Volume XXV No. 1 Spring 2019 Blackburn, Childers & Steagall, PLC Quarterly Newsletter

When the Tax Cuts and Jobs Act (TCJA) was passed over

a year ago, we felt certain that the intent of the law was

that rental activities would qualify for the deduction. This

belief was based on one of the two potential limitations

for the deduction if a taxpayer’s income exceeded a certain

threshold. One of the potential limitations is based solely on

the wages paid by the qualified trade or business. However,

there was a late addition of a second potential limitation

which included the unadjusted basis of the property

owned by the qualified trade or business. It seemed that

this addition was added specifically for rental property.

Some referred to this provision as the “Corker Provision.”

While Senator Corker’s vote for the TCJA changed after

the addition of this provision, he denied any correlation.

Several months later, the IRS issued proposed regulations

concerning the new pass-through deduction and chose

to use a very narrow view of the definition of a qualified

trade or business. This narrow view seemed to jeopardize

the inclusion of rental property in qualifying for the new

deduction. After receiving many comments on the proposed

regulations, the IRS did choose to specifically address this

matter in the final regulations that were issued in January of

this year. So what’s the big issue with rental property? The

issue is this: is the rental property merely an investment or is

it an actual trade or business?

continued on page 7

The US Supreme Court ruled that a business DOES NOT

need a physical presence in a state for that state to impose

and collect sales tax.

In a reversal of the 1992 case, Quill Corp. v. North Dakota,

the Supreme Court decided that obligations for sales tax can

be imposed on sellers with no physical presence in that state.

This landmark case has been in the news over the last several

months, South Dakota v. Wayfair, Inc.

Sellers with an economic presence in a state will be required to

collect and remit sales tax. The term “economic presence” is

defined differently by each state, but generally means sales or

number of transactions past a certain amount in a year.

Online retailers need to examine their sales data and ensure

they are collecting and remitting sales tax for each state they

have an economic presence. If you need assistance with filing

sales tax in other states or determining whether or not you have

an economic presence in a particular state, please contact us.

HISTORIC SALES TAX RULING FOR ONLINE RETAILERSBY SHEILA EMORY

CHANGES FOR RENTAL INCOMEBY TRAVIS MCMURRAY

I believe the notion of spring cleaning should apply to

our personal finances too. Why? Reviewing our accounts

and keeping our important records organized lets us know

everything is working together. What are some personal

financial “spring cleaning” tasks to consider doing?

REVIEW IT

Like our houses, it’s easy let the months and years go by

without “dusting off” things that are out of sight. Review your

investments, insurance policies, bank accounts, and debts to

make sure they’re still meeting your needs. Maybe it’s time to

take a fresh look at your portfolio, retirement contribution

or withdrawal amounts, or insurance coverage. Or perhaps

there are opportunities to consolidate brokerage accounts,

retirement accounts, or bank accounts for simplification.

Credit reports are also good to review periodically for

errors. AnnualCreditReport.com is the only official site to

request your credit reports. Federal law allows you to request

one copy from each of the three credit reporting agencies

(Equifax, Experian, and TransUnion) once every 12 months.

Even one negative item not belonging to you can lower your

credit score.

FILE IT AWAY

It happens easily. A couple of harmless pieces of paper morph

into a mountainous pile. Sort through account statements,

paid bills, and receipts. Shred them or file them away. A

home filing system should be simple to use and the best

these days is digital by scanning items. Online account

access and e-statements are an easy way to streamline your

recordkeeping and to reduce paper clutter also. Either way,

categorize documents into folders in a way that you and your

family can work with.

How long should you keep financial records? A rule of thumb

is to keep financial account statements for at least seven

years, though there are exceptions. Keep tax returns and

supporting documents for at least four years or indefinitely if

they related to cost basis information you might need later.

Keep records pertaining to your home, other real estate, or

other investments for as long as you own the asset plus seven

years. You can generally discard credit card statements, paid

utility bills, and receipts after one month. (Just keep receipts

to items that have a warranty and receipts that you might

need during tax time.)

