Tuesday, June 20, 2017

How to get IRS transcripts online

Issue Number:    How to Use Get Transcript Online

Inside This Issue


Here is a video tax tip from the IRS:
How to Use Get Transcript Online   English | Spanish | ASL
Subscribe today: The IRS YouTube channels provide short, informative videos on various tax related topics in English, Spanish and ASL.

Wednesday, June 07, 2017

Employers, your workforce expects to get raises!

Payroll problems may be the fastest way to send top talent to the exits. According to a new survey from The Workforce Institute at Kronos Incorporated, about half of the American workforce (49 percent) will begin searching for a new job after experiencing just two issues with their paycheck, an alarming rate that highlights the fragility of a carefully cultivated employee experience if organizations can’t first deliver on core business processes.

Part two of the “Engaging Employees through Payroll” series surveyed more than 1,000 U.S. employees to examine the hidden costs of payroll errors and explore the vital role payroll professionals serve in building an engaging employee experience. Part one revealed payroll problems affect 82 million U.S. employees, which is more than half (54 percent) of the American workforce.

Findings:

Little patience for problems: nearly half of American workers (49 percent) will seek new employment after just two payroll mistakes, such as being paid late or incorrectly.
    Approximately one in four employees – 24 percent – will look for a new job after the first payroll mistake, while another 25 percent will seek new employment after the second issue.

    Salaried employees are more likely than hourly workers to start looking for a new job after the first problem (29 percent versus 19 percent.)

    Nearly a third of parents (30 percent) will kick off a job search after the first error (compared to 16 percent of non-parents), while men (29 percent) are more likely than women (17 percent) to do the same after just one issue.

Effective managers are vital: employees look to their direct supervisor before anyone else for help, making this a critical role to resolve pay issues through effective guidance.

    More than one in four employees (26 percent) say they would first turn to their manager, direct supervisor, or boss for help fixing a mistake.

    About one-fifth of employees (19 percent) would report their payroll problem directly to their human resources department, while 14 percent would turn to their payroll department.

    Surprisingly, seven percent of employees say they would not report a payroll error to anyone. Just four percent are not sure who they would turn to for help correcting a paycheck error.

Generational differences exist: Baby Boomers are most forgiving of payroll errors and have the deepest understanding of their paychecks.

   Nearly half (44 percent) of American employees aged 55 and older say they would stay at their job as long as they are eventually paid correctly. That’s in stark contrast to their colleagues aged 18-29 (13 percent,) 30-39 (17 percent,) and 40-54 (27 percent,) who are much less willing to stay even if they’re eventually paid correctly.

    Just 19 percent of Baby Boomers find the taxes and deductions on their paycheck confusing to read and understand. They once again outperformed other generations, as 45 percent of employees aged 18-29 found their paychecks confusing, while more than half (53 percent) of employees aged 30-39 were confused, along with 38 percent of those aged 40-54.

    While 43 percent of employees aged 18-29 and more than half (52 percent) of employees aged 30-39 have been forced to make a late payment on a bill such as a credit card, car loan, or home/apartment due to a payroll problem, just one in ten (11 percent) Baby Boomers report having ever encountered a similar situation.

Everyone wants a raise: an overwhelming majority of U.S. workers feel they deserve an annual pay raise.
    According to the survey, 84 percent of all employees expect a pay raise each year they stay with their organization, with hourly (85 percent), salaried (83 percent), young employees aged 18-29 (81 percent), Baby Boomers 55+ (81 percent), female (88 percent), and male (80 percent) respondents in nearly universal agreement.
Thanks to ADP for pulling this information together.

FATCA registration gets revamped

The Internal Revenue Service has updated its online registration system for the Foreign Account Tax Compliance Act to allow foreign financial institutions to renew their agreement with the IRS.

FATCA was included as part of the HIRE Act of 2010, requiring foreign banks and other financial institutions such as hedge funds to report on the holdings of U.S. citizens to the IRS, or else face stiff penalties of up to 30 percent on their income from U.S. sources. The controversial law led to the Treasury Department signing intergovernmental agreements with the tax authorities of other countries, in most cases allowing foreign banks to first send the information to their own country’s tax authorities, who in turn forward it to the IRS. The IRS had to delay the rollout of the initial online registration system in 2013, but now the FATCA FFI Registration system has been updated to allow foreign financial institutions to renew their agreement with the IRS.

