Home Office Deduction Benefits Eligible Small Business Owners

Small business owners may qualify for a home office deduction that will help them save money on their taxes, and benefit their bottom line. Taxpayers can take this deduction if they use a portion of their home exclusively, and on a regular basis, for any of the following:

  • As the taxpayer’s main place of business.
  • As a place of business where the taxpayer meets patients, clients or customers. The taxpayer must meet these people in the normal course of business.
  • If it is a separate structure that is not attached to the taxpayer’s home. The taxpayer must use this structure in connection with their business
  • A place where the taxpayer stores inventory or samples. This place must be the sole, fixed location of their business.
  • Under certain circumstances, the structure where the taxpayer provides day care services.

Deductible expenses for business use of a home include:

  • Real estate taxes
  • Mortgage interest
  • Rent
  • Casualty losses
  • Utilities
  • Insurance
  • Depreciation
  • Repairs and Maintenance

Certain expenses are limited to the net income of the business. These are known as allocable expenses. They include things such as utilities, insurance, and depreciation.  While allocable expenses cannot create a business loss, they can be carried forward to the next year. If the taxpayer carries them forward, the expenses are subject to the same limitation rules.

There are two options for figuring and claiming the home office deduction.

Regular method
This method requires dividing the above expenses of operating the home between personal and business use. 

Simplified method
The simplified method reduces the paperwork and recordkeeping for small businesses. The simplified method has a set rate of $5 a square foot for business use of the home. The maximum deduction allowed is based on up to 300 square feet.

Published: May 30, 2019

What Historic Building Owners Should Know About the Rehab Tax Credit

Organizations around the country continue to promote historic buildings and other important heritage sites as May is National Historic Preservation Month. As part of this month, anyone who owns a historic building should remember that the rehabilitation tax credit offers an incentive to renovate and restore old or historic buildings. Tax reform legislation passed in December 2017 changed when the credit is claimed and provides a transition rule.

Here are some things that building owners should know about this credit:

  • The credit is 20 percent of the taxpayer’s qualifying costs for rehabilitating a building.
  • The credit doesn’t apply to the money spent on buying the structure.
  • The legislation now requires taxpayers take the 20 percent credit spread out over five years beginning in the year they placed the building into service.
  • The law eliminates the 10 percent rehabilitation credit for pre-1936 buildings.
  • A transition rule provides relief to owners of either a certified historic structure or a pre-1936 building by allowing owners to use the prior law if the project meets these conditions:
  • The taxpayer owned or leased the building on January 1, 2018, and the taxpayer continues to own or lease the building after that date.
  • The 24- or 60-month period selected by the taxpayer for the substantial rehabilitation test begins by June 20, 2018.
  • Taxpayers use Form 3468, Investment Credit, to claim the rehabilitation tax credit and a variety of other investment credits.
Published: May 23, 2019

Are Medically Necessary Home Improvements Deductible?

Some of our clients incur sizeable medical expenses for themselves and family members. I tell them not to expect much help from the IRS when it comes to deducting such expenses.

The agency requires them to pass several tests. To begin with, they have to forego the standard deduction and itemize on Schedule A of Form 1040 in order to deduct their expenditures. Another stipulation is that their expenses have to be for bills that aren’t covered by insurance, reimbursed by employers or otherwise satisfied.

The big hurdle: The expenses have to be sizable. Expenses are allowable only to the extent that their total in any one year exceeds a specified percentage of adjusted gross income. To complicate matters further, Congress keeps changing the percentage.

I remind clients that they did get some help from the Tax Cuts and Jobs Act (TCJA). True, the legislation abolishes or curtails many long-cherished write-offs—for example, exemptions for dependents and write-offs for state and local income and property taxes.

But lawmakers included a provision that slightly liberalizes how much can be claimed for medical expenses. They replaced a threshold of 10 percent, except for persons older than 65, with a threshold of 7.5 percent for 2018 and 2019. The threshold reverts to 10 percent for the years 2019 through 2025 unless Congress, in the meantime, goes back to the drawing board.

More important, amid all the nitpicky rules, taxpayers often overlook a key notion: Deductible expenditures include more than just outlays for doctors, hospitals, eyeglasses, hearing aids, insurance premiums and the like. Taxpayers also are entitled to claim payments for medically mandated home improvements, as well as the installation of special equipment or facilities in their houses.

That doesn’t mean, however, that they’re entitled to deduct all of their payments for equipment or improvements. Those kinds are allowable only to the extent that they exceed increases in the value of their homes.  

An example: A client I’ll call Ida has a daughter who is asthmatic. An allergist advises Ida to install an air cleaning system and other kinds of equipment that wind up costing $20,000. The improvements result in an increase of $15,000 in home value. With those numbers, Ida’s allowable deduction is only $5,000.

Other examples of improvements or equipment that readily pass IRS muster are elevators or bathrooms on lower floors that makes things easier for persons who are arthritic or have heart conditions.   

More liberal rules apply when doctor-recommended improvements are made by tenants to rental properties—for instance, wheelchair ramps. Renters can claim all of their costs because the improvements don’t boost the value of a dwelling they own.  Whether individuals are owners or renters, their deductibles include all of their payments for detachable equipment, such as window air conditioners that relieve medical problems.

I remind Ida that the IRS is willing to cut her some slack if she is unable to deduct outlays for improvements because they don’t exceed the increase in the value of her home. She still can deduct payments for operating and maintaining equipment. Such expenses might include electricity, repairs and service contracts, as long as the equipment remains medically necessary.

By Julian Block for AccountingWEB

Published: May 16, 2019

Switching From S To C Corporation? How You Do It Could Save (Or Cost) You Millions

You're the sole shareholder of an S corporation. You've operated as a flow-through business since formation in 2016, and you've been perfectly content to do so. What's not to like about a single-level of taxation? Payroll tax savings? The refreshing simplicity of the rules governing subchapter S?

But after passage of the Tax Cuts and Jobs Act in December 2017, the advice began emanating from all corners. "Switch to a C corporation," they said. "The 21% rate is too good to pass up, and dealing with the 20% pass-through deduction will speed up your already disconcerting rate of hair loss."

While these arguments were certainly compelling, they weren't enough to convince you to change things up.

But then someone whispered four little numbers into your ear that changed everything. "1202" they urged, "check it out." "You can exclude all gain from the sale of stock held for more than five years, but only stock held in a C corporation."  Well damn...your exit strategy had always been to sell your business after 5-10 years anyway, and the mere possibility of paying no tax upon disposition meant that, just like that, the siren song of subchapter C became too strong to ignore. Now you're ready to take the plunge and convert to a C corporation effective January 1, 2020.

But before you do, perhaps you should dig a bit deeper into the aforementioned Section 1202, because while it is indeed a provision that promises a huge tax break upon the sale of qualifying stock, it appears there is an inconsistency within the statutory language that will make the manner in which you convert hugely impactful on the eventual payoff.

Let's take a look...

Section 1202, in its simplest form, allows for a shareholder who acquires "qualified small business stock" (QSBS) after September 2010 and holds it for five years to sell that stock and exclude from income the greater of:

  • $10 million, or
  • 10 times the shareholder's basis in the stock.

This simplest form of Section 1202, however, is not its truest form. There are a host of requirements that must be met in order for stock to be meet the definition of QSBS; requirements that often confuse even the most seasoned of tax advisors. 

For our purposes here today, however, we're going to approach Section 1202 from a high level. We are primarily concerned with the following requirements necessary for stock to meet the definition of QSBS:

  1. The stock must be issued when the corporation is a C corporation, and the corporation must be a C corporation for "substantially all" of the shareholder's holding period.
  2. The stock must have been acquired at original issuance; in other words, the shareholder acquired the stock in exchange for cash, property, or the performance of services.
  3. From the date of the corporation's formation up to the moment immediately after the shareholder acquires the stock, the total assets -- the sum of the cash plus the adjusted tax basis of all other assets -- must be less than $50 million. In cases where the corporation receives assets as a contribution from a shareholder in exchange for stock, however, the contributed assets are counted towards the $50 million test at their fair market value, rather than their adjusted tax basis. In turn, solely for purposes of Section 1202, the shareholder's basis in the stock is equal to the fair market value of the contributed assets (as opposed to the adjusted basis of the assets, which is the normal rule under Section 358). This ensures that a shareholder can't convert pre-contribution appreciation into gain eligible to be excluded under Section 1202 upon the disposition of the stock.
  4. The corporation cannot be a specified service business, including any business involving the performance of services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage architecture, engineering, or any other trade or business where the principal asset of the business is the skill or reputation of the owner or employees. This list is nearly identical to those businesses that are generally ineligible for the benefits of the 20% pass-through deduction of Section 199A -- in fact, Section 199A cross-references to Section 1202(e) -- and as a result, those businesses looking to flip from S to C because they aren't benefiting from Section 199A will not be eligible to issue QSBS even after conversion to a C corporation.

As you can see, the first requirement is that only stock issued while the corporation is a C corporation can ever qualify as QSBS. This, obviously, has huge implications when a shareholder intends to convert an S corporation into a C corporation by revoking or terminating the S election. Because the existing outstanding stock of the corporation was not issued while a C corporation, the stock will never be eligible for the benefit of Section 1202 upon sale. As a result, after revocation or termination of the S election, the now-C corporation would have to issue NEW shares of stock to the shareholders, who in turn would have to hold that stock for five years -- while meeting all of the other requirements for QSBS -- before the stock could be sold tax-free. This means that not only will none of the pre-conversion appreciation ever be eligible to be excluded under Section 1202, neither will any of the post-conversion appreciation on the shares that were issued while an S corporation. Only the post-conversion appreciation on the newly issued shares will enjoy the benefits of Section 1202.

Example 1: X Co. was formed in 2016 upon the issuance of 80 shares of stock to A in exchange for $10,000 in cash. A, the sole shareholder, made an S election for X Co. effective upon formation. A revokes X Co,'s S election effective January 1, 2020, when the value of the 80 shares is $800,000 and A's basis in the shares is zero. X Co. then issues 20 additional shares to A after the revocation in exchange for $200,000. In 2026, A sells all 120 shares for $5 million, at a time when A's basis in the stock remains a total of $200,000. The $4 million of gain attributable to the first 80 shares issued in 2016 is not eligible to be excluded under Section 1202, because the stock was issued when X Co. was an S corporation and can thus never be QSBS. The remaining $800,000 of gain ($1 million of allocable proceeds less $200,000 basis) attributable to the 20 shares issued while a C corporation, however, may be excluded in full in 2026.

But is there a better way? The value of X Co. increased by $4.2 million AFTER its conversion to a C corporation, but in the example above, only $800,000 of the gain upon disposition can be excluded under Section 1202. What if we could somehow exclude the full $4.2 million of post-conversion appreciation?

Maybe we can.

Section 1202(g) provides that a pass-through entity may also hold QSBS, provided all of the requirements discussed above (and in the article in the hyperlink) are met. In addition, for the owners of the pass-through entity to exclude their share of the pass-through entity's gain upon the pass-through entity's disposition of the QSBS, two additional requirements must be met:

  1. The owners of the pass-through entity must hold an interest in the entity from the time the entity acquires the QSBS through the date of disposition, and
  2. Each owner may only exclude the gain up to their share of the gain on the date the pass-through entity acquired the stock. Thus, if an owner's share of the pass-through entity increases during the entity's holding period of the QSBS, the amount of the exclusion is limited to the owner's share of the business on the date of acquisition of the QSBS.

Thus, if, for example, an S corporation or partnership invests in a C corporation in exchange for cash, property, or services, provided the S corporation or partnership holds the stock for five years and all other tests are met, when the S corporation or partnership sells the stock, any shareholder or partner who owned an interest in the pass-through entity for the duration of its holding period of the QSBS will be able to exclude the gain on the sale (limited to the ownership percentage on the date of acquisition).

So what if in Example 1 above, instead of simply revoking X Co.'s S status effective January 1, 2020, on that date, X Co. contributed its assets to a newly formed C corporation, Y Co., in exchange for 80 shares of Y Co. stock. At that time, the assets are worth $800,000, so as discussed above, X Co. takes a basis in the Y Co. stock of $800,000 for purposes of Section 1202. The Y Co. stock was acquired by X Co. at original issuance, and the value of Y Co.'s assets are well less than $50 million, so all initial requirements are met for eventually qualifying the 80 shares of Y Co. stock held by X Co. as QSBS.

In 2026, X Co. sells the 80 shares of Y Co. stock for its value of $5 million, when the basis of the shares remain $800,000 for Section 1202 purposes. Thus, X Co. recognizes $4.2 million of gain, which is all passed through to A, and under Section 1202(g), A is entitled to exclude the full amount of the gain.

I know what you're thinking....that can't be right. If you simply revoke the S election, you get to exclude $800,000, but by dropping the assets into a newly-formed C corporation, you get to exclude $4.2 million of gain? I'm sure Section 1202 does not allow such a disparate result for what are, effectively, identical transactions.

I see your point, but you need to understand something: While Section 1202 was added to the Code in 1993, it was largely ignored until 2015. Why? Because initially, you could only exclude 50% of eligible gain, and the other 50% was taxed at a 28% rate, meaning the total gain was taxed at 14% during an era when most taxpayers paid a rate of 15% on capital gains. Who was going to go through all the Section 1202 requirements to save 1%?

It wasn't until 2010, when Congress upped the ante by increasing the exclusion percentage to 100% for stock acquired after September of that year, that Section 1202 became widely utilized. However, those 100%-eligible shares couldn't be sold until 2015 at the earliest, which means that the first 100% exclusions weren't reported on tax returns until April 2016. As a result, only now are Section 1202 issues starting to make their way through the audit process and court system. In the absence of any meaningful judicial precedent, we are left to look at regulations and administrative rulings, of which there are....nearly none. As previously mentioned, Section 1202 has been ignored, not just by taxpayers, but also by the IRS. Thus, it is completely possible that there are drafting irregularities like the one discussed in this article that could cause similar transactions to result in dramatically different tax consequences.

So if you're ready to switch to a C corporation, and reaping the benefits of Section 1202 is one of your primary motivations in doing so, make sure you consider the manner of your conversion. A mistake could cost you millions.

By Tony Nitti for Forbes

Published: May 15, 2019

Taxpayers Must Report Virtual Currency Transactions

The Internal Revenue Service reminded taxpayers that income from virtual currency transactions is reportable on their income tax returns.

Virtual currency transactions are taxable by law just like transactions in any other property. The IRS has issued guidance in IRS Notice 2014-21 for use by taxpayers and their return preparers that addresses transactions in virtual currency, also known as digital currency.

Taxpayers who do not properly report the income tax consequences of virtual currency transactions can be audited for those transactions and, when appropriate, can be liable for penalties and interest.

In more extreme situations, taxpayers could be subject to criminal prosecution for failing to properly report the income tax consequences of virtual currency transactions. Criminal charges could include tax evasion and filing a false tax return. Anyone convicted of tax evasion is subject to a prison term of up to five years and a fine of up to $250,000. Anyone convicted of filing a false return is subject to a prison term of up to three years and a fine of up to $250,000.

Virtual currency, as generally defined, is a digital representation of value that functions in the same manner as a country’s traditional currency. There are currently more than 1,500 known virtual currencies. Because transactions in virtual currencies can be difficult to trace and have an inherently pseudo-anonymous aspect, some taxpayers may be tempted to hide taxable income from the IRS.

Notice 2014-21 provides that virtual currency is treated as property for U.S. federal tax purposes. General tax principles that apply to property transactions apply to transactions using virtual currency. Among other things, this means that:

  • A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property.
  • Payments using virtual currency made to independent contractors and other service providers are taxable, and self-employment tax rules generally apply.  Normally, payers must issue Form 1099-MISC.
  • Wages paid to employees using virtual currency are taxable to the employee, must be reported by an employer on a Form W-2 and are subject to federal income tax withholding and payroll taxes.
  • Certain third parties who settle payments made in virtual currency on behalf of merchants that accept virtual currency from their customers are required to report payments to those merchants on Form 1099-K, Payment Card and Third Party Network Transactions.
  • The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer.
Published: May 14, 2019

The Best Big Cities for Starting a Business? They're Almost All Down South

The top U.S. city for entrepreneurs boasts cool breezes, white-sand beaches, and attractive economic conditions for businesses.

Entrepreneurs in Tampa and St. Petersburg, Florida, may be in a better position to start a business than those located in Silicon Valley or New York City.

Orlando, which is perhaps best known for its Disney attractions, has the best environment for startups, according to the new report while Tampa ranked at #5 and St. Petersburg fell just short of the Top 10 at #14. The personal finance website WalletHub recently compared 100 of the U.S.'s biggest cities--where population density measures at least 300,000--across three dimensions: business environment, access to resources, and business costs. WalletHub assessed those factors based on 19 metrics, including five-year business survival rate, office-space affordability, and job growth, and it only considered cities, excluding surrounding metropolitan areas. 

Cities were ranked #1-100. You can look below and see that Florida is showing up strong for businesses.


Source: WalletHub


Orlando also hit No. 9 on Inc.'s list of Surge Cities, showcasing the U.S. cities with the most economic momentum for startups. While Tourism and construction have been major drivers of the local economy, the tech industry has been growing thanks in part to the more than 200 aerospace and aviation companies located within the city limits. What's more, Orlando has made recent efforts to cultivate early-stage startups by opening accelerator programs, new seed funds, and co-working spaces. However, as the WalletHub report also points out, the city lacks access to resources compared to other U.S. cities. 

Orlando is just one of nine southern cities in WalletHub's top 10, showing that startups in the south boast more favorable conditions than those in the north. Oklahoma City is ranked second, while Miami and Tampa take the third and fifth spots, respectively. North Carolina cities like Charlotte, Durham, and Raleigh are ranked sixth, seventh, and eighth, respectively. The city in fourth place on the WalletHub list is Austin, which ranked as the No. 1 city for starting a business in Inc.'s Surge Cities. 

The south boasts not only a thriving business climate and relatively low cost of doing business, but also some of the highest average startup rates in the U.S. Miami, for instance, has 235 startups per 100,000 residents. That's more than any other big city WalletHub canvased.

To be sure, the south isn't the only U.S. startup haven. California remains a juggernaut, with 17 cities, including San Francisco, which was ranked No. 44 on WalletHub's list of 100 top big cities to start a business. Midwestern cities are also hospitable environments for startups: Chicago, Indianapolis, Minneapolis and Madison, Wisconsin made the list.

By Emily Canal for

Published: May 13, 2019

Small Business Can Benefit from Deducting Vehicle Costs on Their Taxes

Businesses that use a car or other vehicle may be able to deduct the expense of operating that vehicle on their taxes. Businesses generally can use one of the two methods to figure their deductible vehicle expenses:

  • Standard mileage rate
  • Actual car expenses

For 2019, here are the standard mileage rates for calculating the deductible costs of operating an automobile for business, charitable, medical or moving purposes:

  • 58 cents per mile driven for business use
  • 20 cents per mile driven for medical or moving purposes
  • 14 cents per mile driven in service of charitable organizations

Of course, business taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates. Here are some facts to help business owners understand the differences between the two methods of figuring their deductible vehicle expenses:

  • Businesses that want to use the standard mileage rate for a car they own must choose to use the standard mileage rate in the first year they use the vehicle. Then, in later years, they can choose to use either the standard mileage rate or actual expenses.
  • If a business wants to use the standard mileage rate for a car they lease, they must use this rate for the entire lease period.
  • The business must make the choice to use the standard mileage rate by the due date of their return, including extensions. They can’t revoke the choice.
  • A business that qualifies to use both methods may want to figure their deduction both ways to see which gives them a larger deduction.
  • Here are some examples of actual car expenses that a business can deduct:

o Licenses
o Gas
o Oil
o Tolls
o Insurance
o Repairs
o Depreciation – limitations and adjustments may apply

Published: May 10, 2019

Businesses Should Review Depreciation Deductions Rules

Businesses should know the tax rules for deducting depreciation on certain property. This deduction can benefit eligible business taxpayers. The Tax Cuts and Jobs Act made changes to the rules around depreciation that will affect many businesses. 

First off, businesses should remember they can generally depreciate tangible property, except land. Tangible property includes:

  • Buildings
  • Machinery
  • Vehicles
  • Furniture
  • Equipment

Here are some of the changes to business depreciation under tax reform:

  • Taxpayers can immediately expense more. Businesses  may choose to expense the cost of a property and deduct it in the year it is placed in service.
  • The maximum deduction increased from $500,000 to $1 million.
  • The phase-out limit increased from $2 million to $2.5 million.
  • Taxpayers may include improvements made to nonresidential property. The improvements must have been made after the date the property was first placed in service.

These improvements include:

o Changes to a building’s interior
o Roofs
o Heating and air conditioning systems
o Fire protection systems
o Alarm and security systems

Improvements that do not qualify:

o Enlargement of the building
o Service to elevators or escalators
o Internal  framework of the building

These changes apply to property placed in service in taxable years beginning after December 31, 2017.

Published: May 9, 2019

Deferral of Gains for Investments in a Qualified Opportunity Fund

The Internal Revenue Service today issued guidance providing additional details about investment in qualified opportunity zones. 

The proposed regulations allow the deferral of all or part of a gain that is invested into a Qualified Opportunity Fund (QO Fund) that would otherwise be includible in income. The gain is deferred until the investment is sold or exchanged or Dec. 31, 2026, whichever is earlier. If the investment is held for at least 10 years, investors may be able to permanently exclude gain from the sale or exchange of an investment in a QO Fund.

Qualified opportunity zone business property is tangible property used in a trade or business of the QO Fund if the property was purchased after Dec. 31, 2017. The guidance permits tangible property acquired after Dec. 31, 2017, under a market rate lease to qualify as “qualified opportunity zone business property” if during substantially all of the holding period of the property, substantially all of the use of the property was in a qualified opportunity zone. 

A key part of the newly released guidance clarifies the “substantially all” requirements for the holding period and use of the tangible business property:

  • For use of the property, at least 70 percent of the property must be used in a qualified opportunity zone.
  • For the holding period of the property, tangible property must be qualified opportunity zone business property for at least 90 percent of the QO Fund’s or qualified opportunity zone business’s holding period.
  • The partnership or corporation must be a qualified opportunity zone business for at least 90 percent of the QO Fund’s holding period.

The guidance notes there are situations where deferred gains may become taxable if an investor transfers their interest in a QO Fund. For example, if the transfer is done by gift the deferred gain may become taxable. However, inheritance by a surviving spouse is not a taxable transfer, nor is a transfer, upon death, of an ownership interest in a QO Fund to an estate or a revocable trust that becomes irrevocable upon death.

Published: April 17, 2019

Want To Make Millions And Pay No Taxes? Try Real Estate

Real estate is a cyclical business. Markets crash. Deals sour. But hard landings are rare for a savvy property mogul, thanks to the U.S. tax code.

Take Harry Macklowe, a New York City developer. Macklowe, 81, hasn’t paid income tax since the 1980s, according to a court opinion in his divorce proceedings issued in December. The ruling, which also divided luxury homes and an art collection worth more than $650 million between Macklowe and his ex-wife, Linda, doesn’t suggest the couple did anything wrong to avoid paying income taxes. Rather, it highlights the special perks available to property investors in the U.S.—advantages that have expanded under the tax law signed in 2017 by Donald Trump, America’s real estate developer president.

“The real estate industry is notorious for throwing off lots of deductions, and real estate developers are notorious for paying very few taxes,” says Steven Rosenthal, a senior fellow with the Urban-Brookings Tax Policy Center. “As Leona Helmsley said, ‘Only the little people pay taxes.’ ”

As Democrats in Congress seek Trump’s tax returns, Macklowe’s divorce case provides a hint at what they might find. Real estate moguls have a range of strategies available to reduce or postpone their tax liabilities. ...

Macklowe’s tax affairs emerged in his divorce case because the two parties disagreed on how to value the tax credits and liabilities he’d generated during his career. Linda claimed her ex-husband used $448 million of net operating losses to defray income taxes from 2008 to 2015, according to the court opinion. That helped the couple reduce their taxes and maintain a lavish lifestyle, which included homes at the Plaza Hotel and in East Hampton as well as the purchase of a yacht for more than $23 million.

Those trappings might not have been available if Macklowe had made his fortune in another industry. The U.S. tax code is designed to measure profitability over time, allowing businesses to write off losses in one year against income in the next. For most companies, that provision is limited to losses on their own capital as opposed to losses on borrowed money. “There’s a general rule that you’re not supposed to be able to claim losses for more than you put into a deal,” says Steve Wamhoff, director of federal tax policy at the Institute on Taxation and Economic Policy, a left-leaning think tank. “Real estate is the exception.”