LEAVE IT CLEAN

Make sure beneficiaries are listed correctly on insurance

policies and financial accounts, especially if there has been

a significant life change recently. Organize estate planning

documents and make sure the appropriate people know

where they are located. Also make a list of assets, liabilities

(including bills), and financial accounts (including online

login info) for reference by your power of attorney, estate

representative, or family members.

Keeping these records current and easy to find will not only be

a tremendous help to you but also to your loved ones. Estate

planning documents and vital records may be kept in a safety

deposit box, but a fireproof and waterproof filing cabinet

or safe at home might be more convenient. Whichever you

choose, make sure your family or trusted representative know

how to get into it.

Remember organization is a top tool for efficiency and

success! A little bit of “cleaning” now can help us to have

peace of mind for the summer and beyond.

JEFF BURGESSJeff is a new financial advisor with BCS Wealth. He has over 20 years of experi-ence as a financial advisor.

CAROLYN KERRCarolyn Kerr is the newest Admin Assis-tant at BCS Wealth. She has over 30 years of experience in ad-ministration.

SARAH HOEYSarah is the new Ad-min Assistant in our Greeneville office. She plans to gradu-ate from ETSU in May.

JESSICA BRUNERJessica is a CPA in the Johnson City Tax Department. She is an ETSU grad with nearly 10 years of experience.

SCOTT HOILMANScott joined BCS Wealth as an Insur-ance Consultant. He is a graduate of ETSU where he played baseball.

PERSONAL FINANCIAL SPRING CLEANINGBY TOMMY GREER As part of the Tax Cuts and Jobs Act, The Employer Credit

for Paid Family and Medical Leave (FMLA) went into effect

September 25, 2018. The credit is applicable to wages paid

in tax years beginning after December 31, 2017 and before

January 1, 2020.

To be eligible for this credit, employers must meet these

requirements:

• Written policy in place before qualifying employee goes

on FMLA

• Allow at least two weeks of paid leave to full-time

employees

• Allow a prorated amount of paid leave for part-time

employees

• Paid leave must be at least 50% of the wages normally paid

to that employee

• The employee’s compensation must be $72,000 or less

The written policy must provide certain protection applicable

under the Family and Medical Leave Act of 1993, regardless

of whether they otherwise apply. Although the written policy

is required to be in place before the qualifying employee goes

on FMLA, the employer is allowed a transition period for the

first taxable year beginning after December 31, 2017.

For example, the employer’s taxable year ends December 31,

2018. An employee took unpaid FMLA beginning June 1,

2018. The employer adopts a written policy that satisfies all

requirements on December 1, 2018, and chooses to make the

policy effective retroactive to January 1, 2018. The employer

pays the employee for two weeks of unpaid leave taken in

June. Assuming all requirements are met, the employer may

claim the credit on the 2018 tax return.

The credit begins at 12.5% and cannot be more than 25% of

paid FMLA for each qualifying employee while on FMLA for

up to 12 weeks per taxable year. The employer must reduce

the deduction amount for Salaries and Wage Expense by the

amount of the credit.

NEW EMPLOYER CREDIT AVAILABLEBY GINA LEMONS

NEW BCS WEALTH EMPLOYEES

NEW INTERNSThomas DeHart Caleb Easterling Alex DoyleJessica WoodbyAbbi Poland

Brandon PierceJordan EvansDanielle Price Cody Mudrack

NEW BCS EMPLOYEES

IN THE LAST 25 YEARS...Things have changed in the last 25 years. In the mid-90s, we had phone numbers memorized and rented movies at Blockbuster. There were 1.5 billion less people. The word “selfie” didn’t exist. World War I veterans and widows of Civil War soldiers were still alive. Pluto was still a planet.

