Federal Tax News – April

By Team HRH | May 23, 2017

Court: Education expenses weren’t deductible. The U.S. Tax Court has determined that a software engineer couldn’t deduct the $59,282 cost of obtaining an executive master of business administration because the degree qualified her for a new profession, rather than refined her existing business skills. Education expenses are deductible if made to maintain or improve skills required in one’s business or employment or to meet the employer’s or legal requirements as a condition to retaining one’s salary, status or employment. (TC Summary Opinion 2017-26)

Couple couldn’t treat money they took out of their corporation as nontaxable. The U.S. Tax Court ruled that a married couple, who were officers in an export-import business, couldn’t treat checks and cash withdrawals they’d made from corporate accounts as nontaxable loans because there was no bona fide debt. They couldn’t have reasonably repaid the purported loans because their income wasn’t high enough. There were no contemporaneous promissory notes and a later-prepared note didn’t provide an interest rate or fixed repayment schedule. (TC Memo 2017-55)

The IRS issues 2018 inflation-adjusted HSA figures. New guidance provides the annual inflation-adjusted contribution, deductible and out-of-pocket expense limits for 2018 for Health Savings Accounts (HSAs). For calendar year 2018, IRS Revenue Procedure 2017-37 announces that the limitation on deductions for an individual with self-only coverage under a high deductible health plan (HDHP) is $3,450 (up from $3,400 for 2017). The limitation on deductions for an individual with family coverage under an HDHP is $6,900 (up from $6,750 for 2017).

Research tax credit opportunity for start-ups. Eligible small business start-ups of a new option: They may now choose to apply part or all of their research credit against their payroll tax liability. The IRS also informed eligible businesses that, under a special rule for the 2016 tax year, if they already filed their 2016 federal income tax returns and failed to choose this option, they can still do so by filing an amended return by December 31, 2017. Contact your tax advisor for more information.

The proposed border adjustment tax (BAT) faces daunting challenges. Senate Finance Committee Chairman Orrin Hatch (R-UT) said the 20% import tax is unlikely to win enough support from the committee to be part of a Senate tax reform bill. The BAT, which would exempt U.S. export revenues from federal tax but impose a flat 20% tax on imports, is backed by House leaders Paul Ryan (R-WI) and Kevin Brady (R-TX). The Finance Committee, with 14 Republicans and 12 Democrats, oversees tax policy and needs to approve tax laws before they’re considered by the full Senate.

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