By Paul Caron for the TaxProf Blog

Published: April 16, 2019

The Case for Extending the Tax Filing Deadline

The shaky start to this year’s filing season should be addressed by extending the filing deadline for one month, according to Andrew Moylan, executive vice president of the National Taxpayers Union Foundation. “The timing of the government shutdown, combined with its historic length, left the IRS in a scramble to work through a significant backlog of preparations for a busy filing season,” he said. “Despite their efforts, the shutdown left taxpayers and practitioners without adequate support to determine legal obligations, as service centers went unstaffed and many forms were not yet finalized.”

Noting the IRS’s historic struggles with outdated technology, and last year’s Tax Day system crash, Moylan said, “This is an agency that already has troubles, and combined with the first filing season under a new system with dozens of new forms means that they were already in a difficult position. Add to that the 35-day shutdown where close to half the staff was furloughed, and the result was a very limited ability for taxpayers to receive assistance.”

“Taking an operationally challenged agency such as this and effectively forcing it to do four months of work in three months’ time is a recipe for disaster,” he said. “The results thus far have been exactly what one might expect, raising serious questions about whether or not Congress or the administration ought to act to extend the filing deadline.”

Moylan cited a just-completed NTUF study, released on March 7, that draws upon data from the Taxpayer Advocate Service, which explains the extent of service disruptions in its taxpayer support operations. It also points to lesser-known issues, like interest accruing on certain pending U.S. Tax Court matters, to highlight the need for Congress to work with the IRS to provide for a comprehensive extension of tax filing deadlines.

While some have suggested that taxpayers can deal with filing season disruptions by simply filing for extensions, Moylan is unconvinced: “There are some issues that aren’t solved by taxpayers filing for extensions. For example, levy notices have a 21-day reply period, and that clock was ticking during the shutdown. Even if taxpayers wanted to resolve those issues, they couldn’t. If they wanted to rescind levies or make a payment plan, allowing for additional extensions would be of no help.”

“Also, a lot of forms that had to be redrafted [after the Tax Cuts and Jobs Act] had to be redrafted, and they were still in draft form at the time the shutdown started. There are other issues such as cases pending in Tax Court. The point is to protect taxpayers from harm associated with the shutdown through no fault of their own, and it’s more than just waiving late payment penalties,” he added.

In a March 8, 2019, letter to IRS Commissioner Chuck Rettig, the American Bar Association Tax Section gave its comments on the impact of the shutdown. To mitigate the effects of a future shutdown, it suggested, among other things, that the service suspend the issuance of most automated notices for the duration of the shutdown.

“The service continued to issue automated notices during the shutdown,” it wrote. “This increased the need for taxpayers or their representatives to interact with the service during and immediately after the shutdown. Some automated notices, particularly those sent by the Automated Collection System, require taxpayers to contact the service immediately to avoid severe consequences, such as a lien or levy.”

There has been talk among some members of Congress about extending the filing season, according to Moylan.

“Two Democrat members of Congressman — Sean Casten and Lauren Underwood, both of Illinois — have indicated interest in the issue,” he said. “And Sen. Ron Wyden is already on record requesting additional relief for underpayment penalties. So there is some hope."

By Roger Russell for Accounting Today

Published: March 12, 2019

Florida Sales Tax on Commercial Real Property Leases Reduced Beginning January 2019

As commercial real property owners in Florida are likely aware, the Sunshine State imposes its sales tax on rental payments for the lease of real property. The general 6 percent state-level tax was reduced to 5.8 percent for 2018. The legislature passed a law to further reduce the state-level rate to 5.7 percent for occupancy periods beginning on or after Jan. 1, 2019. There is no reduction in the local option surtax that many Florida counties impose. Property owners should be aware of this reduction for lease payments related to periods starting next year.

Florida is somewhat unique in taxing real property leases. The tax is imposed not only on the base rent, but also on any additional rent, or any consideration required to be paid by the tenant as a condition of occupancy. As a result, the tax is also due on the tenant’s share of common-area maintenance charges, real property taxes, and most other charges required under the lease.

In addition to this 5.7 percent tax rate, a landlord must also collect the local-option surtax imposed by many Florida counties, which varies between 0.5 percent and one percent. There is no reduction in the rate of this local tax. For example, beginning Jan. 1, 2019, lease payments in Miami-Dade County will be taxed at a rate of 6.7 percent, because Miami-Dade County imposes a local surtax at a one percent rate.

Although the new 5.7 percent state-level tax rate is effective Jan. 1, 2019, this reduced tax rate is applicable to the lease period to which the rent relates. Accordingly, if a landlord receives rent payments in 2019 for December 2018 occupancy, the 5.8 percent state-level rate would still apply (plus the applicable local surtax). On the other hand, if a tenant pays the rent for January 2019 in December 2018, the 5.7 percent rate would apply.

It is also important to remember that a lease of residential property is subject to the sales tax on transient rentals unless the rental is under a bona fide written lease for a period of longer than six months. The rate of this tax on transient rentals will remain at 6 percent (plus local option surtax). Furthermore, a lease of residential real property that is taxable as a transient rental (because it does not satisfy the six-month bona fide written lease requirement) is also subject to local tourist-development taxes. The rate on these local tourist-development taxes varies from 5 percent to 7 percent for most major counties. There is no reduction in the tax rates of these local tourist-development taxes.

Furthermore, the reduction in the rate does not apply to charges for parking a motor vehicle, for docking a vessel, or for tying down or hangaring an aircraft.

Landlords and management companies sending out invoices for rental periods commencing on or after Jan. 1, 2019, should revise their invoice software to account for the 0.1 percent reduction in the state tax rate.

Prepared by Marvin A. Kirsner of Greenberg Traurig, LLP's Tax Law Team

Published: February 19, 2019

What is the penalty for not having health insurance in 2019?

The federal tax penalty for not being enrolled in health insurance will be eliminated in 2019 because of recent changes made by the Trump Administration. However, those that received a penalty for not having health insurance in 2018 will still have to pay the penalty on your 2019 tax forms. 

The 2018 tax penalty for not having health insurance is $695 for adults and $347.50 for children or 2% of your yearly income, whichever amount is more. This penalty was designed to protect both people from skipping out on health insurance and not being able to pay off their medical expenses in the event of injury or illness.

State-level health insurance penalties still may be in effect.

While there will not be penalties at the federal level anymore for going uninsured or choosing a plan that is not ACA-compliant, it is still important to look at state requirements for health insurance. A large handful of states have their own health insurance penalties that are assessed when people do not have insurance that complies with that state’s laws.

Some places where a health insurance penalty is still assessed:

  • New Jersey. This state has a health insurance penalty that will go into effect in 2019. The health insurance penalty is based on New Jersey’s prices for bronze level health insurance policies.
  • Massachusetts has had a health insurance penalty since instituting a state health insurance program in 2006. In the past, they did not assess a health insurance penalty if someone paid one at the federal level. However, with the elimination of the federal health insurance penalty, they will begin charging a state fee.
  • Vermont has instituted a health insurance penalty for uninsured individuals in that state. The health insurance penalty law goes into effect in 2020.
  • District of Columbia. This city has signed their own health insurance penalty into law. It goes into effect in 2019.
Published: February 18, 2019

IRS Waives Penalty for Many Whose Tax Payments Fell Short in 2018

The Internal Revenue Service announced that it is waiving the estimated tax penalty for many taxpayers whose 2018 federal income tax withholding and estimated tax payments fell short of their total tax liability for the year.

The IRS is generally waiving the penalty for any taxpayer who paid at least 85 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.

The waiver computation announced today will be integrated into commercially-available tax software and reflected in the forthcoming revision of Form 2210 and instructions.

This relief is designed to help taxpayers who were unable to properly adjust their withholding and estimated tax payments to reflect an array of changes under the Tax Cuts and Jobs Act (TCJA), the far-reaching tax reform law enacted in December 2017. 

“We realize there were many changes that affected people last year, and this penalty waiver will help taxpayers who inadvertently didn’t have enough tax withheld,” said IRS Commissioner Chuck Rettig. “We urge people to check their withholding again this year to make sure they are having the right amount of tax withheld for 2019.”

The updated federal tax withholding tables, released in early 2018, largely reflected the lower tax rates and the increased standard deduction brought about by the new law. This generally meant taxpayers had less tax withheld in 2018 and saw more in their paychecks. 

However, the withholding tables couldn’t fully factor in other changes, such as the suspension of dependency exemptions and reduced itemized deductions. As a result, some taxpayers could have paid too little tax during the year, if they did not submit a properly-revised W-4 withholding form to their employer or increase their estimated tax payments. 

Although most 2018 tax filers are still expected to get refunds, some taxpayers will unexpectedly owe additional tax when they file their returns.

Additional Information

Because the U.S. tax system is pay-as-you-go, taxpayers are required, by law, to pay most of their tax obligation during the year, rather than at the end of the year. This can be done by either having tax withheld from paychecks or pension payments, or by making estimated tax payments.

Usually, a penalty applies at tax filing if too little is paid during the year. Normally, the penalty would not apply for 2018 if tax payments during the year met one of the following tests: 

  • The person’s tax payments were at least 90 percent of the tax liability for 2018 or
  • The person’s tax payments were at least 100 percent of the prior year’s tax liability, in this case from 2017. However, the 100 percent threshold is increased to 110 percent if a taxpayer’s adjusted gross income is more than $150,000, or $75,000 if married and filing a separate return. 

For waiver purposes only, today’s relief lowers the 90 percent threshold to 85 percent. This means that a taxpayer will not owe a penalty if they paid at least 85 percent of their total 2018 tax liability. If the taxpayer paid less than 85 percent, then they are not eligible for the waiver and the penalty will be calculated as it normally would be, using the 90 percent threshold.

Like last year, we urge all of our clients to confer with us at Hershkowitz & Kunitzer, P.A. to check their withholding for 2019. This is especially important for anyone now facing an unexpected tax bill when they file. This is also an important step for those who made withholding adjustments in 2018 or had a major life change to ensure the right tax is still being withheld. Those most at risk of having too little tax withheld from their pay include taxpayers who itemized in the past but now take the increased standard deduction, as well as two-wage-earner households, employees with nonwage sources of income and those with complex tax situations.

Published: January 25, 2019

Shutdown Impact on Tax Court Cases

The United States Tax Court shut down operations on Friday, December 28, 2018, at 11:59 p.m. and will remain closed until further notice.  The IRS reminds taxpayers and tax professionals the Tax Court website is the best place to get information about a pending case. 

There are some important points for taxpayers and tax professionals to keep in mind. These are some questions and answers to help during the current appropriations lapse.

What should I do if a document I mailed or sent to the Tax Court was returned to me?

The Tax Court website indicates that mail sent to the court through the U.S.  Postal Service or through designated private delivery services may have been returned undelivered.  If a document you sent to the Tax Court was returned to you, as the Tax Court website indicates, re-mail or re-send the document to the Court with a copy of the envelope or container (with the postmark or proof of mailing date) in which it was first mailed or sent. In addition, please retain the original.

My case was calendared for trial.  What does the Tax Court’s closure mean for my pending case? 

The Tax Court canceled trial sessions for January 28, 2019 (El Paso, TX; Los Angeles, CA; New York, NY; Philadelphia, PA; San Diego, CA; and Lubbock, TX), February 4, 2019 (Hartford, CT; Houston, TX; San Francisco, CA; Seattle, WA; St. Paul, MN; Washington, DC; and Winston-Salem, NC) and February 11, 2019 (Detroit, MI; Los Angeles, CA; New York, NY; San Diego, CA; and Mobile, AL). The Tax Court will inform taxpayers who had cases on the canceled trial sessions of their new trial dates.

The Tax Court’s website indicates that it will make a decision about the February 25, 2019 trial sessions (Atlanta, GA; Chicago, IL; Dallas, TX; Los Angeles, CA; and Philadelphia, PA) on or before February 7, 2019.  Taxpayers with cases that are scheduled for trial sessions that have not been canceled or that have not yet been scheduled for trial should expect their cases to proceed in the normal course until further notice.

If my case was on a canceled trial session, when will I have an opportunity to resolve my case with Appeals or Chief Counsel after the government reopens? 

After the IRS and Chief Counsel reopen, we will make our best efforts to expeditiously resolve cases. 

Where can I get more information about my Tax Court case? 

If someone is representing you in your case, you should contact your representative. In addition, the Tax Court’s website is the best place for updates.  The IRS Chief Counsel and Appeals personnel assigned to your case may be furloughed and will not be available to answer your questions until the government reopens.  

During the shutdown, does interest continue to accrue on the tax that I am disputing in my pending Tax Court case? 

Yes. To avoid additional interest on the tax that you are disputing in your pending Tax Court case, you can stop the running of interest by making a payment to the IRS. The IRS is continuing to process payments during the shutdown.

What should I do if I received a bill for the tax liability that is the subject of my Tax Court case? 

If you receive a collection notice for the tax that is in dispute in your Tax Court case, it may be because the IRS has not received your petition and has made a premature assessment.  When the government reopens, the IRS attorney assigned to your case will determine if a premature assessment was made and request that the IRS abate the premature assessment.

Published: January 24, 2019

Small Business Tax Planning Looms - Tips To Make it Easier!

Year-end tax planning, something that should be part of a small business owner's annual routine, is particularly important now because of the tax law enacted nearly a year ago. The IRS has cleared up some of the mystery around sections of the law that affected small businesses, but owners need to crunch numbers to see how much of a break they're likely to get.

Some tips about tax planning:

— Don't do it alone — schedule an appointment with an accountant, tax attorney or enrolled agent.

— As in any tax year, consider whether you should defer income until next year or move up planned 2019 expenses into this year. This means doing long-term planning. Owners should be thinking three to five years ahead, says Manuel Pravia, an accountant with MBAF in Miami.

— If you buy equipment and deduct and/or depreciate the cost, it must be up and running — what the IRS calls "placed in service" — by Dec. 31.

— Owners who want to make retirement plan contributions for this year have until the due date of their tax returns, including extensions. That could be as late as next October.

— For sole proprietors, partners and owners of S corporations, in trying to determine if you can claim a 20 percent deduction of your qualified business income, remember that the tax break is based on all your taxable income. That includes your business income and earnings from work you might do separate from your company. A spouse's income goes into the computations. The amount you might be able to claim is affected by factors including the compensation you pay employees.

— Owners tempted by a big drop in the corporate tax rate and considering converting their companies to what are known as C corporations should remember there's double taxation, says Julian Fortuna, a tax attorney with Taylor English in Atlanta. The company is taxed, and owners are taxed when they receive dividends.

— Businesses can no longer deduct entertainment expenses like tickets to events or the cost of activities like golf. But food bought during an event — like hot dogs at a baseball game — is 50 percent deductible. So are meals.

By Joyce M. Rosenberg, AP Business Writer

Published: November 26, 2018

This New Tax Break Can Make a Big Difference for Small Business Owners

The IRS has issued eagerly-awaited regulations that provide details on the new deduction for up to 20% of qualified business income (QBI) from pass-through entities. The QBI deduction was a major piece of the Tax Cuts and Jobs Act. It’s available for tax years beginning in 2018-2025 to eligible individuals, estates, and trusts that own interests in pass-through entities.

For QBI deduction purposes, pass-through entities are defined as sole proprietorships, single-member (one owner) LLCs that are treated as sole proprietorships for tax purposes, partnerships, LLCs that are treated as partnerships for tax purposes, and S corporations.

While the QBI deduction is available to individuals, estates, and trusts, the proposed regulations refer to all three as “individuals.”

QBI deduction basics

QBI means the net amount of qualified items of income, gain, deduction, and loss from an eligible business that’s operated via a pass-through entity.

The QBI deduction does not reduce your adjusted gross income (AGI). In effect, it’s treated the same as an allowable itemized deduction.

The QBI deduction does not reduce your net earnings from self-employment for purposes of the dreaded self-employment tax nor does it reduce your net investment income for purposes of the dreaded 3.8% net investment income tax on higher-income folks.

Income from the business of being an employee does not count as QBI. Ditto for reasonable salary collected by an S corporation shareholder-employee and guaranteed payments received by a partner (or an LLC member treated as a partner for tax purposes) for services rendered to a partnership (LLC).

While the new QBI deduction regulations are in proposed form, you can rely on them until final regulations are issued. What follows is a summary of the most-important points in the proposed regulations.

What is an eligible business?

In defining what constitutes a business for QBI deduction eligibility purposes, the IRS decided to go with the Internal Revenue Code Section 162 definition, because it is derived from longstanding case law and IRS guidance. However, this stance is a cop out. Perhaps most importantly, it does not definitively clarify when a rental activity can qualify as a Section 162 business for QBI deduction purposes. Presumably, your typical rental real-estate activity would be considered a Section 162 business, but we don’t know for sure. We await meaningful guidance on this important issue.

QBI deduction limitations

The QBI deduction limitations begin to phase in when your taxable income (calculated before any QBI deduction) exceeds $157,500 or $315,000 if you are a married-joint filer.

When the limitations are fully phased in (once taxable income exceeds $207,500 or $415,000 for married joint-filers), your QBI deduction is limited to the greater of (i) your share of 50% of W-2 wages paid to employees during the tax year and properly allocable to QBI or (ii) the sum of your share of 25% of such W-2 wages plus your share of 2.5% of the unadjusted basis immediately upon acquisition (UBIA) of qualified property.

The limitation based on the UBIA of qualified property is for the benefit of capital-intensive businesses like manufacturing or hotel operations. Qualified property means depreciable tangible property (including real estate) that (i) is owned by a qualified business as of its tax year-end, and (ii) is used by that business at any point during the tax year for the production of QBI and (iii) had not reached the end of its depreciable period as of the tax year-end. The UBIA of qualified property generally equals its original cost when it was first put to use in your business.

In any case, your QBI deduction cannot exceed the lesser of:

1. 20% of QBI, plus 20% of qualified REIT dividends, plus 20% of qualified income from publicly-traded partnerships. Or...

2. 20% of your taxable income calculated before any QBI deduction and before any net capital gain amount (net long-term capital gains in excess of net short-term capital losses plus qualified dividends).

Aggregating business to minimize or avoid the QBI deduction limitations

Aggregating businesses can allow an individual with taxable income high enough to be affected by the limitations based on W-2 wages and the UBIA of qualified property to claim a bigger QBI deduction than if the businesses were considered separately.

For instance, say you are a high-income individual who owns an interest in one business with lots of QBI but little or no W-2 wages and an interest in a second business with minimal QBI, but lots of W-2 wages. Aggregating the two businesses can result in a healthy QBI deduction, while keeping them separate could result in a lower deduction or maybe no deduction at all. However, tests set forth in the proposed regulations must be passed for you to be allowed to aggregate businesses.

Key Point: You cannot aggregate a specified service trade or business (SSTB, defined below) with any other business, including another SSTB.

Specified service trades or businesses

The proposed regulations define what is meant by the term specified service trade or business (SSTB). Status as an SSTB (or not) is critically important, because QBI deductions based on SSTB income begin to be phased out when your taxable income (calculated before any QBI deduction) exceeds $157,500 or $315,000 if you are a married joint-filer. Phase out is complete when taxable income exceeds $207,500 or $415,000 for a married joint-filer. At that point, you are not allowed to claim any QBI deduction based on income from any SSTB.

What is a specified service trade or business?

In general, a specified service trade or business (SSTB) means any trade or business involving the performance of services in one or more of the following fields:

• Health, law, accounting, and actuarial science (architecture and engineering firms aren’t considered SSTBs).

• Consulting.

• Financial, brokerage, investing, and investment management services.

• Trading.

• Dealing in securities, partnership interests, or commodities.

• Athletics and performing arts.

• Any trade or business where the principal asset is the reputation or skill of one or more of its employees or owners.

Before the proposed regulations were released, there was concern that the last definition could snare unsuspecting businesses like local restaurants with well-known chefs.

Thankfully, the proposed regulations limit the last definition to trades or businesses that meet one or more of the following descriptions:

• One in which a person receives fees, compensation, or other income for endorsing products or services.

• One that receives fees, licensing income compensation, or other income for the use of an individual’s image, likeness, name, signature, voice, trademark, or any other symbol associated with that individual’s identity.

• One that receives fees, compensation, or other income for appearances at an event or on radio, television, or another media platform.

The bottom line

The proposed QBI deduction regulations are lengthy and complex. This column only scratches the surface of the proposed rules. You may need to employ a tax professional to help you sort through the details and get the best QBI deduction results in your specific circumstances.

If so, it will probably be money well-spent.

By Bill Bischoff for The Tax Guy

Published: November 16, 2018

5 Tips for Savings Money on Your 2018 Tax Bill

Let's face it: Few of us are going to wake up the morning of Dec. 31 and finish all the year-end action items on our list for cutting taxes. It's thus best to get started with about a month remaining in 2018.

Here are areas you might want to address:

Alternate your itemized deductions

You're going to hear more about "bunching" as a tax strategy. The idea here is to incur more deductible expenses in one year then skip them the next, or vice versa.

The strategy makes sense if you wouldn't normally have quite enough deductions to itemize every year, now that the standard deduction has nearly doubled as a result of tax reform.

Possibly 90 percent of taxpayers might opt to take the standard deduction ahead, up from about 70 percent, according to Treasury Department projections. Yet people in the ballpark for itemizing might be able to alternate between the two strategies.

The new $10,000 cap on state taxes and the elimination of the interest deduction on home equity loans in some cases are among the changes that will make itemizing harder to justify for many people, said Tim Steffen, director of advanced financial planning for Baird's Wealth Strategies Group.

"By accelerating or deferring the payment of certain expenses between tax years, a taxpayer can alternate between itemizing and claiming the standard deduction, thereby maintaining as much tax benefit for those expenses as possible," he said.

Most deductible expenses, such as state taxes and mortgage interest, aren't flexible enough to be switched from one year to the next, Steffen noted. "However, charitable contributions lend themselves perfectly to this strategy."

Time end-of-year transactions

Related to the idea of bunching deductions is accelerating, or delaying, some expenses and possibly even the receipt of income.

Medical expenses are one possibility. You might find that you can pay for certain medical costs either over the waning weeks of 2018 or wait until 2019. Examples range from buying new glasses to taking elective procedures. Why accelerate them into 2018? Because medical costs will be harder to write off next year.

This is the last year medical expenses are deductible on federal returns to the extent they exceed 7.5 percent of adjusted gross income. In January, that rises to 10 percent, meaning fewer expenses are deductible. (Medical costs will remain fully deductible on Arizona income-tax returns, this year and next.)

In other respects, timing deductible expenses won't work as well as it did in the past. For example, a common strategy in prior years was to accelerate state income-tax and property-tax payments before the year expired to lock in the tax benefit. With state taxes now capped at $10,000, there's less incentive to do that, or none at all, Steffen said.

Taxpayers thus might be better off just making these payments on a regular basis.

Find deductible investment losses

"Harvesting" is another informal tax term that might gain in popularity, thanks to the stock market's recent sell-off.

Investors who realize or lock in trading gains or losses first need to sort through the pile, as short-term losses offset short-term gains, while long-term losses offset long-term gains. (Short-term gains and losses are those held one year or less.)

Then, if total losses exceed gains, up to $3,000 of the remaining loss can be used to offset other income, meaning they can be deducted, Steffen said. Losses above $3,000 can be carried forward to offset gains in the following year. Tax reform didn't change this format, he added.

Amid the stock market swoon, a lot more investors now have losses that looked like gains just a few weeks ago, potentially bringing this strategy into play. Just note that it works only with investments held in taxable accounts – not those in IRAs, workplace 401(k) plans and other tax-sheltered vehicles.

Steffen discourages investors from recognizing losses just for the tax breaks that might accrue. If an investment still makes sense, it's probably worth retaining, he said, especially as you can still take the loss next year to offset gains at that time.

Avoid 50-percent penalty

One of the nastiest tax penalties awaits people who fail to take required minimum distributions or RMDs from Individual Retirement Accounts before year-end.

The penalty of 50 percent applies to the amount that was supposed to be withdrawn but wasn't. It pertains to people older than 70½. RMDs apply to traditional IRAs (including rollovers, Simple IRAs and SEPs or Simplified Employee Pensions) but not to Roths (while the owner is still alive).

Fidelity Investments reported that only about 50 percent of its RMD-eligible customers had made any such withdrawals as of late October. Another 13 percent had taken out some money but not enough to fully skirt the penalty.

IRA owners can delay taking that first required withdrawal until April 1 of the year after they turn 70½. But for those who delay, both the first and second RMDs must be taken in the same year, with the withdrawals taxed as ordinary income.

People still working past 70½ can delay an RMD on a 401(k) account until  April 1 of the year after they retire, for those plans that allow this option.

Give your withdrawals to charity

Last year's tax-reform legislation preserved the option of donating RMDs to charity. Up to $100,000 a year can be transferred directly from an IRA account to one or more eligible charities.