Things have changed a little for the BCS part-ners, too. When the first issue of the ClientTell came out, Tommy Greer had just joined BCS as a partner. Tommy and Jim Wilson had a marketing meeting and decided to produce a newsletter. Andy Hatfield was watching Peyton Manning play from the student section. Chad Kisner was attending Milligan and working as a bank teller. Kevin Peters was a student at ETSU taking introductory accounting classes and learn-ing new four letter words…GASB, FASB, FIFO, LIFO and COGS. Kenny Benson was at ETSU dreaming about public accounting. Chuck Huffman was a partner at Hoover Harrison. Jeff Blackburn was transitioning from a generalist to full-time tax partner, while Karen McMurray transitioned to a full-time audit partner. Melissa Steagall-Jones was happy to be doing accounting work instead of entering everyone’s timesheets. Mike Eddy was establishing his own firm with his dad. Travis McMurray was in college and working as a bookkeeper at BCS. Wade Farmer worked as a bookkeeper at a fastener shop while obtaining his Masters. Charles Steagall was our Chief of Maintenance, but some things never change.

Thanks for reading the ClientTell for the last 25 years, and we are looking forward to the next 25!

Like spring rains coaxing up daffodils, the new year brings forth

aspirations and resolutions to be better in every conceivable way.

If our best intentions are fulfilled, we will collectively be a richer,

healthier, less distracted, more generous group of people by the

end of 2019. It’s also a great time to make sure estate planning

is up to date. This article takes for granted that you have some

estate planning in place—if not, there is no time like the present.

One of the underappreciated goals of estate planning is making

things easier for your loved ones. Having everything updated

and organized is a great way to help those left behind.

REVIEW LEGAL DOCUMENTSMaybe it’s been a while since your planning documents were

prepared. Pull them out, read them, and see if they still fit the

circumstances. Have things changed? Births, deaths, marriages,

divorces, relocations, or simply family members aging can

make a difference in your planning. Tax laws have also changed

substantially over the last few years, so a conversation with your

estate planning attorney or CPA about whether the documents

are still appropriate from a tax perspective is also advisable.

AUDIT BENEFICIARY DESIGNATIONSOften these designations control a significant portion of a person’s

estate. Life insurance, IRAs, 401(k)s and other retirement

plans are almost always distributed on the basis of beneficiary

designations. Making sure these are up to date and coordinated

with your overall plan is worth a checkup.

PREPARE YOUR DIGITAL ESTATE PLANDigital asset planning is becoming increasingly important as

more and more of our information, correspondence, photos

and videos are stored online and in the cloud. A new law

allows fiduciaries greater access to digital assets than they would

otherwise have, but legal documents are needed to grant the

fiduciary that power. If the will, trust, or power of attorney was

created before 2015, it won’t reference this law and likely doesn’t

address digital assets at all. This is a great time to take inventory

of your digital life and do estate planning accordingly.

CHECK TRUST FUNDINGIf you have a living trust, it’s a relatively simple process to

review titling of assets to ensure that the funding of the trust

is as intended. Regardless of whether trusts are involved, it’s a

good opportunity to list an inventory of assets: bank accounts,

investment accounts, retirement accounts and annuities,

insurance policies, real estate, business and other assets.

SHARE LOCATION OF DOCUMENTS Prepare a list of the locations of your important documents (legal

documents, insurance policies, tax records, etc.) and provide that

(or where to find it) to your future fiduciary.

LIST KEY CONTACTS

Make sure your loved ones and your fiduciary can easily contact

your team of advisors and other important contacts in your life.

Curate contact information for your business advisors: business

partner(s) or employer, financial advisor, accountant, attorney,

banker, insurance agent, etc. and share with your future fiduciary.

PLAN FOR YOUR FUNERAL Whether or not formal arrangements are made, there are

common questions that arise following a death. If you have

made and documented your wishes during life, those questions

will be much easier for your family to answer after you’re gone.

First Covenant has developed forms and checklists to assist with

reviews of this nature. Contact us for help with ensuring your

planning is ready for 2019 and beyond.

