Thursday, December 14, 2017

Standard Mileage Rates for 2018

Standard Mileage Rates for 2018 Up from Rates for 2017 
WASHINGTON ― The Internal Revenue Service today issued the 2018 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
Beginning on Jan. 1, 2018, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
  • 54.5 cents for every mile of business travel driven, up 1 cent from the rate for 2017.
  • 18 cents per mile driven for medical or moving purposes, up 1 cent from the rate for 2017.
  • 14 cents per mile driven in service of charitable organizations.
The business mileage rate and the medical and moving expense rates each increased 1 cent per mile from the rates for 2017. The charitable rate is set by statute and remains unchanged.
The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.
Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.
A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.  These and other requirements are described in Rev. Proc. 2010-51.
Notice 2018-03, posted today on IRS.gov, contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan. 

Wednesday, December 13, 2017

Getting ready to file taxes in the new year

Resources on IRS.gov Help Taxpayers Get Ready to File Taxes
With the tax filing season right around the corner, the IRS encourages taxpayers to visit IRS.gov for tax tools and resources. Taxpayers can resolve nearly every tax issue on the IRS website.
IRS.gov provides many self-service tools and features, including these six:

Thursday, December 07, 2017

IRS Phone numbers

Internal Revenue Service Phone Numbers
800-829-1040 For individual and joint filers who need procedural or tax law information and/ or  help to file their 1040-type IRS Tax Help Line for individual returns (including Individuals| Schedules C and E); and, general account information  for Form 1040 Filers. Automated Self-Service Interactive Applications are also offered on this line.
800-829-4933 For Small Businesses, Corporations, Partnerships and Trusts who need information and/or help related to their Business Returns or Business and Specialty (BMF) Accounts. Services cover  Tax Line [new]Employer Identification Numbers (EINs), 94x returns, 1041, 1065, 1120S, Excise Returns, Estate and Gift Returns, as well as issues related to Federal tax deposits.
800-829-1954 For 1040-type Individual and Joint Filers who need to check the status of their current year refund. Automated Refund Self-Service Interactive Refund Hotline [new] Applications are offered on this line NOTE: The "Where's my refund?" automated self- service feature is also available 24/7 at http://www.irs.gov/ to obtain refund status information.
800-829-3676 For individuals, businesses and tax practitioners who need Forms and Publications IRS tax forms, instructions and related materials and tax publications.
877-777-4778 For taxpayers, whose tax problems have not been resolved through normal channels. Taxpayer Advocate Service (TAS) provides a National Taxpayer independent system to assure Advocate's Help Line that tax problems are promptly and fairly handled. TAS operates independently of any other IRS office and reports directly to Congress through the National Taxpayer Advocate.
800-829-4059 For hearing impaired taxpayers who need tax law and/or procedural information Telephone Device for relating to filing their the Deaf (TDD) returns or who need information and/or assistance relating to their accounts.
888-912-1227 For citizens who want to provide ideas and suggestions on how to improve IRS services Taxpayer Advocacy Panel or who want to make recommendations for improvement of IRS systems and procedures.
800-555-4477 For taxpayers who want to pay business or individual taxes through electronic funds or Electronic Federal Tax transfer. The EFTPS Toll-Free 800-945-8400 Payment System (EFTPS) numbers can provide callers Hotline with EFTPS enrollment forms, instructions and customer assistance.
877-829-5500 For taxpayers who need tax information or assistance relating to Tax Exempt or Tax Exempt - Government| Government Entities, Tax Entity (TEGE) Help Line, Exempt Bonds, Employer /Employee Pension Plans or Indian Tribal Agreements
800-829-4477 For individuals who need to check the status of their current year refund or who want to use the Tele-Tax System want to listen to recorded tax information. Available 24 hours a day, seven days a week.
888-796-1074 For individual filers who want a extension to File to submit an Extension to File Tele-File System for a 1040-series return via telephone.
State of California Phone Numbers
The State of California is not as friendly as the IRS. Here is the number they give you;
Get recorded answers, in English and Spanish, to common questions about California taxes and Homeowner and Renter Assistance 24 hours a day, seven days a week. Call:
  • (800) 338-0505 or (916) 845-6600 - use touch-tone telephone