From the home page link of “Renew FFI Agreement,” the financial institution will first need to determine whether it must renew its FFI agreement. The IRS is providing a table of guidelines to help them make this determination. Once they decide, the system allows a financial institution to review and edit its registration form. The financial institution will need to verify and update its registration information and submit to renew the FFI agreement.

Those institutions who are required to renew their FFI agreement and don’t do so by July 31, 2017, will be treated as having terminated their FFI agreement as of Jan. 1, 2017, the IRS warned Tuesday, and they may be removed from the FFI List. The IRS said all financial institutions should login to the system for this determination. For help logging in, see the FATCA FFI Registration system FAQ's.

The system update includes several new fields for renewing the FFI agreement, such as the renewal date and submitted date, along with information on account home pages. The IRS said the new system will notify all approved financial institutions of the renewal open period and due date to renew the FFI agreement. The due date for all renewals is July 31, 2017.

The system instructions and online help have been updated for the Renewal of FFI Agreement. The FATCA Registration User Guide has also been updated to include the necessary steps for financial institutions to renew their FFI agreement.

Along with system fixes, the update within the registration application includes the removal of the classification of “limited” for FIs and FI branches, as that classification option won’t be available anymore for new FI applicants or for renewing FIs. Two other changes in the new release are the inclusion of a warning banner, and the number of attempts to unsuccessfully login have now been reduced to three.
Thanks to Mike Cohn for this information!

Thursday, June 01, 2017

Sales tax holidays!

  • Alabama (July 21-23) Exemptions apply to purchases of clothing ($100 or less per item), computers (single purchase up to $750), school supplies, art supplies or school instructional materials ($50 or less per item) and books ($30 or less per item). Not all counties and municipalities are participating - so check the state link for a list of participating locations.
  • Arkansas (August 5-6) Exemptions apply to purchases of clothing and footwear ($100 or less, per item), clothing accessories ($50 or less per item), school supplies, art supplies and school supplies. All retailers are required to participate and may not charge tax on items that are legally tax-exempt during the Sales Tax Holiday.
  • Connecticut (August 20-26) Exemptions apply to purchases of clothing and footwear ($100 or less per item), excluding clothing accessories, protective or athletic clothing, and certain shoes including ballet, bicycle, bowling, cleats, football, golf, track, jazz, tap, and turf (but note that aerobic, basketball, boat, and running shoes are exempt).
  • Florida (June 2-4) Exemptions apply to items for disaster preparedness including reusable ice (reusable ice packs) selling for $10 or less; any portable self-powered light source (powered by battery, solar, hand-crank, or gas) including flashlights, lanterns and candles, selling for $20 or less; any gas or diesel fuel container, including LP gas and kerosene containers selling for $25 or less; Batteries, including rechargeable batteries (but excluding automobile and boat batteries) and coolers selling for $30 or less; tarps, radios and tie-down kits selling for $50 or less; and portable generators used to provide light or communications, or to preserve food in the event of a power outage selling for $750 or less.
  • Florida (August 4-6)  Exemptions include clothing, shoes, wallets, handbags and backpacks that cost $60 or less. Computers that cost less than $750 and school supplies, such as pens, pencils, binders and lunch boxes that cost less than $15 are also included.
  • Louisiana (August 4-5) Provides a 2% exemption from the state sales tax, meaning eligible purchases are subject to only 3% state sales tax.
  • Missouri (August 4-5) Exemptions apply to purchases of clothing ($100 or less per item), school supplies ($50 or less per purchase), computer software ($350 or less), personal computers or computer peripheral devices ($1,500 or less) and graphing calculators ($150 or less). Some cities have opted not to participate (check the website for specifics) although in those circumstances, the state's portion of the tax rate (4.225%) will remain exempt.
  • New Mexico (August 4-5) Exemptions apply to purchases of footwear and clothing, excluding accessories ($100 or less per item); school supplies ($30 or less per item); computers ($1,000 or less per item); computer peripherals ($500 or less per item); and book bags and backpacks ($100 or less per item).
  • Ohio (August 7-9) Exemptions apply to purchases of clothing ($75 or less per item). Note that the exemption applies to clothing selling for $75 or less: if an item of clothing sells for more than $75, tax is due on the entire selling price. Exemptions also apply to school supplies ($20 or less per item) and instructional materials ($20 or less, per item). 
  • Oklahoma (August 5-7) Exemptions apply to purchases of clothing and footwear ($100 or less per item). The exemption does not apply to the sale of any accessories, special clothing or footwear primarily designed for athletic activity or protective use that is not normally worn except when used for athletic activity or protective use, or to the rental of clothing or footwear. Qualified items are exempt from state, city, county and local municipality sales taxes.
  • South Carolina (August 4-6) Exemptions apply to purchases of clothing, clothing accessories and footwear (excluding rentals), school supplies and computers.
  • Tennessee (July 28-30) Exemptions apply to purchases of clothing ($100 or less per item), computers ($1,500 or less) and school and art supplies ($100 or less per item). Apparel that costs more than $100 remains taxable, as do items such as jewelry, handbags, or sports and recreational equipment.
  • Texas (August 11-13) Exemptions apply to most clothing, footwear, school supplies and backpacks priced less than $100.
  • Virginia (August 4-6) Exemptions apply to purchases of clothing and footwear ($100 or less per item) and school supplies ($20 or less per item). Sports or recreational items are not exempt from tax. The holiday also applies to hurricane and emergency preparedness items, and Energy Star™ and WaterSense™ products. 