FRESHEN UP YOUR ESTATE PLANNING THIS SPRING

BY DAVID GREENE

continued from front page:

Example 1 - You’ve recently relocated half-way across the

country for a new job. Since the housing market has been

stagnant for the last few years in your old home town, you’ve

decided to rent your old home until property values improve. It

quickly becomes apparent that you’ll have to engage a property

manager to take care of finding tenants and maintaining the

property. Based on these facts and circumstances, it would

appear that this rental is investment property and would not

qualify for the pass-through deduction.

Example 2 - You own 10 different rental houses in the city in

which you live. You advertise for tenants, negotiate leases and

terms, collect rent, take care of maintenance issues, and pay

relating expenses. During a normal week, you spend between

15 and 20 hours managing these properties. Based on these

facts and circumstances, it would appear that these activities

represent a trade or business and would qualify for the pass-

through deductions.

These examples may seem reasonable, but how do we know

when we cross over from investment to qualified trade or

business? Fortunately the IRS has given us a safe harbor election

to assist in making this determination. This election must be

signed by the taxpayer.

Safe-Harbor Requirements

• Separate Books and Records maintained for each rental

activity (or combined enterprise if grouped together).

Commercial cannot be grouped with residential.

• 250 Hours or more of “rental services” are performed per

year for activity or combined enterprise.

• Rental Services are defined as advertising to rent or lease,

negotiating and executing leases, verifying information

contained in prospective tenant applications, collection

of rent, daily operation, maintenance, and repairs,

management of property, purchase of materials and

supervision of employees or contractors. (Does NOT

include financial or investment management activities)

• Taxpayer must maintain contemporaneous records including

time reports or similar documents regarding 1) hours of all

services performed, 2) description of services performed, 3)

dates performed, and 4) by whom.

Triple net leases or lease agreements that include common area

maintenance (CAM charges) are not eligible for the safe harbor

election. If the safe harbor is not an option or not elected, you

may still be able to take the pass-through deduction if you can

argue that the activity rises to the level of a trade or business. So,

ultimately this is still a facts and circumstances determination.

In order to navigate this new labyrinth, here are a few tips:

Revisit your leases - While a triple net lease does not qualify for

the safe harbor election, this does not necessarily mean that the

property won’t qualify as a trade or business. However, a single

property most likely will not be anything but an investment.

The more properties you have and can group together, the more

likely a triple net lease will qualify as a trade or business.

Self-Rentals - For property that is leased to a commonly owned

business, the attributes of the tenant can dictate the attributes

of the rental property. The final regs provide an exception that a

rental activity will be treated as a trade or business if it is rented

to a “commonly controlled” trade or business owned by the

taxpayer (cannot be rented to a C- Corporation). Likewise, if

your rental property is rented to a commonly owned business

that is classified as a specified service trade or business, then the

real estate activity is also classified as a specified service trade

or business. This designation may eliminate the pass-through

deduction entirely based on a taxpayer’s level of income. For

self-rentals, a triple net lease does not jeopardize the rental from

qualifying for the pass-through deduction.

1099s - If you are in the trade or business of renting real estate,

then you need to be sure you are operating as a trade or business.

This means issuing 1099s for services provided to the business

for the upkeep of the property and administration of the trade

or business.

Documentation - Even if you have no intention of using the

safe harbor election, it is very likely the IRS will expect that

evidence like the documentation described under the safe

harbor requirements is available to support your determination

that the rental activities do in fact qualify as a trade or business.

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PAIDJOHNSONCITY, TN

PERMIT NO. 26

ANNUAL BCS & ETSU ACCOUNTING UPDATE SEMINAR

THURSDAY, MAY 23

AT MEADOWVIEW IN KINGSPORT

Open to anyone in private or public

accounting in our region. Earn up to

8 hours of CPE, including hours in

tax, A&A, TN Ethics and specialized

knowledge. Lunch provided, cost is

$125 until 3/31, $175 after.

TO REGISTER, VISIT BCSCPA.COM OR CON-

TACT KENDRA HOPSON AT 423.282.4511

OR KHOPSON@BCSCPA.COM.BCS

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