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. 

Tuesday, October 03, 2017

The IRS doesn't normally call!

Taxpayers Should Be Wary of Unsolicited Calls from the IRS
Taxpayers who get an unexpected or unsolicited phone call from the IRS should be wary – it’s probably a scam. Phone calls continue to be one of the most common ways that thieves try to get taxpayers to provide personal information. These scammers then use that information to gain access to the victim’s bank or other account.
When a taxpayer answers the phone, it might be a recording or an actual person claiming to be from the IRS. Sometimes the scammer tells the taxpayer they owe money and must pay right away. They might also say the person has a refund waiting, and then they ask for bank account information over the phone.
Taxpayers should not take the bait and fall for this trick. Here are several tips that will help taxpayers avoid becoming a scam victim.
The real IRS will not:
  • Call to demand immediate payment
  • Call someone if they owe taxes without first sending a bill in the mail
  • Demand tax payment and not allow the taxpayer to question or appeal the amount owed
  • Require that someone pay their taxes a certain way, such as with a prepaid debit card
  • Ask for credit or debit card numbers over the phone
  • Threaten to bring in local police or other agencies to arrest a taxpayer who doesn’t pay
  • Threaten a lawsuit
Taxpayers who don’t owe taxes or who have no reason to think they do should follow these steps:
  • Use the Treasury Inspector General for Tax Administration’s IRS Impersonation Scam Reporting web page to report the incident.
  • Report it to the Federal Trade Commission with the FTC Complaint Assistant on FTC.gov. 
  • Taxpayers who think they might actually owe taxes should follow these steps:
  • Ask for a call back number and an employee badge number.
  • Call the IRS at 1-800-829-1040.
Every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are the Taxpayer Bill of Rights. Taxpayers can visit IRS.gov to explore their rights and the agency’s obligations to protect them.
IRS YouTube Videos:

Thursday, September 28, 2017

Education Tax Deductions

IRS Reminds Educators of Tax Benefits
WASHINGTON — As teachers, administrators and aides have launched into their fall semester, taxes may not be on the top of their list. However, knowing what to keep track of now can help reduce the burden at tax time. The Internal Revenue Service reminds educators that there are three key work-related tax benefits that may help them reduce what they pay in taxes.
Educators can take advantage of tax deductions for qualified expenses related to their profession. The costs many educators incur out-of-pocket include items such as classroom supplies, training and travel.
There are two methods educators can choose for deducting qualified expenses: Claiming the Educator Expense Deduction (up to $250) or, for those who itemize their deductions, claiming eligible work-related expenses as a miscellaneous deduction on Schedule A.
A third key benefit enables many teachers and other educators to take advantage of various education tax benefits for their ongoing educational pursuits, especially the Lifetime Learning Credit or, in some instances depending on their circumstances, the American Opportunity Tax Credit.
Educator Expense Deduction
Educators can deduct up to $250 ($500 if married filing jointly and both spouses are eligible educators, but not more than $250 each) of unreimbursed business expenses. The educator expense deduction, claimed on either Form 1040 Line 23 or Form 1040A Line 16, is available even if an educator doesn’t itemize their deductions. To do so, the taxpayer must be a kindergarten through grade 12 teacher, instructor, counselor, principal or aide for at least 900 hours a school year in a school that provides elementary or secondary education as determined under state law.
Those who qualify can deduct costs like books, supplies, computer equipment and software, classroom equipment and supplementary materials used in the classroom. Expenses for participation in professional development courses are also deductible. Athletic supplies qualify if used for courses in health or physical education.
Itemizing Deductions (Using Schedule A)
Often educators have qualifying classroom and professional development expenses that exceed the $250 limit. In that case, the IRS encourages them to claim these excess expenses as a miscellaneous deduction on Schedule A (Form 1040 or Form 1040NR). In addition, educators can claim other work-related expenses, such as the cost of subscriptions to professional journals, professional licenses and union dues. Transportation expenses may also be deductible in situations such as, for example, where an educator assigned to teach at two different schools needs to drive from one school to the other on the same day.
Miscellaneous deductions of this kind are subject to a  two-percent limit. This means that a taxpayer must subtract two percent of their adjusted gross income from the total qualifying miscellaneous deduction amount. For more information, see Publication 529, Miscellaneous Deductions, available on IRS.gov.
Keeping Records
Educators should keep detailed records of qualifying expenses noting the date, amount and purpose of each purchase. This will help prevent a missed deduction at tax time.
Taxpayers should also keep a copy of their tax return for at least three years. Copies of tax returns may be needed for many reasons. If applying for college financial aid, a tax transcript may be all that is needed. A tax transcript summarizes return information and includes adjusted gross income. Get one from the IRS for free.
The quickest way to get a copy of a tax transcript is to use the Get Transcript application. After verifying identity, taxpayers can view and print their transcript immediately online. The online application includes a robust identity verification process. Those who can’t pass the verification must request the transcript be mailed. This takes five to 10 days, so plan ahead and request the transcript early.
Additional IRS Resources:

Displaced victims of recent hurricanes offered help!

Low-Income Housing Units Nationwide May be Offered to Displaced Victims of Hurricanes Harvey, Irma and Other Recent Disasters
WASHINGTON — The Internal Revenue Service has provided temporary relief from certain requirements of the Internal Revenue Code to allow owners and operators of low-income housing projects located anywhere in the United States and its possessions to provide temporary emergency housing to individuals who are displaced by a major disaster from their principal residences, regardless of income.
This special relief detailed in Revenue Procedure 2014-49 and Revenue Procedure 2014-50 authorizes owners and operators, in conjunction with agencies and issuers, to disregard the income limits, transience rules and certain other restrictions that normally apply to low-income housing units when providing temporary emergency housing to displaced individuals. As a result, owners and operators can offer temporary emergency housing to displaced individuals who lived in a county or other local jurisdiction designated for individual assistance by the Federal Emergency Management Agency (FEMA). Currently, this includes parts of Texas, Florida, Georgia, Puerto Rico and the U.S. Virgin Islands, though FEMA may add other locations in the future. Upon approval, emergency housing can be provided for up to a year after the close of the month in which the major disaster was declared by the President.
This relief automatically applies as soon as the President declares a major disaster and FEMA designates any locality for individual or public assistance. For that reason, individuals affected by some other recent major disasters, including those affecting parts of Michigan, West Virginia and other localities, may also qualify for emergency housing relief. For a list of recent disasters, see the disaster relief page on IRS.gov.
Although owners and operators of low-income housing projects are allowed to offer temporary housing to qualified disaster victims, they are not required to do so. For those who do, special rules apply, detailed in Revenue Procedure 2014-49 and Revenue Procedure 2014-50, available on IRS.gov. Details on other hurricane-related tax relief are available at www.irs.gov/hurricaneharvey and www.irs.gov/hurricaneirma.  For information on government-wide relief efforts, visit www.usa.gov/hurricane-harvey or www.usa.gov/hurricane-irma.

Tuesday, September 26, 2017

College tax incentives!