Why consider this? Because the amount is excluded from taxable income and taxpayers don't need to itemize to do this, but you obviously would need other money to live on.

By using the charity-donation strategy on RMDs, taxpayers not only reduce their taxable income by the amount of the donation but also could shave or eliminate capital gains taxes they might incur if the IRA withdrawal had pushed them into a higher tax bracket, noted the National Association of Enrolled Agents.

Tax reform retained the zero-percent tax on long-term gains for lower-income people — singles with taxable income below $38,600 and married couples below $77,200.Some affluent seniors could find themselves in this group.

By Russ Wiles for USA Today

Published: November 15, 2018

For Tax Year 2017, E-File Closes on Nov. 17

The Internal Revenue Service reminds people, including those in disaster areas, who want to file a 2017 tax return electronically to do so by Saturday, Nov. 17, 2018. Filing of paper tax returns will remain available after that date.

IRS Modernized e-file, the system that processes electronically-filed individual returns, will shut down after Nov. 17, enabling the IRS to perform annual maintenance and to reprogram the system for the upcoming 2019 tax-filing season.

As a result, any taxpayer needing to file after Nov. 17 will need to do so on paper.

While the vast majority of individuals have already filed their tax year 2017 federal tax returns, victims of Hurricane Michael, Hurricane Florence and other recent disasters qualify for an additional extension. This includes taxpayers who live, work or have a business in a federally declared disaster area, have a U.S. tax filing obligation and had previously obtained a valid 6-month extension of time to file their federal tax return. Extended deadlines vary by locality and range from Dec. 17, 2018, to Feb. 28, 2019. Currently, parts of Florida, Georgia, North Carolina, South Carolina, Virginia, Wisconsin and the Northern Mariana Islands qualify.

Published: November 9, 2018

How the New Tax Law Revised Family Tax Credits

More families will be able to get more money under the newly-revised Child Tax Credit, according to the Internal Revenue Service.

The Tax Cuts and Jobs Act (TCJA), the tax reform legislation passed in December 2017, doubled the maximum Child Tax Credit, boosted income limits to be able to claim the credit, and revised the identification number requirement for 2018 and subsequent years. The new law also created a second smaller credit of up to $500 per dependent aimed at taxpayers supporting older children and other relatives who do not qualify for the Child Tax Credit.

“As we approach the 2019 tax-filing season, I want to remind taxpayers to take advantage of this valuable tax credit if they are eligible to claim it,” said IRS Commissioner Chuck Rettig. “Tax reform changed the tax code significantly and doubling the Child Tax Credit is an example of how the changes impact taxpayers.”

Here are some important things taxpayers need to know as they plan for the tax-filing season in early 2019: 

Child Tax Credit increased

Higher income limits mean more families are now eligible for the Child Tax Credit. The credit begins to phase out at $200,000 of modified adjusted gross income, or $400,000 for married couples filing jointly, which is up from the 2017 levels of $75,000 for single filers or $110,000 for married couples filing jointly.

Increased from $1,000 to $2,000 per qualifying child, the credit applies if the child is younger than 17 at the end of the tax year, the taxpayer claims the child as a dependent, and the child lives with the taxpayer for more than six months of the year. The qualifying child must also have a valid Social Security Number issued before the due date of the tax return, including extensions.

Up to $1,400 of the credit can be refundable for each qualifying child. This means an eligible taxpayer may get a refund even if they don’t owe any tax.

New Credit for Other Dependents

A new tax credit – Credit for Other Dependents — is available for dependents for whom taxpayers cannot claim the Child Tax Credit. These dependents may include dependent children who are age 17 or older at the end of 2018 or parents or other qualifying relatives supported by the taxpayer.

Published: November 7, 2018

401(k) Contribution Limit Increases to $19,000 for 2019; IRA Limit Increases to $6,000

The Internal Revenue Service announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2019.  

Highlights of Changes for 2019

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 $18,500 to $19,000.

The limit on annual contributions to an IRA, which last increased in 2013, is increased from $5,500 to $6,000. 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 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 2019.

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 2019:

  • For single taxpayers covered by a workplace retirement plan, the phase-out range is $64,000 to $74,000, up from $63,000 to $73,000.
  • For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $103,000 to $123,000, up from $101,000 to $121,000.
  • 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 $193,000 and $203,000, up from $189,000 and $199,000.
  • 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 $122,000 to $137,000 for singles and heads of household, up from $120,000 to $135,000. For married couples filing jointly, the income phase-out range is $193,000 to $203,000, up from $189,000 to $199,000. 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 $64,000 for married couples filing jointly, up from $63,000; $48,000 for heads of household, up from $47,250; and $32,000 for singles and married individuals filing separately, up from $31,500.

Highlights of Limitations that Remain Unchanged from 2018

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, 2019, the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) is increased from $220,000 to $225,000. For a participant who separated from service before Jan. 1, 2019, the limitation for defined benefit plans under Section 415(b)(1)(B) is computed by multiplying the participant's compensation limitation, as adjusted through 2018, by 1.0264.

The limitation for defined contribution plans under Section 415(c)(1)(A) is increased in 2019 from $55,000 to $56,000.

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 2019 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 $18,500 to $19,000.
  • The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $275,000 to $280,000.
  • The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan is increased from $175,000 to $180,000.
  • 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 $1,105,000 to $1,130,000, while the dollar amount used to determine the lengthening of the five year distribution period is increased from $220,000 to $225,000.

The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) is increased from $120,000 to $125,000.

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 $405,000 to $415,000.

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 is increased from $12,500 to $13,000.
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 $18,500 to $19,000.

The limitation under Section 664(g)(7) concerning the qualified gratuitous transfer of qualified employer securities to an employee stock ownership plan remains unchanged at $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 remains unchanged at $110,000. The compensation amount under Section 1.61 21(f)(5)(iii) is increased from $220,000 to $225,000.

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 remains unchanged at $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 2019 from $1,087,000,000 to $1,097,000,000.

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 2019 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 $38,000 to $38,500; the limitation under Section 25B(b)(1)(B) is increased from $41,000 to $41,500; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $63,000 to $64,000.
  • 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 $28,500 to $28,875; the limitation under Section 25B(b)(1)(B) is increased from $30,750 to $31,125; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $47,250 to $48,000.
  • 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 $19,000 to $19,250; the limitation under Section 25B(b)(1)(B) is increased from $20,500 to $20,750; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $31,500 to $32,000.
  • The deductible amount under Section 219(b)(5)(A) for an individual making qualified retirement contributions is increased from $5,500 to $6,000.

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 $101,000 to $103,000. 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 $63,000 to $64,000. 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 $189,000 to $193,000.

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 $189,000 to $193,000. 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 $120,000 to $122,000. 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.

Published: November 1, 2018

Reduced 24% Withholding Rate Applies to Small Businesses and Other Payers

Backup Withholding for Missing and Incorrect Name/TIN(s), posted last month on, has been updated to reflect a key change made by the Tax Cuts and Jobs Act (TCJA). As a result of this change, effective Jan. 1, 2018, the backup withholding tax rate dropped from 28 percent to 24 percent.

In general, backup withholding applies in various situations including, but not limited to, when a taxpayer fails to supply their correct taxpayer identification number (TIN) to a payer. Usually, a TIN is a Social Security number (SSN), but in some instances, it can be an Employer Identification Number (EIN), Individual Taxpayer Identification Number (ITIN) or Adoption Taxpayer Identification Number (ATIN). Backup withholding also applies, following notification by the IRS, where a taxpayer underreported interest or dividend income on their federal income tax return.

Publication 1281 is packed with useful information designed to help any payer required to impose backup withholding on any of their payees. Among other things, the publication features answers to 34 frequently asked questions (FAQs). One of them, Q/A 34, points out that a payer who mistakenly backup withheld at an incorrect rate (such as the old 28-percent tax rate, rather than the new 24-percent rate), need not refund the difference to the payee. However, a payer who chooses to refund the difference must do so before the end of the year and can then make appropriate adjustments to their federal tax deposits.

When backup withholding applies, payers must backup withhold tax from payments not otherwise subject to withholding. Payees may be subject to backup withholding if they:

  • Fail to give a TIN,
  • Give an incorrect TIN,
  • Supply a TIN in an improper manner,
  • Underreport interest or dividends on their income tax return, or
  • Fail to certify that they’re not subject to backup withholding for underreporting of interest and dividends.

Backup withholding can apply to most kinds of payments reported on Form 1099, including:

  • Interest payments;
  • Dividends;
  • Patronage dividends, but only if at least half of the payment is in money;
  • Rents, profits or other income;
  • Commissions, fees or other payments for work performed as an independent contractor;
  • Payments by brokers and barter exchange transactions;
  • Payments by fishing boat operators, but only the portion that's in money and represents a share of the proceeds of the catch;
  • Payment card and third-party network transactions; and
  • Royalty payments.

Backup withholding also may apply to gambling winnings that aren't subject to regular gambling withholding.

To stop backup withholding, the payee must correct any issues that caused it. They may need to give the correct TIN to the payer, resolve the underreported income and pay the amount owed, or file a missing return. 

Payers report any backup withholding on Form 945, Annual Return of Withheld Federal Income Tax. The 2018 form is due Jan. 31, 2019. Payers also show any backup withholding on information returns, such as Forms 1099, that they furnish to their payees and file with the IRS.

Like regular federal income tax withholding, a payee can claim credit for any backup withholding when they file their 2018 federal income tax return.

Published: October 26, 2018

Tax Law Changes Affecting Business Owners' Bottom Lines

The Internal Revenue Service today reminded business owners that tax reform legislation passed last December affects nearly every business.

With just a few months left in the year, the IRS is highlighting important information for small businesses and self-employed individuals to help them understand and meet their tax obligations.

Here are several changes that could affect the bottom line of many small businesses:

Qualified Business Income Deduction

Many owners of sole proprietorships, partnerships, trusts and S corporations may deduct 20 percent of their qualified business income. The new deduction -- referred to as the Section 199A deduction or the qualified business income deduction -- is available for tax years beginning after Dec. 31, 2017. Eligible taxpayers can claim it for the first time on the 2018 federal income tax return they file next year.

Temporary 100% Expensing for Certain Business Assets

Businesses are now able to write off most depreciable business assets in the year the business places them in service. The 100-percent depreciation deduction generally applies to depreciable business assets with a recovery period of 20 years or less and certain other property. Machinery, equipment, computers, appliances and furniture generally qualify.

Fringe Benefits

  • Entertainment and meals: The new law eliminates the deduction for expenses related to entertainment, amusement or recreation. However, taxpayers can continue to deduct 50 percent of the cost of business meals if the taxpayer or an employee of the taxpayer is present and other conditions are met. The meals may be provided to a current or potential business customer, client, consultant or similar business contact.
  • Qualified transportation: The new law disallows deductions for expenses associated with transportation fringe benefits or expenses incurred providing transportation for commuting. There’s an exception when the transportation expenses are necessary for employee safety.
  • Bicycle commuting reimbursements: Employers can deduct qualified bicycle commuting reimbursements as a business expense for 2018 through 2025. The new tax law also suspends the exclusion of qualified bicycle commuting reimbursements from an employee’s income for 2018 through 2025. Employers must now include these reimbursements in the employee’s wages.
  • Qualified moving expenses reimbursements: Reimbursements an employer pays to an employee in 2018 for qualified moving expenses are subject to federal income tax.  Reimbursements incurred in a prior year are not subject to federal income or employment taxes; nor are payments from an employer to a moving company in 2018 for qualified moving services provided to an employee prior to 2018.
  • Employee achievement award: Special rules allow an employee to exclude certain achievement awards from their wages if the awards are tangible personal property. An employer also may deduct awards that are tangible personal property, subject to certain deduction limits. The new law clarifies that tangible personal property doesn’t include cash, cash equivalents, gift cards, gift coupons, certain gift certificates, tickets to theater or sporting events, vacations, meals, lodging, stocks, bonds, securities and other similar items.
Published: October 22, 2018

7 Year-End Tax Planning Strategies for Small Businesses

You still have time to significantly reduce your 2018 business income tax bill. Here are seven year-end moves to consider, taking into account changes included in the Tax Cuts and Jobs Act (TCJA).

1. Claim 100% bonus depreciation for asset additions

Thanks to the TCJA, 100% first-year bonus depreciation is available for qualified new and used property that is acquired and placed in service in calendar year 2018. That means your business might be able to write off the entire cost of some or all of your 2018 asset additions on this year’s return. So consider making additional acquisitions between now and year-end. Contact your tax pro for details on the 100% bonus depreciation break and what types of assets qualify.

2. Claim 100% bonus depreciation for heavy SUV, pickup or van

The 100% bonus depreciation provision can have a hugely beneficial impact on first-year depreciation deductions for new and used heavy vehicles used over 50% for business. That’s because heavy SUVs, pickups, and vans are treated for tax purposes as transportation equipment, and that means they qualify for 100% bonus depreciation. Specifically, 100% bonus depreciation is only available when the SUV, pickup, or van has a manufacturer’s gross vehicle weight rating (GVWR) above 6,000 pounds. You can verify a vehicle’s GVWR by looking at the manufacturer’s label, which is usually found on the inside edge of the driver’s side door where the door hinges meet the frame. If you are considering buying an eligible vehicle, doing so and placing it in service before the end of this tax year could deliver a juicy write-off on this year’s return.

3. Cash in on more generous Section 179 deduction rules

For qualifying property placed in service in tax years beginning in 2018, the TCJA increased the maximum Section 179 deduction to a whopping $1 million (up from $510,000 for tax years beginning in 2017). The following additional beneficial changes were also made by the TCJA.

Property used for lodging

For property placed in service in tax years beginning in 2018 and beyond, the TCJA removed the prior-law provision that disallowed Section 179 deductions for personal property used in connection with furnishing lodging. Examples of such property apparently include furniture, kitchen appliances, lawn mowers, and other equipment used in the living quarters of a lodging facility or in connection with a lodging facility such as a hotel, motel, apartment house, or a rental condo or single-family home.

Qualifying real property

Section 179 deductions can be claimed for qualifying real property expenditures, up to the maximum annual Section 179 deduction allowance ($1 million for tax years beginning in 2018). There is no separate limit for qualifying real property expenditures, so Section 179 deductions claimed for real property reduce the maximum annual allowance dollar for dollar. Qualifying real property means any improvement to an interior portion of a nonresidential building that is placed in service after the date the building is first placed in service, except for expenditures attributable to the enlargement of the building, any elevator or escalator, or the building’s internal structural framework.

For tax years beginning in 2018 and beyond, the TCJA expanded the definition of real property eligible for the Section 179 deduction to include qualified expenditures for roofs, HVAC equipment, fire protection and alarm systems, and security systems for nonresidential real property. To qualify, these items must be placed in service in tax years beginning after 2017 and after the nonresidential building has been placed in service.

Warning: Various limitations can apply to Section 179 deductions, especially if you conduct your business as a partnership, LLC treated as a partnership for tax purposes, or S corporation. Consult your tax pro to make sure your business collects the expected tax savings from the Section 179 deduction privilege.

4. Time business income and deductions for tax savings

If you conduct your business using a pass-through entity — meaning a sole proprietorship, S corporation, LLC, or partnership — your shares of the business’s income and deductions are passed through to you and taxed at your personal rates. Next year’s individual federal income tax rate brackets will be the same as this year’s, with modest bumps for inflation. So the traditional strategy of deferring income into next year while accelerating deductible expenditures into this year makes sense if you expect to be in the same or lower tax bracket next year. Deferring income and accelerating deductions will, at a minimum, postpone part of your tax bill from 2018 until 2019.

On the other hand, if you expect to be in a higher tax bracket in 2019, take the opposite approach. Accelerate income into this year (if possible) and postpone deductible expenditures until 2019. That way, more income will be taxed at this year’s lower rate instead of next year’s higher rate.

5. How to defer taxable income

Most small businesses are allowed to use cash-method accounting for tax purposes. Assuming your business is eligible, cash-method accounting allows you to micro-manage your 2018 and 2019 business taxable income in order to minimize taxes over the two-year period. If you expect your business income will be taxed at the same or lower rate next year, here are specific cash-method moves to defer some taxable income until 2019.

* Charge recurring expenses that you would normally pay early next year on credit cards. You can claim 2018 deductions even though the credit card bills won’t actually be paid until 2019.

* Pay expenses with checks and mail them a few days before year-end. The tax rules say you can deduct the expenses in the year you mail the checks, even though they won’t be cashed or deposited until early next year. For big-ticket expenses, consider sending checks via registered or certified mail, so you can prove they were mailed this year.

* Before year-end, prepay some expenses. As long as the economic benefit from the prepayment does not extend beyond the earlier of: (1) 12 months after the first date on which your business realizes the benefit of the expenditure or (2) the end of the next tax year. For example, this rule allows you to claim 2016 deductions for prepaying the first three months of next year’s office rent or prepaying the premium for property insurance coverage for the first half of next year.

* On the income side, the general rule for cash-basis businesses is that you don’t have to report income until the year you receive cash or checks in hand or through the mail. To take advantage of this rule, consider waiting until near year-end to send out some invoices to customers. That will defer some income until 2019, because you won’t collect the money until early next year. Needless to say, this idea should only be used for customers with solid payment histories.

6. Maximize the new deduction for pass-through business income

The new deduction based on qualified business income (QBI) from pass-through entities was a key element of the TCJA. For tax years beginning in 2018-2025, the deduction can be up to 20% of a pass-through entity owner’s QBI, subject to restrictions that can apply at higher income levels and another restriction based on the owner’s taxable income.

For QBI deduction purposes, pass-through entities are defined as sole proprietorships, single-member LLCs that are treated as sole proprietorships for tax purposes, partnerships, LLCs that are treated as partnerships for tax purposes, and S corporations.

The QBI deduction is only available to non-corporate taxpayers which means individuals, trusts, and estates.

The QBI deduction can also be claimed for up to 20% of income from qualified REIT dividends and 20% of qualified income from publicly-traded partnerships (PTPs). So the deduction can potentially be a big tax saver.

Because of various limitations on the QBI deduction, tax planning moves (or non-moves) can unexpectedly increase or decrease your allowable QBI deduction. For example, moves that reduce this year’s taxable income can have the negative side effect of reducing your QBI deduction. So if you are one who can benefit from the deduction, work with your tax pro to optimize your results on this year’s return.

7. Establish a tax-favored retirement plan

If your business doesn’t already have a retirement plan, now might be the time to take the plunge. Current retirement plan rules allow for significant deductible contributions. For example if you are self-employed and set up a SEP-IRA, you can contribute up to 20% of your self-employment earnings, with a maximum contribution of $55,000 for 2018. If you are employed by your own corporation, up to 25% of your salary can be contributed to your account, with a maximum contribution of $55,000.

Other small business retirement plan options include the 401(k) plan which can even be set up for just one person (a sole-called solo 401(k)), the defined benefit pension plan, and the SIMPLE-IRA. Depending on your circumstances, these other types of plans may allow bigger deductible contributions.

The deadline for setting up a SEP-IRA for a sole proprietorship business and making the initial deductible contribution for the 2018 tax year is October 15, 2019 if you extend your 2018 return to that date. Other types of plans generally must be established by December 31, 2018 if you want to make a deductible contribution for the 2018 tax year, but the deadline for the contribution itself is the extended due date for your 2018 return. However, to make a SIMPLE-IRA contribution for 2018, you must have set up the plan by October 1. So you might have to wait until next year if the SIMPLE-IRA option is appealing.

Contact your tax pro for more information on small business retirement plan alternatives, and be aware that if your business has employees, you may have to cover them too.

By Bill Bischoff for Market Watch

Published: October 17, 2018

IRS Provides Expanded Tax Relief for Victims of Hurricane Michael

Hurricane Michael victims in parts of Florida and elsewhere have until Feb. 28, 2019, to file certain individual and business tax returns and make certain tax payments, the Internal Revenue Service announced today.

The IRS is offering this relief to any Major Disaster Declaration area designated by the Federal Emergency Management Agency (FEMA) as qualifying for either individual or public assistance. Currently, this only includes parts of Florida, 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

“The IRS has moved swiftly to announce this relief for taxpayers affected by Hurricane Michael in advance of the Oct. 15 extension filing deadline,” said IRS Commissioner Chuck Rettig. “We recognize the devastation this historic storm caused for many taxpayers, and IRS employees stand ready to support the disaster recovery effort as they have done many times in the past.”

The IRS is taking this step due to the unusual factors involving Hurricane Michael and the interaction with the Oct. 15 extension deadline.

The tax relief postpones various tax filing and payment deadlines that occurred starting on Oct. 7, 2018. As a result, affected individuals and businesses will have until Feb. 28, 2019, to file returns and pay any taxes that were originally due during this period. This means individuals who had a valid extension to file their 2017 return due to run out on Oct. 15, 2018, will now have until Feb. 28, 2019, to file. The IRS noted, however, that because tax payments related to these 2017 returns were due on April 18, 2018, those payments are not eligible for this relief.

The Feb. 28, 2019, deadline also applies to quarterly estimated income tax payments due on Jan. 15, 2019, and the quarterly payroll and excise tax returns normally due on Oct. 31, 2018, and Jan. 31, 2019. It also applies to tax-exempt organizations, operating on a calendar-year basis, that had a valid extension due to run out on Nov. 15, 2018. Businesses with extensions also have the additional time including, among others, calendar-year corporations whose 2017 extensions run out on Oct. 15, 2018.    

In addition, penalties on payroll and excise tax deposits due on or after Oct. 7, 2018, and before Oct. 22, 2018, will be abated as long as the deposits are made by Oct. 22, 2018.

The IRS disaster relief page has details on other returns, payments and tax-related actions qualifying for the additional time.

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 1-866-562-5227. This also includes workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization.


Published: October 12, 2018

Top 10 Tips for Deducting Losses from a Disaster

If you suffer damage to your home or personal property, you may be able to deduct the losses you incur on your federal income tax return. Here are 10 tips you should know about deducting casualty losses:

  1. Casualty loss.  You may be able to deduct losses based on the damage done to your property during a disaster. A casualty is a sudden, unexpected or unusual event. This may include natural disasters like hurricanes, tornadoes, floods and earthquakes. It can also include losses from fires, accidents, thefts or vandalism.
  2. Normal wear and tear.  A casualty loss does not include losses from normal wear and tear. It does not include progressive deterioration from age or termite damage.
  3. Covered by insurance.  If you insured your property, you must file a timely claim for reimbursement of your loss. If you don’t, you cannot deduct the loss as a casualty or theft. You must reduce your loss by the amount of the reimbursement you received or expect to receive.
  4. When to deduct.  As a general rule, you must deduct a casualty loss in the year it occurred. However, if you have a loss from a federally declared disaster area, you may have a choice of when to deduct the loss. You can choose to deduct the loss on your return for the year the loss occurred or on an amended return for the immediately preceding tax year. Claiming a disaster loss on the prior year's return may result in a lower tax for that year, often producing a refund.
  5. Amount of loss.  You figure the amount of your loss using the following steps:
    • Determine your adjusted basis in the property before the casualty. For property you buy, your basis is usually its cost to you. For property you acquire in some other way, such as inheriting it or getting it as a gift, you must figure your basis in another way. For more see Publication 551, Basis of Assets.
    • Determine the decrease in fair market value, or FMV, of the property as a result of the casualty. FMV is the price for which you could sell your property to a willing buyer. The decrease in FMV is the difference between the property's FMV immediately before and immediately after the casualty.
    • Subtract any insurance or other reimbursement you received or expect to receive from the smaller of those two amounts.
  6. $100 rule.  After you have figured your casualty loss on personal-use property, you must reduce that loss by $100. This reduction applies to each casualty loss event during the year. It does not matter how many pieces of property are involved in an event.
  7. 10 percent rule.  You must reduce the total of all your casualty or theft losses on personal-use property for the year by 10 percent of your adjusted gross income.
  8. Future income.  Do not consider the loss of future profits or income due to the casualty as you figure your loss.
  9. Form 4684.  Complete Form 4684, Casualties and Thefts, to report your casualty loss on your federal tax return. You claim the deductible amount on Schedule A, Itemized Deductions.
  10. Business or income property.  Some of the casualty loss rules for business or income property are different than the rules for property held for personal use.
Published: October 10, 2018

11 Ways to Avoid the IRA Early Withdrawal Penalty

If you withdraw money from your individual retirement account before age 59 1/2, you will generally have to pay a 10 percent early withdrawal penalty in addition to income tax on the amount withdrawn. This means a $5,000 withdrawal taken by a mid-career worker in the 25 percent tax bracket would result in $1,750 in taxes and penalties. But there are a variety of ways to avoid the IRA early withdrawal penalty if you meet specific criteria:

Turn age 59 1/2. Once you turn age 59 1/2, you can withdraw any amount from your IRA without having to pay the 10 percent penalty. But regular income tax will still be due on each withdrawal. IRA distributions are not required until after age 70 1/2.