Tuesday, December 05, 2017

Trump's tax overhaul and the congressional effect

While the GOP's vision of tax reform is largely uniform between the House and Senate bills, there are some significant differences that will need to be ironed out. Here are a just a few of the items that will have to be reconciled:
HouseSenate
Individual Tax Rates4 brackets, top rate of 39.6%7 brackets, top rate of 38.5%
Child Tax Credit$1,600$2,000
Medical Expense DeductionEliminatedPreserved
Alimony DeductionEliminatedPreserved
Education IncentivesEliminatedPreserved
Alternative Minimum TaxEliminatedPreserved, but with larger exemption
Length of all Individual ChangesPermanentExpire at the end of 2025
Individual Insurance MandatePreservedEliminated
Estate TaxRepealed in 2023Preserved, but with a doubled
Corporate Tax Rate                     20% immediately
                  20% in 2019
Perhaps the most dramatic disparity, however, can be found in the way the respective bills treat the income of owners of S corporations and partnerships, so-called "flow through entities."
Taxation of Flow-Through Entities, In General 
As a general rule, S corporations and partnerships (think: an LLC) do not pay tax at the business level. Instead, the income of the business is chopped up and allocated among its owners, who report the income and pay the corresponding tax on their individual returns at ordinary tax rates, which under current law rise as high as 39.6%.
To the contrary, so-called C corporations do pay tax at the business level, at a top rate of 35% under current law. C corporations are, quite famously, subject to "double taxation," because after the corporation pays tax on its income when it's earned, the shareholders will pay tax on the same income a second time when it is distributed to the shareholders as a dividend (at at top rate of 23.8%).
The foundation of both the House and Senate tax proposals has been to reduce the corporate tax from 35% to 20%. But you can't do that without changing the treatment of pass-through businesses; after all, if you reduce the corporate rate to 20% but leave the income of S corporations and partnerships subject to tax at a top rate of 39.6% (or 38.5% in the case of the Senate bill), then the advantage previously afforded to flow-through entities relative to C corporations would be largely eliminated.
As a result, both the House and Senate bills attempt to confer a benefit on the owners of S corporations and partnerships in hopes of preserving the advantage they enjoy over C corporations. The two proposals address the issue in dramatically different ways, and based on an initial reading of the proposed legislation, a certain class of taxpayers could have a LOT at stake as Congress tried to determine which plan to adopt.
Who should be concerned? Owners of rental property who produce income, because the two proposals differ greatly in the way they treat so-called "passive income." But before we can understand the difference, we've got to get a handle on who would be impacted.
So what is passive income? To answer the question, we've got to go back in time 31 years...
Pre-1986: Tax Shelters For Everyone!
Prior to the Tax Reform Act of 1986, tax shelters were readily available to anyone with disposable income and the patience to be a landlord. Consider the following example:
In 1985, A, a doctor, expects to earn wages of $300,000. On January 1, 1985, in hopes of sheltering his wage income, A purchases a home as a rental property and rents the home at fair market value. The rental is low-maintenance, and A is rarely required to visit the property other than to collect the occasional check. By virtue of large depreciation deductions, the rental generates a sizeable net loss, which A uses to partially offset his wage income, significantly lowering his tax bill. It is a win-win situation for A; he generates losses largely through non-cash depreciation deductions, while all the while, the rental home is appreciating in value.
Post-1986: No Rental Losses for Anyone!
The Tax Reform Act of 1986 put an end to such shelters, however, with the enactment of Section 469. Effective for tax years beginning after December 31, 1986, a taxpayer’s loss from a “passive activity” can only be used to offset income from a “passive activity.” A passive activity is defined in part as:
  1. Any trade or business of the taxpayer in which the taxpayer does not “materially participate,” and
  2. Any rental activity of the taxpayer regardless of the taxpayer’s level of participation.
As a result of the treatment of all rental activities as passive activities, the doctor’s loss in the previous example from his rental home would be treated as a passive loss. And because the doctor’s wages are not treated as passive income, the rental loss could no longer be used to offset the doctor’s wage income.
Fast Forward to 2018
As the example involving the doctor illustrates, historically, we've been primarily concerned with whether an activity is passive when the activity produces losses, because those passive losses can only be used to offset passive income. Come January 1, 2018, however, taxpayers with passive income -- which as explained above, generally includes ALL RENTAL INCOME -- could suddenly have a lot at stake, depending on whether the House or Senate bill governing pass-through income triumphs in reconciliation.
To understand the impact, let's walk through a simply case study:
A owns 11 commercial properties together with another party, B. Each property is held in a separate LLC. In addition, A and B have formed a management company to oversee the 11 rental properties. Assume the following:
  1. A works 700 hours during the year, all in the management company. As a result, he will not qualify as a "real estate professional" (more on that here), and all rental income will thus be passive.
  2. The 11 commercial properties produce a total of $2 million of annual rental income to A. The LLCs the properties are housed in pay no wages or guaranteed payments.
The management company employs three people -- a controller, an accountant, and an administrative assistant -- who are paid annual wages totaling $200,000.
  • The management company breaks even each year, recognizing neither taxable income nor loss.
  • Treatment of A under the House Bill 
    The House version of HR 1 attempts to provide a benefit to the owners of S corporations and partnerships by providing that all "qualified business income" is eligible for a preferential top rate of 25%. That way, even with the C corporation rate coming down to 20%, owners of flow-through entities would retain their tax advantage by virtue of a top rate of 25%.
    While there are no shortage of ways to fail to qualify for that preferential rate, the proposed law makes one thing very clear: "qualified business income" includes all passive income. As a result, the $2 million of income A receives from his 11 commercial properties will be taxed at a top rate of 25%, so that A will pay a total tax bill of $500,000 (ignoring the lower graduated rates and the 3.8% net investment income tax that applies to all passive income above a threshold). Not a bad deal, when you consider that under current law, the income would be taxed at a top rate of 39.6% and produce a tax bill of nearly $800,000. Thus, if the House bill becomes law, A would save nearly $300,000 in tax, relative to current law.
    Treatment of A under the Senate Bill 
    Things would look drastically different for A, however, should the Senate's provision governing pass-through entities win out. The Senate proposal eschews a top tax rate in favor of a deduction; the owner of the pass-through entity would be entitled to deduct 23% of the income allocated to him or her from the business.
    But there's a catch. OK, to be fair, there's many a catch under these rules, but the one we're focused on right now is this: the owner of a pass-through business may only claim the 23% deduction up to a limit, equal to 50% of the W-2 wages (or partnership guaranteed payments) paid out by the business.
    [Two notes on this deduction: the wage limitation does not apply if the business owner's income is less than $250,000 (if single, $500,000 if married). In addition, owners of "personal service businesses" -- i.e., accounting, law and consulting firms, among others -- are not eligible for the 23% deduction unless income of the owner is less than $250,000 (if single, $500,000 if married.)]
    The purpose of the limitation is to attempt to prevent an owner of a business from forgoing compensation for services in favor of additional flow-through income that will be eligible for the new
    deduction. Let's leave A for a moment and consider this scenario:
    Assume X is the sole owner and employee of an S corporation. He provides significant services. The S corporation earns $1,000,000 annually. If X withdraws the $1,000,000 as a salary to compensate him for his services, the wages are taxed at ordinary rates as high as 38.5% under the Senate proposal, generating a tax of $385,000.
    Alternatively, to take advantage of the deduction offered by the Senate proposal, X could simply leave the $1,00,000 of income in the S corporation, to be taxed to X as "flow-through income." Barring a safeguard measure, X would be entitled to a 23% deduction against the income, reducing his taxable income to $770,000 and his tax bill from $385,000 to $296,450, a significant savings.
    The Senate proposal prevents such an abuse, however, by limiting X's deduction to 50% of the wages paid by the S corporation. In the second scenario, because X takes no wages in an attempt to abuse the system, X runs afoul of the "50% of W-2 wages" limitation, and the Senate bill allows for no deduction. Thus, X's flow-through income would remain $1,000,000 and his tax bill $385,000, just as it was when he withdrew the full $1,000,000 as wages.
    With that understood, let's go back to A, our well-to-do landlord. He has total rental income of $2,000,000, but his entities combine to pay out only $200,000 in W-2 wages; thus, the limitation looms large. Even worse, it appears the Senate bill looks at the wage limit on a business-by-business basis; as a result, because A's only business that pays wages is the management company -- which has no net income -- he would not be entitled to a deduction against that income. He would also not be entitled to a 23% deduction against the $2,000,000 of rental income, because those separate LLCs pay neither wages nor guaranteed payments.
    In summary, it appears that under the Senate bill, A would recognize $2,000,000 of passive rental income with no offsetting deduction, with the income taxed at the Senate's top rate of 38.5%, resulting in a tax bill of $770,000. If you're scoring at home -- or even if you're all alone -- that would represent an increase of $270,000 over the's $500,000 bill A had under the House version of HR 1.
    Putting it all Together 
    Could this be an accident? Or does the House bill purposefully cater to owners of rental properties by offering a no-questions-asked top rate of 25%, with the Senate bill doing just the opposite, making it nearly impossible for a rental owner to get the benefit of the 23% deduction by virtue of the fact that rental properties rarely pay wages or guaranteed payments?
    The answer? Who knows. This process has been so rushed on both sides, it is completely reasonable to suspect that this is simply an oversight, and the two chambers will give the issue the careful consideration it deserves in the weeks to come. And if the President has anything to say about it -- well, let's just remember that he stands to save a fortune should the House bill win out, as it would give him a 25% rate on all of his passive rental income.
    The treatment of a passive rental property owners is not the only hole that needs to be plugged in the treatment of flow-through entities, however. There is also potential for abuse under the Senate bill in the opposite scenario: an active owner of an S corporations or partnership that pays significant wages to non-owner employees.
    Follow along:
    Jerry X is the sole owner of America's Team, a once-proud NFL franchise that has slowly devolved into a glorified three-ring circus. Shoot, that's too obvious...let's call him Mr. Jones, instead. Yeah, that'll do it...
    Anyway, Mr. Jones is a VERY hands on owner. The team is housed in an S corporation, and generates $20,000,000 of income for Jones annually, after deducting $60,000,000 in salaries to players and team personnel. Traditionally, Jones has paid himself a salary of $10,000,000 and withdrawn the remaining $10,000,000 as a distribution.
    Assume the Senate bill and its 23% deduction triumphs and becomes law. If Mr. Jones does nothing different in 2018, his $10,000,000 salary will be taxed at ordinary rates of 38.5%, resulting in a tax liability of $3,850,000. Then, Mr. Jones will be entitled to a deduction of 23% against the $10,000,000 of flow-through income, leaving him with $7,700,000 of income and a tax bill of nearly $3,000,000 ($7,700,000 * 38.5%). Thus, total tax at the individual level would be $6,850,000. The deduction is allowed in full because the amount ($2,300,000) does not come close to hitting the limit of 50% of wages paid by the business ($30,000,000, or 50% of $60,000,000).
    But what prevents Mr. Jones from saving himself a bundle of tax by skipping the salary in 2018 and taking the full $20,000,000 out as earnings and distributions? He would still be entitled to a deduction of 23% against the $20,000,000 of income -- or $4,600,000-- because again, that amount would not run afoul of the "50% of W-2 wages" limitation.
    As a result, by virtue of the large salaries Mr. Jones pays to non-owners, he could convert salary taxed at ordinary rates into flow-through income eligible for a 23% deduction.
    This column, of course, is just scratching the surface in identifying problems with this last-minute legislation. It's been said before, but when you try to construct tax reform that is three decades in the making in the span of just four weeks, there will be some confusion. Some drafting orders. Some big, gaping loopholes just begging to be exploited.
    Thanks to Tony Nitti working with Forbes to put this information together!

