If your rental real estate is being treated as a trade or business, in order to receive the QBI deduction, be sure that Forms 1099 are filed for all required recipients.

The recent Tax Cuts and Jobs Act introduced the new Qualified Business Income (QBI) deduction. This allows certain trades or businesses, subject to limitations, to deduct 20% of business income.

The final regulations offer unclear rules as to determining whether a rental real estate activity qualifies as a trade or business for QBI purposes. The regulations state that one factor in treating a rental activity as a trade or business for QBI purposes is whether the taxpayer complies with the requirements of information reporting. This requires the taxpayer to file Forms 1099 for all required recipients.

Form 1099-MISC would be required to be sent to any non-corporate service provider (lawn service, maintenance, repairs, etc.) that was paid at least $600 in 2019. 2019 Form 1099-MISC returns are due to the recipient AND IRS by January 31, 2020. Penalties apply for each failure to file a timely return and each failure to furnish the recipient’s taxpayer identification number. The penalties that can be levied for unreported or incorrectly reported information returns may exceed the benefit received from the QBI deduction.

The U.S. Department of Labor announced a final rule to make 1.3 million American workers eligible for overtime pay under the Fair Labor Standards Act (FLSA).

“For the first time in over 15 years, America’s workers will have an update to overtime regulations that will put overtime pay into the pockets of more than a million working Americans,” Acting U.S. Secretary of Labor Patrick Pizzella said. “This rule brings a commonsense approach that offers consistency and certainty for employers as well as clarity and prosperity for American workers.”

“Today’s rule is a thoughtful product informed by public comment, listening sessions, and long-standing calculations,” Wage and Hour Division Administrator Cheryl Stanton remarked. “The Wage and Hour Division now turns to help employers comply and ensure that workers will be receiving their overtime pay.”

The final rule updates the earnings thresholds necessary to exempt executive, administrative, or professional employees from the FLSA’s minimum wage and overtime pay requirements, and allows employers to count a portion of certain bonuses (and commissions) towards meeting the salary level. The new thresholds account for growth in employee earnings since the currently enforced thresholds were set in 2004. In the final rule, the Department is:

• raising the “standard salary level” from the currently enforced level of $455 to $684 per week (equivalent to $35,568 per year for a full-year worker);
• raising the total annual compensation level for “highly compensated employees (HCE)” from the currently-enforced level of $100,000 to $107,432 per year;
• allowing employers to use nondiscretionary bonuses and incentive payments (including commissions) that are paid at least annually to satisfy up to 10 percent of the standard salary level, in recognition of evolving pay practices; and
• revising the special salary levels for workers in U.S. territories and in the motion picture industry.

The final rule will be effective on January 1, 2020.

For more information about the final rule, click here.

HSC is proud to announce the promotion of the following individuals.

From left: Mitchell Meurer, Senior Associate, Accounting and Auditing Department.
Madeline Smith, CPA, Senior Associate, Tax Department.
Mallory Schmitt, CPA, Senior Associate, Tax Department.
David Mills, Senior Associate, Advisory Services Department.
Jeff Marx, Benefits Specialist, Outsourcing Department.
Eden Flockhart, CPA, CIA, CGMA, Senior Associate, Advisory Services Department.
Sarah Wittenbraker, CPA, Client Accounting Consultant, Outsourcing Department.
Erin Stewart, Payroll Expert, Outsourcing Department.
Brandon Medcalf, Senior Associate, Accounting & Auditing Department.