Reminder for Parents, Students: Check Out College Tax Benefits
WASHINGTON ― With back-to-school season in full swing, the Internal Revenue Service reminds parents and students about tax benefits that can help with the expense of higher education.
Two college tax credits apply to students enrolled in an eligible college, university or vocational school. Eligible students include the taxpayer, their spouse and dependents.
American Opportunity Tax Credit
The American Opportunity Tax Credit, (AOTC) can be worth a maximum annual benefit of $2,500 per eligible student. The credit is only available for the first four years at an eligible college or vocational school for students pursuing a degree or another recognized education credential. Taxpayers can claim the AOTC for a student enrolled in the first three months of 2018 as long as they paid qualified expenses in 2017.
Lifetime Learning Credit
The Lifetime Learning Credit, (LLC) can have a maximum benefit of up to $2,000 per tax return for both graduate and undergraduate students. Unlike the AOTC, the limit on the LLC applies to each tax return rather than to each student. The course of study must be either part of a post-secondary degree program or taken by the student to maintain or improve job skills. The credit is available for an unlimited number of tax years.
To claim the AOTC or LLC, use Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits). Additionally, if claiming the AOTC, the law requires taxpayers to include the school’s Employer Identification Number on this form.
Form 1098-T, Tuition Statement, is required to be eligible for an education benefit. Students receive this form from the school they attended. There are exceptions for some students.
Other education benefits
Other education-related tax benefits that may help parents and students are:
  • Student loan interest deduction of up to $2,500 per year.
  • Scholarship and fellowship grants. Generally, these are tax-free if used to pay for tuition, required enrollment fees, books and other course materials, but taxable if used for room, board, research, travel or other expenses.
  • Savings bonds used to pay for college. Though income limits apply, interest is usually tax-free if bonds were purchased after 1989 by a taxpayer who, at time of purchase, was at least 24 years of age.
  • Qualified tuition programs, also called 529 plans, are used by many families to prepay or save for a child’s college education. Contributions to a 529 plan are not deductible, but earnings are not subject to federal tax when used for the qualified education expenses.
To help determine eligibility for these benefits, taxpayers should use tools on the Education Credits Web page and IRS Interactive Tax Assistant tool on IRS.gov.
Keep A Copy of Tax Returns
Taxpayers should keep a copy of their tax return for at least three years. Copies of tax returns may be needed for many reasons. If applying for college financial aid, a tax transcript may be all that is needed. A tax transcript summarizes return information and includes adjusted gross income. Get one from the IRS for free.
The quickest way to get a copy of a tax transcript is to use the Get Transcript application. After verifying identity, taxpayers can view and print their transcript immediately online. The online application includes a robust identity verification process. Those who can’t pass the verification must request the transcript be mailed. This takes five to 10 days, so plan ahead and request the transcript early.

Tuesday, September 12, 2017

IRS Hurricane Assistance

IRS Gives Tax Relief to Victims of Hurricane Irma; Like Harvey, Extension Filers Have Until Jan. 31 to File; Additional Relief Planned
WASHINGTON –– Hurricane Irma victims in parts of Florida and elsewhere have until Jan. 31, 2018, to file certain individual and business tax returns and make certain tax payments, the Internal Revenue Service announced today.
Today’s relief parallels that granted last month to victims of Hurricane Harvey. This includes an additional filing extension for taxpayers with valid extensions that run out on Oct. 16, and businesses with extensions that run out on Sept. 15.
"This has been a devastating storm for the Southeastern part of the country, and the IRS will move quickly to provide tax relief for victims, just as we did following Hurricane Harvey," said IRS Commissioner John Koskinen. "The IRS will continue to closely monitor the storm's aftermath, and we anticipate providing additional relief for other affected areas in the near future."
The IRS is offering this relief to any area designated by the Federal Emergency Management Agency (FEMA), as qualifying for individual assistance. Parts of Florida, Puerto Rico and the Virgin Islands are currently eligible, but taxpayers in localities added later to the disaster area, including those in other states, will automatically receive the same filing and payment relief. The current list of eligible localities is always available on the disaster relief page on IRS.gov.
The tax relief postpones various tax filing and payment deadlines that occurred starting on Sept. 4, 2017 in Florida and Sept. 5, 2017 in Puerto Rico and the Virgin Islands. As a result, affected individuals and businesses will have until Jan. 31, 2018, to file returns and pay any taxes that were originally due during this period.
This includes the Sept. 15, 2017 and Jan. 16, 2018 deadlines for making quarterly estimated tax payments. For individual tax filers, it also includes 2016 income tax returns that received a tax-filing extension until Oct. 16, 2017. The IRS noted, however, that because tax payments related to these 2016 returns were originally due on April 18, 2017, those payments are not eligible for this relief.
A variety of business tax deadlines are also affected including the Oct. 31 deadline for quarterly payroll and excise tax returns. Businesses with extensions also have the additional time including, among others, calendar-year partnerships whose 2016 extensions run out on Sept. 15, 2017 and calendar-year tax-exempt organizations   whose 2016 extensions run out on Nov. 15, 2017. The disaster relief page has details on other returns, payments and tax-related actions qualifying for the additional time.
In addition, the IRS is waiving late-deposit penalties for federal payroll and excise tax deposits normally due during the first 15 days of the disaster period. Check out the disaster relief page for the time periods that apply to each jurisdiction.
The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. Thus, taxpayers need not contact the IRS to get this relief. However, if an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date falling within the postponement period, the taxpayer should call the number on the notice to have the penalty abated.
In addition, the IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227. This also includes workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization.
Individuals and businesses who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred (in this instance, the 2017 return normally filed next year), or the return for the prior year (2016). See Publication 547 for details.
The tax relief is part of a coordinated federal response to the damage caused by severe storms and flooding and is based on local damage assessments by FEMA. For information on disaster recovery, visit disasterassistance.gov