  • The following states (marked with an *) are expected to offer a sales tax holiday this year but the information has not been confirmed:
  • Iowa* (August 4-5) Exemptions apply to purchases of clothing or footwear (up to $100 per item); for any item that costs $100 or more, sales tax applies to the entire price of that item.
  • Maryland* (August 13-19) Exemptions apply to purchases of clothing and footwear ($100 or less per item) including sweaters, shirts, slacks, jeans, dresses, robes, underwear, belts, shoes, and boots priced at $100 or less. Accessories, including jewelry, watches, watchbands, handbags, handkerchiefs, umbrellas, scarves, ties, headbands, belt buckles, and backpacks will remain taxable, as will special clothing or footwear designed primarily for protective use and not for normal wear, such as football pads.
  • Mississippi* (July 28-29) Exemptions apply to purchases of clothing and footwear ($100 or less per item regardless of how many items are sold at the same time); accessory items such as jewelry, handbags, wallets, watches, backpacks, and similar items are not included. Footwear does not include cleats and items worn in conjunction with an athletic or recreational activity.
* Updated to reflect that Georgia did not renew their sales tax holiday for 2017.
Just ended:
  • Louisiana (May 27-28) A 2% state sales tax exemption applies to the first $1,500 of the purchase price of hurricane preparedness items, including portable self-powered light source, including candles, flashlights and other articles of property designed to provide light; any portable self-powered radio, two-way radio, or weather band radio; any tarpaulin or other flexible waterproof sheeting; any ground anchor system or tie-down kit; any gas or diesel fuel tank; any package of AAA-cell, AA-cell, C-cell, D-cell, 6 volt, or 9-volt batteries, excluding automobile and boat batteries; any cell phone battery and any cell phone charger; any nonelectric food storage cooler; any portable generator used to provide light or communications or preserve food in the event of a power outage; any storm shutter device; any carbon monoxide detector; and any reusable freezer pack such as "blue ice."
  • Texas (May 27-29) Exemptions apply to purchases of energy star products. You can buy, rent or lease only the following ENERGY STAR-labeled items tax free: air conditioners (with a sales price of $6,000 or less); refrigerators (with a sales price of $2,000 or less); ceiling fans; incandescent and fluorescent light bulbs; clothes washers; dishwashers; dehumidifiers; and programmable thermostats.
This list is meant to provide general guidelines for state sales tax holidays. Some states are pretty specific about what you can exempt so be sure to click on the links to your individual state's revenue announcement for more details. Also keep in mind that some states offer counties and towns the option not to participate so again, check with your state if you have questions.

Friday, May 19, 2017

Filing Status MUST be agreed on!