    Thursday, November 30, 2017

    W-2 Scam to get employee data

    National Tax Security Awareness Week: Thieves Use W-2 Scam to get Employee Data
    The IRS warns the nation’s business, payroll and human resource communities about a growing W-2 email scam. Criminals use this scheme to gain access to W-2 and other sensitive tax information that employers have about their employees.
    This tip is part of National Tax Security Awareness Week. The IRS is partnering with state tax agencies, the tax industry and groups across the country to remind people about the importance of data protection.
    This W-2 scam puts workers at risk for tax-related identity theft. The IRS recommends that all employers educate employees about this scheme, especially those in human resources and payroll departments. These employees are usually the first targets. Here are five warning signs about the W-2 scam:
    • The thief poses as a company executive, school official or other leader in the organization.
    • These scam emails often start with a simple greeting. It can be something like, “Hey, you in today?”
    • The crook sends an email to one employee with payroll access. The sender requests a list of all employees and their Forms W-2. The thief may even specify the format in which they want the information.
    • The thieves use many different subject lines. The criminal might use words like “review,” “manual review” or “request.” In some cases, the thief may send a follow up email asking for a wire transfer.
    • Because payroll officials believe they are corresponding with an executive, it may take weeks for someone to realize a data theft occurred. The criminals usually try to use the information quickly, sometimes filing fraudulent tax returns within a day or two.
    This scam is such a threat to taxpayers and to tax administration that a special IRS reporting process has been set up. Anyone who thinks they were a victim of this scam can visit Form W-2/SSN Data Theft: Information for Businesses and Payroll Service Providers to find out how to report it.

