Yet another year has passed, and with that said we have all experienced political ups & downs, extreme weather, births, deaths, marriages, divorces, sickness, happiness but for the most part, we are all happy to be here in the good, old USA! We plod on and do what we do. I am hoping your pluses far outweighed your minuses.
As you all know I still prepare many tax returns however, I have migrated a large part of my practice to that of audit and tax collection resolution. Call me crazy but I love appearing before the IRS on my client’s behalf and the IRS really supports and appreciates a practitioner’s help in bringing resolution to these types of cases. I was asked to participate in a special “sit down” last May, with two senior revenue agents. I packed my briefcase with four problematic clients and I headed to Miami. I was lucky to get 3 hours of their time and am happy to say that we were able to resolve each case successfully for both the Service as well as they clients. These were cases that I had tried to resolve via Powers of Attorney and the practitioner hot line but had been unsuccessful for one reason or another. I always prefer a good face to face! Be sure to contact me if you have any audit and or collection issues!
Client data security is an issue that is now part of the practitioners compliance to practice. I am happy to advise that the software I use for tax preparation, Drake, has gone out of their way to make our software as compliant as possible. We have passwords which have to be changed every few months. We have a “time out” feature which kicks us out of the software if there is no activity in several minutes. They make sure we have good anti-virus software and firewalls in place. And, I have drive encryption on my computer’s operating system. We are encouraged by the IRS to keep our PTINs and EFINs secure and to login and check the IRS pro site to check on the amount of returns associated with out licenses. If I usually prepare 200 tax returns but I see 2,000 under my EFIN number then I know there is a problem and I would need to report it to the IRS and other authorities.
The hourly rate at which I invoice has remained the same for several years, at $350/hr., and so as I have no one giving me a cost of living raise I find I must give myself one every once in awhile. As of 1/1/2020 the hourly rate is now $375. I am hopeful that you find my services and the quality I provide more than worth that.
Make sure all forms 1099 & W-2s (if you are responsible for them) are filed and provided by 1/31. Individual taxes are due 4/15. Partnerships and Sub-S corporations are due by 3/15 and, C corporations by 4/15. If you need help with any of these I am here to assist in any way I can.
Wishing everyone a happy, healthy & successful 2020. And as always, I thank you for your business!
Barbara Jean Militello
I spent the day with eight IRS revenue agents on 12/14/19. It was an interesting day as always as we learn what new tax “things” we have ahead for this filing season.
BIG news for 2019 is that the “shared responsibility payment” or, penalty for not having health insurance is G-O-N-E! Now, I am not suggesting you should not have health insurance. The Marketplace (Obama Care) is still there for you and is great for people who are pretty much uninsurable due to pre-existing conditions, etc.
One item discussed and, a change due to the tax act of 2017 and of which most of us had a hard time accepting, is the suspension of the miscellaneous itemized deductions. You know the ones: tax prep fees, estate planning fees, investment expenses, and the BIG one, unreimbursed employee expenses. This was an important item for sales people in particular and it is G-O-N-E as it was for 2018. A bit hard to get used to. Those employees who work from their homes can no longer deduct any home office expenses due to this, amongt other items unreimbursed by their employers. Most of this pretty much as it was in 2018.
There are changes to depreciation rules, which are helpful if you have business equipment to depreciate. Section 179 has increased from $500,000 to $1,000,000. Section 179 now includes some improvements to non-residential real property. Bonus depreciation increased from 50% to 100%.
BIG changes to business meals & entertainment. Entertainment is generally no longer deductible. Taxpayers can continue to deduct 50% of the cost of business meals if they meet the following: The taxpayer is present. Meals are provided to a current or potential customer or client. The food and beverages are not considered lavish.
The Qualified Business Income (QBI) deduction is back and affects pass-through entities. It provides a 20% deduction of qualified business income plus 20% of combined qualified REIT dividends & qualified PTP income
The 2019 tax forms have changed once again and look more like they used to. I guess I was not the only practitioner who had a problem with a 1/2 page tax return form!
Securing client data was a hot topic as all practitioners are now responsible for maintaining a security plan. I will discuss this more in my “What’s New in My Practice” article. The good news is that identity theft reports have fallen 71%. Confirmed IDT returns stopped by IRS fell by 54%. There was $1.4 billion funds recovered from fraudulently filed returns and there was $24 billion in fraudulent returns protected. If you see any of the following contact your tax preparer immediately: Taxpayers who have not filed get a refund. Taxpayers returns are rejected as already filed. Please be on the alert for a phishing scam. Remember, the IRS will not call you or email you. The IRS only mails requests and any information to the taxpayer.
