The 2017 tax overhaul limited the business deduction as a way of helping pay for the $1.5 trillion set of tax cuts, but the $2 trillion legislative package approved by Congress in March temporarily eliminated some of the restrictions as a way to help businesses cope with the impact of the pandemic.

Under the TCJA, for tax years starting after Dec. 31, 2017, business interest expense deductions are generally limited to the sum of:

• The taxpayer’s business interest income.
• Thirty percent (or 50%, as applicable) of the taxpayer’s adjusted taxable income.
• The taxpayer’s floor plan financing interest expense.

However, the business interest expense deduction limitation won’t apply to certain small businesses, electing farming businesses and certain regulated public utilities. The $26 million gross receipts threshold applies for the 2020 tax year and will be adjusted annually for inflation.

A real property trade or business or a farming business can elect to be exempted from the business interest expense limitation. However, taxpayers can’t claim the additional first-year depreciation deduction for certain types of property held by the electing trade or business.

Taxpayers must use Form 8990, Limitation on Business Interest Expense Under Section 163(j), to calculate and report their deductions and the amount of disallowed business interest expenses to carry forward to the next tax year.

Along with the final regulations, the IRS also issued extra guidance related to the business interest expense limitation. These proposed regulations spell out additional guidance on different business interest expense deduction limitation issues not addressed in the final regulations, including more complex issues pertaining to the amendments made by the CARES Act. Subject to some restrictions, taxpayers can rely on some of the rules in the proposed regulations until final regulations implementing the proposed regulations are published in the Federal Register.

The IRS has also provided an FAQ list regarding the aggregation rules under section 448(c)(2) that apply to the section 163(j) small-business exemption.

Both the final and proposed rules are complex, and companies should get professional advice on how the rules apply to them.

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Professional organizers are providing organizational advice and instructions based on photos of customers’ spaces. Real estate agents offer video tours of homes for clients who don’t want to visit in person.

A.J. Hastings, a 106-year-old college gear and office supply store in Amherst, Massachusetts, serves three area universities but saw foot traffic down by at least half as colleges restricted the number of students on campus and there was reluctance to shop in person.

So co-owners took action: For five months, they didn’t allow customers inside, using the time to reconfigure the store, widening aisles to make it more conducive to social distancing; ditching a card rack, a magazine display, a counter and a soft-drink refrigerator; and separating two checkout registers so customers waiting to pay wouldn’t come in contact.

Feedback? Customers say it’s a better, safer shopping experience. Among other business owners’ actions:

• A designer who didn’t head to New York Fashion Week noted that his collection would be heavy on sweatsuits and quarantine-friendly leisure wear. With no runway show, he created an online version, filming videos of looks and explaining each one.
• A designer shop for street wear in Los Angeles is also an art gallery. The modus operandi here is to produce a clothing line featuring muted colors to match the somber mood. Monthly art shows — festive events that used to draw crowds — have been canceled as owners put together shows held during the day without alcohol and with a limited number of people in the store. Gradually, the owners are moving to an online model, at least for now, focusing more on their video work, creating art tutorials and filming street artists.
• To eliminate crowded waiting rooms, some veterinarians offer curbside appointments, checking dogs or cats in the backseat without close contact with their humans.
• Ice cream and coffee shops similarly went curbside, allowing customers to text or call in orders for drive-up or walk-up service.

And when companies see that customers don’t need their regular products or services, they’ve pivoted operations to deliver things that are needed. A number of craft beer distilleries across the country produced hand sanitizer when it was in short supply globally. Clothing manufacturers and other textile companies produced face masks and other personal protective equipment for health care workers and the rest of us.

It’s been a good opportunity for firms to use this time to develop new products and service lines that they may have been postponing when they were busier.

Small businesses have been continuing to pay for masks, sanitizers and new HVAC filters, raising their costs at the same time that sales are down. Companies have been retrofitting their game plans, figuring out how to relax fixed costs using creativity and flexibility.

© 2020

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Perhaps best-known today for the Getty Museum in Los Angeles, Mr. Getty was chiefly responsible for developing oil reserves in Saudi Arabia, and then the “supertankers” that transported the oil. He was an infamous miser as well. Once boasting in the media that he installed a pay phone in his mansion for the courtesy of his guests. He was also a voracious art collector which leads to the point of this piece, and the legacy of Mr. Getty.

Federal Income Tax

Mr. Getty never paid Federal income or estate taxes and avoided them legitimately through a charitable trust. His aversion to paying tax was so overwhelming that when his grandson was kidnapped, he haggled with the captors over the ransom. It wasn’t until they sent him the grandson’s ear in an envelope did he agree to pay, but only up to the amount he could deduct from his taxes. The excess was loaned to the parents of the kidnapped grandson. At the time of his death in 1976, Getty would have been worth over 2 billion, about 4-5 times that amount in today’s dollars, the bulk of which went to his charitable trust.

Mr. Getty’s life is a dichotomy of extremes. From extreme wealth to extreme misogyny. He was miserly with family and friends and yet founded the wealthiest charitable trust ever known. If you have a chance to visit the Getty Museum, you will marvel at its collection of beauty.

Legacy

In re-examining Getty’s life, a few elements struck me that could apply to any of us. For one thing, what do we want our legacy to be? What do we want to be remembered as? By whom? Second, for everything we gain, we give something up. There is a very compelling scene in the movie when Getty comes close to apologizing to his son for not being a better father, chalking it up to building his career as the reason he wasn’t around more. I bet he wishes he could do over.

Lastly, it is unavoidable to think about tax and charitable planning, both for income and estates, as it permeates throughout the movie. Undoubtedly, most of us would approach it with more balance than Getty did, but it should not be dismissed as a means of retaining and preserving wealth in the family. We will be ready to have a conversation about this, or anything else on your mind, whenever you are.

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