Mrs. Moss filed a 2008 return as married filing separately on which she claimed a loss due to the Bernard Madoff fraud scheme, although she had no investments affected by the fraud. Peter Moss believed his wife was delusional, and although she had been hospitalized for mental illness in 2005 and 2006 and had been released from the hospital in 2006 under the condition that she live with him, he was not her conservator or guardian. In 2013, a Connecticut probate court appointed her daughters as conservators.
The IRS changed the filing status of Peter Moss's return to married filing separately and issued him a notice of deficiency. He petitioned the Tax Court to challenge the IRS's determination, asking the court to invalidate his wife's return and accept his joint return.
Issues: Generally, a joint return must be signed by both spouses. However, a joint return may be signed by only one spouse where the signing taxpayer acts as an authorized agent for the spouse or where there is sufficient evidence that the nonsigning spouse consented to filing jointly.
Sec. 6012(b)(2) provides that if a person is unable to make a return, a duly authorized agent, among others, may make a return on his or her behalf. Regs. Sec. 1.6012-1(a)(5) provides that a person may be unable to file due to disease or illness and sets forth filing provisions, which must be complied with by the agent even when representing a disabled spouse. Under these provisions, the return must be accompanied by either (1) Form 2848, Power of Attorney and Declaration of Representative, or other power of attorney authorizing the agent to represent the person in making, executing, or filing the return; (2) a signed statement containing specified information and confirming that the incapacitated spouse consents to the signing of the return; or (3) a request by the taxpayer for a determination by the IRS that good cause exists for permitting the agent to submit the return.
Peter Moss contended that his wife was unable to file a return due to her mental illness and that the Tax Court should accept the original return he filed showing married-filing-jointly status.
Holding: The Tax Court held that Peter Moss was not entitled to married-filing-jointly status, as he failed to show that his wife was unable to file a return. It found that her hospital commitments for mental illness, his assertion of her mental illness, and the conservatorship order issued in 2013 did not establish that Mrs. Moss was incapable of filing her own 2008 return.
The court further found that even if it concluded that Mrs. Moss was unable to file a return, Peter Moss was not her agent, as he had no power of attorney or Form 2848 to attach to the return and did not file a statement confirming that Mrs. Moss consented to the signing of the return. The court ruled that although the couple had a long history of filing jointly, the evidence showed that she intended not to file a 2008 joint return.
Since Peter Moss had to file married filing separately, he could not claim an exemption for his wife. The court did allow him to apply the full overpayment of tax from the couple's 2007 joint return to his return.
Thanks to Mark Aquillo, CPA for pulling this info together.

Wednesday, May 17, 2017

Trump's tax plan would eliminate the home mortgage interest deduction for many!

