Partnership Tax Reporting Update for 2020:
As of the tax year 2020, partnerships are now required to report to the IRS the tax basis on behalf of their partners on their Form 1065 of the Partnership tax return. Tax Basis is generally the amount of the partner’s capital investment figuring in depreciation, amortization, depletion, casualty losses, and any gain or loss on the sale, exchange, or other disposition of the investment. In most situations, the basis of an asset is its cost to the Partner. Previously, this reporting responsibility to the IRS fell on each individual partner in the investment. The schedule K-1s for each person would then include the tax basis.
If you are a Partnership and need assistance with this calculation, please call Mike Coglianese at 630-351-8942 or email Mike@cogcpa.com.
If you are planning to entertain and reward clients and employees, make note of a significant change in 2020 and going forward as to what deductions are allowed. The Tax Cut and Jobs Act (TCJA) now disallows a business deduction for most entertainment expenses. The regulation disallows a deduction for any activity of a type generally considered entertainment, amusement, or recreation. Prior to the TCJA subsection, it allowed for several exceptions including entertainment that was preceded or followed by true business discussions. However, certain entertainment treated as compensation to an employee or includible in gross income of a non-employee as compensation for services or as a prize or award, reimbursed expenses, and recreational activities to the benefit of employees are still allowed and reported by the taxpayer.
Business taxpayers must now separate deductible meal expenses from nondeductible entertainment expenses, as food and beverage are limited to a 50% deduction. However, the regulations clarify that entertainment does not include food or beverages unless they are provided at or during the entertainment event. Details of the deduction changes can be found here: Department of Treasury : REG-100814-19
Tax Reminders and Changes
- The Corporate tax rate is now 21%
- An individual trader can only deduct investment expenses if they are an active trader and a partnership can only deduct these expenses if they are an active trading partnership.
- Security positions must be held for at least 3 years in order for the investment manager to receive long term capital treatment on a performance allocation (used to be one year)
If you are in need of clarification or a tax consultation to make sure you are aware of and taking advantage of the tax changes, please call Mike Coglianese directly at 630-351-8942 or email Mike@cogcpa.com.