    Tuesday, November 28, 2017

    Phising Emails and how to be secure

    National Tax Security Awareness Week No. 2: Don’t Take the Bait; Avoid Phishing Emails by Data Thieves
    WASHINGTON – With the approach of the holidays and the 2018 filing season, the IRS, state tax agencies and the nation’s tax industry urge people to be on the lookout for new, sophisticated email phishing scams that could endanger their personal information and next year’s tax refund.
    The most common way for cybercriminals to steal bank account information, passwords, credit cards or Social Security numbers is to simply ask for them. Every day, people fall victim to phishing scams that cost them their time and their money.
    Those emails urgently warning users to update their online financial accounts – they’re fake. That email directing users to download a document from a cloud-storage provider? Fake. Those other emails suggesting the recipients have a $64 tax refund waiting at the IRS or that the IRS needs information about  insurance policies – also fake. So are many new and evolving variations of these schemes.
    The Internal Revenue Service, state tax agencies and the tax community -- partners in the Security Summit -- are marking “National Tax Security Awareness Week” with a series of reminders to taxpayers and tax professionals. In part two, the topic is avoiding phishing scams.
    Phishing attacks use email or malicious websites to solicit personal, tax or financial information by posing as a trustworthy organization. Often, recipients are fooled into believing the phishing communication is from someone they trust. A scam artist may take advantage of knowledge gained from online research and earlier attempts to masquerade as a legitimate source, including presenting the look and feel of authentic communications, such as using an official logo. These targeted messages can trick even the most cautious person into taking action that may compromise sensitive data.   The scams may contain emails with hyperlinks that take users to a fake site. Other versions contain PDF attachments that may download malware or viruses.
    Some phishing emails will appear to come from a business colleague, friend or relative. These emails might be an email account compromise. Criminals may have compromised your friend’s email account and begin using their email contacts to send phishing emails.
    Not all phishing attempts are emails – some are phone scams. One of the most common phone scams is the caller pretending to be from the IRS and threatening the taxpayer with a lawsuit or with arrest if payment is not made immediately, usually through a debit card.
    Phishing attacks, especially online phishing scams, are popular with criminals because there is no fool-proof technology to defend against them. Users are the main defense. When users see a phishing scam, they should ensure they don’t take the bait.
    Here are a few steps to take:
    • Be vigilant; be skeptical. Never open a link or attachment from an unknown or suspicious source. Even if the email is from a known source, approach with caution. Cybercrooks are adept at mimicking trusted businesses, friends and family. Thieves may have compromised a friend’s email address or they may be spoofing the address with a slight change in text, such as name@example.com vs narne@example.com. In the latter, merely changing the “m” to an “r” and “n” can trick people.
    • Remember, the IRS doesn't initiate spontaneous contact with taxpayers by email to request personal or financial information. This includes text messages and social media channels. The IRS does not call taxpayers with threats of lawsuits or arrests. No legitimate business or organization will ask for sensitive financial information via email. When in doubt, don’t use hyperlinks and go directly to the source’s main web page.
    • Use security software to protect against malware and viruses. Some security software can help identity suspicious websites that are used by cybercriminals.
    • Use strong passwords to protect online accounts. Each account should have a unique password. Use a password manager if necessary. Criminals count on people using the same password repeatedly, giving crooks access to multiple accounts if they steal a password. Experts recommend a password have a minimum of 10 digits, including letters, numbers and special characters. Longer is better.
    • Use multi-factor authentication when offered. Some online financial institutions, email providers and social media sites offer multi-factor protection for customers. Two-factor authentication means that in addition to entering your username and password, you must enter a security code generally sent as a text to your mobile phone. Even if a thief manages to steal usernames and passwords, it’s unlikely the crook would also have a victim’s phone.
    The IRS, state tax agencies and the tax industry are working together to fight against tax-related identity theft and to protect taxpayers. Everyone can help. Visit the “Taxes. Security. Together.” awareness campaign or review IRS Publication 4524, Security Awareness for Taxpayers, to learn more.

    Bitcoin and taxes

    Tax preparers may by now have encountered clients' transactions involving bitcoin, ethereum, and other virtual currencies. What they might just be beginning to see are clients day-trading these currencies. Recent price swings have attracted interest among retail investors—and definitely the IRS's. In fact, the IRS has sued one of the largest third-party exchanges, Coinbase, for customer information to find underreported income (Coinbase, No. 17-cv-01431-JSC (N.D. Cal. 11/17/16) (ex parte petition filed)). Despite its enforcement measures in this area, the IRS has not provided comprehensive guidance for tax reporting of virtual currency trading. It did provide some general guidance in April 2014 in Notice 2014-21 (see also "Tax Practice Corner: What Tax Preparers Need to Know About Digital Currency, JofA, June 2014, and "Technology Q&A: Digital Money: A Bit About Bitcoin," JofA, March 2016).

    TAX CHARACTERIZATION

    According to the notice, stocks and virtual currencies are taxed the same when held as capital assets by the taxpayer. Virtual currencies are characterized as property rather than as currency for tax purposes. The IRS considers a virtual currency not to be a real currency, even though it acts like one. For example, bitcoin is a storer of value, a unit of account, and a medium of exchange, but it has no physical form and is not legal tender in any jurisdiction.
    More importantly, the IRS is interested in virtual currencies that are convertible. Some virtual currencies can be traded only inside a closed world, such as tokens inside the game of Pokémon Go. Other virtual currencies, like bitcoin and ethereum, can also be traded in an open world, such as on a third-party exchange like Coinbase and its platform for speculative trading, GDAX, and can be transformed into real currencies, services, or goods.
    There can be tax consequences for the trader in convertible virtual currencies. For example, a sale of bitcoin for dollars creates a tax event and a possible tax liability. Taxable gains or losses for virtual currencies are determined, in part, by using the exchange rate quoted on the third-party exchange, given that the rate is determined by market demand and supply.

    CALCULATING TAXABLE INCOME

    For the tax preparer, determining taxable gain or loss for clients trading virtual currencies is similar to that for stocks. As stated by the IRS, there will be gains or losses when the fair market value of the virtual currency sold is greater or less than its adjusted basis. While stock trading occurs in a brokerage account, virtual currencies trade within "wallets," which reside either with the third-party exchange or on the trader's electronic device.
    Example 1: On June 17, 2017, one bitcoin is purchased for $2,664, and it is sold on Aug. 6, 2017, for $3,322. The gain of $658 ($3,322 — $2,664) is short-term capital gain.
    Rather than converting virtual currency into dollars, their holders can exchange them for other virtual currencies, which is not possible for stocks. Per the IRS notice, the taxpayer can recognize a gain or loss when virtual currency is exchanged for another virtual currency. This means the trader could owe a tax liability but have no real currency to pay it with.
    Example 2: Assume the same facts as Example 1, except the one bitcoin is exchanged for ethereum. Also assume the bitcoin—ethereum exchange rate is 1 bitcoin (BTC) = 12.3214 ethereum (ETH) and that the ETH—dollar exchange rate is 1 ETH = $268.49. The trader has a dollar value of $3,308 in ethereum and a taxable gain of $644 ($3,308 — $2,664).
    Taxable gains from exchanges of virtual currencies could be delayed if the like-kind exchange rules under Sec. 1031(a)(1) apply. They do not apply to stocks (Sec. 1031(a)(2)), but it remains unclear whether they might apply to virtual currencies. The AICPA has requested that the IRS clarify "if there are particular factors that distinguish one virtual currency as like-kind to another virtual currency for section 1031 purposes" (AICPA Comments on Notice 2014-21, June 10, 2016).