U.S. Treasury Secretary Steven Mnuchin has taken pains to stress that the Trump administration isn’t out to kill Americans’ beloved mortgage-interest tax deduction—but a side effect of the plan could turn it into a perk for only the wealthy.
President Donald Trump has proposed rewriting the tax code to raise the standard federal deduction to a level where about 25 million homeowners would no longer take advantage of the century-old break. A married couple would need a home-loan balance of about $608,000—almost triple the mortgage on a median-priced U.S. home—before using it would make sense, according to a new analysis by property-data provider Trulia. That would be up from about $322,000 today.
Without the incentives, along with a proposed end to local property-tax deductions, home sales may be hurt in cities where prices are rising quickly and buyers are stretching to afford their purchases, from Denver and Portland, Oregon, to Boston and Washington. Reduced demand would weigh on values, causing price declines nationwide, according to the National Association of Realtors, which opposes the change.
Homes in an aerial photograph taken above New Jersey
Homes in an aerial photograph taken above New JerseyCraig Warga/Bloomberg
The proposal “is a backdoor way of rendering the mortgage interest deduction close to worthless,” said Mark Zandi, chief economist for Moody’s Analytics Inc.
Americans filing their taxes can either subtract a fixed amount from their incomes, called the standard deduction, or itemize write-offs, including mortgage interest as well as state and local taxes. The administration wants to raise the standard allowance—to $24,000 from $12,700 for a married couple filing jointly—and allow deductions for only home loans and charitable donations, greatly reducing the chances that itemizing would pay off for average taxpayers.
‘Apple Pie’
A White House spokeswoman, Natalie Strom, said average families would be better off under the proposal. Low- and middle-income households would effectively get a tax cut, “putting more disposable income in their pockets for them to invest in a home, purchase a car, save for their children’s college—any other expense,” she said in an email.
Trump’s plan, outlined last month in a one-page proposal with few details and no provisions for how it might be paid for, amounts to a wish list. House Republicans came up with their own plan last June, which includes several controversial measures that have gotten a cool reception from the Senate as well as the White House.
Mnuchin called the mortgage break, which will cost the government an estimated $63.6 billion this year, “kind of like apple pie” and reiterated that Trump’s tax reforms wouldn’t touch it.
“Owning a home is something that’s been part of the American dream, and we want to keep it that way,” he said on May 1 at the Milken Institute Global Conference in Beverly Hills, California.
Fewer Itemizers
While Trump may not technically change the deduction, he would probably eliminate its usefulness for all but the most wealthy homeowners, said Joseph Rosenberg, a senior research associate for the nonpartisan Tax Policy Center.
The share of households that itemize would plunge to about 5 percent from about 30 percent now, according to a National Association of Realtors estimate. About 8 million families would itemize under Trump’s plan, a reduction of about 25 million.
The administration is “selling it as a sort of simplification,” said Rosenberg, noting that Americans who switch to the standard write-off wouldn’t pay more in taxes. “In some respects, they are embracing the fact that there would be fewer people who itemize and take these deductions.”
Taxpayers, however, would lose an incentive to take on mortgage debt, and buyers in expensive markets who are stretching to afford fast-rising home prices may start to re-evaluate how much they’re willing to spend. In Denver and Portland, Oregon, for example, potential buyers for about half the listings would no longer be able to justify itemizing because of mortgage interest alone, according to a Trulia analysis. The share is about double the national average of 22 percent in areas including Dallas, Seattle, Boston, Washington and Sacramento, California.
The impact of the switch would be greatest for middle-income renters who are thinking about making the jump to homeownership, according to Ralph McLaughlin, Trulia’s chief economist.
Price Declines
Prices may fall 10 percent on average nationwide, taking into account the lack of deduction for state and local property taxes, according to a preliminary estimate prepared by a consultant for the National Association of Realtors. Zandi of Moody’s said the proposed deduction changes would reduce prices by about 4 percent nationally, including the property-tax impact, with bigger decreases in pricier parts of the country.
If the government’s tax policy no longer favors homeownership, some renters may decide buying isn’t worth the hassle or expense. While buying a house for $517,000 is now cheaper than renting in all 100 markets measured by Trulia, that calculation would change under the Trump plan in 12 areas, including New York City; Portland, Oregon; and Madison, Wisconsin.
Reducing incentives to buy could benefit large publicly traded landlords, including Equity Residential and Avalon Bay Communities Inc., and single-family rental companies such as Blackstone Group LP’s Invitation Homes Inc. and Colony Starwood Homes, whose co-chairman, Tom Barrack, was a key Trump supporter.
Economists’ View
Economists have long been critical of the mortgage-interest deduction because it disproportionately benefits people with more-expensive properties, including many who would have purchased even without the break. It also inflates home prices because buyers often overestimate their tax savings when they’re budgeting for a purchase, said Dennis Ventry, a professor at University of California, Davis, School of Law who has studied the program’s history.
Trump’s plan might end up boosting homeownership rates over time because a drop in prices would improve affordability and the standard deduction would give buyers more money to spend on a house, Ventry said.
The real estate industry is lining up against the proposal, including the powerful National Association of Realtors, which spent $10.2 million lobbying Congress in the first quarter, more than any other organization except the U.S. Chamber of Commerce, according to the Center for Responsive Politics. William E. Brown, the association’s president, said his group isn’t just fighting for its members.
“If values fall, it’s not just going to impact people who just bought houses, but all current homeowners,” Brown said.
Fighting Back
Trump’s plan also targets tax deductions for state and local taxes paid—a provision that would especially hurt homeowners in states where property taxes are high. Coldwell Banker Realtor Kevin Cascone, who’s based in Westfield, New Jersey, took to Facebook on May 3 to persuade his followers to fight back by contacting their legislators: “NEW JERSEY HOMEOWNERS! This should concern you deeply,” Cascone wrote. “Regardless of your politics, the terms of this policy could SIGNIFICANTLY affect your wallets come tax season next year.”
“One of the big reasons for homeownership is the ability to deduct property taxes,” Cascone said. “If that’s eliminated, what’s the difference between renting and buying?”
Thanks to Joe Light and Phasant Gophal for pulling much of this information together!

