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Tax Reform Update?
Tax Reform continues to be a work in progress. The White House released an updated framework for tax reform in September that is slightly changed from the Plan that was released earlier in 2017. The Plan still calls for 4 income tax brackets, down from the current seven but, they are now 0%, 12% (10% in the original Plan), 25% and 35%. The standard deduction would double to $12,000 for single filers and $24,000 for couples filing a joint tax return and personal exemptions would be eliminated. The business tax rate would be reduced from 35% to 20% (15% in the original Plan) and the tax to pass through entities (S Corps & LLCs) would be 25% (15% previous Plan provision). Most itemized deductions would be eliminated except charitable contributions and home mortgage interest. A big obstacle to approval by Congress will be the elimination of the deduction for state and local income taxes and property taxes (SALT). These deductions are significant to most tax filers that itemize especially those in high-tax states and homeowners everywhere. We were hoping that tax reform would be complete for 2017 but temporary tax cuts still seem much more likely.
Tax-Related Identity Theft Victims Can Get Copies Of The Fraudulent Returns
The IRS will disclose the return information only to victims whose name and social security number are listed as either the primary or secondary taxpayer on the fraudulent return. Taxpayers claimed as dependents on fraudulent returns cannot get copies. Information for requesting a copy of a fraudulent return can be found at www.gov/individuals/Instructions-for-requesting-copy-of-fraudulent-returns
Got Everything We Need?
Here is a list of frequently missed items. Check these against your list.
- Refinances. I need to see the FINAL settlement statement. Collect all documents associated with a refinance if you are unsure.
- Child Care Expenses. I need the full name, address, telephone number and tax ID number of your care providers.
- Estimated Federal Tax Payments. Find the date and amount for payments. Look at dates near payment due dates. April 18, 2017, June 15,2017, September 15, 2017 and January 16,2018. A January 2017 payment would have been claimed on your 2016 return.
- Sales of Property. The most important thing is the FINAL settlement statement (no estimated statements). Gather all related documents as well.
- College Tuition. Form 1098- T lists tuitions. I need these forms as well as details on the courses, all expenses and who the "student" was.
- Sales of Stock. Form 1099- B shows sale price and lots of other confusing data. If this form does not show the original purchase price you will need to find the original "buy" confirmation or ask your broker for the data.
- Business Records. Be careful to separate purchases of major equipment from other supplies.
- Employer Reimbursements. If employer reimburses an expense, we need records to be sure we claim only the excess. An example is reimbursement of business travel miles at less than the Federal reimbursement amount (53.5 cents per mile down from 54 cents in 2016).
- Partnership Information. Schedule K-l from partnerships and LLCs always seem to arrive late. Don't worry. We can do the rest of your return and be ready to finish when the K-l arrives. Make special note here ... we don't want to file your return only to find out we were still waiting for a Form K -1.
- Social Security Benefits. Find Form 1099-SSA. We must report the gross amount and not just your net monthly benefit. Your Medicaid Premiums listed on the Form may also get you a medical deduction.
- Employees - Last Stub. Your W - 2 is critical, but your last pay stub may reveal tax deductions that don't usually show up anywhere else ... like union dues.
- Special Accounts. Do you contribute to an IRA, Roth IRA or Health Savings Account? These and others can cut your taxes. Make sure that I have all of the information on contribution amounts and dates of the contribution.
- Complex Transactions. Please call if you have an unusual or difficult transaction. Foreclosures, sales or exchanges of real estate, casualties and the like can cause a lot of extra work. We may need to schedule a special meeting and I may need extra time. Have all of the details ... help me help you!
Myth vs. Truth
Myth:
I can get a tax credit for putting new energy efficient windows in my home in 2017.
Truth:
This tax credit expired at the end of 2016. This credit may be extended, save any receipts related to qualified purchases ... just in case. Any qualified purchases of windows, doors, furnaces, boilers, water heaters and more that were installed prior to January 1,2017 are eligible for this credit on 2016 or earlier returns (subject to limitations). Equipment installed on or after January 1, 2017 is not eligible for this credit.
Myth:
A taxpayer and his or her same-sex spouse cannot file a joint return if they were married in a state that recognizes same-sex marriages but they live in a state that does not recognize their marriage.
Truth:
For federal tax purposes, the IRS has a general rule recognizing a marriage of same-sex individuals that was validly entered in a domestic or foreign jurisdiction whose laws authorize the marriage of two individuals of the same sex. This rule applies even if the married couple resides in a domestic or foreign jurisdiction that does not recognize the validity of same-sex marriages.
Myth:
Disaster relief only effects taxpayers with casualty losses.
Truth:
Victims of hurricanes Harvey, Irma and Maria can get relief from Congress for early distributions from retirement accounts. The 10% penalty on pre-age 59 1/2 payouts is waived on IRA or retirement plan distributions of less than $100,000. The tax due on these distributions may also be spread over a three- year period. Amounts recontributed to the IRA or Plan can be treated
as a rollover and the tax paid can be recovered by filing an amended return.
Myth:
I live on a fixed income. My Social Security benefit check will never increase.
Truth:
Social Security benefits could increase each year. The benefit increases for cost of living adjustments are based upon the Consumer Price Index. The projected increase for 2018 is 2%. This is the largest increase since 2012 but, amounts to only $25 per month for the average beneficiary.
Myth:
I don't claim my child support payments as taxable income.
Truth:
Mostly true. To qualify as child support, payments must be designated as "child support" in a divorce or separation agreement. If the agreement lumps child support and alimony payments together as "family support" or "alimony" or doesn't otherwise designate a specific portion of each payment as child support, none of the payment will
be considered child support for tax purposes.
Tax Breaks Expiring After 2016?
The PATH Act of 2015 went a long way toward ending the expired/extended/ expired-again course that many tax provisions have been on for several years. Many of those provisions were permanently extended. However, there are a handful of tax breaks that were only extended through 2016. They will expire again unless Congress enacts legislation extending them beyond 2016. Below are three major tax breaks that will expire:
- Tuition & Fees Deduction - An adjustment to income that can be as much as $4,000, or $2,000 for higher income taxpayers (subject to limitations).
- Cancellation of Mortgage Debt - Individuals could exclude up to $2 million of cancellation of debt income from qualified principal residence indebtedness. Binding agreements entered prior to January 1,2017 still qualify.
- Mortgage Insurance Premium Deduction - Premiums for qualified mortgage insurance on debt to acquire, construct or improve a first or second residence can potentially be treated as deductible qualified residence interest.
Need To Send 1099s?
You may need to send Form 1099 to someone else. Here are a few cases:
- Businesses. You must report payments for services.
- "Nominee" Amounts. If you are named as receiving income, but part or all of the income really belongs to someone else, you are a nominee. You must send Form 1099 to the other party by January 31. IRS wants their copy from you also by January 31. You pay a penalty for not sending them! Call me to discuss these situations ... we don't want to miss these filing deadlines.
- Businesses. If you paid $600 or more to anyone during 2017 you may need to issue a form. Look at "business" expenses only.
Some bills show both labor and materials. If any of the payment is for service, report the total amount on Form 1099-MISC. Paying for merchandise alone doesn't count. Look for painters, consultants, builders and the like. If you are unsure ... call me.
- Getting the Forms. The IRS can send you the forms. Start early. Let me know if you need my help. Call the IRS at 1-800-829-3676 for forms. You can see the forms on the IRS website but you will need the official paper forms for filing. You will need to use the proper Form 1099 and Form 1096 as a cover sheet.
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