College costs. You can avoid the early withdrawal penalty if you use the distribution to pay for higher education costs for you, your spouse or the children or grandchildren of you or your spouse. Spending the money on tuition, fees, books and other supplies required for attendance will get you an exemption from the 10 percent penalty. Room and board also count if the individual attending college is at least a half-time student. Qualifying institutions include colleges, universities and vocational schools eligible to participate in federal student aid programs. However, IRA distributions are considered taxable income and could impact your child's eligibility for federal financial aid. "Let's say the tuition payment is $25,000. You have just added $25,000 of taxable income," says Jeremy Portnoff, a certified financial planner for Portnoff Financial in Woodbridge, N.J. "It could push you into a higher bracket, you could pay a higher tax rate on that money and it could affect your ability to take deductions."

A first home purchase. You can take a penalty-free IRA distribution of up to $10,000 ($20,000 for couples) to buy, build or rebuild your first home or the first home of you or your spouse's child, grandchild or parent. For the purposes of avoiding the IRA early withdrawal penalty, the IRS considers you to be a first-time homeowner if you or your spouse did not own a home during the two-year period leading up to the home sale. If the purchase or construction of your home is canceled or delayed, put the money back in your IRA within 120 days of the distribution to avoid the penalty.

Medical expenses. You can use IRA distributions to pay for unreimbursed medical expenses that exceed 10 percent of your adjusted gross income without incurring the early withdrawal penalty. "The distribution has to be in the same year as the medical expense," says Kathleen Campbell, a certified financial planner for Campbell Financial Partners in Fort Myers, Fla.

Health insurance. IRA distributions can be taken without penalty to pay for health insurance for you, your spouse and your dependents following a period of unemployment. To qualify, you need to receive unemployment compensation for 12 consecutive weeks due to job loss. The distribution must be taken in the year you received the unemployment compensation or the following year, and no later than 60 days after you have been reemployed.

Disability. If you become disabled to the point that you cannot participate in gainful activity due to your physical or mental condition, you can quality for an exemption to the early withdrawal penalty. But be prepared to prove it. "A physician must determine that your condition can be expected to result in death or to be of long, continued and indefinite duration," according to the IRS.

Leave it to an heir. If you die before age 59 1/2, your traditional IRA can be distributed to a beneficiary or your estate without incurring the 10 percent penalty. However, if a spouse inherits the IRA and elects to treat it as his or her own, it may become subject to the 10 percent penalty. "If the spouse is under age 59 1/2 and they think they will need the money before age 59 1/2, I would leave it as the inherited IRA," Portnoff says. "If that spouse rolls it over to their IRA, they are subject to the 10 percent penalty."

Set up an annuity. You can set up a series of annuity payments from your IRA without incurring the early withdrawal penalty. You must use an IRS-approved distribution method and take at least one withdrawal annually to avoid the penalty. The payments are calculated based on your life expectancy or the joint life expectancies of you and your beneficiary, and generally require professional assistance to calculate. "You've got to continue to take the distributions for five years or until you are 59 1/2," says David Frisch, a certified financial planner for Frisch Financial Group in Melville, N.Y. "Even if you have satisfied what the need was, you still have to keep taking the money out until you are 59 1/2." If you don't calculate the payments correctly or fail to consistently withdraw the correct amount over the appropriate number of years, penalties could be applied.

Military service. There is no penalty for IRA withdrawals taken by members of the military reserves, including the Army Reserve, Naval Reserve, Marine Corps Reserve and Air National Guard, who were called to active duty after Sept. 11, 2001, for a period of more than 179 days or an indefinite period. The distribution must be taken during the active duty period to avoid the penalty.

Withdraw from a Roth IRA. If you have a Roth IRA that is at least five years old, you may be able to withdraw your contributions, but not the earnings, without incurring an early withdrawal penalty.

Leave the money in a 401(k). Employees who leave their jobs in the year they turn 55 or older can make 401(k) withdrawals for any reason without having to pay the 10 percent early withdrawal penalty. But if you roll the money over to an IRA, you'll have to wait until 59 1/2 to avoid the penalty. "If you have retired after 55 and prior to 59 1/2, you might want to think hard before rolling over that 401(k) plan to an IRA because there are some opportunities there prior to rolling that money to an IRA to get penalty-free withdrawals," Campbell says.

Contact our Hershkowitz & Kunitzer, P.A. for advice on retirement tax planning! 

Published: October 5, 2018

Divorce: What Tax Reform Means for Alimony Deduction

If you're unfortunately planning to get divorced, get the paperwork started sooner rather than later if you intend to preserve the tax deduction for alimony payments under the new Tax Cuts and Jobs Act (TCJA). In fact, in some states like California, the proceedings should be wrapped up before the end of this month.

Previously, divorced taxpayers were entitled to write of the full cost of qualified alimony payments above the line on a federal return. On the flip side, alimony recipients had to report the payments as taxable income. But child support payments, as well as most other payments pursuant to a divorce, were neither tax-deductible nor taxable.

To qualify as deductible alimony, the following requirements must be met:

  • The spouses don't file a joint return with each other.
  • The payment is in cash (including checks or money orders).
  • The payment is to or for a spouse or a former spouse made under a divorce or separation instrument.
  • The divorce or separation instrument doesn't designate the payment as not being alimony.
  • The spouses aren't members of the same household when the payment is made. (This requirement applies only if the spouses are legally separated under a decree of divorce or of separate maintenance.)
  • There's no liability to make the payment (in cash or property) after the death of the recipient spouse.
  • The payment isn't treated as child support or a property settlement.

But these requirements will soon become a moot point. Under the TCJA, alimony will no longer be deductible by payors and, accordingly, such payments won’t be taxable to recipients. The changes generally apply to divorce and separation agreements executed after December 31, 2018 and prior agreements modified on January 1, 2019 and thereafter. What’s more, unlike most other TCJA provisions for individual taxpayers that are effective only for 2018 through 2025, these new rules are a permanent part of the tax code.

Why the sense of urgency? Some states, including California, require a six-month “waiting period” after papers are finalized for a divorce to take effect. Therefore, if a client is counting on alimony deductions, the agreement should be signed before the end of June. In New Jersey, the waiting period for a no-fault divorce is six months if both spouses consent to it and 18 months if they don’t. Check into the applicable state laws for any clients in this situation.

Also, the tax law changes will likely shift the dynamics at the bargaining table. If a payor won’t be able to deduct alimony in the future, he or she may not be willing to pay as much. One possibility is to arrange for a lump-sum payment before 2019 instead of providing the usual ongoing payments. As a result, the full amount will be deductible.

Similarly, someone who expects to be on the receiving end may use stalling tactics to avoid being taxed on alimony income. If the recipient is forced to give in, some concessions may have to be made by the payor.

Finally, ex-spouses might revisit prior agreements to reflect the new law changes. For instance, if you signed a prenuptial agreement in the past based on the assumption that any alimony would be deductible, you may seek to have the agreement modified. Undoubtedly, the new rules will inspire many taxpayers and their professional advisors – including accountants and attorneys -- to review existing documents.

By Ken Berry, J.D. for CPA Practice Advisor

Published: June 1, 2018

Crackdown on SALT Deduction Workarounds

The Internal Revenue Service and the Treasury Department said Wednesday they intend to issue proposed regulations to address the question of deductibility of state and local tax payments, as states begin to provide ways to expand the limits on the state and local tax deduction imposed by the new tax law.

In recent months, high-tax states such as New York, New Jersey, California and Connecticut have either passed or proposed laws allowing taxpayers to make payments to state-controlled funds in lieu of taxes as a way to get around the limits in the new tax law on the state and local tax deduction, also known as the SALT deduction. But in a new Notice 2018-54, the IRS and the Treasury made clear Wednesday that federal law controls the characterization of the payments for federal income tax purposes regardless of the characterization of the payments under state law.

The Tax Cuts and Jobs Act limited the amount of state and local taxes an individual can deduct in a calendar year to $10,000. The measure in the Republican-led tax law was widely seen as punishing so-called “blue states” controlled by Democrats where taxes are often higher than in GOP-dominated "red states." In response to this new limitation, some state legislatures have adopted or are considering legislative proposals allowing taxpayers to make payments to specified entities in exchange for a tax credit against state and local taxes owed, the IRS noted.

The upcoming proposed regulations will be issued in the near future, according to the IRS, to help taxpayers understand the relationship between federal charitable contribution deductions and the new statutory limitation on the deduction of state and local taxes.

The IRS also warned that taxpayers should be aware it and the Treasury are continuing to monitor other legislative proposals that are being considered to ensure that federal law controls the characterization of deductions for federal income tax filings. For example, New York recently passed a law allowing employers to expand payroll taxes as an option for taxpayers who need the extra deduction.

The limitation imposed by the TCJA applies to taxable years beginning after Dec. 31, 2017 and before Jan. 1, 2026. 

House Ways and Means Committee chairman Kevin Brady, R-Texas, who helped draft the new tax law, praised the move by the IRS and the Treasury Department to restrict efforts to get around the limits on the SALT deduction. “Our new pro-growth tax code is putting more money into the pockets of workers and families nationwide," he said in a statement Wednesday. "It’s unfortunate that some politicians are still trying to discredit this new economic momentum in defense of high taxes and stagnant growth. I applaud the Administration for responding to these gimmicks. There are many mayors and governors who do a good job of balancing budgets and creating jobs in their communities without high taxes, and I encourage those few states that are trying to undermine our growing economy to instead focus on how they can lower their own taxes on their constituents and keep moving our economy forward.”

By Michael Cohn for

Published: May 24, 2018

6 Groups of Taxpayers Most Affected by Tax Reform

Due to the tax reform passed in December, many taxpayers will be seeing tax changes in their 2018 tax return. Some changes are positive and some negative, and it is important to keep as updated as possible with the ever-changing tax environment, especially if your clients are among the groups affected.

Let’s take a look at a few of the groups of taxpayers who will be affected the most.

Taxpayers Who Will Benefit from Tax Reform

Most individual taxpayers will have less tax to pay next year, but there are a few groups in particular that will see significant tax savings.

Infrastructure/ Fixed Assets

For federal purposes, taxpayers who heavily invest in fixed-assets have almost full write off of depreciable assets they are purchasing. Before this law change, these taxpayers who bought equipment had to depreciate the cost over five or 10 years. Going forward, almost the only thing they have to depreciate for federal purposes is real property—the buildings they are buying.

The changes to depreciation is one of the few changes that had an early effective date. The accelerated depreciation started for assets placed in service mid-September 2017.


Corporations now pay lower marginal rates than most other taxpayers. The decreased corporate tax rate is significant enough that some business entities are considering switching their businesses from being taxed as partnerships to being taxed as corporations. Some are electing out of S-corp status to become C-corps. I expect we will hear of more businesses doing this as the year progresses.

Pass-through Entities

To benefit taxpayers who are not corporations, Congress made a new “pass-through“ deduction. The name is a bit of a misnomer since a sole proprietor who files Schedule C could also take the deduction. The deduction is almost like getting 20 percent of the business’s income tax free.

This new provision has specific limitations for accountants, engineers, and lawyers when their income exceeds certain thresholds. As with anything new, there are a lot of questions about what does and does not qualify. The IRS expects to provide additional guidance in July.

Taxpayers Who Will Be Negatively Affected by Tax Reform

Professional Athletes

Professional athletes will be among the taxpayers hardest hit by tax reform. They used to be able to deduct training fees, out of town fees, equipment fees, etc. as two percent itemized deductions, but those deductions were eliminated as of January 1, 2018. Because they will still make high wages that place them in the top marginal tax brackets, they will pay even more in taxes next year. 

Small Wage Contractors

Contractors who work for wages instead of as independent contractors will be negatively affected by the new tax law. This situation often comes up in union trade jobs. Like the athletes mentioned previously, these contractors have lost the ability to deduct business production expenses like uniforms, tools, and safety clothing against their wage income with the loss of two percent itemized deductions. These tradesmen may include construction workers, electricians, iron workers, plumbers, etc.

If these wage-earning taxpayers could switch to independent contractors, it might be beneficial in order to deduct the expenses, but switching could prove difficult. California, for example, is trying to make it so more independent contractors will be considered employees.

Entertaining Taxpayers

Taxpayers who wine and dine or recruit clients and employees have lost many of their meal and entertainment deductions. Entertainment expenses such as renting box seats or rooms at stadiums are no longer tax deductible. There is some debate in CPA circles if a meal expense for working out of town is 50 percent deductible. Hopefully the IRS will provide more guidance on this deduction restriction before the end of the year.  

By Michael Law for CPA Practice Advisor

Published: May 23, 2018

How Tax Reform Hurts Many Small Businesses

The Tax Cuts and Jobs Act gives big business an even bigger edge.

While the Republican-led tax reform bill contains some benefits for small businesses, it also hurts them -- at least indirectly. In some cases, provisions that ostensibly were put in the Tax Cuts and Jobs Act (TCJA) to help small business owners either don't actually help them or won't be taken advantage of by those they're supposed to aid.

In reality, the new tax laws were written with big businesses in mind. If you're not a large corporation or in the top 1% of earners, only about 17% of the benefits of the TCJA will impact you, according to Frank Knapp, writing for The Hill. Most benefits, he explained, will go to C corporations, and most small businesses aren't classified that way. According to Knapp:

Corporations had their tax rate slashed from 35% to 21% with no conditions. Easy. What did small businesses get? An even more complicated tax code that is tilted even further in favor of big businesses and that will do little to help them grow their businesses and the economy.

Why not become a C corp?

While there are lots of positives for larger companies to be organized as C corporations, it comes with a bit of a whammy for smaller businesses. Income from a C corp is taxed twice -- once at the corporate level (21%) and again when income is distributed to owners.

Sole proprietorships, partnerships, and S-corporations are what's called pass-through businesses. That means the owners of the business pay income taxes (once) on whatever income passes through their company. A cut to the corporate tax rate does nothing for small businesses, but it does put more cash in the hands of the big businesses they compete with.

It's Not that Simple

Congress didn't entirely ignore the needs of small businesses. The TCJA includes a provision that allows for a 20% off-the-top deduction of pass-through income. That sounds easy, but it's not that simple, according to Knapp.

The tax cut for small business pass-through income is a hard-to-understand, convoluted mess that CPAs will be trying to figure out for their clients for months, maybe even years, to come. Instead of a large, straight reduction of tax rates on income, the law offers a meager tax cut via a complex formula. Pass-through income will have 20% excluded from taxation but with stipulations for which small businesses qualify and for how much, depending on W2 wages paid.

Basically, the new rules certainly will be good for one type of small business -- accountants. The value to others -- specifically, actual small companies employing one or a handful of people -- is very much in doubt due to complicated formulas and exceptions. To make matters worse, the changes expire in 2025. That means that even if a small business benefits from the changes, those benefits will expire, while the tax change for C corporations is permanent.

It's About Competition

While you could argue that the tax code changes are either neutral or slightly beneficial for small business, in reality, many will be hurt by them -- at least indirectly. Larger corporations will have more cash on hand, and while much of that will go to owners through dividends or share-buyback programs, some of it will be invested.

Bigger companies with more money to spend is bad news for small businesses. They could be hurt as larger competitors invest in infrastructure, people, or less-direct ways, like putting a pool table in the break room or offering high-end free coffee.

The reason there hasn't been a major outcry over the new tax code by small businesses is because its negatives aren't that obvious. Basically, the TCJA makes the rich richer by lowering taxes on C corporations, and that's going to hurt a lot of small businesses, even if they don't realize what's happening.

From the Motley Fool

Published: May 4, 2018

How to Navigate that 20% Tax Break for Small Businesses

Small business owners may benefit from kinder tax treatment under the new law. They should think twice before becoming incorporated.

The Tax Cuts and Jobs Act offers a 20 percent deduction for qualified business income from so-called pass-through entities, which include S corporations and limited liability companies.

Under the "old" tax code, income from these small businesses would "pass-through" to the owner on her own taxes and were subject to individual income tax rates as high as 39.6 percent.

Now, entrepreneurs are subject to a tax break on the income their businesses generate, but many of them face a key decision: Is it now time to incorporate — and if so, what entity should you choose?

"Everyone wants to form an LLC," said Sepi Ghiasvand, who is of counsel at Hopkins Carley in Palo Alto, California. "This is a time when an LLC can save you on taxes, but with a caveat."

Here are the things to consider before incorporating your business.

Not a free-for-all

The new tax law's 20 percent deduction on qualified business income is subject to limitations that keep it from being a free-for-all for every entrepreneur.

In general, to qualify for the full deduction, your taxable income must be below $157,500 if you're single or $315,000 if you're married and file jointly.

Filers who are below those thresholds may take the deduction no matter what business they're in, said Jeffrey Levine, a certified public accountant and director of financial planning at BluePrint Wealth Alliance in Garden City, New York.

However, once taxable income exceeds those thresholds, the law places limits on who can take the break. For instance, entrepreneurs with service businesses — including doctors, lawyers and financial advisors — may not be able to take advantage of the deduction if their income is too high.

Finally, partners in a business may also find themselves in a situation in which one owner gets the 20 percent deduction and the other doesn't. That's because a partner with a high-income spouse may wind up exceeding the taxable income threshold.

"What's fascinating is that you can have two people doing the same work for the same pay, but only one can take the deduction on their return because of other factors," said Levine.

How it works

The 20 percent deduction is considered a "between the lines" deduction in that it doesn't lower your adjusted gross income and you don't have to itemize on your taxes in order to take it.

Generally, if you qualify for the deduction, the 20 percent break will apply to the lesser of your qualified business income or your taxable income minus capital gains.

LLC formation

One big advantage in establishing an LLC is the fact that it protects owners from having their personal assets seized by the business's creditors.

Setting up your LLC may cost a couple hundred to a couple thousand dollars, and you'll be required to file your documents with the state in which your business is based.

You will have to tell the IRS how it should tax your business, using Form 8832: Is your business a corporation, a partnership or should it be on your personal tax return?

What you choose matters, and here's why.

Social Security

Entrepreneurs must pay self-employment taxes, which include payments toward Social Security, of 15.3 percent. However, profits that pass through from an S-corp. are subject only to income taxes.

In that case, an owner of an S-corp. would pay the self-employment tax from his salary, instead.

Compliance requirements

In order to maintain their liability protection and preferred tax status, owners of S-corps. (and C-corps.) need to have an operating agreement in place, maintain books and records, and track their minutes.

"We've seen plaintiffs' counsel pierce the corporate veil because business owners treat the corporation as a piggy bank and don't maintain bylaws," said Rick Keller, chairman of First Foundation in Irvine, California.

Consistent profits

Once your business consistently exceeds $70,000 in annual profits after expenses from 1099 income (as opposed to W-2 wages), it might be time to consider setting up an S-corp., according to Howard Samuels, a CPA and managing partner at Samuels & Associates in Florham Park, New Jersey.

That's because S-corps. are subject to bookkeeping requirements: Owners need to file returns for themselves and the business. They also need payroll services to ensure that taxes are correctly deducted.

Owners should weigh how much they will save on taxes with an S-corp. versus how much they will pay to set it up and maintain it.

By Darla Mercado for CNBC

Published: April 2, 2018

5 Ways to Hack the New Tax Law

Now that tax season has arrived, you’re likely digging through receipts and tax forms to pull together your 2017 returns — and your 2018 taxes may be the furthest thing from your mind. But it’s not too early to think ahead, thanks to big changes in the new federal tax bill.

Signed into law in December, the Tax Cuts and Jobs Act bill was promoted by President Trump as making the tax code so simple taxpayers could file their returns on a postcard. Tax experts say that’s unlikely.

More of a certainty is that the new law will affect millions of taxpayers in 2018, when most of the provisions kick in. Planning now can help you sidestep some pitfalls while maximizing your returns next year.

“The new tax law is over 600 pages, and understanding how it will impact you will be very important,” said Colleen Carcone, director of wealth-planning strategies at financial services organization TIAA.

One major change: The standard deduction is almost doubled for single and married filers, rising to $12,000 and $24,000, respectively. Fewer taxpayers are expected to itemize because of the higher threshold, yet this is where a tax professional can help you assess whether you are likely to continue to itemize.

Update your withholding allowances 

As early as possible in 2018, check your W-4, which is a form that tells your employer how much to withhold in taxes. The reason? The new tax law eliminates personal exemptions. Neglecting to adjust your exemptions could result in your employer failing to withhold enough from your 2018 paychecks. “You could possibly owe instead of getting a refund” in 2019, Greene-Lewis noted.

Plan big medical treatments for 2018

One new break in the tax bill is a tweak to the medical expense deduction. Taxpayers who spend more than 7.5% of their adjusted gross income in either 2017 or 2018 on medical expenses will be able to deduct those costs. That's lower than the previous 10% threshold.

“Maybe you’ve been putting off some sort of medical treatment. Go ahead and make that appointment,” said TIAA’s Carcone. She added that taxpayers could be surprised at what types of expenses they can deduct, such as travel costs to visit a medical specialist. Elective cosmetic procedures are not covered, however.

Pay for private education

The tax bill expanded 529 plans to let families pay for private school tuition from kindergarten through 12th grade as well as college. One caveat is that personal annual spending is capped at $10,000 per year.

The plans are considered tax-advantaged because withdrawals are tax-free, but the money invested into them isn’t tax deductible on your federal returns. However, almost three dozen states also offer a tax deduction or credit when families invest in the plans. provides details about 529 plans, which are administered by states.

Plan your charitable donations 

Despite the larger standard deduction, there are a few methods for maximizing your donations.

Consider a donor-advised fund, a charitable investment fund that directs donations toward a taxpayer’s favorite charities. The hitch: The firms that manage them — such as Fidelity or Schwab — typically have a $5,000 investment minimum.

“If you are dancing on the line of the new standard deduction, you can make several years of gifts to a donor-advised fund this year” because those contributions lower your taxable income in the year you make the donation, TIAA’s Carcone said.

And don’t forget an important tax break for seniors. If you are older than 70½ , you can still make direct charitable contributions from your IRA. The tax bill didn’t touch that provision, Carcone said.

Reassess your home-equity loan

Under prior tax law, homeowners could deduct the interest they paid on their home-equity loans (HELOC), no matter what they used the loan for. No longer. The tax bill now limits the deduction to “acquisition indebtedness.” That means interest on HELOCs that are used to buy, build or renovate homes is still deductible. But homeowners who used their HELOCs to pay down other types of debt or buy a boat might want to reassess their loan.

“If you have cash or other investments, you may wish to pay it off,” Carcone noted. “This is where you will want to work with a financial adviser” to examine the pros and cons.

By Aimee Picchi, Special for USA Today

Published: March 2, 2018

These Tax Credits Can Mean a Refund for Taxpayers!

Taxpayers who are not required to file a tax return may want to do so. They might be eligible for a tax refund and don’t even know it. Some taxpayers might qualify for a tax credit that can result in money in their pocket. Taxpayers need to file a 2017 tax return to claim these credits.

Here is information about four tax credits that can mean a refund for eligible taxpayers:

  • Earned Income Tax Credit. A taxpayer who worked and earned less than $53,930 last year could receive the EITC as a tax refund. They must qualify for the credit, and may do so with or without a qualifying child. They may be eligible for up to $6,318. 
  • Premium Tax Credit.Taxpayers who chose to have advance payments of the premium tax credit sent directly to their insurer during 2017 must file a federal tax return to reconcile any advance payments with the allowable premium tax credit. In addition, taxpayers who enrolled in health insurance through the Health Insurance Marketplace in 2017 and did not receive the benefit of advance credit payments may be eligible to claim the premium tax credit when they file. 
  • Additional Child Tax Credit. If a taxpayer has at least one child that qualifies for the Child Tax Credit, they might be eligible for the ACTC. This credit is for certain individuals who get less than the full amount of the child tax credit.
  • American Opportunity Tax Credit. To claim the AOTC, the taxpayer, their spouse or their dependent must have been a student who was enrolled at least half time for one academic period. The credit is available for four years of post-secondary education. It can be worth up to $2,500 per eligible student. Even if the taxpayer doesn’t owe any taxes, they may still qualify. They are required to have Form 1098-T, Tuition Statement, to be eligible for an education benefit. Students receive this form from the school they attended. There are exceptions for some students. 

By law, the IRS is required to hold EITC and Additional Child Tax Credit refunds until mid-February — even the portion not associated with the EITC or ACTC.  The IRS expects the earliest of these refunds to be available in taxpayer bank accounts or debit cards starting February 27, 2018, if these taxpayers choose direct deposit and there are no other issues with their tax return.