Collection Update: The IRS is taking passports! This began in January of 2018. This is called “certifying”. A taxpayer who owes greater than $52,000 and has had a Federal Tax Lien filed, of which the lien hearing has elasped, and there is a levy made under IRC 6331 delinquency….busted. If you apply for a passport or try to renew you will be “certified” and it will not happen. The IRS will not certify a taxpayer who is in bankruptcy, has experienced identity theft, is currently in non-collectible status due to hardship, located in a Federally declared disaster zone, or is pending an installment agreement, is pending an OIC, There have been 365,453 certifications since 3/19/19. Remember, the IRS hired four outside collection agencies and they are on the prowl!
Consolidated Appropriations Act of 2020
- H.R. 1865
Signed into law on December 20, 2019, the Consolidated Appropriations Act of 2020 averts a government shutdown that would have begun on December 21, 2019. The appropriations act funds the federal government through September 30, 2020.
Included in the appropriations bill are a number of tax law changes, including extenders, retirement plan funding and distribution reform, and disaster relief.
Extension of Expiring Provisions
Tax provisions that had previously expired are now extended as follows:
- Cancellation of qualified principal residence indebtedness exclusion from gross in-come has been extended through the end of 2020. [IRC §108(a)]
- Mortgage insurance premiums deduction has been extended through the end of 2020. [IRC §163(h)]
- Medical expense AGI limitation threshold reduced from 10% to 7.5% of AGI for all taxpayers for regular tax and for AMT purposes has been extended through the end of 2020. [IRC §213(f)]
- Tuition and fees deduction has been extended through the end of 2020. [IRC §222(e)]
- Indian employment credit is extended through the end of 2020. [IRC §45A]
- Race horse two years old or younger treated as 3-year property instead of 7-year property has been extended through the end of 2020. [IRC §168(e)(3)]
- Indian reservation property accelerated depreciation recovery periods has been extended through the end of 2020. [IRC §168(j)]
- Empowerment zone tax incentives has been extended through the end of 2020. [IRC §1391(d)]
- Biodiesel and renewable diesel fuels credit has been extended through the end of 2022. [IRC §40A]
- Second generation biofuel producer credit has been extended through the end of 2020. [IRC §40(b)]
- Nonbusiness energy property credit has been extended through the end of 2020. [IRC §25C]
- Alternative motor vehicle credit for qualified fuel cell motor vehicles has been extended through the end of 2020. [IRC §30B(k)]
- Alternative fuel vehicle refueling property credit has been extended through the end of 2020. [IRC §30C]
- Electric vehicle credit for highway-capable 2-wheeled vehicles has been extended through the end of 2020. [IRC §30D]
- Energy efficient home credit has been extended through the end of 2020. [IRC §45L]
- Energy efficient commercial building property deduction has been extended through the end of 2020. [IRC §179D]
- Alternative Fuel Excise Tax credit has been extended through the end of 2020. [IRC §6426(d)]
- New markets tax credit has been extended through the end of 2020. [IRC §45D]
- Employer credit for paid family and medical leave has been extended through the end of 2020. [IRC §45S]
- Work opportunity credit has been extended through the end of 2020. [IRC §51(c)]
- Health coverage tax credit has been extended through the end of 2020. [IRC §35(b)]
Other tax provision that were extended in the new law include the following:
- Black Lung Disability Trust Fund excise tax,
- Railroad Track Maintenance Credit,
- Mine Rescue Team Training Credit,
- 7-Year recovery period for motorsports entertainment complexes,
- Expensing rules for certain qualified film and television and live theatrical productions,
- American Samoa Economic Development Credit,
- Credit for Electricity Produced from Certain Renewable Resources,
- Production Credit for Indian Coal Facilities,
- Special allowance for second generation biofuel plant property,
- Special rule for sales or dispositions to implement FERC or state electric restructuring policy for qualified electric utilities,
- Oil spill liability trust fund rate,
- Certain provisions related to beer, wine, and distilled spirits,
- Look-thru rule for related controlled foreign corporations.