Tuesday, May 16, 2017

Debt extinguished before it's maturity

Governmental Accounting Standards Board has issued guidance for state and local governments to use when they extinguish debt before it matures.
GASB’s Statement No. 86, Certain Debt Extinguishment Issues, provides guidance on accounting for transactions in which cash and other monetary assets that have been acquired with only a government body’s existing resources are put in an irrevocable trust only for the purpose of extinguishing debt.
The current GASB standards already offer guidance on how to account for and report when cash and other monetary assets that have been acquired with the proceeds of refunding bonds are placed in a trust for the future repayment of outstanding debt. However, GASB decided that more guidance was needed when only the existing resources (in other words, other than bond proceeds) are used to acquire cash and other monetary assets placed in a trust for the future repayment of outstanding debt.

The new GASB statement also includes guidance on prepaid insurance on debt that is extinguished and notes to the financial statements for defeased debt.When debt is defeased in substance, GASB noted, the debt and the cash and other monetary assets put in trust are not reported in the financial statements anymore. State and local governments are required, though, to disclose information in the notes to the financial statements about debt that has been defeased in substance.
The new requirements take effect for reporting periods beginning after June 15, 2017, although GASB is encouraging them to be applied earlier.

Tuesday, May 02, 2017

Opportunity Tax Credit can help!

Small Business Week Reminder: Work Opportunity Tax Credit can Help Employers Hiring New Workers; Key Certification Requirement Applies
WASHINGTON –The Internal Revenue Service today reminded employers planning to hire new workers that there’s a valuable tax credit available to those who hire long-term unemployment recipients and others certified by their state workforce agency. During National Small Business Week—April 30 to May 6—the IRS is highlighting tax benefits and resources designed to help new and existing small businesses.
The Work Opportunity Tax Credit (WOTC) is a long-standing income tax benefit that encourages employers to hire designated categories of workers who face significant barriers to employment. The credit, usually claimed on Form 5884, is generally based on wages paid to eligible workers during the first two years of employment.
To qualify for the credit, an employer must first request certification by filing IRS Form 8850 with the state workforce agency within 28 days after the eligible worker begins work. Other requirements and further details can be found in the instructions to Form 8850.
There are now 10 categories of WOTC-eligible workers. The newest category, added effective Jan. 1, 2016, is for long-term unemployment recipients who had been unemployed for a period of at least 27 weeks and received state or federal unemployment benefits during part or all of that time. The other categories include certain veterans and recipients of various kinds of public assistance, among others.
The 10 categories are:
  • Qualified IV-A Temporary Assistance for Needy Families (TANF) recipients
  • Unemployed veterans, including disabled veterans
  • Ex-felons
  • Designated community residents living in Empowerment Zones or Rural Renewal Counties
  • Vocational rehabilitation referrals
  • Summer youth employees living in Empowerment Zones
  • Food stamp (SNAP) recipients
  • Supplemental Security Income (SSI) recipients
  • Long-term family assistance recipients
  • Qualified long-term unemployment recipients.
Eligible businesses claim the WOTC on their income tax return. The credit is first figured on Form 5884 and then becomes a part of the general business credit claimed on Form 3800.
Though the credit is not available to tax-exempt organizations for most categories of new hires, a special rule allows them to get the WOTC for hiring qualified veterans. These organizations claim the credit on Form 5884-C. Visit the WOTC page on IRS.gov for more information.

Monday, April 10, 2017

Need an extension?

Need an Extension of Time to File Taxes?
This year’s tax-filing deadline is April 18. Taxpayers needing more time to file their taxes can get an automatic six-month extension from the IRS.
Below are five things to know about filing an extension:
  1. Use IRS Free File to file an extension. IRS Free File allows taxpayers to prepare and e-file their taxes for free. It can also be used to e-file a free extension to file request. Midnight April 18 is the deadline for receipt of an e-filed extension request. Free File is accessible for tax return preparation and e-filing through Oct. 17. It is only available through IRS.gov.
  2. Use Form 4868. Fill out a request for an extension using Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. The deadline for mailing the form to the IRS is April 18. Form 4868 is available on IRS.gov/forms.
  3. More time to file is not more time to pay. Requesting an extension to file provides taxpayers an additional six months (until Oct. 16) to prepare and file taxes. However, it does not provide additional time to pay taxes owed. Taxpayers should estimate and pay any owed taxes by April 18 to avoid a potential late-filing penalty. To avoid penalties and interest, pay the full amount owed by the original due date.
  4. Use electronic payment options to get an automatic extension. An extension of time to file will automatically process when taxpayers pay all or part of their taxes electronically by April 18. There is no need to file a paper or electronic Form 4868 when making a payment with IRS Direct Pay, the Electronic Federal Tax Payment System (EFTPS) or by debit or credit card.  Select “Form 4868” as the payment type. Keep the confirmation as proof of payment.|
  5. The IRS can help. The IRS offers payment options for taxpayers who can’t pay all the tax they owe. In most cases, they can apply for an installment agreement with the Online Payment Agreement application on IRS.gov. They may also file Form 9465, Installment Agreement Request. If a taxpayer can’t make payments because of financial hardship, the IRS will work with them.
Taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.  