    TAX REPORTING AND ACCOUNTING

    Beginning in 2011, third-party reporting of cost basis from certain securities began under Sec. 6045(g). However, unlike stocks, virtual currencies are not "specified securities" and thus lack tax guidance that would ease tax accounting and reporting of basis in trades. Without third-party reporting, it falls upon tax return preparers to summarize and report their clients' virtual currency transactions. (However, Notice 2014-21 notes that a Form 1099-K, Payment Card and Third Party Network Transactions, may be issued for payments made in settlement of reportable payment transactions, including those made by virtual currency.)
    Under the cost-basis rules, stock traders can use the default method of first in, first out to match purchases and sales of stocks (Regs. Sec. 1.1012-1(c)). In addition, taxpayers may elect other methods of tracing basis of stock shares to find the most tax-efficient accounting method (Regs. Sec. 1.1012-1(e)(2)(i)). Unfortunately, none of the alternative methods is available for bitcoin or ethereum, since virtual currencies are not characterized as stock. Thus, return preparers must be aware of the accounting method used by third-party exchanges when they report virtual currency transactions to customers.

    BITCOIN FUTURES

    With bitcoin futures, however, virtual currencies will soon be more similar to stocks. By the end of 2017, the Chicago Board Options Exchange reportedly will launch bitcoin futures. Trading bitcoin futures, rather than actual bitcoins, could eliminate the unfavorable tax consequences associated with trading virtual currencies. Under certain circumstances, futures taxed as Sec. 1256 contracts receive a favorable tax treatment, where 60% of the gain is taxed as long-term capital gain and the remainder is taxed as short-term capital gain (Sec. 1256(a)(3)).
    Due to their novelty, bitcoin futures' tax characterization is uncertain at this point. But if taxed as Sec. 1256 contracts, then bitcoin futures would also simplify tax reporting for traders. Sec. 1256 contracts are subject to a mark-to-market regime, where open contracts are marked to their market price at the end of the year (Sec. 1256(a)(1)). The profits and losses from these open contracts, along with the closed or completed contracts, are reported on Form 1099-B, Proceeds From Broker and Barter Exchange Transactions (Regs. Sec. 1.6045-1(c)(5)(i)).

    RECOMMENDATIONS

    Due to recent price highs and swings, tax preparers may have clients who are trading virtual currencies and for whom preparers should consider the following for the upcoming tax season:
    • Ask on the year-end tax organizer whether there were any virtual currency transactions, especially trading.
    • Report virtual currency trades on Form 8949, Sales and Other Dispositions of Capital Assets.
    • Confirm the accounting method used by third-party exchanges for reporting virtual currency transactions.
    • Discuss with clients who trade virtual currencies the limitations of deducting short-term capital losses.
    • Discuss with clients the potential tax benefits of trading bitcoin futures.
    Thanks to Tom Prieto for this information.  He is a CPE teacher and author and college professor.

    Saturday, November 18, 2017

    U.S. House passes Tax Bill

    The U.S. House of Representatives passed the Tax Cuts and Jobs Act bill, H.R. 1, by a vote of 227–205, on Thursday afternoon, with all Democrats and 13 Republicans voting no.
    The legislation as passed had not been amended since its approval by the House Ways and Means Committee last week (see “House Ways and Means Approves Amended Tax Cuts and Jobs Bill,” for details).
    The bill features four tax brackets for individuals, instead of the current seven; a larger standard deduction; the repeal of many itemized deductions; a reduction of the corporate income tax rate to 20%; repeal of the alternative minimum tax and, after 2023, the estate and generation-skipping taxes; and many other changes.

    Friday, November 17, 2017

    Jan 31 filing deadline for forms W-2 and forms 1099

    Reminder to Employers and Other Businesses: Jan. 31 Filing Deadline
    Now Applies to All Wage Statements and Independent Contractor Forms


    IR-2017-189, Nov. 16, 2017

    WASHINGTON — The Internal Revenue Service today reminded employers and other businesses of the Jan. 31 filing deadline that now applies to filing wage statements and independent contractor forms with the government.

    The Protecting Americans from Tax Hikes (PATH) Act includes a requirement for employers to file their copies of Form W-2 and Form W-3 with the Social Security Administration by Jan. 31. The Jan. 31 deadline also applies to certain Forms 1099-MISC filed with IRS to report non-employee compensation to independent contractors. Such payments are reported in box 7 of this form.

    This deadline makes it easier for the IRS to verify income that individuals report on their tax returns and helps prevent fraud. Failure to file these forms correctly and timely may result in penalties. As always, the IRS urges employers and other businesses to take advantage of the accuracy, speed and convenience of filing these forms electronically.

    Hints to help filers get ready
                                        
    Employers should verify employees’ information. This includes names, addresses, Social Security or individual taxpayer identification numbers. They should also ensure their company’s account information is current and active with the Social Security Administration before January. If paper Forms W-2 are needed, they should be ordered early.

    An extension of time to file Forms W-2 is no longer automatic. The IRS will only grant extensions for very specific reasons. Details can be found on the instructions for Form 8809.

    For more information, read the instructions for Forms W-2 & W-3 and the Information Return Penalties page at IRS.gov.