Tuesday, September 05, 2017

Hurricane Harvey help from the IRS

IRS Provides Special Relief to Encourage Leave-Based Donation Programs for Victims of Hurricane Harvey
WASHINGTON – The Internal Revenue Service today announced special relief designed to support leave-based donation programs to aid victims of Hurricane Harvey.
Under these programs, employees may forgo their vacation, sick or personal leave in exchange for cash payments the employer makes, before Jan. 1, 2019, to charitable organizations providing relief for the victims of this disaster.
Under this special relief, the donated leave will not be included in the income or wages of the employees. Employers will be permitted to deduct the cash payments as business expenses.
This relief is similar to that provided following Hurricane Katrina in 2005, Hurricane Sandy in 2012, the Ebola outbreak in West Africa in 2014, and last year following Hurricane Matthew and severe flooding in Louisiana. Details of this relief are in Notice 2017-48, posted today on IRS.gov.
Information on other tax relief available to victims of Hurricane Harvey can be found at www.irs.gov/hurricaneharvey. For information on government-wide relief efforts, visit www.USA.gov/hurricane-harvey.

Monday, August 28, 2017

IRS response to Hurricane Harvey

IRS Gives Tax Relief to Victims of Hurricane Harvey; Parts of Texas Now Eligible; Extension Filers Have Until Jan. 31 to File
WASHINGTON –– Hurricane Harvey victims in parts of Texas have until Jan. 31, 2018, to file certain individual and business tax returns and make certain tax payments, the Internal Revenue Service announced today.
This includes an additional filing extension for taxpayers with valid extensions that run out on Oct. 16, and businesses with extensions that run out on Sept. 15.
"This has been a devastating storm, and the IRS will move quickly to provide tax relief to hurricane victims," said IRS Commissioner John Koskinen. "The IRS will continue to closely monitor the storm's aftermath, and we anticipate providing additional relief for other affected areas in the near future."
The IRS is now offering this expanded relief to any area designated by the Federal Emergency Management Agency (FEMA), as qualifying for individual assistance. Currently, 18 counties are eligible, but taxpayers in localities added later to the disaster area will automatically receive the same filing and payment relief.
The tax relief postpones various tax filing and payment deadlines that occurred starting on Aug. 23, 2017. As a result, affected individuals and businesses will have until Jan. 31, 2018, to file returns and pay any taxes that were originally due during this period. This includes the Sept. 15, 2017 and Jan. 16, 2018 deadlines for making quarterly estimated tax payments. For individual tax filers, it also includes 2016 income tax returns that received a tax-filing extension until Oct. 16, 2017. The IRS noted, however, that because tax payments related to these 2016 returns were originally due on April 18, 2017, those payments are not eligible for this relief.
A variety of business tax deadlines are also affected including the Oct. 31 deadline for quarterly payroll and excise tax returns. In addition, the IRS is waiving late-deposit penalties for federal payroll and excise tax deposits normally due on or after Aug. 23 and before Sept. 7, if the deposits are made by Sept. 7, 2017. Details on available relief can be found on the disaster relief page on IRS.gov.
The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. Thus, taxpayers need not contact the IRS to get this relief. However, if an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date falling within the postponement period, the taxpayer should call the number on the notice to have the penalty abated.
In addition, the IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227. This also includes workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization.
Individuals and businesses who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred (in this instance, the 2017 return normally filed next year), or the return for the prior year (2016). See Publication 547 for details.
Currently, the following Texas counties are eligible for relief: Aransas, Bee, Brazoria, Calhoun, Chambers, Fort Bend, Galveston, Goliad, Harris, Jackson, Kleberg, Liberty, Matagorda, Nueces, Refugio, San Patricio, Victoria and Wharton.
The tax relief is part of a coordinated federal response to the damage caused by severe storms and flooding and is based on local damage assessments by FEMA. For information on disaster recovery, visit disasterassistance.gov.
For information on government-wide efforts related to Hurricane Harvey, please visit: https://www.usa.gov/hurricane-harvey