The law mentions some special rules for payments that qualify for some of the energy credits, such as the Alternative Fuel Excise Tax Credit and the Biodiesel and Renewable Diesel Fuels Credit, where the payments made after the credit had expired under prior law are subject to the special rules. The IRS is directed to issue guidance on how to make claims for the credit. The law does not mention a procedure for any of the other credits that had expired for tax years after 2017 under prior law, or how a taxpayer can take advantage of the extended provisions. It is presumed, for example, that if a taxpayer wants to claim the tuition and fees deduction for 2018, the taxpayer would have to file an amended return to take advantage of the extended provision.
Retirement Plan Provisions
The new law also includes a number of changes to retirement plans. The following list is a summary of some of these provisions:
- The starting date for making required minimum distributions from an IRA is the year the owner turns age 72.
- The age 70½ limit for making IRA contributions no longer applies.
- Non-spouse inherited IRAs are now subject to a 10-year maximum distribution period.
- Long-term part-time employees qualify to participate in a 401(k).
- 401(k) plans are permitted to adopt qualified birth or adoption distributions.
- A new tax credit is allowed for small employers using auto enrollment into their 401(k) plans.
- Qualified birth or adoption distributions up to $5,000 are exempt from the early withdrawal penalty.
- Taxable non-tuition fellowships and stipends and nontaxable difficulty of care payments earned by home healthcare workers are treated as compensation for purposes of retirement plan contributions.
- Provisions that allow employers to encourage employees towards lifetime annuities.
- Plan administrative changes that provide additional flexibility for employees and reduce costs for employer sponsors.
Disaster Tax Relief
The new law includes disaster tax relief for federally declared disaster areas that occurred during 2018 and 2019. The disaster tax relief is essentially the same as is regularly provided in the wake of major disasters like the various hurricane disaster tax relief provisions and California wildfire disaster tax relief provisions that had been made available in prior years. However, unlike prior disaster relief provisions, this disaster tax relief provision applies to all federally declared disasters during the period beginning January 1, 2018 and ending January 19, 2020. Tax relief under this new law includes:
- Forgiveness of the early-withdrawal penalties for qualified disaster distributions.
- The re-contribution of amounts withdrawn for home purchases.
- The increase in the amount of loans from qualified plans.
- An employee retention credit for employers in affected areas.
- Special casualty loss rules for affected individuals.
The new law also includes a number of miscellaneous provisions, including:
- The repeal of the excise taxes on high cost employer-sponsored health coverage (Ca-dillac plans) and medical devices that was first enacted under the Affordable Care Act (ACA).
- The repeal of the fee on health insurance providers that was first enacted under ACA.
- The application of the estate and trusts tax rate to unearned income of children (the kiddie tax) has been repealed and replaced with the use of the parents’ tax rate for tax years after 2019.
- The parking tax on certain employee fringe benefits has been repealed.
Not Included in the New Law
A provision that did not make it into the new law is a fix for the so-called retail glitch, where leasehold improvement property outside the 15-year recovery property category for depreciation purposes is subject to a 39-year recovery period.
Although the April filing deadline has passed, scam artists remain hard at work, and the IRS is warning of a spring surge of phishing emails and telephone scams.
The IRS is seeing signs of two new variations of tax-related scams. One involves Social Security numbers related to tax issues and another threatens people with a tax bill from a fictional government agency. Here are some details:
The SSN hustle. The latest twist includes scammers claiming to be able to suspend or cancel the victim’s Social Security number. In this variation, the Social Security cancellation threat scam is similar to and often associated with the IRS impersonation scam. It is yet another attempt by con artists to frighten people into returning ‘robocall’ voicemails. Scammers may mention overdue taxes in addition to threatening to cancel the person’s SSN.
Fake tax agency. This scheme involves the mailing of a letter threatening an IRS lien or levy. The lien or levy is based on bogus delinquent taxes owed to a non-existent agency, “Bureau of Tax Enforcement.” There is no such agency. The lien notification scam also likely references the IRS to confuse potential victims into thinking the letter is from a legitimate organization.
Both display classic signs of being scams. The IRS and its Security Summit partners – the state tax agencies and the tax industry – remind everyone to stay alert to scams that use the IRS or reference taxes, especially in late spring and early summer as tax bills and refunds arrive.
Phone Scams. The IRS does not leave pre-recorded, urgent or threatening messages. In many variations of the phone scam, victims are told if they do not call back, a warrant will be issued for their arrest. Other verbal threats include law-enforcement agency intervention, deportation or revocation of licenses.