    Thursday, November 09, 2017

    Military tax topics

    IRS has Resources for Veterans, Current Members of the Military
    As the nation prepares to celebrate Veterans Day, the IRS reminds them that they may be eligible for certain tax benefits. There are also tax benefits that can affect current members of the military.
    The IRS has resources for both these groups. The following tools will help military members and veterans navigate tax issues:
    Resources for veterans
    • Frequently asked questions about veteran employment and retirement plan benefits. These include information about the re-employment of veterans and the restoration of retirement plan benefits.
    • The Resources for Disabled Veterans page features links to resources geared to this audience: ◦Where to get free help in preparing income tax returns.
      • Access to IRS forms and publications in formats accessible for people with disabilities.
    Resources for current members of the military
    • The Tax Information for Members of the Military page on IRS.gov includes resources geared to several groups: ◦Current and former military personnel.
      • Those serving in a combat zone.
      • Disabled veterans.
    • Publication 3, Armed Forces Tax Guide covers special situations of active members of the Armed Forces, including: ◦Travel expenses of Armed Forces Reservists.
      • IRA contribution rules for members of the military serving in combat zones.
      • Rules for members of the Armed Forces deducting moving expenses.
    • The Tax Exclusion for Combat Service page highlights information for members of the military who serve in a combat zone.
    • The Notifying the IRS by E-mail about Combat Zone Service page includes information about the steps that someone serving in a combat zone follows to notify the IRS about their service.

    Tuesday, October 31, 2017

    Is the Cash Surrender Value of an Insurance Policy taxable?

    Proceeds from the death of the insured are tax-exempt. However, if you cash in a policy early, you may have taxable income.

    You should receive a Form 1099-R showing the total proceeds and the taxable part. Report these amounts on lines 16a and 16b of Form 1040.

    Monday, October 23, 2017

    IRS Inflation adjusted tax tables

    On Thursday, the IRS issued the annual inflation adjustments for 2017 for more than 50 tax provisions as well as the 2017 tax rate tables for individuals and estates and trusts (Rev. Proc. 2017-58). These provisions are used to file tax year 2018 returns in 2019.
    Most provisions are increasing for inflation in 2018, including the personal exemption, which increases from $4,050 in 2017 to $4,150 for 2018. The standard deduction for married taxpayers filing joint returns increases to $13,000, $300 more than in 2017. It also increases slightly for single taxpayers and married taxpayers filing separately to $6,500. The standard deduction increases for heads of household, from $9,350 in 2017 to $9,550 in 2018.
    Under the new tax table, the income level at which married taxpayers filing joint returns are subject to the highest bracket of 39.6% increases from $470,700 in 2017 to $480,050 in 2018. Single taxpayers are subject to the 39.6% tax rate on income over $426,700 in 2018, increased from $418,400 in 2017.
    The limitation above which itemized deductions may be reduced on 2018 individual tax returns begins for single taxpayers with incomes of $266,700 or for married couples filing jointly with incomes of $320,000.
    The maximum earned income tax credit amount for 2017 is $6,444 for taxpayers filing jointly who have three or more qualifying children, up from $6,318 for 2017.
    The revenue procedure also contains the inflation-adjusted unified credit against the estate tax, which increases from $5.49 million in 2017 to $5.6 million in 2018.
    The alternative minimum tax exemption amount for 2018 is $86,200 for married taxpayers filing joint returns and $55,400 for single taxpayers. The Sec. 911 foreign earned income exclusion increases from $102,100 for 2017 to $104,100 for 2018.
    The annual deductible amount for taxpayers who have self-only coverage in a medical savings account also increased slightly. For 2018, the plan must have an annual deductible that is not less than $2,300 and not more than $3,450, increased from not less than $2,250 but not more than $3,350 in 2017. For self-only coverage, the maximum out-of-pocket expense is $4,600, $100 more than for 2017. For tax year 2018 participants with family coverage, the floor for the annual deductible is $4,600, up from $4,500 in 2017. The deductible cannot be more than $6,850, up $100 from the limit for tax year 2017. For family coverage, the out-of-pocket expense limit is $8,400 for 2018 up from $8,250 for tax year 2017.
    The revenue procedure also includes inflation adjustments for the Sec. 24 child tax credit, the Sec. 25A lifetime learning credits, the gift tax, the adoption credit, the Sec. 221 deduction for interest on qualified education loans, and many other provisions.