Published: February 9, 2018

Five Reasons to E-File

For taxpayers who still file a paper return, there is no better time to switch to e-file. The IRS expects 90 percent of individual taxpayers to file electronically in 2018. Choosing e-file and direct deposit for refunds remains the fastest and safest way to file a complete and accurate income tax return and receive a refund.

Here are the top five reasons why taxpayers should file electronically in 2018:

  • It is accurate and easy. E-file software helps taxpayers avoid mistakes by doing the math. It guides filers through each section of their tax return. The software uses a question-and-answer format that makes doing taxes easier.  
  • It is secure. E-file meets strict security guidelines. It uses modern encryption technology to protect tax returns. The IRS continues to work with states and tax industry leaders to protect tax returns from identity theft refund fraud. This effort has helped to put strong safeguards in place to make tax filing a safe and secure option.  
  • It is convenient. Taxpayers can ask their tax preparer to e-file their tax return. Most paid preparers must file their clients’ returns electronically.  
  • Most e-filers get their refunds faster. When someone files electronically, there is nothing to mail and the return is virtually mistake-free. This means the fastest way for a taxpayer to get a refund is to combine e-file with direct deposit.  
  • There are several options for making payments. Taxpayers who owe taxes can e-file early and set up an automatic payment on any day until the April deadline. They can pay electronically from their bank account with IRS Direct Pay. Taxpayers can visit for information on the other payment options.
Published: February 6, 2018

Considerations for 2018 Tax Filing Season

The IRS is now accepting tax returns as the annual tax filing season is underway. The IRS expects taxpayers to file more than 155 million returns this year. Here are some things for taxpayers to consider as they are filing:

  • People have until Tuesday, April 17, 2018, to file their 2017 returns and pay any taxes due.
  • Choosing e-file and direct deposit is the fastest and safest way to file an accurate income tax return and receive a refund.
  • By law, the IRS cannot issue some refunds before mid-February. These refunds are for tax returns that claim the Earned Income Tax Credit or the Additional Child Tax Credit. The IRS expects the earliest refunds related to EITC and ACTC to be available in taxpayer bank accounts or on debit cards starting on Feb. 27, 2018.
  • The best way for taxpayers to check the status of a refund is to use “Where's My Refund?” ‎on or the IRS2Go mobile app.
  • Taxpayers should have their year-end statements in hand before filing. This includes Forms W-2 from employers and Forms 1099 from banks and other payers. Doing this helps avoid refund delays and the need to file an amended return.
  • Many Individual Taxpayer Identification Numbers expired on Dec. 31, 2017. This includes any ITIN not used on a tax return at least once in the past three years. Also, any ITIN with middle digits of 70, 71, 72 or 80 is now expired. Affected taxpayers should act soon to renew their number.
Published: February 5, 2018

New Federal Tax Law May Affect Some Refunds Filed in Early 2018

The Internal Revenue Service has announced initial plans for processing tax returns involving the Earned Income Tax Credit and Additional Child Tax Credit during the opening weeks of the 2018 filing season. The IRS is sharing the information now to help the tax community prepare for the 2018 season, and plans are being made for a wider communication effort this summer and fall to alert taxpayers about the changes that will affect some early filers.

This action is driven by the Protecting Americans from Tax Hikes Act of 2015 (PATH Act) that was enacted Dec. 18, 2015, and made several changes to the tax law to benefit taxpayers and their families. Section 201 of this new law mandates that no credit or refund for an overpayment for a taxable year shall be made to a taxpayer before Feb. 15 if the taxpayer claimed the Earned Income Tax Credit or Additional Child Tax Credit on the return.

This change may affect some returns filed early in 2018. Additional information is listed below.

  • To comply with the law, the IRS will hold the refunds on EITC and ACTC-related returns until Feb. 15.
  • This allows additional time to help prevent revenue lost due to identity theft and refund fraud related to fabricated wages and withholdings.
  • The IRS will hold the entire refund. Under the new law, the IRS cannot release the part of the refund that is not associated with the EITC and ACTC.
  • Taxpayers should file as they normally do, and tax return preparers should also submit returns as they normally do.
  • The IRS will begin accepting and processing tax returns once the filing season begins, as we do every year. That will not change.
  • The IRS still expects to issue most refunds in less than 21 days, though IRS will hold refunds for EITC and ACTC-related tax returns filed early in 2018 until Feb. 15 and then begin issuing them.

This is one more step the IRS is taking to ensure taxpayers receive the refund they are owed. The IRS plans to work closely with stakeholders and IRS partners to help the public understand this process before they file their tax returns and ensure a smooth transition for this important law change.

Published: January 26, 2018

Grandparents Caring for Grandchildren Should Check Their Eligibility for EITC

Grandparents who work and are also raising grandchildren might benefit from the earned income tax credit. The IRS encourages these grandparents to find out, not guess, if they qualify for this credit. This is important because grandparents who care for children are often not aware that they could claim these children for the EITC.

The EITC is a refundable tax credit. This means that those who qualify and claim the credit could pay less  federal tax, pay no tax, or even get a tax refund. Grandparents who are the primary caretakers of their grandchildren should remember these facts about the credit:

  • A grandparent who is working and has a grandchild living with them may qualify for the EITC, even if the grandparent is 65 years of age or older.  
  • Generally, to be a qualified child for EITC purposes, the grandchild must meet the dependency and qualifying child requirements for EITC.  
  • The rules for grandparents claiming the EITC are the same for parents claiming the EITC.  
  • Special rules and restrictions apply if the child’s parents or other family members also qualify for the EITC.  
  • There are also special rules for individuals receiving disability benefits and members of the military.  
  • To qualify for the EITC, the grandparent must have earned income either from a job or self-employment and meet basic rules.       
  • Eligible grandparents must file a tax return, even if they don’t owe any tax or aren’t required to file.

Qualified taxpayers should consider filing electronically. It’s the fastest and most secure way to file a tax return and get a refund.

By law, the IRS cannot issue refunds before mid-February for tax returns that claim the EITC or the additional child tax credit. The law requires the IRS to hold the entire refund — even the portion not associated with the EITC or ACTC.  The IRS expects the earliest EITC/ACTC related refunds to be available in taxpayer bank accounts or on debit cards starting Feb. 27, 2018, if these taxpayers choose direct deposit and there are no other issues with their tax return.

Published: January 23, 2018

Key 2018 Tax Changes

The Pass-Through Deduction

The new tax code makes a big change to the way pass-through business income is taxed. This includes income earned by sole proprietorships, LLCs, partnerships, and S corporations.

Under the new law, taxpayers with pass-through businesses like these will be able to deduct 20% of their pass-through income. In other words, if you own a small business and it generates $100,000 in profit in 2018, you'll be able to deduct $20,000 of it before the ordinary income tax rates are applied.

There are phaseout income limits that apply to "professional services" business owners such as lawyers, doctors, and consultants, which are set at $157,500 for single filers and $315,000 for pass-through business owners who file a joint return.

Includes rule to prevent abuse of pass-through tax break: If the owner or partner in a pass-through also draws a salary from the business, that money would be subject to ordinary income tax rates.

But to prevent people from recharacterizing their wage income as business profits to get the benefit of the pass-through deduction, the bill would place limits on how much income would qualify for the deduction.

Tax experts nevertheless have warned that this kind of anti-abuse measure still presents taxpayers with a lot of opportunities to game the system, and favors passive owners of a business over active owners who actually run things.

The Estate Tax Exemption

The estate tax already applied to a small percentage of households. Essentially, the 40% estate tax rate applied only to the portion of an estate that was valued at $5.6 million or more per individual, or $11.2 million per married couple.

However, the new tax law exempts even more households by doubling these exemptions. Now, for 2018, individuals get a $11.2 million lifetime exemption and married couples get to exclude $22.4 million. As you can probably imagine, this won't leave too many families paying the estate tax.

Corporate Tax Rates

So far, we've discussed individual tax reform, but the most dramatic changes made by the bill are on the corporate side.

For starters, the bill lowers the corporate tax rate to a flat 21% on all profits. This is not only a massive tax cut, but is a major simplification as compared to the 2017 corporate tax structure.

The global average corporate tax rate is about 25%, so this move is designed to make the U.S. more globally competitive, which should in turn help keep more corporate profits (and jobs) in the United States.

In addition to these changes, the corporate AMT of 20% has been repealed.


Published: January 4, 2018

9 Tax Deductions Going Away in 2018

The new tax reform bill is now law, and taxpayers can expect a lot of changes to take place in 2018. Reduced tax rates, higher standard deductions, and higher child tax credits for families are just a few of the perks that individual taxpayers will see next year.

To pay for these tax breaks, however, lawmakers took away many deductions that millions of taxpayers had used every year to reduce their tax bills. The nine deductions we’ll discuss are just some of the popular provisions that will disappear, and taxpayers will have to look closely at their own personal situations with their taxpreparer to see whether other, less common deductions are also going away.

1. Personal Exemptions

The biggest move that the tax reform bill made was to take away personal exemptions, which generally allowed taxpayers to reduce their taxable income by $4,050 per person. Many policymakers argued that the personal exemption was essentially merged into the standard deduction, but the rise in the standard deduction under tax reform wasn’t large enough to compensate for the loss of personal exemptions for some taxpayers.

2. Home Equity Loan Interest

Mortgage interest on purchase loans is still deductible under tax reform up to $750,000, but the deduction for interest on home equity loans became nondeductible once 2018 began. Unlike with purchase loans, there’s no grandfathering provision for existing home equity loans. So for those for whom the deduction is important, looking at potentially repaying those loans sooner than expected might be worth considering.

3. Moving Expenses

Taxpayers won’t be allowed to deduct moving expenses, as they can for 2017. To be deductible, a move had to be motivated by a job change, with the new job being at least 50 miles farther from where you used to live than your old job was. The best thing about the moving expense deduction was that you didn’t have to itemize deductions to get it, but it will be gone for 2018 and beyond.

4. Casualty and Theft Losses (Except in disaster areas.)

Casualty losses under old law were eligible as itemized deductions to the extent that they exceeded $100 plus 10 percent of your adjusted gross income. Events included not only natural disasters but also fires, robberies and other qualifying occurrences. The new law now preserves the deduction only for disasters for which a presidential disaster area declaration was made.

5. Job Expenses

Money you spent on certain job costs, such as license and regulatory fees, required medical tests, and unreimbursed continuing education, was available as an itemized deduction to the extent that it and other miscellaneous deductions exceeded 2 percent of your adjusted gross income. Now, you won’t be able to deduct these costs anymore, making it even more worth your while to try to get your employer to pay them on your behalf.

6. Subsidized Parking and Transit Reimbursement

Employees were eligible under old tax law to get up to $255 per month from their employers to subsidize parking costs or transit passes. Workers didn’t have to include those perks in income, and companies could deduct it. Now, the corporate deduction for that cost will go away, and that could lead some businesses to stop offering those programs to workers.

7. Tax Preparation Fees

Just like job expenses, costs to have your taxes done were also available as miscellaneous itemized deductions. That won’t be the case anymore, and any costs for tax preparation will be nondeductible in 2018. This does not, however, apply to the business expense of professional fees which will still be deductible. 

8. Other Miscellaneous Deductions

A host of other miscellaneous deductions subject to the 2% AGI limitation will all be gone in 2018. These include investment fees and expenses, convenience fees for using a credit or debit card to pay your taxes, and trustee fees for an IRA if paid separately.

9. Donations to Colleges in Exchange for Athletic Event Seats

One controversial provision allowed donors to give money to colleges and deduct the full amount, even if they got back tickets or seating rights to athletic events. That perk will go away, and donors will have to reduce their deductions by the value of those tickets.

*This article originally ran for The Motely Fool.

Published: January 2, 2018

Get Ready for Taxes: Plan Ahead to Avoid Refund Delays

Taxpayers can take steps to ensure smooth processing of their 2017 tax return next year. Here are three things taxpayers should know about the tax returns they will file next year.

1) It’s important to gather documents

The IRS urges all taxpayers to file a complete and accurate tax return by making sure they have all the needed documents before they file. This includes:

  • Forms W-2 from employers.
  • Forms 1099 from banks and other payers.
  • Forms 1095-A from the Marketplace for those claiming the Premium Tax Credit.

Typically, these forms start arriving by mail in January. Taxpayers should check them over carefully, and if any of the information shown is wrong, contact the payer right away for a correction.

2) Taxpayers with expiring ITINs should renew promptly

Some people with an Individual Taxpayer Identification Number may need to renew it before the end of the year to avoid a refund delay and possible loss of key tax benefits. These ITINs expire Dec. 31, 2017:

  • ITINs not used on a tax return in the past three years.
  • ITINs with middle digits 70, 71, 72 or 80.

Anyone who needs to renew an ITIN should submit a completed Form W-7, Application for IRS Individual Taxpayer Identification Number. They should mail the Form W-7, along with original identification documents or copies certified by the issuing agency. Once an individual files a completed form, it typically takes about seven weeks to receive an ITIN assignment letter from the IRS.

3) Choose e-file and direct deposit for a faster refund

Electronically filing a tax return is the most accurate way to prepare and file. Errors delay refunds and the easiest way to avoid them is to e-file. Combining direct deposit with electronic filing is the fastest way for a taxpayer to get their refund. With direct deposit, a refund goes directly into a taxpayer’s bank account.

There are several e-file options:

  • Commercial tax preparation software.
  • Tax professional.

Taxpayers should note that the IRS cannot by law issue refunds for people claiming the Earned Income Tax Credit or Additional Child Tax Credit before mid-February. This law helps make sure that taxpayers receive the refund they’re due by giving the IRS more time to detect and prevent fraud.

The IRS expects the earliest refunds related to EITC and ACTC to be available in taxpayer bank accounts or debit cards starting on Feb. 27, 2018, if the taxpayer uses direct deposit and there are no other issues with their tax return.  This additional period is due to several factors, including the Presidents Day holiday and banking and financial systems needing time to process deposits.

Published: December 26, 2017

Tax Advice for Temporary and Seasonal Employees

As the holiday shopping season approaches, it's a great time for some reminders if you're planning to take on some seasonal temp work!

Seasonal employees are workers who take jobs that only last for a few weeks or a couple of months during a specific season. Most commonly, these employees are hired on to give a business additional help during a busy period such as the summer season or the retail holiday season. In many cases, seasonal employees are students who work during school breaks or adults who are supplementing their full-time pay with part-time work. No matter their individual situations, it's important for seasonal employees to understand their tax implications so that they can avoid paying tax penalties with their returns.

1. Record your tips.

Are you employed in a service profession where you receive compensation through tips? If so, you might think that those tips are exempt from taxation--they're not. The IRS requires you to report all of your tips as part of your gross income for the year. Since your employer might not provide you with an accurate report of your tips at year's end, keep up with them yourself by using a spreadsheet or a financial diary.

2. Watch out for self-employment taxes.

According to the IRS, anyone who operates a business on his or her own is self-employed. This can include simple jobs like babysitting, lawn care, or any job that classifies you as an independent contractor. The federal tax law stipulates that all taxpayers who receive $400 or more in self-employment earnings during the year must pay self-employment taxes. If you fall into this category of worker, calculate your taxes by using Schedule SE and submit it with your return.

3. Find out if you're exempt from income tax.

In some cases, seasonal employees may not have to pay income tax. This exemption applies to those who earn less than the total of their personal exemption and the standard deduction for their filing status. To make sure that you're truly exempt, contact a qualified tax professional. If you don’t have to pay, you can designate this on your W-4 form and avoid having federal income tax withheld from your pay.

4. Cover your tax liability.

If you're planning on working more than one seasonal job at a time, you may end up paying more income tax than you think. The IRS will require you to include the income from all of those jobs in your gross income for the year, which could significantly increase your tax liability. To make sure you're covered, have each employer deduct the appropriate tax withholding for your filing status and allowance amount.

5. Prepare yourself for tax withholding.

Many employees are surprised to find out exactly how much money the government withholds for tax purposes. Along with federal income taxes, you'll have to pay state income taxes, Social Security and Medicare (FICA) taxes, and in some cases, you may even have to pay local income tax as well. Take the time to examine the deductions from your first paycheck so that you can estimate how much you can expect to take home each week.

Seasonal employees have to face some unique tax situations. By using these tips for seasonal workers, you can get the most out of your part-time pay.

By Top Tax Defenders

Published: December 1, 2017

Sometimes Some Business Deductions Aren't Worth It

GreenPal CEO Bryan Clayton spent years deducting every possible business expense on his tax returns. When he sold his former company, Peach Tree Inc., in 2013, he discovered that probably wasn't the greatest idea.

"I was penalized for taking all of those not-quite-necessary deductions," he said. "Had I taken a better approach, I would've made a lot more money in the long run when my business was acquired."

That's because the commercial landscaping company's value, which was grossing more than $8 million annually, was determined on earnings after interest, taxes and expenses. Smaller taxable income meant a lower sales price.

Self-employed professionals and business owners (there are over 15 million, according to the Bureau of Labor Statistics) may be tempted to spend freely and take as many deductions as possible in any given year, yet there are circumstances where it makes more sense to be more frugal or defer deductions, tax and financial experts say.

It's important for the self-employed to know the rules. Businesses must report all earned income and expenses. There are cases where businesses claim items that aren't actually legitimately deductible.

"They think that their personal cellphone that they may use for a few business calls, their home internet, their only car which they claim 100 percent for business, and other personal expenses can be business deductions," said Abby Eisenkraft, an enrolled agent and CEO of Choice Tax Solutions Inc. in New York.

Not only does that cause a problem if they're audited by the IRS, it could also hurt their cause when it comes to a sale, qualifying for a loan or making a retirement contribution based on taxable income, she said.

However, there are times where it makes sense to defer making purchases, and be a spendthrift in any given year.

Consider the following circumstances:

When you want to amp up retirement savings

Self-employed Texas designers Pablo and Beverly Solomon tried for years to limit their taxable income by spending on their businesses, which held down how much self-employment tax they had to pay for Social Security contributions.

"We took deductions over the years thinking that by investing the savings, we could do better than the Social Security checks," Pablo Solomon said. "With so many years of low interest rates, several stock market crashes and a wild real estate market, things did not fall into place as perfectly as planned."

Their Social Security checks are now too small to live on, but the couple luckily has other sources of retirement income.

Retirement plan contributions for the self-employed — up to $54,000 annually in a SEP-IRA or solo 401(k) — are based on the amount of profit or income in the business, said Richard M. Prinzi Jr., CPA and co-founder of F-Sharp Tax Management Services. The less taxable income you have, the less you can take advantage of the plans.

When you want to boost your income

You may choose to be frugal in your business or defer deductions if in the next three years you plan to either sell, as GreenPal's Clayton did, or obtain long-term financing, said Jeff White, a financial and legal analyst with

"When you sell your business, you'll likely be asked to give the buyer at least three years of tax returns," he said. "Many buyers rely on these net income numbers more than your accounting books, because so many expenses can be claimed in a sole proprietor business when you're doing your end-of-year accounting."

Loan officers also will look to your tax returns to gauge your ability to repay a loan, White said. Less income may translate to a smaller loan.

Lower taxable income could also hurt a business owner's personal goals.

"Small-business owners should be wary of their personal finances. Deductions lower business income, but that also hurts a business owner's ability to qualify for family needs like a mortgage or loan for a new minivan," said Jason J. Howell, a certified financial planner and president of Jason Howell Company in Vienna, Virginia.

If you are just starting out

Timing — and matching expenses with income — is perhaps the most important reason to defer deductions, said Paul T. Joseph, CPA and principal at Joseph & Hedrington in Williamston, Michigan.

"You may want defer expenses to the next reporting period because you are anticipating a large income item which will come in," Joseph said.

Joseph cited the example of owning a pineapple farm: There would be the expense of planting the pineapple trees in year one, maintenance in year two and income from selling your pineapples in year three. If you can defer the making the expense to the year you receive the income, you can take the losses against the gains to limit taxes.

The important thing when it comes to all tax decisions and opportunities is keeping good records.

"I meet many small-business owners, and they like to say 'I deduct everything,'" Eisenkraft said. "The problem with that line of thinking is that they will never survive an IRS audit. For those who are smarter, they will learn that lesson [early]."

By Kayleigh Kulp for CNBC

Published: November 20, 2017

Get Ready for Taxes: Save for Retirement Now, Get a Tax Credit Later

The Internal Revenue Service reminds low- and moderate-income workers to plan now to earn a credit on their 2017 tax return. A special tax break can help people with modest incomes save for retirement. It’s called the Saver’s Credit and it could mean up to a 50 percent credit for the first $2,000 a taxpayer contributes to a retirement plan.

Also known as the Retirement Savings Contributions Credit, the Saver’s Credit helps offset part of the amount workers voluntarily contribute to a traditional or Roth IRA, a 401(k) or 403 (b) plan, and similar workplace retirement programs.

Taxpayers with an IRA have until April 17, 2018, (the due date of their 2017 tax return) to contribute to the plan and still have it qualify for 2017. However, contributions (elective deferrals) to an employer-sponsored plan must be made by the end of the year to qualify for the credit. Employees who are unable to set aside money for this year may want to schedule their 2018 contributions soon so their employer can begin withholding in January.

The Saver’s Credit can be claimed by:

  • Married couples filing jointly with incomes up to $62,000 in 2017 or $63,000 in 2018
  • Heads of Household with incomes up to $46,500 in 2017 or $47,250 for 2018
  • Singles and married individuals filing separately with incomes up to $31,000 in 2017 or $31,500 in 2018

To qualify for the credit, a person must be:

  • Age 18 or older
  • Not a full-time student
  • Not claimed as a dependent on another person’s tax return

Like other tax credits, the Saver’s Credit can increase a taxpayer’s refund or reduce the amount of tax owed. Though the maximum Saver’s Credit is $1,000 ($2,000 for married couples), the IRS cautioned that it is often much less and may be zero for some taxpayers.

The amount of the credit is based on filing status, income, overall tax liability and the amount contributed to a qualifying retirement plan. It may also be impacted by other credits and deductions or reduced by any recent distributions from a retirement plan.

To claim the Saver’s Credit, taxpayers must complete Form 8880 and attach it to their tax return. Form 8880 cannot be used with Form 1040EZ.

In tax year 2015, the most recent year for which complete figures are available, Saver’s Credits totaling nearly $1.4 billion were claimed on more than 8.1 million individual income tax returns. 

Published: November 15, 2017

Why Small Businesses Need a CPA

Every business, no matter how small, needs a financial and tax advisor. But your business needs a Certified Public Accountant (CPA)​, not just an accountant.

CPA vs. Accountant

"Accountant" is a general term, referring to financial and tax professionals who follow specific rules and regulations, including Generally Accepted Accounting Principles (GAAP), which are rules and standards set forth by the Financial Accounting Standards Board (FASB).

CPA's are accountants who have passed a licensing examination in a state. So, you could say that all CPA's are accountants, but not all accountants are CPA's.

Many small businesses use the services of an accountant, and there are many competent accountants serving small companies. For a very small business, an accountant may fill some of the accounting needs, but there are specific circumstances in which using the services of a CPA has advantages.​

Advantages of a CPA for Your Business

Even if you have a very small business or a single-person business, you probably need the services of a CPA, for several reasons:

CPA's are licensed; accountants are not.

A CPA is licensed by a state, and must keep current with tax laws in order to maintain a license in that state. Accountants aren't licensed. The CPA exam is a rigorous process over several days, including many facets of financial and tax expertise.

After they are licensed, CPA's also must comply with continuing education requirements in order to maintain their licenses; accountants don't have this requirement. You can learn more about the standards that CPA's must follow by checking out the CPA professional organization, the American Institute of CPA's (AICPA).

CPA's are more familiar with tax laws.

While not all CPA's specialize in small business taxes, almost all CPA's are more familiar with tax laws than are accountants. Knowledge of the tax code is a big part of a CPA's licensing exam and many CPA's take tax courses every year to keep up to date on the Tax Code. An accountant also may be able to prepare and sign tax returns, but the designation of "accountant" does not provide assurance of certification, nor does it give the accountant the ability to represent you before the IRS, even if this person has signed your tax return. Accountants are classified by the IRS as "unenrolled preparers."

The IRS requires all tax preparers to have a preparer tax identification number. and the IRS distinguishes between preparers who are enrolled agents, CPA's, or attorneys, and other preparers (considered unenrolled preparers. Accountants who are not CPA's are considered unenrolled preparers. An unenrolled preparer's ability to represent a client in a tax matter before the IRS is very limited.

CPA's can do financial analysis.

Bookkeepers perform routine tasks of records input (input of business income and expenses into a financial software program, for example); accountants review this input and prepare and analyze the financial reports (balance sheet and P&L).