Criminals can fake or “spoof” caller ID numbers to appear to be anywhere in the country, including from an IRS office. This prevents taxpayers from being able to verify the true call number. Fraudsters also have spoofed local sheriff’s offices, state departments of motor vehicles, federal agencies and others to convince taxpayers the call is legitimate.
Email phishing scams.The IRS does not initiate contact with taxpayers by email to request personal or financial information. The IRS initiates most contacts through regular mail delivered by the United States Postal Service. However, there are special circumstances when the IRS will call or come to a home or business. These visits include times when a taxpayer has an overdue tax bill, a delinquent tax return or a delinquent employment tax payment, or the IRS needs to tour a business as part of a civil investigation (such as an audit or collection case) or during criminal investigation.
If a taxpayer receives an unsolicited email that appears to be from either the IRS or a program closely linked to the IRS that is fraudulent, report it by sending it to firstname.lastname@example.org. The Report Phishing and Online Scams page provides complete details
Telltale signs of a scam
The IRS (and its authorized private collection agencies) will never:
· Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer. The IRS does not use these methods for tax payments. Generally, the IRS will first mail a bill to any taxpayer who owes taxes. All tax payments should only be made payable to the U.S. Treasury and checks should never be made payable to third parties.
· Threaten to immediately bring in local police or other law-enforcement groups to have the taxpayer arrested for not paying.
· Demand that taxes be paid without giving the taxpayer the opportunity to question or appeal the amount owed.
· Ask for credit or debit card numbers over the phone.
For anyone who doesn’t owe taxes and has no reason to think they do:
· Do not give out any information. Hang up immediately.
· Contact the Treasury Inspector General for Tax Administration to report the call. Use their IRS Impersonation Scam Reporting web page.
· Report the caller ID and/or callback number to the IRS by sending it to email@example.com (Subject: IRS Phone Scam).
· Report it to the Federal Trade Commission. Use the FTC Complaint Assistant on FTC.gov. Add “IRS Telephone Scam” in the notes.
For anyone who owes tax or thinks they do:
· View tax account information online at IRS.gov to see the actual amount owed. Taxpayers can then also review their payment options.
· Call the number on the billing notice, or
· Call the IRS at 800-829-1040. IRS workers can help.
The IRS does not use text messages or social media to discuss personal tax issues, such as those involving bills or refunds. For more information, visit the Tax Scams and Consumer Alerts page on IRS.gov. Additional information about tax scams is also available on IRS social media sites, including YouTube videos.
For more information or assistance in dealing with the IRS, contact Bj Millitello at 954-240-2635.
The Tax Cuts and Jobs Act of 2017 (TCJA) made dramatic changes to the rules for individuals that affect tax planning at all stages of life. These changes require financial planners to reorient their thinking about the advice they offer to individual clients concerning life-stage matters. As this advice is being offered, keep in mind that there are some unanswered questions that await IRS guidance or additional legislative clarification.
Marriage and Divorce
The “marriage penalty” is the additional taxes that a couple pays because of their filing status, as compared with the tax that would be owed if they were not married and filed as single. The new law makes some changes that reduce the marriage penalty. Starting in 2018, the first five marginal tax brackets for singles are half those for married persons filing jointly, as compared to only the two lowest brackets (10% and 15%) for 2017.
The marriage penalty has not been completely eliminated. For example, the same $10,000 cap on the itemized deduction for state and local taxes starting in 2018 applies for both married couples and singles.
The tax treatment of alimony changes dramatically for divorce and separation decrees or agreements entered into or modified after 2018. Alimony will no longer be deductible, while payments to the recipient will no longer be taxable. Payments under existing decrees or agreements will continue to be deductible/taxable. Individuals with prenuptial/postnuptial agreements that were written with the expectation of deductibility but who divorce after 2018 may want to try to negotiate different terms than those provided in the agreements (e.g., additional property settlements) to arrive at results acceptable to both parties.
The dependency exemption for a child, which was $4,050 in 2017, has been eliminated for 2018 through 2025. The rules for determining a dependent continue to come into play for various purposes, however, such as the child tax credit, which has been greatly enhanced. The credit, which can be claimed for a child under age 17 at the end of the year, will double to $2,000 in 2018, and $1,400 of the credit is refundable. What’s more, the income phaseouts for claiming the credit have been raised considerably, making more parents eligible. There is also a new $500 nonrefundable child tax credit for a qualifying dependent who is not a qualifying child (e.g., a child living with and supported by parents but too old to be a qualifying child).