    Thursday, October 19, 2017

    2018 Retirement Plan contributions amounts

    IRS Announces 2018 Pension Plan Limitations; 401(k) Contribution Limit Increases to $18,500 for 2018
    WASHINGTON — The Internal Revenue Service today announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2018.  The IRS today issued technical guidance detailing these items in Notice 2017-64.
    Highlights of Changes for 2018
    The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $18,000 to $18,500.
    The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs and to claim the saver’s credit all increased for 2018.
    Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or their spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor their spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.) Here are the phase-out ranges for 2018:
    • For single taxpayers covered by a workplace retirement plan, the phase-out range is $63,000 to $73,000, up from $62,000 to $72,000.
    • For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $101,000 to $121,000, up from $99,000 to $119,000.
    • For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $189,000 and $199,000, up from $186,000 and $196,000.
    • For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
    The income phase-out range for taxpayers making contributions to a Roth IRA is $120,000 to $135,000 for singles and heads of household, up from $118,000 to $133,000. For married couples filing jointly, the income phase-out range is $189,000 to $199,000, up from $186,000 to $196,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
    The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $63,000 for married couples filing jointly, up from $62,000; $47,250 for heads of household, up from $46,500; and $31,500 for singles and married individuals filing separately, up from $31,000.
    Highlights of Limitations that Remain Unchanged from 2017
    • The limit on annual contributions to an IRA remains unchanged at $5,500. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.
    • The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan remains unchanged at $6,000.
    Detailed Description of Adjusted and Unchanged Limitations
    Section 415 of the Internal Revenue Code (Code) provides for dollar limitations on benefits and contributions under qualified retirement plans. Section 415(d) requires that the Secretary of the Treasury annually adjust these limits for cost of living increases. Other limitations applicable to deferred compensation plans are also affected by these adjustments under Section 415. Under Section 415(d), the adjustments are to be made following adjustment procedures similar to those used to adjust benefit amounts under Section 215(i)(2)(A) of the Social Security Act.
    Effective Jan. 1, 2018, the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) is increased from $215,000 to $220,000. For a participant who separated from service before Jan. 1, 2018, the limitation for defined benefit plans under Section 415(b)(1)(B) is computed by multiplying the participant's compensation limitation, as adjusted through 2017, by 1.0196.
    The limitation for defined contribution plans under Section 415(c)(1)(A) is increased in 2018 from $54,000 to $55,000.
    The Code provides that various other dollar amounts are to be adjusted at the same time and in the same manner as the dollar limitation of Section 415(b)(1)(A). After taking into account the applicable rounding rules, the amounts for 2018 are as follows:
    The limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) is increased from $18,000 to $18,500.
    The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $270,000 to $275,000.
    The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan remains unchanged at $175,000.
    The dollar amount under Section 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a five year distribution period is increased from $1,080,000 to $1,105,000, while the dollar amount used to determine the lengthening of the five year distribution period is increased from $215,000 to $220,000.
    The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) remains unchanged at $120,000.
    The dollar limitation under Section 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $6,000. The dollar limitation under Section 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $3,000.
    The annual compensation limitation under Section 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost of living adjustments to the compensation limitation under the plan under Section 401(a)(17) to be taken into account, is increased from $400,000 to $405,000.
    The compensation amount under Section 408(k)(2)(C) regarding simplified employee pensions (SEPs) remains unchanged at $600.
    The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts remains unchanged at $12,500.
    The limitation on deferrals under Section 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations is increased from $18,000 to $18,500.
    The limitation under Section 664(g)(7) concerning the qualified gratuitous transfer of qualified employer securities to an employee stock ownership plan is increased from $45,000 to $50,000.
    The compensation amount under Section 1.61 21(f)(5)(i) of the Income Tax Regulations concerning the definition of “control employee” for fringe benefit valuation is increased from $105,000 to $110,000. The compensation amount under Section 1.61 21(f)(5)(iii) is increased from $215,000 to $220,000.
    The dollar limitation on premiums paid with respect to a qualifying longevity annuity contract under Section 1.401(a)(9)-6, A-17(b)(2)(i) of the Income Tax Regulations is increased from $125,000 to $130,000.
    The Code provides that the $1,000,000,000 threshold used to determine whether a multiemployer plan is a systemically important plan under Section 432(e)(9)(H)(v)(III)(aa) is adjusted using the cost-of-living adjustment provided under Section 432(e)(9)(H)(v)(III)(bb). After taking the applicable rounding rule into account, the threshold used to determine whether a multiemployer plan is a systemically important plan under Section 432(e)(9)(H)(v)(III)(aa) is increased for 2018 from $1,012,000,000 to $1,087,000,000.
    The Code also provides that several retirement-related amounts are to be adjusted using the cost-of-living adjustment under Section 1(f)(3). After taking the applicable rounding rules into account, the amounts for 2018 are as follows:
    The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for married taxpayers filing a joint return is increased from $37,000 to $38,000; the limitation under Section 25B(b)(1)(B) is increased from $40,000 to $41,000; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $62,000 to $63,000.
    The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the Retirement Savings Contribution Credit for taxpayers filing as head of household is increased from $27,750 to $28,500; the limitation under Section 25B(b)(1)(B) is increased from $30,000 to $30,750; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $46,500 to $47,250.
    The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the Retirement Savings Contribution Credit for all other taxpayers is increased from $18,500 to $19,000; the limitation under Section 25B(b)(1)(B) is increased from $20,000 to $20,500; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $31,000 to $31,500.
    The deductible amount under Section 219(b)(5)(A) for an individual making qualified retirement contributions remains unchanged at $5,500.
    The applicable dollar amount under Section 219(g)(3)(B)(i) for determining the deductible amount of an IRA contribution for taxpayers who are active participants filing a joint return or as a qualifying widow(er) increased from $99,000 to $101,000. The applicable dollar amount under Section 219(g)(3)(B)(ii) for all other taxpayers who are active participants (other than married taxpayers filing separate returns) increased from $62,000 to $63,000. If an individual or the individual’s spouse is an active participant, the applicable dollar amount under Section 219(g)(3)(B)(iii) for a married individual filing a separate return is not subject to an annual cost-of-living adjustment and remains $0. The applicable dollar amount under Section 219(g)(7)(A) for a taxpayer who is not an active participant but whose spouse is an active participant is increased from $186,000 to $189,000.
    The adjusted gross income limitation under Section 408A(c)(3)(B)(ii)(I) for determining the maximum Roth IRA contribution for married taxpayers filing a joint return or for taxpayers filing as a qualifying widow(er) is increased from $186,000 to $189,000. The adjusted gross income limitation under Section 408A(c)(3)(B)(ii)(II) for all other taxpayers (other than married taxpayers filing separate returns) is increased from $118,000 to $120,000. The applicable dollar amount under Section 408A(c)(3)(B)(ii)(III) for a married individual filing a separate return is not subject to an annual cost-of-living adjustment and remains $0.

    Monday, October 16, 2017

    Retirement plans and minimum distributions

    When do you have to take minimum distributions from a retirement plan?
    It depends on the type of retirement plan.  IRA, Simple IRA, SEP IRA all require you to take distributions when you turn 70 & 1/2.
    How about a Roth?  Do you have to take minimum distributions at 70 & 1/2?  NO, you are only required to take distributions upon death.

    Beginning date for your first required minimum distribution

    • IRAs (including SEP and SIMPLE IRAs)
      • April 1 of the year following the calendar year in which you reach age 70½.
         
    • 401(k), profit-sharing, 403(b), or other defined contribution plan
      Generally, April 1 following the later of the calendar year in which you:
      • reach age 70½, or
      • retire.

    Wednesday, October 11, 2017

    Reconstructing you tax records after a disaster

    Tips for Business Owners Who Need to Reconstruct Records After a Disaster
    After a disaster, many business owners might need to reconstruct records to prove a loss. This may be essential for tax purposes, getting federal assistance, or insurance reimbursement.
    Here are four tips for businesses that need to reconstruct their records:
    • To create a list of lost inventories, business owners can get copies of invoices from suppliers. Whenever possible, the invoices should date back at least one calendar year.
    • For information about income, business owners can get copies of last year’s federal, state and local tax returns. These include sales tax reports, payroll tax returns, and business licenses from the city or county. These will reflect gross sales for a given period.
    • Owners should check their mobile phone or other cameras for pictures and videos of their building, equipment and inventory.
    • Business owners who don’t have photographs or videos can simply sketch an outline of the inside and outside of their location. For example, for the inside the building, they can draw out where equipment and inventory was located. For the outside of the building, they can map out the locations of items such as shrubs, parking, signs, and awnings.