CPA's do more detailed and thorough analysis and they advise on tax and financial matters. Although the designation of "CPA" doesn't mean this individual is giving you the best advice, a CPA is more prepared and puts his or her license on the line by giving tax and financial advice.

A CPA can support you in an IRS audit.

Probably the biggest reason to use a CPA for your business taxes is that a CPA is eligible to represent you before the IRS in an audit, while an accountant is not. As noted above, accountants who are not CPA's can only represent clients in a very limited manner. (Enrolled agents may also represent you with the IRS.) If you are paying to have a professional do your tax preparation, make sure this person has full authority to represent you in an audit and to execute claims on your behalf.

In other words, accountants do the routine work and they can complete tax returns, while CPA's can analyze the work, represent you at a tax audit, and help you make more high-level business and tax decisions. Sure, CPA's charge more, but you get what you pay for.

Working with CPA's:

Find a CPA firm that includes a bookkeeper and accountant. Then you can separate the more routine financial jobs from the tax and financial analysis done by the CPA. Or hire a bookkeeper for those monthly, quarterly and yearly financial reports, then periodically consult with your CPA and have your CPA do your business taxes. You can also ask that the CPA review and sign off on your tax return that may have been prepared by an accountant working under the CPA's direction.

By Jean Murray for The Balance

Published: November 8, 2017

Why Hire a CPA?

While you may think the terms “accountant” and “CPA” (certified public accountant) have basically the same meaning, there are several differences.

One of the biggest distinctions of CPAs is they are repeatedly tested and regulated by the federal government. In addition, CPAs are required to take continuing professional education to stay current with new rules and regulations.

Hiring a CPA also has several advantages, including:

  • Tax compliance – What forms do you need to file and what are their due dates? What income is taxable and what expenses are deductible?
  • Budgeting – CPAs can help create your organization’s initial budget, develop reasonable estimates, determine the drivers behind revenue and expenditures; figure breakeven points, etc.
  • Setting up a financial system – You can get help with accounting software set-up and training, as well as internal controls.
  • Payroll taxes – Because they’re complicated, it’s easy to make mistakes with payroll taxes. A CPA can assist in client payroll systems and payroll outsourcing options.
  • Financial statement preparation – Compiled or reviewed financial statements may be needed for management purposes, financing or bonding.
  • Sounding board for financial recommendations – These include asset purchase decisions, return on investment, buy or lease, etc.
  • Designing and enforcing accounting/internal controls – A CPA can help with payroll, cash receipts, payments, petty cash, separation of duties, etc.
  • Credibility – Having a CPA prepare or review financial statements and tax returns gives you and your company credibility.
  • Cash flow analysis – Preparation of projections, estimates or proformas correlates directly with budgeting.

Contact us today for your no-obligation consultation. Any information discussed will always remain confidential.

Published: November 7, 2017

3 Smart Ways for Investors to Cut Their Taxes

High returns aren't the only factor to consider when choosing your investments.

A tax-efficient portfolio can save you enough on your tax bill to nicely compliment your investment returns. Take a look at your own portfolio to see if you've implemented the following tax-shrinking tips.

1. Max out your tax-advantaged accounts

Investors have plenty of options for tucking away their money. If you do your investing in accounts with built-in tax advantages, such as HSAs, IRAs, and 401(k)s, you can save a bundle on your tax bill. Investments in these accounts don't generate taxes when you receive dividends from stocks or interest from bonds, and they also won't incur capital gains taxes if you sell an investment for a profit.

In addition, IRAs and 401(k)s give you a tax break either on the money you put into the account or the money you take out (depending on whether the account is a traditional tax-deferred account or a Roth account). HSAs actually give you a tax break on both contributions and distributions, making them the only triple tax-advantaged account.

These accounts are such a great deal that the IRS has put limits on how much you're allowed to contribute to them each year. So throw your investing dollars into these tax-advantaged accounts until you hit the annual maximum; then and only then should you focus on building up your standard brokerage accounts.

2. Consider tax-advantaged investments

Certain investments have built-in tax savings. For example, treasury securities are exempt from state taxes (although you will still have to pay federal taxes on the interest).

Municipal bonds take the tax advantage a step further: They are exempt from federal taxes and may also be exempt from state taxes, if the bond was issued by the state you live in. Clearly, if you're going to buy municipal bonds, look for ones from your state of residence to max out the tax savings.

A tax-advantaged investment is not always the best choice. The bonds that come with a tax break pay lower returns than bonds that don't, and depending on your situation, the tax break may or may not make up for the lower returns. For example, if you live in a state with high state taxes, tax-free municipal securities are likely to be a good deal -- but if you live in a state with no state taxes, the federal tax savings alone likely won't be enough to turn municipal bonds into a good deal.

3. Don't overlap tax breaks

The big selling point of municipal bonds is their potentially high tax break -- but if you put a municipal bond in an IRA, the tax advantage disappears. Why? Because you don't pay taxes on any bond interest that's deposited into an IRA, whether it's from a municipal bond or not. Thus, putting municipal bonds in a tax-advantaged account is a waste of money.

Similarly, real estate investment trusts (REITs), while a great investment, can expose you to high taxes because of the very high dividends these securities are required to generate. Tucking your REITs into a tax-advantaged account such as an IRA neatly erases this disadvantage, since the copious dividends that REITs produce will not be taxed as they come in.

by Wendy Connick for The Motley Fool

Published: October 26, 2017

8 Tax Changes for 2018

The Internal Revenue Service has unveiled some changes for 2018 including cost-of-living adjustments for retirement savings and inflation changes for certain tax provisions.

Higher contribution limits for retirement savings

Employees who participate in certain retirement plans ‒ 401(k)s, 403(b)s, most 457 plans and the Thrift Savings plan – will be able to contribute as much as $18,500, a $500 increase from the current $18,000 limit.

Deductible contributions to IRAs

Savers who contribute to individual retirement accounts will have higher income ranges following cost-of-living adjustments. Note that the deduction phases out for individuals and their spouses who are covered by workplace retirement plans.

For single taxpayers, the limit will be $63,000 to $73,000.

For married couples, the phase-out range will vary depending on whether the IRA contributor is covered by a workplace retirement plan or not. When the spouse who is investing has access to an employer plan, the range is $101,000 to $121,000. For individuals who don't have a retirement plan but are married to someone who does, the phase out has been raised to $189,000 to $199,000.

The phase-out was not adjusted for married individuals who file a separate return and who are covered by a workplace retirement plan. That range is $0 to $10,000.

Contributions to Roth IRAs

For individuals who are single or the heads of their households, the income phase-out has been raised to $120,000 to $135,000. For married couples who file jointly, the range climbs to $189,000 to $199,000.

The phase out was not adjusted for married individuals who file a separate return. That is $0 to $10,000.

Because tax has been paid on Roth IRA contributions, deposited funds can always be tapped for other purposes. 

Standard deductions

Those who are married and filing jointly will have a standard deduction of $13,000, a $300 raise from $12,700.

Single taxpayers and those who are married and file separately will see their standard deduction rise to $6,500.

For heads of households, the deduction will be $9,550.

Personal exemption

The personal exemption will grow by $100 to $4,150. The phase-out for this exemption begins at income of $266,700, or $320,000 for married couples who file jointly, and phases out completely at $389,200 for individuals and $442,500 for couples who file together.

Top income tax rate

The 39.6 percent tax rate will affect individuals with income over $426,700. Top rate kicks in for married taxpayers who file jointly at $480,050.

Alternative Minimum Tax

The exemption amount will be $55,400 for individuals before the AMT kicks in, and begins to phase out at $123,100. For married couples who file jointly, that will be $86,200, and will begin to phase out at $164,100.

Estate tax

The basic exclusion amount for estates of decedents who die in 2018 will be $5.6 million, up from $5.49 million in 2017.

By Lorie Konish for CNBC

Published: October 25, 2017

Tax Tips for Homeowners

The joys of homeownership are manifold. You can nail whatever you want to the wall! You can paint a room neon green! You can be financially responsible for an alarming mortgage, personally responsible for house liability issues and emotionally responsible for how sad you get in the summer when all the neighbors around you mow their lawns while you had no intention of getting out there for another week.

Some parts of homeownership are more fun than others.

But don't assume that trying to navigate tax code as a homeowner is a nightmare. There are a lot of great perks for people who own homes, and we're here to help you find them. From your mortgage to your home insurance -- not to mention the intricacies of selling and buying -- let's dive into some simple tips that can help elucidate a few points come tax time.

Mortgage Interest

When it comes to taxes, the eternal question is whether or not to itemize. There's no way around the fact that taking the standard deduction is a heck of a lot easier: The government gives you a nice chunk of relief without any tallying of costs or poring over tax code.

But if you're a homeowner, you might think twice about going the easy way out. Mortgage interest is entirely deductible, and -- depending on your mortgage agreement -- it might make a heftier tax credit than the standard deduction. Since a lot of monthly mortgage checks are going toward the interest of the loan as opposed to the loan itself, this can create a sizable savings. (Keep in mind that the 2014 standard deduction is $6,200 for single people and $12,400 if filing jointly.)

However, remember that you can only begin writing off expenses after you reach 2 percent of your adjusted gross income (AGI). So if your AGI is $60,000, the first $1,200 worth of itemized expenses don't even count.

Property Taxes Are Deductible

In a move that frankly makes no sense, the IRS lets you deduct taxes on your tax return! Seriously.

On your federal tax return, you can claim any state and local property taxes you pay. While you might not realize you're forking them over, you're actually paying state and local property taxes with every mortgage payment. They go into escrow, where the mortgage lender pays them once a year. On your yearly summary, you can look up the cost of property taxes for your listing. Even if you just bought the house, it should list what taxes you paid versus what the old owners paid for the year -- but be sure that you deduct only your amount, of course.

Remember, however, that this only applies to those itemizing their deductions. Take the standard deduction, and you're outta luck.

Casualty Losses

If something dramatic happened this year to damage your home or property, the IRS will let you account for the loss. You can only write off casualty losses if you itemize your taxes though: They're not above-the-line deductions. Casualty is a pretty broad category, and the IRS says the loss must be caused by a "sudden, unexpected or unusual" event.

As a homeowner, that could range from damage caused by a natural disaster to vandalism. Keep in mind that you can only write off the fair market value of the property; the $1,200 flat-screen TV you bought in 2008 might only be worth $800 now, for instance. The IRS also requires you to subtract some rates from your actual loss ($100 per event, then 10 percent of your AGI) to arrive at your deduction.

Also, don't think that you can receive tax deductions if insurance or a lawsuit covers your losses. You can only claim deductions on unrecoverable losses.

Watch Out for Debt Cancellation

While it would be nice if we could offer nothing but good news and credits for homeowners, we should also offer some fair warnings for those who aren't in great real estate shape.

If you are planning a short sale on an underwater property, be aware that any cancellation of debt is considered income. That can be terribly burdensome. Consider, for instance, what might happen if you owe $250,000 to your mortgage lender and short-sell your home for $150,000. That leaves you with a whopping $100,000 you have to report as income -- and that means you're going to have to pay taxes on it.

Foreclosures work a little differently; if you're personally responsible for the entire mortgage, you'll also be responsible for the cancellation of the debt. Congress has yet to renew the Mortgage Forgiveness Debt Relief Act, which expired in 2013 and allowed some qualified taxpayers to exclude debt from their taxes.

Sell Sell Sell

Keep in mind that it's not just owning a home that can help you out come tax time: Selling your house also has some advantages. Not that it's necessarily a terrific idea to sell your home just to collect some tax savings, but you might as well take advantage of them when you can.

Did you advertise your sale in any way? You can write it off. Did you buy title insurance? Write it off. You can even claim some repairs if they were performed during a certain time period around the sale. Perhaps even more impressive? If you make under $250,000 ($500,000 for married couples) in profit from the sale, it's not taxable. Keep in mind that you will have to live in the house for at least two out of five years of ownership to qualify. (For those keeping track, that means you have to own it for at least two years.)

By Kate Kershner for HowStuffWorks

Published: October 20, 2017

What Expenses Are Tax Deductible for a U.S. Horse Business?

Expenses can be deducted if they are ordinary and necessary. Ordinary means that someone else who has a business like yours would likely have a similar expense. Necessary means that you needed to spend this money in order to operate your business.

In general, business expenses are deductible if they are costs you wouldn't have had if you didn't have your business. In other words, if you would have had this expense, even if you didn't have your business, it's probably not deductible.  What is ordinary and necessary is relative to each industry.  Fees paid to a farrier would be an example of an ordinary and necessary expense for a riding stable but not for an electrician.

In order to be deductible, you must also be able to substantiate the expense with documentation.    

When an expense is deductible depends on the accounting method of your business.  If the business owner uses the cash method of accounting, the expense is deductible in the tax year in which it is paid.  If the accrual method is used, the expense is deductible in the tax year in which it is incurred.  Many equine-based businesses use the cash method of accounting.  

Typical Farm business expenses may include:
* Accounting, legal and bookkeeping fees (including the portion of your tax return preparation fee that includes your business return) 
* Advertising and promotion
* Bank service charges 
* Breeding fees paid in the business of breeding and raising horses 
* Broodmare rental
* Car and truck expenses. You can either use the standard mileage rate method or the business percentage of the actual auto expenses you had (gas, insurance, repairs, lease payments, car depreciation, etc.) Don't forget the miles you drive on errands such as picking up supplies and going to the post office. 
* Contract labor, including subcontractors and consultants. It's best to list these expenses on your return in the category of expenses covered rather than listing them as 'independent contractors'. 
* Computer supplies 
* Depreciation on business equipment and vehicles
* Dues to trade organizations 
* Education, including seminars and conferences that increase your knowledge and skills. You can't deduct the cost of education that prepares you for a new line of work. 
* Employee pensions and benefit programs 
* Entertainment and business meals (these are 50% deductible) 
* Farrier, veterinary and related therapies expense
* Feed and shavings
* Gifts to business associates or clients (up to $25 per person per year is deductible) 
* Home office expenses, if you qualify
* Insurance including liability, workers compensation, and other business-related insurance. 
* Interest on indebtedness related to your horse business – e.g. mortgage, farm loan, equipment loans
* Licenses and fees 
* Magazines, videos, DVDs and books that you need for your business 
* Postage, delivery, and freight costs 
* Printing, copying, and fax charges 
* Rental of equipment and property used in your business 
* Repair and maintenance- costs that keep the property in operating condition and do not appreciably extend the life of the property or materially add to its value
* Small furnishings and equipment 
* Supplies for your barn and office
* Taxes – property, excise, employer portion of payroll taxes
* Telephone (you can deduct long distance business calls made from home even if you don't qualify for an office-in-home. Monthly service charges are deductible only if you have more than one phone line in your home.)
* Trailering of horses to shows, veterinary appointments, etc. 
* Training of horses to prepare them for sale or show
* Travel for business purposes, including costs to go to seminars and conferences. Deductible travel costs include hotels, airfare, taxis, car rentals, parking, tolls, tips, and so on. These expenses are 100% deductible. Travel meals are only 50% deductible. 
* Uniforms or special work clothing required by your job and not suitable for everyday use (e.g.  breeches, riding boots and helmets) can be deducted. If you can deduct the cost, you can also deduct the cost of upkeep, including laundry and dry-cleaning bills.  
* Utilities 
* Wages paid to employees

This list is not all inclusive of the types of business expenses that are deductible. 

Limitations on the deductibility of the expenses may exist related to hobby activities, related party transactions and at risk activities. Please consult your tax return preparer for more information.

By Carol Gordon, CPA

Published: October 19, 2017

Florida Governor Oks End to Tampon Tax

Florida Gov. Rick Scott signed a $180-million tax cut package that will eliminate taxes charged on tampons and created two sales tax holidays.

Scott approved the bill even though state legislators gave the Republican governor far less than what he had initially asked for in January.

"Every time we cut taxes, we are encouraging businesses of all sizes to create opportunities for families across the state and more money is put back in taxpayers' pockets," said Scott in a statement.

The tax cut package creates a three-day "back-to-school" tax holiday in August where residents could purchase tax-free clothes that cost $60 or less. The tax holiday, held Aug. 4 through Aug. 6, covered school supplies costing $15 or less and computers that cost $750 or less.

There was also a three-day period during the first weekend in June to allow residents to purchase storm preparation supplies tax-free. Batteries, flashlights, portable generators costing $750 or less were on the list of item exempt from Florida's 6 percent sales tax.

Starting in January, the new law will make feminine hygiene products such as tampons and menstrual pads tax-exempt. Florida is joining 13 states and the District of Columbia that exempt taxes on the sale of feminine hygiene products or have enacted laws to exempt these products in the future.

"This common sense legislation will result in a tax savings for women all over the state who purchase these necessary products," said Sen. Kathleen Passidomo, the Naples Republican who pushed for the exemption.

Scott had initially asked the GOP-controlled Florida Legislature to pass a hefty $618 million tax cut package that included a 25 percent reduction in the sales tax charged on commercial rents. Scott also wanted the "back-to-school" sales tax holiday to last 10 days and he wanted a three-day sales tax holiday for military veterans. The governor also asked for a one-year elimination of sales taxes charged on college textbooks.

Legislators ignored, or greatly scaled back Scott's recommendations. They decided to cut the sales tax on commercial rent by only 3 percent.

Republican legislators rejected a Scott plan to use a rise in local property taxes to pay for an increase to public schools. Instead they put together a new state budget that calls for a slight cut in local property taxes that go to schools. They also placed on the 2018 ballot a measure that would increase the state's homestead exemption for property taxes if approved by voters.

Scott, however, has hinted he may veto the budget, which would force legislators back to the state capital later this year.

By GARY FINEOUT, Associated Press

Published: October 10, 2017

The Best Tax Tips for Freelancers

On the back of the gig economy, making ends meet has taken on many forms.

From Uber drivers to freelance web developers, there's a growing group of 1099 workers in the labor force – some have a side job in addition to a permanent position, others have become full-time contractors.

In either case, the percentage of workers in alternative work arrangements, including independent contractors or freelancers, jumped to 15.8 percent in 2015 from 10.1 percent a decade earlier, after barely budging in the 10 years before that, according to a report by labor economists Lawrence Katz and Alan Krueger.

And for those who recently received a 1099-MISC or a 1099-K in the mail, this tax season has its advantages and challenges. 

When are you a freelancer?

"Part of the problem is, many of these people are picking up a side gig, but they don't necessarily think of themselves as self-employed," said Peter Burridge, chief commercial officer at Hyperwallet.

"When you cross over into the world of self-employed, all of the obligations are on them to pay self-employment tax and contribute to their own retirement," he said.

For starters, you'll owe income tax and self-employment tax since those levies are not being withheld by an employer. However, half of that self-employment tax expense is deductible. Those making over $200,000 a year also have to pay a Medicare surcharge.

In reality, the average income of self-employed business owners is about $25,000 according to TurboTax. Of those with a side gig, nearly half make $2,000 or less a year, just over one-third make between $2,000 and $10,000 and about 14 percent report earnings between $10,000 and $50,000, according to a report by accounting software form Xero.

Even if you earned less than $600 from a side job, you may not receive a 1099 form, but you still have to report the earnings.

If you expect to owe over $1,000, you will need to make quarterly tax payments, Greene-Lewis said. If you haven't done that already, you could be hit with penalties and interest. And keep in mind that for 2017, the first quarterly payment is due this April.

If you have the income to spare, consider setting up a Simplified Employee Pension, or SEP, to save tax dollars, said Lester Law, managing director of planning at Abbot Downing, a boutique business of Wells Fargo. "It's another way to defer your income," he said.

You can contribute up to 25 percent of your net earnings to a SEP, for a maximum contribution of $53,000 for 2016, or $54,000 for 2017 – although that max also includes any contributions made to a 401(k), if you have more than one type of plan. And, the contribution to a retirement account qualifies you for a tax deduction (more on a host of other deductions below).

Deduct your business expenses

As a freelancer or an independent contractor, you should be tracking your income throughout the year in order to estimate your tax liability well ahead of the deadline. Burridge recommends keeping separate bank accounts and credit cards for business related activities to have a record of what you are earning and spending.

Any income made over the course of the year can – and should – be offset with work-related expenses. Those expenses you incurred as a result of your side job are deductible, if they are necessary for the business.

However, 73 percent of freelancers don't deduct any expenses at all, according to Xero. "That means they are paying too much tax."

For example, if you use your car, you can deduct your mileage and upkeep, or if you have a home office, you may be able to deduct a portion of the rent or mortgage interest, property taxes and utilities as well as a computer, internet, phone and business-related meals.

Any money spent on advertising, marketing research, a career coach or licensing or registration also counts towards start-up costs, which are all deductible.

Health insurance premiums by self-employed workers and their families can also be deducted, Law said.

Wrap it up the right way!

If you are self-employed, there are also more forms that need to be filed at tax time, in addition to the standard 1040.

First, there's the Schedule SE which helps you determine how much you owe in self-employment tax and then income and expenses should be accounted for on Schedule C, said Napkin Finance CEO Tina Hay.

Schedule C asks for gross receipts, less expenses, to determine your net profit. That net profit amount then goes on your personal 1040 to complete the rest of your return.

Finally, once you are organized it's easier to keep track in the year ahead. If you are organized throughout the year it's much easier than trying to figure it out at the eleventh hour!

By Jessica Dickler for CNBC

Published: October 4, 2017

Small Business Tax Tips for 2017

Take as many deductions as you’re legally allowed to take

There’s no sense in paying any more taxes than you’re legally obligated to pay.

As a small-business owner, there are a number of tax deductions available to you. For example, if you work out of a home office, you may be able to write off some of your mortgage interest, insurance, and utilities expenses. If you drive a personal vehicle for work purposes, you may also be able to write off some of your mileage, as well as other car expenses. Do you ever take your clients out for lunch and pick up the tab? You can write those meals off, too.

Use accounting software to keep track of your expenses and revenues

If you’re still relying on keeping track of your small business’s expenses and revenues by hand, it’s time to get with the times. When you use accounting software like QuickBooks or FreshBooks all year long, it becomes incredibly easy to generate the financial statements you need to pay your taxes properly.

In addition to making tax season more bearable, accounting software also promises to save you a ton of time. So instead of crunching numbers all day, you can instead focus on doing whatever you can do to grow your business and provide better service to your customers.

Start thinking about next year’s taxes today

As you complete the process for filing your small business’s 2016 taxes, you may be tempted to try to forget about having to pay Uncle Sam next year. Unfortunately, Uncle Sam will come calling sooner or later.

Start thinking about how you’re going to pay your 2017 taxes right now. The sooner you begin thinking about the following year’s tax obligations, the likelier you’ll be to reduce your burden and find ways to make smart investments that reduce your total obligations.

It may not sound like the most fun thing in the world, but when you’ve budgeted for taxes all year long, tax season becomes much easier to navigate.

Published: September 22, 2017

Reconstructing Records After a Natural Disaster or Casualty Loss

Reconstructing records after a disaster may be essential for tax purposes, getting federal assistance or insurance reimbursement. After a disaster, taxpayers might need certain records to prove their loss. The more accurately the loss is estimated, the more loan and grant money there may be available.

For taxpayers who have lost some or all of their records during a disaster, there are some simple steps to take that can help. The following information includes steps to take after a disaster so taxpayers can reconstruct their records and prove loss of personal-use and business property.

Reconstructing Records

Tax Records

  • Get free return transcripts immediately by visiting the Get Transcript tool on
  • To order transcripts by phone, call 800-908-9946 and follow the prompts. Taxpayers can also request transcripts using their smartphone with the IRS2Go mobile phone app.
  • To get transcripts of previous years returns by mail, file a Form 4506-T, Request for Transcripts of a Tax Return. 
  • To request copies of past returns by mail, file Form 4506, Request for Copy of Tax Return. 
  • Write the appropriate disaster designation, such as “HURRICANE HARVEY,” in red letters across the top of Forms 4506-T and 4506 to expedite processing and to waive the normal user fee.

Personal Residence and Real Property
Real property, also called real estate, is land as well as generally anything built on, growing on, or attached to land.

  • Take photographs or videos as soon after the disaster as possible. This helps establish the extent of the damage.
  • Contact the title company, escrow company or bank that handled the purchase of the home to get copies of appropriate documents. Real estate brokers may also be able to help.
  • Use the current property tax statement for land-versus-building ratios if available. If they are not available, owners can usually get copies from the county assessor’s office.
  • Establish a basis or fair market value of the home by reviewing comparable sales within the same neighborhood. This information can be found by contacting an appraisal company or visiting a website that provides home valuations.
  • Check with the mortgage company for copies of appraisals or other information they may have about cost or fair market value in the area.
  • Review insurance policies, as they usually list the value of a building, establishing a base figure for replacement value insurance. For details on how to reach the insurance company, check with the state insurance department. 
  • If improvements were made to the home, contact the contractors who did the work to see if records are available. If possible, get statements from the contractors verifying their work and cost.
    • Get written accounts from friends and relatives who saw the house before and after any improvements. See if any of them have photos taken at get-togethers.
    • If there is a home improvement loan, get paperwork from the institution that issued the loan. The amount of the loan may help establish the cost of the improvements.
  • For inherited property, check court records for probate values. If a trust or estate existed, contact the attorney who handled the estate or trust.
  • If no other records are available, check the county assessor’s office for old records that might address the value of the property. 