There were proposals to repeal the adoption credit and the exclusion for adoption assistance, as well as the exclusion for dependent care assistance, but they were not included in the final law.
The rules for determining the standard deduction for a child who works have not changed. For 2018, the deduction is the greater of $1,050 or earned income plus $350 (but not more than $12,000). A child who works can continue to make contributions to an IRA or Roth IRA.
The computation of the tax on unearned income of a child, however, has been changed. Instead of figuring this tax using the parent’s highest tax rate, starting in 2018 it will be based on the rates for trusts and estates. Parents can continue to opt to report a child’s unearned income as their own under certain conditions. This election must be reexamined in light of all other changes impacting parents’ returns.
In general, the tax-advantaged plans for education—Coverdell education savings accounts (ESAs) and IRC section 529 plans—continue to be available. There have, however, been some changes to note.
Previously, if parents or grandparents wanted to use tax-advantaged savings plans to pay for primary and secondary school, they had to use a Coverdell ESA. Starting in 2018, 529 plans can be used for this purpose. Up to $10,000 can be withdrawn tax free annually to pay for primary and secondary school (public, private, or religious). The limitation applies on a per-student basis, so if a student is the beneficiary of multiple 529 accounts, only a total of $10,000 can be withdrawn tax free in one year from one or more of these accounts. From a planning perspective, given the ever-rising cost of higher education, it probably is advisable to allow funds in 529 plans to grow tax deferred to pay for college or graduate school.
Funds in 529 plans can be rolled over tax free to Achieving a Better Life Experience (ABLE) accounts for disabled individuals. The amount rolled over counts toward the annual contribution limit, which is the same as the annual gift tax exclusion ($15,000 in 2018). Other changes to ABLE accounts are discussed below.
Paying For Education
The above-the-line deduction for tuition and fees expired at the end of 2016 and has yet to be extended. Nonetheless, the TCJA did not repeal this deduction (despite proposals to do so), which means that an extender bill may restore the deduction. A proposal to repeal the exclusions for tuition reduction, interest on U.S. savings bonds to pay for higher education, and employer-paid education assistance were not included in the final measure.
No changes were made to the American Opportunity Credit and the Lifetime Learning Credit, which will continue to apply to help defray the cost of higher education.
Paying Off Student Loans
No changes were made to the above-the-line deduction for student loan interest. The same $2,500 annual limit applies; the modified adjusted gross income limits on eligibility for the deduction continue to be adjusted annually for inflation. The proposal to eliminate this write-off was not included in the final law.
Under the TCJA, student loans that are canceled on account of death or disability are not treated as taxable cancellation of debt income.
Changing or Losing Jobs
The job market currently favors employees, with companies competing for talent with increased wages and enhanced benefits. Still, if an employee changes jobs after 2017, the deduction for expenses of resumés, travel, and other work-related costs is no longer available as an itemized deduction.
Relocating to Another State
America continues to be a highly mobile society, and this likely will not change under the new tax law. Still, individuals should be advised about how new rules under the TCJA will impact them.
The above-the-line deduction for moving expenses has been eliminated starting in 2018 (other than for active members of the military who relocate under military orders), meaning that employers cannot reimburse employees for these costs on a tax-free basis.
State Income Taxes
While all state and local taxes are deductible in 2017, starting in 2018 there will be a $10,000 cap on the itemized deduction for property taxes and state and local income or sales taxes. This new cap may influence a decision on whether or where a taxpayer chooses to relocate. The following states have no income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. The following states have no sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon.
Investment decisions will continue to factor in tax results. A proposal to make interest on municipal bonds taxable was not included in the final law. But the reduction in individual tax rates will diminish the value of tax-free interest on municipal bonds.
While the tax rates on individuals have been reduced starting in 2018, the tax rates on qualified dividends and long-term capital gains remain unchanged at 0%, 15%, and 20%. What has changed is the breakpoint at which these rates apply. Starting in 2018, the 0% rate applies for taxable income up to $77,200 on a joint return or for surviving spouses, $51,700 for heads of household, and $38,600 for singles and married persons filing separately. The 15% rate applies for taxable income up to $479,000 on a joint return or for surviving spouses, $452,400 for heads of household, $425,800 for singles, and $248,500 for married persons filing separately. These breakpoints will be adjusted for inflation after 2018.