Wednesday, March 01, 2017

What is my tax bracket? Or how to find yours.. Or just see chart below!

When looking at the big picture, you should compute your effective tax rate, which is simply your total tax liability divided by your taxable income. In Louie's example, while his marginal tax bracket is 25%, his effective tax bracket is between 14% and 15% ($5,856.25 divided by $40,000 equals 0.146). The effective rate tells Louie that most of his income is being taxed at the lower 10% and 15% brackets, and only a small portion is being taxed at the next (25%) bracket.
So, to summarize Louie's tax situation:
  • Louie's marginal tax rate: 25%.
  • Louie's effective tax rate: 14.6%.
  • Most of his dollars were taxed at the lower 10% and 15% tax rates.
  • His remaining dollars were taxed at 25%.
How to find yours
Determining your marginal and effective tax brackets is not too difficult. If you're looking for your marginal bracket, simply turn to your 2013 return (or your 2012 return if you haven't done your 2013 taxes yet). Find the number located on line 43 if you filed Form 1040, line 27 if you filed Form 1040A, or line 6 if you filed Form 1040EZ.
Next, see where that number falls in the 2013 IRS tax tables. Make sure you read the table that corresponds to your filing status. (In other words, don't use the "married" tables to find your marginal tax bracket if you're single.) That's how you'll find your marginal tax bracket. You'll also see at what rate your next dollar of income will be taxed, and you'll find out how close you might be to hitting the next bracket.
If you're looking for your effective tax rate, it's almost as simple. Grab your 2013 tax return and make the following computations:
  • If you filed Form 1040, divide the amount on line 61 by the amount on line 43.
  • If you filed Form 1040A, divide the amount on line 35 by the amount on line 27.
  • If you filed Form 1040EZ, divide the amount on line 10 by the amount on line 6.
Once you do that division, you'll arrive at your effective tax rate, which will give you a good idea of where most of your income is being taxed.

The Tax Table


The federal income tax table reports marginal tax rates on taxable income. Federal taxes are not average tax rates. Every income level, even if it is within a one dollar difference, is taxed at a different average rate. The table below shows the marginal tax rates for 2010 income.

Marginal Tax Rate
Filing as Single
Filing as Married Filing Jointly or Qualified Widow(er)
Filing as Married Filing Separately
Filing as Head of Household
10%
$0 to $8,375
$0 to $16,750
$0 to $8,375
$0 to $11,950
15%
$8,376 to $34,000
$16,751 to $68,000
$8,376 to $34,000
$11,951 to $45,550
25%
$34,001 to $82,400
$68,001 to $137,300
$34,001 to $68,650
$45,551 to $117,650
28%
$82,401 to $171,850
$137,301 to $209,250
$68,651 to $104,625
$117,651 to $190,550
33%
$171,851 to $373,650
$209,251 to $373,650
$104,626 to $186,825
$190,551 to $373,650
35%
$373,651 and higher
$373,651 and higher
$186,826 and higher
$373,651 and higher

Remember that you're using historical data (your 2013 tax return) to arrive at your marginal and effective brackets. If your income, deductions, and credits will remain similar in 2014, your brackets will also probably remain similar. But if you expect a large increase or decrease in your income for 2014, you might want to recheck your bracket by using the information at your disposal, along with the 2014 tax rate schedules, which you'll find on page 7 of this IRS form (link opens a PDF).