Wednesday, August 23, 2017

Tax software can lead tax payers astray

A recent Tax Court case provides a cautionary tale for taxpayers who rely on do-it-yourself tax preparation software to prepare their tax returns. In the case, the Tax Court held that a taxpayer couldn't blame his tax prep software for deductions that he took on his tax return that were disallowed (Bulakites, T.C. Memo. 2017-79).
Barry Bulakites is an insurance consultant who used TurboTax to prepare his own returns. The IRS believed he claimed too many deductions, but Bulakites argued that he had enough evidence to prove some of them and, according to the Tax Court, blamed the software for "luring him into claiming others."
TurboTax, which is aimed at individual taxpayers preparing their own returns, asks the user a series of questions and then fills out the tax return based on those answers. The problem is that sometimes the user doesn't understand the questions.
The main issue in Bulakites's case arose from a lawsuit in which Bulakites was a defendant. In 2007, the settlement of that lawsuit left him liable for $500,000.
Bulakites claimed interest deductions on the loan of $31,000 for 2011 and $48,000 for 2012. The court acknowledged that he paid the interest to the lender, but the amount paid did not match the amount deducted on the return.(ALWAYS MATCH FORM 1098) Bulakites did not produce any paperwork to show what had happened to the original loan, which was originally due to be paid off in 2008(BE ABLE TO DEFEND YOUR POSITION). The court said it could not figure out if the loan had been extended or refinanced: "Without any paperwork (in a situation where there should have been lots of paperwork) we are left only with his testimony about the total amounts of the payments and the allocation of those payments between principal and interest" (slip op. at p. 7). Finding Bulakites to be a less-than-credible witness, the court upheld the IRS's disallowance of the entire amount of his interest deduction for both years
In 2009, Bulakites and his wife legally separated, and they divorced a year later. Under their separation agreement, Bulakites was to pay $2,000 per month in spousal support to his ex-wife until he sold the marital residence. After that, the payments would increase to $8,000.
Bulakites and his ex-wife never entered into any subsequent maintenance agreements, but because he could not sell the house, and to do "the right thing," Bulakites orally agreed with his ex-wife to increase his payments to her to $5,000 per month. According to the Tax Court, he paid his ex-wife about $50,000 in both 2011 and 2012. Bulakites deducted these payments as alimony in the years at issue (2011 and 2012), but the court ruled that the oral agreement he had with his ex-wife wasn't sufficient to modify the couple's separation agreement and therefore the payments did not qualify as alimony.
Bulakites also claimed a net operating loss (NOL) of $185,673, all but $142 of which the IRS disallowed. The court noted that, to claim an NOL, a taxpayer is required to substantiate the claim to the deduction by filing "a concise statement setting forth the amount of the net operating loss deduction claimed and all material and pertinent facts relative thereto, including a detailed schedule showing the computation of the net operating loss deduction". Bulakites failed to provide this documentation at trial(BE ABLE TO DEFEND YOUR POSITION). He submitted a return for a previous year but not for the year in which the NOL arose(ALWAYS FILE A RETURN, FOR THE PAPER TRAIL). Therefore, the court found that the IRS had properly determined that Bulakites was not entitled to an NOL deduction.
Finally, the court addressed the IRS's imposition of accuracy-related penalties under Sec. 6662(a) for substantial understatements of income tax for both 2011 and 2012. Bulakites tried to blame TurboTax for his mistakes, but the court rejected his claim and upheld the penalties, quoting another Tax Court case, Bunney, 114 T.C. 259, 267 (2000), "[t]ax preparation software is only as good as the information one inputs into it" (slip op. at p. 9).
Thanks to Craig Smalley, enrolled agent for pulling this together.