There is a new opportunity for tax-free or tax-deferred capital gains on certain investments in opportunity zones. Opportunity zones are economically disadvantaged areas designated by the government. Investments are made through a qualified opportunity fund, defined as one in which at least 90% of the assets are qualified zone property.
The TCJA did not directly change the rules for tax-advantaged retirement savings plans, such as 401(k)s, 403(b)s, and IRAs. Thus, the tax savings available through these plans continue to be important for individuals seeking future financial security.
One change of note is the end to the ability to recharacterize Roth IRA conversions. Thus, if an individual converts some or all of a tax-advantaged retirement savings plan to a Roth IRA in 2018 and the value of the account declines from the date of the conversion, the individual cannot undo the conversion. However, conversions made in 2017 can still be undone by October 15, 2018.
Another change in the TCJA, starting in 2018, is the ability of participants who took plan loans and then terminated employment to contribute the outstanding borrowed amount to the plan of a new employer and avoid a deemed distribution. The rollover to the new plan can be made up to the due date of the return (including extensions) for the year in which the plan loan offset occurs.
One indirect impact of the TCJA has been that some large employers have announced increases in their 401(k) contributions on behalf of employees. This can significantly add to retirement savings.
Caring for the Elderly and Disabled
Individuals who support their elderly parents can continue to deduct the medical costs they pay for their parents on their own returns, even though their parents are not dependents. For 2018, the threshold for itemizing out-of-pocket medical expenses will be 7.5% of adjusted gross income (AGI); this percentage applies regardless of the taxpayer’s age.
Of course, the increased standard deduction amounts that take effect in 2018 will likely lead to fewer taxpayers itemizing, making this provision less significant for some families. In addition, starting in 2019, the threshold for itemizing medical costs is set to rise to 10% of AGI.
In addition to being able to roll over funds from a 529 plan to an ABLE account, as discussed above, there are two additional changes of note. The annual contribution amount (capped at the annual gift tax exclusion) has been temporarily increased by the lesser of the federal poverty line for a one-person household or the individual’s compensation for the taxable year. In addition, contributions to ABLE accounts can be used to claim the retirement saver’s credit. These changes will sunset in 2025.
Credit For Elderly and Permanently Disabled
The modest tax credit for a person age 65 or older or permanently disabled had been slated for repeal, but the final law retained it. It should be noted that only 48,502 of the 150.6 million individual income tax returns file (in 2015) claimed this credit.
Health Savings Accounts
There have been no changes to the rules for health savings accounts (HSA). Accordingly, withdrawals for nonmedical purposes from these accounts starting at age 65 remain penalty free.
Under the TCJA, itemized deductions cannot be claimed for theft losses or for casualty losses other than those incurred in a federally declared disaster area. Individuals who suffer such disaster losses can continue to deduct them, but from a planning perspective, it is essential to review insurance policies (including flood insurance) to be sure of adequate coverage.
2016 Disaster Area Relief
The Disaster Recovery Act of 2017 provided special rules for victims of Hurricanes Harvey, Irma, and Maria. The TCJA provides some relief for a major disaster occurring after December 31, 2015 (“2016 disasters”), as well as for disasters occurring before January 1, 2018. See FEMA’s website for disaster designations (https://www.fema.gov/disasters).
From a tax perspective, there is still some tax relief available. The 10% early distribution penalty from tax-advantaged retirement savings plans does not apply to hardship distributions for 2016 or 2017 disasters, and a casualty loss deduction can be claimed as an additional standard deduction amount, without regard to the 10%-of-AGI threshold, but with a $500 reduction in the loss.
Keeping Up with Changes
The new law presents an opportunity for planners to have conversations with clients about evaluating their personal situations and changing their planning strategies. It is wise to continue the dialog as IRS guidance is issued, and to modify advice accordingly.
___ Determine the advisability of timing a marriage or divorce in light of TCJA changes.
___ Consider the terms in prenuptial/postnuptial agreements entered into in 2018.
___ Assess the tax savings, if any, that may result from the child tax credit.
___ Review investment holdings in light of the new breakpoints for the 0%/15%/20% rates for qualified dividends and long-term capital gains.
___ Review the options for saving and paying for education in light of TCJA changes.
___ Consider the options for paying for long-term care and savings in ABLE accounts.
___ Review insurance coverage in light of elimination of the deduction for theft and casualty losses (other than federally declared disasters).
The Internal Revenue Service issued a warning Friday to taxpayers who haven’t yet filed their 2018 tax returns that they will face higher tax penalties if they owe taxes and haven’t filed by June 14, 2019.
