump administration, some critics voiced concerns about how the changes would affect the deficit. Senator Bob Corker (R-TN) said, “I’m not about to vote for any bill that increases our deficit, period.” Critics also cautioned that the proposed 20% income tax rate for pass-through businesses could be abused by wealthy individuals and certain partners, who could see substantial savings of large portions of their income unless Congress adds provisions to prevent abuse.

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Taxpayers don’t have to pay self-employment tax on an amount deemed to be rent paid to their chicken farm. The U.S. Tax Court ruled that a corporation, which paid its married sole shareholders both rent for farmland and wages for work they performed on the farmland, didn’t owe self-employment tax on the rent. The couple entered into an agreement with a large poultry producer, which paid rent to the business. The decision reverses the court’s holding in previous similar cases and follows the reasoning of the Eighth Circuit Court of Appeals. (149 TC No. 12)

Deductions must Be Proven

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Where’s the proof? Taxpayers engaged in business may be able to deduct reasonable business-related expenses from their gross income, if they provide adequate proof. The IRS denied most of the deductions claimed by one married couple, citing a lack of substantiation. This included utility costs, which weren’t proven to be business related, and mileage logs, which lacked sufficient detail, such as the business purpose of trips. The IRS did allow a deduction for the cost of a messaging service related to the husband’s business. (TC Memo 2017-173)