    Thursday, October 05, 2017

    Tax Filing Deadline Approaching

    Tax Filing Extension Expires Oct. 16 for Millions of Taxpayers; Check Eligibility for Overlooked Tax Benefits
    WASHINGTON – The Internal Revenue Service today urged taxpayers who have a filing extension through Oct. 16 to check their returns for often-overlooked tax benefits. When they are ready to file, the IRS recommends they file their return electronically using IRS e-file or the Free File system. Both are still available for taxpayers who still need to file their return.
    Although Oct. 16 is the last day for most people to file, some individuals -- such as members of the military serving in a combat zone -- are allowed more time to file. Typically, they have until 180 days after they leave the combat zone to both file their return and pay any taxes due.
    In addition, taxpayers who have a valid extension and are in or affected by a federally declared disaster area may be allowed more time to file. Currently, taxpayers in parts of Michigan, West Virginia and those impacted by Hurricanes Harvey, Irma  and Maria qualify for this relief. See the disaster relief page on IRS.gov for details.
    Check for Tax Benefits
    Before filing, the IRS encourages taxpayers to take a moment to see if they qualify for these and other significant credits and deductions:
    • Benefits for low- and moderate-income workers and families, especially the Earned Income Tax Credit, can increase a taxpayer’s refund and lower the amount of taxes they pay. The EITC Assistant can help taxpayers see if they’re eligible.
    • Savers credit, claimed on Form 8880, for low- and moderate-income workers who contributed to a retirement plan, such as an IRA or 401(k).
    • American Opportunity Tax Credit, claimed on Form 8863, and other education tax benefits for parents and college students.
    E-file and Free File
    The IRS urges taxpayers to choose the speed and convenience of electronic filing and direct deposit for their refunds. Fast, accurate and secure, filing electronically is an ideal option for those rushing to meet the Oct. 16 deadline. The IRS verifies receipt of an e-filed return and people who file electronically make fewer mistakes. Of the 145.3 million returns received by the IRS so far this year, approximately 87.5 percent -- or 127.2 million -- have been e-filed.
    Everyone can use Free File, either the brand-name software, offered by the IRS’s commercial partners to individuals and families with incomes of $64,000 or less, or online fillable forms, the electronic version of IRS paper forms available to taxpayers at all income levels. IRS Free File remains available either online at IRS.gov/FreeFile or through the mobile app, IRS2Go.
    More than eight of 10 taxpayers enjoy the convenience of direct deposit. Taxpayers can choose to have their refunds deposited into as many as three accounts. See Form 8888 for details.
    Free Tax Help
    Free face-to-face tax help is still available across the country. The IRS sponsors free tax preparation assistance through the Volunteer Income Tax Assistance (VITA) program and the Tax Counseling for the Elderly (TCE) program. Both programs provide IRS-certified volunteers to prepare federal and state tax returns electronically for people with low- to-moderate income, seniors, disabled individuals or people who speak English as a second language. More information on available locations, times and what to bring can be found by typing “free tax preparation” in the search box on IRS.gov.
    Quick and Easy Payment Options
    IRS Direct Pay offers taxpayers a fast and easy way to pay what they owe. Direct Pay is free and allows individuals to securely pay their tax bills or make quarterly estimated tax payments online directly from checking or savings accounts without any fees or pre-registration.
    Taxpayers can also pay by debit or credit card. While the IRS does not charge a fee for this service, the payment processer will. Other payment options include the Electronic Federal Tax Payment System (enrollment is required) and Electronic Funds Withdrawal which is available when e-filing. Taxpayers can also pay what they owe using the IRS2Go mobile app. All of the electronic payment options are quick, easy and secure and much faster than mailing in a check or money order. Those choosing to pay by check or money order should make the payment out to the “United States Treasury.”
    Taxpayers with extensions should file their returns by Oct. 16, even if they can’t pay the full amount due. By doing so, taxpayers will avoid the late-filing penalty, normally 5% per month, that would otherwise apply to any unpaid balance after Oct. 16. However, interest, currently at the rate of 4% per year compounded daily, and late-payment penalties, normally .5% per month, will continue to accrue.
    Help for Struggling Taxpayers
    In many cases, those struggling to pay taxes qualify for one of several relief programs. Most people can set up a payment agreement with the IRS online in a matter of minutes. Those who owe $50,000 or less in combined tax, penalties and interest can use the Online Payment Agreement to set up a monthly payment agreement for up to 72 months or request a short-term payment plan. Taxpayers can choose this option even if they have not yet received a bill or notice from the IRS.
    Alternatively, taxpayers can request a payment agreement by filing Form 9465. This form can be downloaded from IRS.gov and mailed along with a tax return, bill or notice.
    Some may qualify for an Offer-in-Compromise.This is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. Generally, an offer will not be accepted if the IRS believes the liability can be paid in full as a lump sum or through a payment agreement. The IRS looks at the taxpayer’s income and assets to make a determination regarding the taxpayer’s ability to pay. To help determine eligibility, use the Offer in Compromise Pre-Qualifier, a free online tool available on IRS.gov.
    Planning Ahead for 2018  
    Taxpayers can begin taking steps now to ensure smooth processing of their 2017 tax return next year. The IRS offers these reminders:                                                       
    • All 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.
    • Check withholding. If not enough tax is withheld, a taxpayer will owe tax and may have to pay interest and a penalty. If too much tax is withheld, a taxpayer loses the use of that money until they get their refund. A taxpayer can reduce the refund amount and boost take-home pay by claiming additional withholding allowances on the Form W-4 they give to their employer. Anyone who owes tax can have additional tax withheld or make quarterly estimated tax payments to the IRS. For help, use the Withholding Calculator on IRS.gov.
    • Like last year, the IRS cautions taxpayers not to count on getting a refund by a certain date, especially when making major purchases or paying other financial obligations. Although the IRS issues most refunds in less than 21 days, some returns are held for further review. Beginning in 2017, a new law approved by Congress requires the IRS to hold refunds on tax returns claiming the Earned Income Tax Credit or the Additional Child Tax Credit until mid-February. The IRS must hold the entire refund — even the portion not associated with the EITC and ACTC.
    • Employers are required to file their copies of Forms W-2 and certain Forms 1099 with the federal government by Jan. 31. This change began last year. The Jan. 31 deadline has long applied to employers furnishing copies of these forms to their employees.