The failure-to-file penalty is assessed if there is unpaid tax and the taxpayer fails to file a tax return or request an extension by the April due date. This penalty is usually 5% of tax for the year that’s not paid by the original return due date. The penalty is charged for each month or part of a month that a tax return is late. But, if the return is more than 60 days late, there is a minimum penalty, either $210 or 100 percent of the unpaid tax, whichever is less.
Special filing deadline rules
Special deadlines affect penalty and interest calculations for those who qualify, such as members of the military serving in combat zones, taxpayers living outside the U.S., and those living in declared disaster areas.
Taxpayers in a combat zone may be able to further extend the filing deadline and can find details in Publication 3, Armed Forces’ Tax Guide (PDF). For taxpayers living and working outside the U.S. and Puerto Rico, or on military duty, the deadline to file is June 17. They also have until June 17 to file Form 4868 for an extension until October 15. An extension of time to file is not an extension of time to pay any tax due.
When the president declares a major disaster, the IRS can postpone certain deadlines for taxpayers who reside or have a business in the impacted area. If an affected taxpayer receives a late filing or late payment penalty notice from the IRS, and they filed or paid by the deadline stated in the IRS news release of postponement of the deadlines for filing and/or paying, they should call the telephone number on the notice to see if IRS can abate the penalty due to the disaster.
Penalty relief may be available
Taxpayers who have filed and paid on time and have not been assessed any penalties for the past three years often qualify to have the penalty abated. See the First-Time Penalty Abatement page on IRS.gov. A taxpayer who does not qualify for the first-time penalty relief may still qualify for penalty relief if their failure to file or pay on time was due to reasonable cause and not due to willful neglect. Taxpayers should read the penalty notice and follow its instructions to request this relief.
The IRS also expanded the penalty waiver for those whose 2018 tax withholding and estimated tax payments fell short of their total tax liability for the year. The penalty will generally be waived for any taxpayer who paid at least 80 percent of their total tax liability during the year through federal income tax withholding, quarterly estimated tax payments or a combination of the two. The usual percentage threshold is 90 percent to avoid a penalty.
In addition to penalties, interest will be charged on any tax not paid by the regular April due date. For individual taxpayers it is the federal short-term interest rate plus 3 percentage points, currently 6 percent per year, compounded daily. Interest stops accruing as soon as the tax is paid in full. Interest cannot be abated.
Many taxpayers delay filing because they are unable to pay what they owe. Often, these taxpayers qualify for one of the payment options available from the IRS. Taxpayers can use their online account to view the amount they owe, make payments and apply for an online payment agreement. These include:
Installment Agreement — Individuals who owe $50,000 or less in combined tax, penalties and interest can request a payment plan using the IRS’s Online Payment Agreement application. Those who have a balance under $100,000 may also qualify for a short-term agreement. An installment agreement, or payment plan can usually be set up in minutes. Requesters receive immediate notification of approval. Visit Payment Plans, Installment Agreements at IRS.gov for more information.
Offer in Compromise — Struggling taxpayers may qualify to settle their tax bill for less than the full amount owed by submitting an offer in compromise. To help determine eligibility, use the Offer in Compromise Pre-Qualifier tool.
Taxpayers who owe tax for 2018 can avoid having the same problem for 2019 by increasing the amount of tax withheld from their paychecks. For help determining the right amount to withhold, use the Withholding Calculator on IRS.gov
Need Assistance with Your Taxes?
BJ Militello can help! Call 1-954-240-2635 to learn more.
1. Double check your withholding and estimated taxes. The individual tax changes cut both ways. You may be familiar with the major deductions you’re losing, but less familiar with the impact of some of the more favorable changes like the expanded tax brackets. It’s not easy or intuitive to figure out what it all means to your bottom line. There’s no substitute for actually running the numbers. Read More
Social Security is an important piece of just about everyone’s retirement pie, but the rules for claiming it make it challenging to give clients the best advice. Unfortunately, there’s no one-size-fits-all approach. The following is some information you might find useful in your decision making regarding when to begin taking your benefits.
The Red Flags You Should Know About!
No one likes to receive the “Dear Taxpayer” letter so, here are some tips for avoiding that letter and having to go through a tax return examination or full-blown audit. Remember, if your return is selected for an unusual item or, item of interest, that allows the IRS a 2nd look and it usually snowballs from there.