There are several resources that can help determine the current fair market value of most cars on the road. These resources are all available online and at most libraries:

  • Kelley’s Blue Book 
  • National Automobile Dealers Association   
  • Edmunds

Additionally, call the dealer where the car was purchased and ask for a copy of the contract. If this is not available, give the dealer all the facts and details, and ask for a comparable price figure. If making payments on the car, check with the lien holder.

Personal Property
It can be difficult to reconstruct records showing the fair market value of some types of personal property. Here are some things to consider when cataloguing lost items and their values:

  • Look on mobile phones for pictures that were taken in the home that might show the damaged property in the background before the disaster.
  • Check websites that can help establish the cost and fair market value of lost items.
  • Support the valuation with photographs, videos, canceled checks, receipts or other evidence. 
  • If items were purchased using a credit card or debit card, contact the credit card company or bank for past statements. Credit card companies and banks often provide user’s access to these statements online.

If there are no photos or videos of the property, a simple method to help remember what items were lost is to sketch pictures of each room that was impacted:

  • Draw a floor plan showing where each piece of furniture was placed – include drawers, dressers and shelves.
  • Sketch pictures of the room looking toward any shelves or tables showing their contents.
  • These do not have to be professionally drawn, just functional.
  • Take time to draw shelves with memorabilia on them.
  • Be sure to include garages, attics, closets, basements and items on walls.

Business Records

  • To create a list of lost inventories, get copies of invoices from suppliers. Whenever possible, the invoices should date back at least one calendar year.
  • Check mobile phones or other cameras for pictures and videos taken of buildings, equipment and inventory.
  • For information about income, get copies of bank statements. The deposits should closely reflect what the sales were for any given time period.
    • Get copies of last year’s federal, state and local tax returns. This includes sales tax reports, payroll tax returns and business licenses from the city or county. These will reflect gross sales for a given time period.
  • If there are no photographs or videos available, sketch an outline of the inside and outside of the business location. Then start to fill in the details of the sketches. For example, for the inside of the building, record where equipment and inventory was located. For the outside of the building, map out the locations of items such as shrubs, parking, signs and awnings.
    • If the business was pre-existing, go back to the broker for a copy of the purchase agreement. This should detail what was acquired.
    • If the building was newly constructed, contact the contractor or a planning commission for building plans.

Casualty and Disaster Tax Losses
A casualty is the damage, destruction or loss of property resulting from an identifiable event that is sudden, unexpected or unusual. If damage is to personal, income‐producing or business property, taxpayers may be able to claim a casualty loss deduction on their tax return. 

Taxpayers generally must deduct a casualty loss in the year it occurred. However, if the property was damaged as a result of a federally-declared disaster, taxpayers can choose to deduct that loss on their return for the tax year immediately preceding the year in which the disaster happened. A federally-declared disaster is a disaster that took place in an area declared by the President to be eligible for federal assistance. Taxpayers can amend a tax return by filing a Form 1040X, Amended U.S. Individual Income Tax Return.

Figuring Loss
Taxpayers may need to reconstruct their records to prove a loss and the amount of the loss. To compute loss, determine the following figures: 

  • The decrease in fair market value of the property that resulted from the casualty or disaster.
  • The adjusted basis of the property – this is generally what was paid for the property, increased or decreased, because of certain events. 

Taxpayers may deduct the smaller of these two amounts, minus insurance or other reimbursement. Additionally, certain deduction limits apply. See Publication 547, Casualties, Disasters and Thefts, for details on these limits and Publication 551, Basis of Assets, for additional information on basis. 

If the casualty loss deduction causes a taxpayer’s deductions for the year to be more than their income for the year, there may be a net operating loss. For more information, see Publication 536, Net Operating Losses (NOLs) for Individuals, Estates and Trusts.

Determining the Decrease in Fair Market Value
Fair market value (FMV) is generally the price for which the property could be sold to a willing buyer. The decrease in FMV used to figure the amount of a casualty loss is the difference between the property's fair market value immediately before and after the casualty. FMV is generally determined through a competent appraisal. Without a competent appraisal, the cost of cleaning up or making certain repairs is acceptable under certain conditions as evidence of the decrease in fair market value.

Generally, the cost of cleaning up or making repairs if the repairs are: 

  • Actually made
  • Not excessive
  • Necessary to bring the property back to its condition before the casualty 
  • Only made to repair damage
  • Not adding value to the property or making it worth more than before the disaster happened
Published: September 20, 2017

Tax Relief for Victims of Hurricane Irma in Florida

FL-2017-04, Sept. 12, 2017

Florida — Victims of Hurricane Irma that took place beginning on Sept. 4, 2017 in parts of Florida may qualify for tax relief from the Internal Revenue Service.

The President has declared that a major disaster exists in the State of Florida. Following the recent disaster declaration for individual assistance issued by the Federal Emergency Management Agency, the IRS announced today that affected taxpayers in Florida will receive tax relief.

Individuals who reside or have a business in Broward, Charlotte, Clay, Collier, Duval, Flagler, Hillsborough, Lee, Manatee, Miami-Dade, Monroe, Palm Beach, Pinellas, Putnam, Sarasota and St. Johns may qualify for tax relief.

The declaration permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after Sept. 4, 2017 and before Jan. 31, 2018, are granted additional time to file through Jan. 31, 2018. This includes taxpayers who had a valid extension to file their 2016 return that was due to run out on Oct. 16, 2017. It also includes the quarterly estimated income tax payments originally due on Sept. 15, 2017 and Jan. 16, 2018, and the quarterly payroll and excise tax returns normally due on Oct. 31, 2017. It also includes tax-exempt organizations that operate on a calendar-year basis and had an automatic extension due to run out on Nov. 15, 2017. In addition, penalties on payroll and excise tax deposits due on or after Sept. 4, 2017, and before Sept. 19, 2017, will be abated as long as the deposits are made by Sept. 19, 2017.

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 that falls within the postponement period, the taxpayer should call the telephone number on the notice to have the IRS abate the penalty.

The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 866-562-5227 to request this tax relief.

Covered Disaster Area

The counties listed above constitute a covered disaster area for purposes of Treas. Reg. § 301.7508A-1(d)(2) and are entitled to the relief detailed below.

Affected Taxpayers

Taxpayers considered to be affected taxpayers eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts are those taxpayers listed in Treas. Reg. § 301.7508A-1(d)(1), and include individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Taxpayers not in the covered disaster area, but whose records necessary to meet a deadline listed in Treas. Reg. § 301.7508A-1(c) are in the covered disaster area, are also entitled to relief. In addition, all relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area and any individual visiting the covered disaster area who was killed or injured as a result of the disaster are entitled to relief.

Grant of Relief

Under section 7508A, the IRS gives affected taxpayers until Jan. 31, 2018, to file most tax returns (including individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, trust returns; estate, gift, and generation-skipping transfer tax returns; annual information returns of tax-exempt organizations; and employment and certain excise tax returns), that have either an original or extended due date occurring on or after Sept. 4, 2017, and before Jan. 31, 2018. Affected taxpayers that have an estimated income tax payment originally due on or after Sept. 4, 2017, and before Jan. 31, 2018, will not be subject to penalties for failure to pay estimated tax installments as long as such payments are paid on or before Jan. 31, 2018. The IRS also gives affected taxpayers until Jan. 31, 2018 to perform other time-sensitive actions described in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2007-56, 2007-34 I.R.B. 388 (Aug. 20, 2007), that are due to be performed on or after Sept. 4, 2017, and before Jan. 31, 2018.

This relief also includes the filing of Form 5500 series returns, (that were required to be filed on or after Sept. 4, 2017, and before Jan. 31, 2018, in the manner described in section 8 of Rev. Proc. 2007-56. The relief described in section 17 of Rev. Proc. 2007-56, pertaining to like-kind exchanges of property, also applies to certain taxpayers who are not otherwise affected taxpayers and may include acts required to be performed before or after the period above.

Unless an act is specifically listed in Rev. Proc. 2007-56, the postponement of time to file and pay does not apply to information returns in the W-2, 1094, 1095, 1097, 1098, or 1099 series; to Forms 1042-S, 3921, 3922, 8025, or 8027; or to employment and excise tax deposits.  However, penalties on deposits due on or after Sept. 4, 2017, and before Sept. 19, 2017, will be abated as long as the tax deposits are made by Sept. 19, 2017.

Casualty Losses

Affected taxpayers in a federally declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return for either the year in which the event occurred, or the prior year. See Publication 547 for details.

Individuals may deduct personal property losses that are not covered by insurance or other reimbursements. For details, see Form 4684 and its instructions.

Affected taxpayers claiming the disaster loss on a 2016 return should put the Disaster Designation, “Florida, Hurricane Irma” at the top of the form so that the IRS can expedite the processing of the refund.

Other Relief

The IRS will waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned Disaster Designation “Florida, Hurricane Irma” in red ink at the top of Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, as appropriate, and submit it to the IRS.

Published: September 12, 2017

Prepare Your Tax Documents & Homes for this Hurricane Season

Hurricane season is coming and in Florida it is wise to be prepared. Your tax documents are very important and not easy to reproduce if needed. It is a good idea to establish backup records. This backup should be stored in a safe place separate from the original documents. It is helpful to have a backup electronic copy. Even if you have paper tax returns you can scan them and put them onto a digital storage device such as a thumb-drive or a DVD.

If a disaster does strike and affects your tax records, you can call 1-866-562-5227 to speak with an IRS specialist trained to handle disaster related problems.

Here is an article by Jeff Atwater discussing general home preparations for hurricane season: 

"Baseball and hurricane preparedness have a lot in common: you have to cover all your bases to succeed. As Floridians, we all need to be prepared for hurricane season. National Hurricane Preparedness Week ends Saturday, so this is a great time to ensure we've covered all our bases — insure, secure and prepare to recover.

Protecting your home base isn't just about hardening your home physically. It is just as important to prepare financially. The top three reasons homeowners strike out when it comes to insurance claims are insufficient documentation, lack of adequate insurance coverage, and failure to retain proof of damage.

With hurricane preparedness, you make it to first base by ensuring you have adequate coverage for your property. Tagging second base means securing important documents, and rounding third base is having the ability to recover after a storm. Taking all of these steps will help you protect your home base.

My Department of Financial Services, Division of Consumer Services' website,, offers videos, brochures, resources and tips, along with a Disaster Preparedness section that includes a home inventory checklist. Should a tropical storm or hurricane take aim at our state, we will activate a special consumer helpline, 1-800-22-STORM, to assist victims with insurance matters.

Many quick and confusing decisions must be made in the aftermath of a disaster. Remember to ensure the company or individual you are considering dealing with is licensed in Florida, never make advance payments and never pay in full until the work is complete. Score a home run this hurricane season."

Published: September 6, 2017

Hurricane Checklist: What to do Before and After the Storm

In areas where hurricanes can strike, it's a good idea to have a closet or a place set aside for storm preparedness storage. There, you can keep items you'll need in case disaster strikes suddenly or you need to evacuate.

It's also important to know the difference between a watch and a warning, and when they are issued for tropical storms and hurricanes.A hurricane warning means hurricane conditions -- sustained winds above 73 mph -- are expected somewhere within the warning area, and it is time to finish preparation to protect people and property. "Because hurricane preparedness activities become difficult once winds reach tropical storm force, the hurricane warning is issued 36 hours in advance of the anticipated onset of tropical storm-force winds" -- 39 to 73 mph, the National Hurricane Center says.

A hurricane watch means hurricane conditions are possible in the watch area, and is issued 48 hours before the anticipated onset of tropical-storm-force winds.

A tropical storm warning means tropical storm-force winds are expected somewhere in the designated area within 36 hours. A tropical storm watch means such conditions are possible within 48 hours.

What to do as a Storm Approaches

-- Download an application to your smartphone that can notify people where you are, and if you need help or are safe. The Red Cross has a Hurricane App available in the Apple App Store and the Google Play Store as well as a shelter finder app. A first aid app is also available.

-- Use hurricane shutters or board up windows and doors with 5/8-inch plywood.

-- Bring outside items in if they could be picked up by the wind.

-- Clear gutters of debris.

-- Reinforce the garage door.

-- Turn the refrigerator to its coldest setting in case power goes off. Use a cooler to keep from opening the doors on the freezer or refrigerator.

-- Fill a bathtub with water.

-- Get a full tank of gas in one car.

-- Go over the evacuation plan with the family, and learn alternate routes to safety.

-- Learn the location of the nearest shelter or nearest pet-friendly shelter.

-- Put an ax in your attic in case of severe flooding.

-- Evacuate if ordered and stick to marked evacuation routes if possible.

-- Store important documents -- passports, Social Security cards, birth certificates, deeds -- in a watertight container.

-- Have a current inventory of household property.

-- Leave a note to say where you are going.

-- Unplug small appliances and electronics before you leave.

-- If possible, turn off the electricity, gas and water for the residence.

List of Supplies

-- A three-day supply of water, one gallon per person per day.

-- Three days of food, with suggested items including: canned meats, canned or dried fruits, canned vegetables, canned juice, peanut butter, jelly, salt-free crackers, energy/protein bars, trail mix/nuts, dry cereal, cookies or other comfort food.

-- A can opener.

-- Flashlight(s).

-- A battery-powered radio, preferably a weather radio.

-- Extra batteries.

-- A first aid kit, including latex gloves; sterile dressings; soap/cleaning agent; antibiotic ointment; burn ointment; adhesive bandages in small, medium and large sizes; eye wash; a thermometer; aspirin/pain reliever; anti-diarrhea tablets; antacids; laxatives; small scissors; tweezers; petroleum jelly.

-- A small fire extinguisher.

-- Whistles for each person.

-- A seven-day supply of medications.

-- Vitamins.

-- A multipurpose tool, with pliers and a screwdriver.

-- Cell phones and chargers.

-- Contact information for the family.

-- A sleeping bag for each person.

-- Extra cash.

-- A silver foil emergency blanket.

-- A map of the area.

-- Baby supplies.

-- Pet supplies.

-- Wet wipes.

-- A camera (to document storm damage).

-- Insect repellent.

-- Rain gear.

-- Tools and supplies for securing your home.

-- Plastic sheeting.

-- Duct tape.

-- Dust masks.

-- An extra set of house keys.

-- An extra set of car keys.

-- An emergency ladder to evacuate the second floor.

-- Household bleach.

-- Paper cups, plates and paper towels.

-- Activities for children.

-- Charcoal and matches, if you have a portable grill. But only use it outside.

What to do after the storm arrives

-- Continue listening to a NOAA Weather Radio or the local news for the latest updates.-- Stay alert for extended rainfall and subsequent flooding even after the hurricane or tropical storm has ended.

-- Use the Facebook Safety Check to let family and friends know you're safe.

-- If you evacuated, return home only when officials say it is safe.

-- Drive only if necessary and avoid flooded roads and washed out bridges.

-- Keep away from loose or dangling power lines and report them immediately to the power company.

-- Stay out of any building that has water around it.

-- Inspect your home for damage. Take pictures of damage, both of the building and its contents, for insurance purposes.

-- Use flashlights in the dark. Do NOT use candles.

-- Avoid drinking or preparing food with tap water until you are sure it's not contaminated.

-- Check refrigerated food for spoilage. If in doubt, throw it out.

-- Wear protective clothing and be cautious when cleaning up to avoid injury.

-- Watch animals closely and keep them under your direct control.

-- Use the telephone only for emergency calls.

Sources: American Red Cross, Federal Emergency Management Agency, National Hurricane Center

Published: September 5, 2017

IRS Grants Tax Relief to Texans Hit by Hurricane Harvey

People are still being rescued in flooded Houston, so very few — even those who made it through Hurricane Harvey relatively unscathed — are thinking about taxes right now. But when they do begin to face rebuilding their post-storm lives, one of the things they'll have to deal with is taxes.

The Internal Revenue Service has some good news for folks in Houston and its flooded surroundings, as well as those in other areas of Texas that sustained severe damage due to the hurricane.

These folks have until Jan. 31, 2018, to file certain individual and business tax returns and make certain tax payments. 

18 Texas counties, so far: The taxpayers, both business and individual, to whom the Jan. 31 extension applies live or own companies in Aransas, Bee, Brazoria, Calhoun, Chambers, Fort Bend, Galveston, Goliad, Harris, Jackson, Kleberg, Liberty, Matagorda, Nueces, Refugio, San Patricio, Victoria and Wharton counties.

More Texas counties — and possibly some in Louisiana as Harvey now heads to that neighboring state — could be added to this special tax relief list as the Federal Emergency Management Agency (FEMA) continues its damage assessments in the storm area.

"This has been a devastating storm, and the IRS will move quickly to provide tax relief to hurricane victims," said IRS Commissioner John Koskinen in announcing the special tax relief.

Special individual tax relief: The IRS' extended deadline means affected individual taxpayers who last spring got an extension until Oct. 16 to file their 2016 federal tax returns now have five more months to complete that paperwork task.

The IRS notes, however, that because any due tax payments related to 2016 returns were originally due on April 18, those payments are not eligible for this relief. If you didn't pay what you owed when you got our extensions, the penalties and interest associated with that under- or nonpayment is still adding up.

The same Jan. 31 extension applies to businesses that got filing extensions that are coming up in mid-September.

The extra filing time also covers the last two 2017 estimated tax payments that are due Sept. 15 and Jan. 16, 2018.

Business tax relief, too: In addition, the Hurricane Harvey tax relief postpones various business tax filing and payment deadlines that occurred starting on Aug. 23, when Harvey made landfall on the Texas Gulf Coast.

This includes the Oct. 31 deadline for quarterly payroll and excise tax returns.

The IRS also 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.

Automatic relief: Almost as good as the tax relief itself is that the IRS is making it easy for eligible filers to receive it.

The IRS automatically provides filing and penalty relief to any taxpayer whose address of record with the tax agency is in the disaster area. That means affected taxpayers don't need to contact the IRS to get this relief.

If, however, you are eligible for the special Hurricane Harvey relief and erroneously get an IRS late filing or late payment penalty notice, call the number on the notice to have the penalty abated.

The IRS says it also will work with taxpayers who live outside the disaster area, but whose records necessary to meet a deadline covered under the postponement period are located in the affected area.

Taxpayers who qualify for relief but who live outside the disaster area need to contact the IRS toll-free at 866-562-5227.

Such out-of-area taxpayers include relief and recovery workers who are part of a recognized government or philanthropic organization. This means folks who are, for example, official American Red Cross volunteers, but not individuals who simply went to a disaster area on their own to help.

More Harvey help: Remember, in addition to the extra filing time the IRS has granted Hurricane Harvey victims, individuals and businesses who suffered uninsured or unreimbursed disaster-related losses have a choice as to when to claim those losses.

In the cases of major, officially declared disasters, you can choose to claim the losses as an itemized deduction on the tax return for the year the disaster occurred, which in this case would be the 2017 filing submitted next year, or on the prior year's tax return, which in this case is the 2016 return.

In most cases, choosing the prior year claim route means amending that earlier Form 1040. But if you got an extension to file your 2016 tax forms — which now aren't due until Jan. 31, 2018 — that means you can claim Harvey's 2017 losses on your 2016 return when you do finally file the forms.

Published: August 30, 2017

Tax Tips for Procrastinators

About a fourth of taxpayers wait until two weeks before the deadline to file their tax returns. These last-minute filers typically fall into two categories: Either they owe the IRS money, which removes any incentive to file early, or they’re procrastinators who would rather wash a muddy dog than prepare their tax returns.

This year, the calendar was the procrastinator’s friend. April 15 fell on a Saturday, and because April 17 is a holiday in Washington, D.C., you had until Tuesday, April 18, to file your federal tax return. Now, returns on extension are coming due!

If You Don’t Owe...

If you’re due a refund, though, there’s no reason to sweat this deadline. The IRS will gladly hold on to your money until you get around to filing your return. 

There are instances in which you should file on time or file an extension even if you don’t owe the government money. If you converted a traditional individual retirement account to a Roth IRA in 2016, you have until October 16, 2017, to undo the transaction and avoid paying taxes on it. But to qualify, you must have filed your tax return or requested an extension by April 18.

If You Can't Pay...

Filing for an extension gives you more time to file your return, but it doesn’t give you more time to pay taxes you owe.

If you can’t come up with the money, you should still file a tax return. Otherwise, your bill will be inflated by failure-to-file penalties, along with underpayment fines and interest on the balance.

If you need just a little more time to come up with the money, you can ask the IRS for an additional 120 days to make your payment. There’s no fee to set up this agreement, although you’ll owe interest and other fees on the balance until it’s paid off.

If the amount you owe is large, consider requesting an installment plan with the IRS. With an installment plan, you can make monthly payments until the balance is paid off. Taxpayers who owe $50,000 or less can apply online. You’ll have to pay a set-up fee of $225 (or $107 if you arrange for direct debit from your bank account).

Another option is to pay taxes with your credit card. This may appeal to taxpayers who would rather owe money to Visa or American Express than the IRS, especially if they have rewards cards. But while the IRS will accept payments via credit card, it won’t pay the “convenience fees” credit card companies charge retailers. In 2017, the fees range from 1.87% to 2% of the balance. If you use tax software to e-file, the fees are even higher: TurboTax charges a 2.49% convenience fee. If you don’t pay off the balance by the credit card due date, you’ll also owe interest.

Avoid Last-Minute Errors

As you scramble to meet the deadline, make sure you don’t make these common mistakes:

  • Wrong Social Security numbers. Make sure the SSNs entered for everyone on your return match the names that appear on their Social Security cards. Don’t forget to include SSNs for all of your dependents; otherwise, you may not be able to claim them.
  • Bad account numbers. If you arrange for direct deposit of your refund, triple-check account numbers. Otherwise, your refund could end up in someone else’s account.
  • No signature. Sign and date your return. If you’re filing jointly, your spouse must sign, too.
  • E-filing PIN errors. When you e-file your tax return, you’re required to sign and validate the return electronically. In an effort to reduce tax-refund fraud, the IRS will no longer allow you to request an electronic personal identification number to confirm your identity. You’ll need to provide your 2015 adjusted gross income or the PIN you selected last year, plus your date of birth.

Don’t Overlook These Tax Breaks

As you rush to meet the filing deadline, don’t overlook money-saving tax breaks. For example, if you itemize, make sure you’re taking full advantage of the deduction for charitable gifts. In addition to deductions of cash contributions, you can also deduct out-of-pocket costs for charitable activities, such as the cost of mileage, parking and tolls in connection with volunteer work. If you donated used clothing or other household items during the year, you can deduct the fair market value of those items, too.

By Sandra Block for Kiplinger

Published: August 29, 2017

Should You Take Advantage of a Deferred Compensation Plan?

To defer, or not to defer?

That is the question executives with access to deferred compensation plans at work must answer each year.

The plans, made available to company officers or other high earners, let employees set aside part of their annual salary or bonus, to be paid at some point in the future. Money set aside grows tax-deferred, until paid out to the employee.

Formally known as nonqualified deferred compensation plans, the plans are a way to let highly paid employees — typically, those making at least $115,000, but often much more — stash away more money than allowed under 401(k)’s and similar retirement plans. Companies may pay interest on the deferred money, or allow employees to choose from a menu of investments.

But the plans come with risks. By deferring money, employees are essentially accepting an i.o.u. from their employer. While funds in a 401(k) are protected if the company runs into trouble, money deferred in a nonqualified plan is not. So in case of bankruptcy, employees with deferrals become unsecured creditors of the company, and must line up behind secured creditors in the hopes of getting paid.

“There is a risk you may not see the money,” said Micky Reeves, a wealth adviser with Buckingham Strategic Wealth in Plano, Tex.

That may be one reason that over the last decade or so, just under half of employees eligible for the plans participate, on average, according to a report from the Newport Group, which devises and administers the plans.

Participation generally tracks economic sentiment, the report noted: Estimated participation dipped to as low as 40 percent of eligible employees in 2010, as the country was emerging from a downturn, before rebounding to more typical levels by 2013.

The Plan Sponsor Council of America, a nonprofit lobby group for employers that offer retirement plans, recently found similar levels of participation, but noted that employers offering matching contributions on deferred money reported much higher participation (62 percent).