Thursday, February 16, 2017

How to report taxes for a single "partner" of an LLC

Single Member Limited Liability Companies

An LLC is an entity created by state statute. Depending on elections made by the LLC and the number of members, the IRS will treat an LLC either as a corporation, partnership, or as part of the owner's tax return (a "disregarded entity"). Specifically, a domestic LLC with at least two members is classified as a partnership for federal income tax purposes unless it files Form 8832 and affirmatively elects to be treated as a corporation. And an LLC with only one member is treated as an entity disregarded as separate from its owner for income tax purposes (but as a separate entity for purposes of employment tax and certain excise taxes), unless it files Form 8832 and affirmatively elects to be treated as a corporation.

Owner of Single-Member LLC

If a single-member LLC does not elect to be treated as a corporation, the LLC is a "disregarded entity," and the LLC's activities should be reflected on its owner's federal tax return. If the owner is an individual, the activities of the LLC will generally be reflected on:
An individual owner of a single-member LLC that operates a trade or business is subject to the tax on net earnings from self employment in the same manner as a sole proprietorship.
If the single-member LLC is owned by a corporation or partnership, the LLC should be reflected on its owner's federal tax return as a division of the corporation or partnership.

Taxpayer Identification Number

For federal income tax purposes, a single-member LLC classified as a disregarded entity generally must use the owner's social security number (SSN) or EIN for all information returns and reporting related to income tax. For example, if a disregarded entity LLC that is owned by an individual is required to provide a Form W-9, Request for Taxpayer Identification Number and Certification, the W-9 should provide the owner’s SSN or EIN, not the LLC’s EIN.
However, for certain Employment Tax and Excise Tax requirements discussed below, the EIN of the LLC must be used instead. Therefore, an LLC will need an EIN if it has any employees or if it will be required to file any of the excise tax forms listed below. Thus, most new single-member LLCs classified as disregarded entities will need to obtain an EIN. An LLC applies for an EIN by filing Form SS-4, Application for Employer Identification Number. See Form SS-4 for information on applying for an EIN.
A single-member LLC that is a disregarded entity that does not have employees and does not have an excise tax liability does not need an EIN. It should use the name and TIN of the single member owner for federal tax purposes. However, if a single-member LLC, whose taxable income and loss will be reported by the single member owner, nevertheless needs an EIN to open a bank account or if state tax law requires the single-member LLC to have a federal EIN, then the LLC can apply for and obtain an EIN.

Employment Tax and Certain Excise Tax Requirements

In August, 2007, final regulations (T.D. 9356) (PDF) were issued requiring disregarded LLCs to be treated as the taxpayer for certain excise taxes accruing on or after January 1, 2008 and employment taxes accruing on or after January 1, 2009. Single-member disregarded LLCs will continue to be disregarded for other federal tax purposes.
A single-member LLC that is classified as a disregarded entity for income tax purposes is treated as a separate entity for purposes of employment tax and certain excise taxes. For wages paid after January 1, 2009, the single-member LLC is required to use its name and employer identification number (EIN) for reporting and payment of employment taxes. A single-member LLC is also required to use its name and EIN to register for excise tax activities on Form 637; pay and report excise taxes reported on Forms 720, 730, 2290, and 11-C; and claim any refunds, credits and payments on Form 8849. See the employment and excise tax returns for more information.

Joint Ownership of LLC by Spouse in Community Property States

Rev. Proc. 2002-69 addressed the issue of classification for an entity that is solely owned by husband and wife as community property under laws of a state, a foreign country or possession of the United States.
If there is a qualified entity owned by a husband and wife as community property owners, and they treat the entity as a:
  • Disregarded entity for federal tax purposes, the Internal Revenue Service will accept the position that the entity is disregarded for federal tax purposes.
  • Partnership for federal tax purposes, the Internal Revenue Service will accept the position that the entity is partnership for federal tax purposes.
A change in the reporting position will be treated for federal tax purposes as a conversion of the entity.
A business entity is a qualified entity if
  1. The business entity is wholly owned by a husband and wife as community property under the laws of a state, a foreign country, or possession of the United States;
  2. No person other than one or both spouses would be considered an owner for federal tax purposes; and
  3. The business entity is not treated as a corporation under IRC §310.7701-2.
Note: If an LLC is owned by husband and wife in a non-community property state, the LLC should file as a partnership. LLCs owned by a husband and wife are not eligible to be "qualified joint ventures" (which can elect not be treated as partnerships) because they are state law entities. For more information see Election for Husband and Wife Unincorporated Businesses.