Sales Tax Ruling Related to Professional Organization Memberships

The Tennessee Department of Revenue has ruled that a professional organization’s sales of memberships were not taxable. The organization provided its members with certifications, resources, tools, academic research, publications, professional development courses, and networking opportunities.

The individual membership included the following: certification status tracking, the ability to download a free copy of the organization’s guide, access to multiple electronic tools and templates, discounts on certifications, access to free on-demand webinars, access to virtual and in-person events, access to the organization’s online job board, access to the organization’s online publications, and exclusive rewards and discounts.

The Department ruled membership in a professional organization is not enumerated as a taxable service and that while some of the membership benefits such as the organization’s guide and pre-recorded webinars would be taxable if sold separately, those benefits to membership did not result in the membership charges becoming taxable because those products were incidental to the sales of the individual memberships.

If you have any questions, please contact the Crosslin tax team at (615) 320-5500. We are here to help!

Safe Harbor for Teacher’s Expense Deduction

The Consolidated Appropriations Act, 2021 clarifies that the above-the-line deduction for teacher classroom expenses includes personal protective equipment, disinfectant, and other supplies used for the prevention of the spread of COVID–19 paid or incurred after March 12, 2020. The IRS is providing a safe harbor for eligible educators to deduct certain unreimbursed COVID-19-related expenses.

Employees generally cannot deduct unreimbursed business expenses as miscellaneous itemized deductions in tax years 2018 through 2025. Despite this general rule, teachers may be able to treat some of their unreimbursed classroom expenses as an “above the line” deduction from gross income. An eligible educator can deduct up to $250 each year for classroom expenses.

Under the revenue procedure, COVID-19 protective items include:

· face masks

· disinfectant for use against COVID-19

· hand soap

· hand sanitizer

· disposable gloves

· tape, paint, or chalk used to guide social distancing

· physical barriers (such as clear plexiglass)

· air purifiers

· other items recommended by the Centers for Disease Control and Prevention (CDC) to be used for the prevention of the spread of COVID-19.

Please call the Crosslin tax team at 615-320-5500 if you have any questions related to the deduction for educator expenses. We encourage teachers to consider tracking their qualified expenses incurred throughout the year. Thank you, teachers, for all that you do!

Qualified Opportunity Zones

The Tax Cuts and Jobs Act includes changes for businesses and individuals. One of these is the creation of the opportunity zones tax incentive, an economic development tool that allows people to invest in distressed areas. This incentive’s purpose is to spur economic development and job creation in distressed communities by providing tax benefits to investors. Low income communities and certain contiguous communities qualify as opportunity zones if a state, the District of Columbia or a U.S. territory nominates them for that designation and the U.S. Treasury certifies that nomination.

A taxpayer may elect to defer the taxation of capital gain realized from the sale or exchange of property to an unrelated party by reinvesting the capital gain in a qualified opportunity zone fund (QOF). The taxpayer must reinvest the proceeds within 180 days of the sale or exchange. The reinvestment may be made by transferring cash or property to the QOF. A taxpayer may choose to defer taxation on only a portion of the capital gain. It is not necessary to reinvest all of the capital gain from the sale or exchange that generated the capital gain. 

Qualified Opportunity Fund (QOF) 

A qualified opportunity fund (QOF) is a corporation or a partnership that holds at least 90 percent of its assets in qualified opportunity zone property.

  • if the investor holds the QOF investment for at least five years, the basis of the QOF investment increases by 10% of the deferred gain;
  • if the investor holds the QOF investment for at least seven years, the basis of the QOF investment increases to 15% of the deferred gain;
  • if the investor holds the investment in the QOF for at least 10 years, the investor is eligible to elect to adjust the basis of the QOF investment to its fair market value on the date that the QOF investment is sold or exchanged.

Qualified Opportunity Zone (QOZ) Property 

QOZ business property is tangible property that a QOF acquired by purchase after 2017 and uses in a trade or business:

  • the original use of the property in the QOZ commenced with the QOF or QOZ business or the property was substantially improved by the QOF or QOZ business; and
  • for 90% of the holding period the QOF or QOZ business held the property, substantially all (generally at least 70 percent) of the use of the property was in a QOZ.

Several hundred such zones have been designated by the IRS. The taxpayer does not need to live in the zone.

If the taxpayer reinvests any capital gain into a QOF within 180 days after the sale, tax on the gain is not due until December 31, 2026 or, if earlier, the date the taxpayer sells their investment in the fund. Additionally, if the taxpayer does not sell their investment for ten years, any appreciation in the value of the investment is not taxed at all.

Contact the Crosslin tax team to learn more about the rules on the qualified opportunity zones to determine the ways you may qualify to defer the recognition of capital gain.

 

 

Underpayment Penalty Relief on Certain Excess Business Losses

The IRS has granted relief by providing a waiver on estimated tax underpayment penalties incurred solely as a result of certain excess business loss related payments for tax years beginning in 2019. The relief is available to individuals, as well as trusts and estates that are treated as individuals for estimated tax payment penalty purposes.

Noncorporate taxpayers may not deduct excess business losses for tax years beginning after December 31, 2020, and before January 1, 2026. Instead, they must treat such losses as a net operating loss (NOL) carryforward to the following tax year (or carryback for farm losses). The excess business loss limitation was put in place for tax years starting after 2017.  However, the CARES Act postponed the application of the excess business loss rules to tax years beginning after December 31, 2020 and modified the NOL rules by providing a five-year carryback for NOLs arising in tax years beginning after December 31, 2017 and before January 1, 2021.

CARES Act Changes. An individual taxpayer may have underpaid one or more installments of estimated income tax for the 2019 tax year if the individual taxpayer anticipated having a lower required annual payment after utilizing an NOL carryover attributable to a prior year excess business loss. Before the enactment of the CARES Act, this loss would have been available as an NOL carryover to reduce taxable income in the tax year that began in 2019, but now is no longer available due to the CARES Act amendment. Taxpayers may elect to forgo the new five-year carryback of such NOLs. In the absence of an election, taxpayers may have underpaid one or more installments of estimated income tax.

Excess Business Loss. Excess business loss is defined generally as the excess of the aggregate deductions for the tax year attributable to trades or businesses of a non-corporate taxpayer, over the sum of (1) the aggregate gross income or gain for the tax year attributable to such trades or businesses of such taxpayer, and (2) $250,000 ($500,000 in the case of a joint return) subject to adjustment for inflation for tax years beginning after 2018. An excess business loss is determined without any deductions, gross income, or gains attributable to any trade or business of performing services as an employee.

Relief Available. The relief is only for estimated tax income tax installments due on or before July 15, 2020 for a tax year that began in 2019. Certain requirements must be met to obtain potential relief. The qualification requirements for taxpayers that must be met include the following:

  • a 12-month tax year,
  • timely filed 2018 and 2019 tax returns,
  • completion of the underpayment of estimated tax forms and calculations for tax year 2019, and
  • complete and submit a waiver request.

We can help you review your 2019 tax return to determine the impact of an excess business loss and related underpayment penalties. Give the Crosslin tax team a call at 615-320-5500.  We are here to help!   

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