As the economy has recovered and competition for talented employees intensifies, more companies see such plans as important for recruiting and retaining executives, human resources consulting groups say. A recent Newport Group survey of more than 100 companies in the Fortune 1000 found that 92 percent currently offer nonqualified plans, up from 78 percent two years ago.

And, while the plans are more prevalent at larger corporations, consultants and financial advisers say they are seeing a trend toward more midsize companies offering the plans, as they compete with larger companies for top talent.

Since highly paid employees usually max out their 401(k) contributions quickly, deferral plans can be attractive. For 2017, the maximum employee contribution to a 401(k) is $18,000, plus an extra $6,000 for those over 50.

Employees consistently indicate that their top reason for participating in the plans is to save for retirement, and they turn to nonqualified plans in part because of their flexibility, said Gary Dorton, vice president for employer solutions and service with the Principal Financial Group, a provider of the plans. “You can really tailor it to your specific need,” he said.

Consider employees who want to retire at age 62. They are not required to start withdrawing money from their 401(k)’s until they turn 70½ and can maximize Social Security payouts by delaying receipt of benefits. So, they could time payouts from their deferred compensation to provide income in those early retirement years, letting their other savings and investments grow.

“They’ll say, ‘I’ll use my nonqualified plan to bridge that gap,’” Mr. Dorton said. His company Principal offers an online calculator that can help participants plan how to time deferrals.

Whether or not the plans work for a specific employee, however, depends on many variables.

Dr. Peter Steckl, 59, an emergency room physician in Atlanta, also does consulting work for a malpractice insurer that offers deferral of up to half of his pay. When the plan was first presented to him, he said in a telephone interview, “It sounded attractive to me.”

But after conferring with his financial adviser, he decided not to participate. After reviewing his finances, his adviser forecast that based on current tax policy, Dr. Steckl was unlikely to fall into a lower tax bracket after retirement. The insurance company is financially sound, so the risk of losing his money is remote. “It’s nice to have the option,” he said. But with big tax benefits unlikely, he added, “Why take that chance?”

His adviser, Scott Beaudin, a financial planner and founder of Pathway Financial Advisors in Burlington, Vt., said he generally recommends deferrals only if there is a compelling reason. Many people, he said, react viscerally to the idea of deferring income — it feels good to avoid the tax man, even if temporarily. But it does not always follow that clients will be better off waiting, he said, instead of taking the income when it is earned, paying taxes at current rates, and then investing the money.

In addition to potential tax savings, Mr. Beaudin said, other sound reasons to defer include having children who are applying to college, to increase the chances of a financial aid award; or, to push income into the future if the client is involved in litigation or a contentious divorce (opposing lawyers tend to focus on assets available now, he said, rather than on money that is off the table until well into the future).

Another potential deferral scenario is if an employee plans to relocate after retirement from a high-tax state to one with lower or no state income taxes, like Florida. Deferring the money and having it paid out later in the lower-tax state can provide a significant tax break.

Mr. Beaudin said he was seeing more smaller companies, particularly in the technology sector, offering deferred compensation plans, which makes him wary. Companies like to retain cash to fund research and development, he said, but the situation may be risky for employees, who may feel pressured to participate to show that they’re supporting the venture. “There may not be anything at the end of the rainbow,” Mr. Beaudin said.

Mr. Reeves, the wealth adviser, recalled a client who had been regularly deferring income. His company was acquired, and the buyer ended the deferred compensation plan, forcing a payout of more than $500,000 — all of which was taxed at the top 36.9 percent marginal tax bracket.

The lesson? “You want to tread carefully,” Mr. Reeves said.

To help manage the risk, Mr. Reeves suggested limiting deferred compensation to no more than 10 percent of overall assets, including other retirement accounts, taxable investments and even emergency cash funds.

Typically, employees must choose how much to defer and when they would like to receive the payout. Once they make a selection, there is usually little room to change the plan, under stricter payout rules adopted after the Enron debacle. (The company accelerated payouts of deferred money to protect some executives, just before it filed for bankruptcy protection.)

The financial benefits of deferral plans are generally most advantageous when money is deferred for longer periods, said Heidi O’Brien, a partner in Mercer’s executive benefits group — 15 years, rather than five. The trade-off, however, is that the funds are “at risk” for longer periods, should something happen to your employer.

Joel Isaacson, a wealth manager in New York City, recommends that installment payouts stretch no longer than five to 10 years. “It’s not money I’d want to put off for 20 years,” he said.

Employees need to consider that they not only get their salary from their employer, but may also have stock grants and other compensation, Mr. Isaacson noted. So deferring large amounts may make their finances overly dependent on one source. “People have to look at the total exposure they have to a company,” he said.

By Ann Carrns for the New York Times

Published: August 24, 2017

IRS Penalizes Earners for Estimated Tax Filings

More Americans who pay their income taxes each quarter are being penalized by the IRS for making mistakes or missing payments.

There's been a nearly 33% jump — from almost 7.5 million to nearly 10 million — in the number of penalties levied between fiscal years 2007 and 2016, IRS data show.

Retirees, business owners, investors, gig workers, freelancers and others with non-traditional jobs typically get penalized because they're often non-wage earners who don't work for employers that regularly withhold taxes on salary income.

"The data seems to suggest there are more people who either don't understand they need to pay quarterly taxes or are making mistakes," said IRS spokesman Eric Smith.

Although the IRS isn't sure why the number of penalties is rising, some tax experts suggest that the increase may be driven by a workforce shift in which more Americans have informal jobs and lack long-term employment contracts. 

Federal tax law requires many non-wage earners to file estimated tax payment quarterly so they won't be treated differently from the roughly 80% of U.S. taxpayers whose income taxes are deducted from their salaries throughout the work year.

The pay-as-you-earn requirement applies to non-wage earners in certain situations, including those who expect to owe $1,000 or more for a current tax year after subtracting refundable credits. These earners should submit quarterly payments that will cover at least 90% of the estimated tax due on their income in a given year.

Certain exceptions apply to farmers, fishers, casualty and disaster victims, recent retirees, people who are newly disabled, those who base their payments on the prior year's tax and people whose income flowed in unevenly during the year.

Those the IRS feels made mistakes, or underpaid, are now receiving penalty notices for the 2016 tax year. "Prime time is during the summer," said Smith.

The tax agency hasn't mounted a special enforcement effort targeting underpayment of estimated taxes. So why is there a rising number of non-wage earners who make mistakes on estimated taxes and get penalized?

"I think what's driving it is the change in the workforce, change in employment relationships and the increase in informal work arrangements that people are calling the gig economy," said Nathan Rigney, senior tax research analyst with The Tax Institute at H&R Block, a major U.S. tax preparation company.

Rigney cited a Dec. 2016 working paper in which the Federal Reserve Bank of Boston estimated that 37% of nonretired U.S. adults participated in paid informal work arrangements. Additionally, roughly 20% received non-wage income from activities that did not exclusively involve renting their own property or selling their own goods, the paper concluded.

Two other potential factors — more people who owe taxes on large investment gains and retirement income distributions paid to Baby Boomers leaving the workforce in increasing numbers — could play only small roles in the penalty increase, Rigney said.

"We can speculate, but we don't have any (definitive) reasons," said Smith.

However, the IRS has answers for those who either receive penalty notices or want to avoid them in the future.

The tax agency's annualized income installment method of payment has a worksheet to help non-wage earners who received all of their income in the last part of the year and made a fourth-quarter payment to cover it. The method also may reduce the penalty for someone who made no estimated tax payments.

Planning ahead for next year, Smith said most non-wage earners can reduce or eliminate any penalties by increasing their estimated tax payments for the remainder of 2017.

By Kevin McCoy for USA Today

Published: August 14, 2017

How Tax Reform Could Hit Charitable Giving

Plenty of factors can motivate charitable giving: Moral obligation, religious tithing, a desire to improve the world or leave a legacy.

But another factor -- the tax benefits for giving -- could soon change if lawmakers push through tax reform.

Few people donate simply because of the tax breaks and are unlikely to stop giving altogether if they don't get any. But analyses from the Congressional Budget Office and others have found that tax incentives typically increase how much you choose to donate -- whether in life or at death.

That's why Republican proposals to reduce or eliminate key tax breaks for giving has charity experts a little concerned. Specifically, President Trump and House Republicans have proposed to nearly double the standard deduction, lower income tax rates and repeal the estate tax.

Though it's assumed the charitable deduction would remain in place, increasing the standard deduction would mean far fewer people would itemize and be able to claim the break, while lowering tax rates would make the deduction worth less for those who still take it.

The double whammy of doubling the standard deduction while lowering the top rate to 35% from 39.6% could reduce giving by between $5 billion and $13 billion a year, or up to 4.6%, according to a recent study by the Lilly Family School of Philanthropy at Indiana University.

Of those two changes, increasing the standard deduction has the greatest negative effect because it would reduce those who itemize to just 5% of filers, down from 30% today. That's because the only reason to itemize is if your deductions combined exceed the value of the standard deduction.

"The 25% who used to itemize will probably give some but not as much," said David Thompson, vice president of policy at the National Council of Nonprofits.

How much does it save?

Here's how the charitable deduction works:

If you itemize deductions, how much you save in taxes from your contributions is determined by your top income tax rate. If, for example, you're in the 28% bracket, you'll save $28 in taxes for every $100 you donate.

And if you are fortunate enough to have an estate worth more than $5.5 million (or $11 million for married couples), anything above those amounts would be subject to the federal estate tax after you die. Whatever you give in your lifetime or bequeath to your heirs upon death can reduce that taxable portion.

Many charity groups have urged lawmakers to make the charitable deduction "universal" -- meaning everyone can take it whether they itemize or not. "Our nation has a rich history of charitable giving. By making it a universal deduction we think that it recognizes this important value," said Sean Parnell of The Philanthropy Roundtable.

The Lilly Family School study estimates such a change would increase donations -- by between 0.4% and 4.3% -- depending on what other reforms are made.

While lawmakers are giving the proposal "very serious look," according to The Hill, a universal deduction would cost the federal government money -- between $191 billion to $515 billion in lost revenue over a decade, the Tax Foundation estimates. And Congress will be hard up for cash if they manage to pass even half of the tax cuts Republicans want.

Repealing the estate tax is also likely to hit giving, but it's unclear by how much. Various studies over the years have estimated that repeal could reduce bequests anywhere from 6% to 37%.

Still, some people might actually give more in the wake of repeal. Today, a very wealthy person engaged in estate planning has to decide how much he wants to give to family, how much to charity and how much to government, said economist Patrick Rooney, who worked on the Lilly study.

Once the government bucket is removed, it leaves more money for the other two. "If they have a larger estate because less is going to the government, then they may be inclined to gift more to charity," said Elda Di Re, a partner in private client services in the tax department at EY.

Either way, though, income tax rates will influence current behavior more than the estate tax repeal, Di Re added. "People don't know when they will die, and don't know what the rules will be [when they do], so they would be less inclined to change their estate plans."

by Jeanne Sahadi for CNNMoney

Published: August 11, 2017

IRS Now Accepting Renewal Applications for ITINs Set to Expire by End of 2017

The Internal Revenue Service is now accepting renewal applications for the Individual Taxpayer Identification Numbers (ITINs) set to expire at the end of 2017. The agency urges taxpayers affected by changes to the ITIN program to submit their renewal applications as soon as possible to avoid the rush.

In the second year of the renewal program, the IRS has made changes to make the process smoother for taxpayers. The renewal process for 2018 is beginning now, more than three months earlier than last year.

“This is an important program, and the IRS is opening the renewal process several months earlier to help taxpayers and make the process smoother,” said IRS Commissioner John Koskinen. “We encourage taxpayers affected by the ITIN changes to review the program’s details and renew ITINs this summer to avoid delays that could affect their tax filing and refunds next year.”

Under the Protecting Americans from Tax Hikes (PATH) Act, ITINs that have not been used on a federal tax return at least once in the last three consecutive years will expire Dec. 31, 2017, and ITINs with middle digits 70, 71, 72 or 80 will also expire at the end of the year. Affected taxpayers who expect to file a tax return in 2018 must submit a renewal application.

As a reminder, ITINs with middle digits of 78 and 79 already expired last year. Taxpayers with these ITIN numbers can renew at any time.

ITINs are used by people who have tax filing or payment obligations under U.S. law but who are not eligible for a Social Security number. ITIN holders who have questions should visit the ITIN information page on and take a few minutes to understand the guidelines.

Last year, the IRS launched a wider education effort to share information with ITIN holders. To help taxpayers, the IRS has a variety of informational materials, including flyers and fact sheets, available in several languages on

The IRS continues to work with partner groups and others in the ITIN community to share information widely about these important changes.   

Who Should Renew an ITIN

Taxpayers whose ITIN is expiring and who need to file a tax return in 2018 must submit a renewal application. Others do not need to take any action.

  • ITINs with the middle digits 70, 71, 72, or 80 (For example: 9NN-70-NNNN; NNN-71-NNNN; 9NN-72-NNNN; 9NN-80-NNNN) need to be renewed even if the taxpayer has used it in the last three years. The IRS will begin sending the CP-48 Notice, You must renew your Individual Taxpayer Identification Number (ITIN) to file your U.S. tax return, later this summer to affected taxpayers. The notice explains the steps to take to renew the ITIN if it will be included on a U.S. tax return filed in 2018. Taxpayers who receive the notice after taking action to renew their ITIN do not need to take further action unless another family member is affected.
  • Taxpayers can also renew their ITINs with middle digits 78 and 79 that have already expired.
  • Mail the Form W-7, along with original identification documents or copies certified by the agency that issued them, to the IRS address listed on the Form W-7 instructions. The IRS will review the identification documents and return them within 60 days.
  • Taxpayers have the option to work with Certified Acceptance Agents (CAAs) authorized by the IRS to help them apply for an ITIN. CAAs can certify all identification documents for primary and secondary taxpayers and certify that an ITIN application is correct before submitting it to the IRS for processing. A CAA can also certify passports and birth certificates for dependents. This saves taxpayers from mailing original documents to the IRS.
  • In advance, taxpayers can call and make an appointment at a designated IRS Taxpayer Assistance Center instead of mailing original identification documents to the IRS.
  • U.S. medical records for dependents under age 6,
  • U.S. school records for dependents under age 18, and
  • U.S. school records (if a student), rental statements, bank statements or utility bills listing the applicant’s name and U.S. address, if over age 18

Family Option Remains Available

Taxpayers with an ITIN with middle digits 70, 71, 72 or 80 have the option to renew ITINs for their entire family at the same time. Those who have received a renewal letter from the IRS can choose to renew the family’s ITINs together even if family members have an ITIN with middle digits other than 70, 71, 72 or 80. Family members include the tax filer, spouse and any dependents claimed on the tax return.

How to Renew an ITIN

To renew an ITIN, a taxpayer must complete a Form W-7 and submit all required documentation. Taxpayers submitting a Form W-7 to renew their ITIN are not required to attach a federal tax return. However, taxpayers must still note a reason for needing an ITIN on the Form W-7. See the Form W-7 instructions for detailed information.

The IRS began accepting ITIN renewals today. There are three ways to submit the W-7 application package:

Avoid Common Errors Now and Prevent Delays Next Year

Federal returns that are submitted in 2018 with an expired ITIN will be processed. However, exemptions and/or certain tax credits will be disallowed. Taxpayers will receive a notice in the mail advising them of the change to their tax return and their need to renew their ITIN. Once the ITIN is renewed, any applicable exemptions and credits will be restored and any refunds will be issued.

Additionally, several common errors can slow down and hold some ITIN renewal applications. The mistakes generally center on missing information and/or insufficient supporting documentation. The IRS urges any applicant to check over their form carefully before sending it to the IRS.

As a reminder, the IRS no longer accepts passports that do not have a date of entry into the U.S. as a stand-alone identification document for dependents from a country other than Canada or Mexico, or dependents of U.S. military personnel overseas. The dependent’s passport must have a date of entry stamp, otherwise the following additional documents to prove U.S. residency are required:

  • U.S. medical records for dependents under age 6,
  • U.S. school records for dependents under age 18, and
  • U.S. school records (if a student), rental statements, bank statements or utility bills listing the applicant’s name and U.S. address, if over age 18

Published: August 9, 2017

IRS Office of Appeals Pilots Virtual Service

The Internal Revenue Service Office of Appeals will soon pilot a new web-based virtual conference option for taxpayers and their representatives. This virtual face-to-face option will provide an additional option for taxpayer conferences. The IRS expects it to be especially useful for taxpayers located far from an IRS Appeals office.

Each year, the Office of Appeals hears appeals of more than 100,000 taxpayers attempting to resolve their tax disputes without going to court. Currently, taxpayers involved in the appeals process can meet with an Appeals Officer by phone, in person or virtually through videoconference technology available only at a limited number of IRS offices. 

While a phone call works well for most taxpayers, others prefer face-to-face interaction. Appeals’ pilot program will use a secure, web-based screen-sharing platform to connect with taxpayers face-to-face from anywhere they have internet access. Similar to popular screen-sharing programs used on phones and home computers, this technology may also be a way for the IRS to provide greater access, efficiency and flexibility to taxpayers. This web-based model is more convenient and has more features than the existing video-conferencing technology.

“Taxpayers who choose the web-based option will be able to get face-to-face service remotely,” said IRS Chief, Appeals Donna Hansberry. “In the future, the technology may give taxpayers greater options in engaging with Appeals and could allow us the flexibility to serve taxpayers virtually from any location using mobile devices or computers.

 “We hope this is one more option to enable IRS employees to provide timely, efficient and effective service to taxpayers,” said Hansberry.

Appeals started the pilot Aug. 1, 2017 and will assess the results, including taxpayer satisfaction with the technology.  

Published: August 8, 2017

Two Tips That Lead to a Better Retirement

For many Americans, a broad gap exists between their expectations of how much money they will need in retirement and the reality.

Merrill Lynch's March 2017 Finances in Retirement Survey pegged the average cost of retirement at $738,400. According to a PwC survey, about half of baby boomers have less than $100,000 saved for retirement. Nearly a third have saved less than $50,000.

Despite those discouraging numbers, a comfortable retirement isn't out of reach. In fact, making two simple changes to your retirement plans can brighten your long-term financial outlook.

Tip No. 1: work longer. Retiring after age 65 is becoming the new normal for a growing number of Americans. A Gallup poll conducted in May found that 39 percent of Americans plan to retire after age 65, up from 14 percent a decade ago. Nearly 63 percent said they planned to continue working part time.

Staying in the workforce longer yields multiple benefits for your retirement savings portfolio, including more opportunities to capitalize on positive market swings. "If you keep working past age 65, you can keep your portfolio in growth mode," says Nina O'Neal, a partner at Archer Investment Management in Raleigh, North Carolina.

As you get closer to your target retirement age, O'Neal says, you can begin transitioning your portfolio to include more stable income investments.

Joseph Roseman, managing partner at O'Dell, Winkfield, Roseman and Shipp in Charlotte, North Carolina, says older workers can also beef up retirement savings by making catch-up contributions.

For 2017, workers age 50 and older can sock away an extra $6,000, pushing the total annual contribution limit for a 401(k) to $24,000. Hopefully, Roseman says, by the time you reach your 60s, "you're at your highest income levels and can save the maximum in your employer's plan."

If you're working longer, you should also consider contributing to a Roth 401(k) or a Roth individual retirement account if possible. "Roth contributions don't garner a current tax deduction, but you can access these funds income-tax-free in the future," Roseman says, which is helpful if you're concerned about your tax liability in retirement.

Staying on your employer's health plan is another valuable perk of working longer. "With the rising cost of health care and health insurance and the uncertainty surrounding the Affordable Care Act, it's a scary time to be on your own when it comes to health insurance," Roseman says.

The average 65-year-old couple can expect to spend $260,000 on health care in retirement, according to research from Fidelity Investments. Staying on the job longer can keep those costs from making a sizable dent in your retirement savings.

Tip No. 2: delay Social Security. Working longer is one piece of the secure retirement puzzle. The other is postponing your Social Security benefits.

An April 2017 Fidelity survey found that the number of Americans who plan to claim Social Security early has dropped dramatically since 2008. Just 28 percent of seniors say they'll collect benefits beginning at age 62, compared to 45 percent nearly a decade ago.

Delaying Social Security can give you more income to work with later on. "Social Security, in most cases, should not be taken until one needs it," says Annalee Leonard, owner of Mainstay Financial Group in Pensacola, Florida. "Every year you put off taking Social Security beyond full retirement age, your benefit increases by 8 percent."

Waiting until age 70 would boost your Social Security benefit by 32 percent, or an additional $435.20 per month based on the average monthly benefit of $1,360 in the first quarter of 2017.

Postponing Social Security could also increase your benefits if you're earning more than you were at the beginning of your career.

"Social Security calculates the benefit based on the top 35 years of earnings," Roseman says. "Working longer allows you to replace some of those lower-income early years."

Ken Moraif, a certified financial planner and senior advisor at Dallas-based Money Matters, says seniors must consider how delaying benefits affects their investment strategy. That's particularly important if you're planning to downshift from full-time to part-time work, reducing your income.

"If you delay Social Security benefits, your investments will have to make up for expenses that your wages don't cover," Moraif says. If you foresee a shortfall, you may have to rethink your time frame for shifting investments from growth to income.

Be mindful of taxes. Working longer and delaying Social Security can have tax implications that could affect your retirement strategy.

"The years before you retire are typically your highest earning years," says Michelle Young, a financial advisor with Ameriprise Financial Services in Edina, Minnesota. "Depending on the tax environment, you may be paying a larger portion of your income to taxes while you're still working than you would if you were retired."

Fully funding tax-advantaged accounts in the years leading up to retirement can minimize the tax burden. Young reminds savers to look outside of their employer's plan and supplement their retirement with a health savings account or other tax-advantaged plans.

Taxes are also a consideration if you're converting a traditional IRA to a Roth to avoid required minimum distributions beginning at age 70.5. "When you convert a traditional IRA to a Roth, the amount of the conversion will count as taxable income," Moraif says.

That could temporarily push you into a higher income tax bracket the year you take the conversion. You'll need to weigh the benefit of making tax-free withdrawals from a Roth account in retirement with the tax liability for the conversion amount.

Working longer may also increase your taxes. "More compensation in any year can push a taxpayer into a higher income tax bracket," says Barry Kozak, a consultant with October Three Consulting in Chicago.

While that may mean paying more in taxes in your pre-retirement years, there's a silver lining, he says. Savers can put that extra income to work as they begin the countdown to retirement. "If extra income is used to pay down debt, such as credit cards or a mortgage loan, or it's added to savings, you'll be in a better financial position," Kozak says.

Leonard tells workers who are considering working longer and delaying Social Security to weigh both sides of the tax coin.

"Would you rather have less money and pay less in taxes, or have more money to live the way you want to live, while paying more in taxes," Leonard says. "Personally, I choose the second option."

From US News & World Report

Published: June 27, 2017

More ITINs to Expire

The IRS is warning a new set of Individual Taxpayer Identification Number holders that their numbers are set to expire at the end of 2017, and that they’ll need to renew them before they next file a return.

In the second year of the renewal program, the IRS has made changes to make the process smoother for taxpayers. The renewal process for 2018 is beginning now, more than three months earlier than last year.

Under the Protecting Americans from Tax Hikes Act, ITINs that have not been used on a federal tax return at least once in the last three consecutive years will expire on Dec. 31. In addition, ITINs with middle digits 70, 71, 72 or 80 will also expire at the end of the year.

“We want to emphasize that not everyone with an ITIN needs to take action. These rules only apply to two specific groups,” said Kenneth Corbin, commissioner of the Wage & Investment Division of the IRS. “It’s critical to renew ITINs as soon as possible this summer. If taxpayers have an expired ITIN and they don’t renew before filing, they may have refund delays, and they may be ineligible for certain credits, like the Child Tax Credit.”

The IRS is waiving the requirement to attach a return to the Form W-7, the renewal form submitted with all required documentation. A “family option” lets filers, spouses and dependents all renew at the same time.

The IRS expects 1.3 million people to be affected by the new rules. As of the end of April 2016, the IRS had about 3.2 million ITIN returns; they expect this year’s number to be about the same.

Affected taxpayers who expect to file a tax return in 2018 must submit a renewal application. The agency urges taxpayers affected by changes to the ITIN program to submit their renewal applications as soon as possible to avoid the rush.

As a reminder, ITINs with middle digits of 78 and 79 already expired last year. Taxpayers with these ITIN numbers can renew at any time.

“Our numbers show the same number of ITIN returns from year to year,” Corbin said. “We know that there are ITIN filers who no longer have a filing requirement, and of course there are new ITIN filers.”

The IRS will begin sending the CP-48 Notice of necessary ITIN renewal to affected taxpayers later this summer. ITIN holders who have questions should visit the ITIN information page on

Published: June 22, 2017

IRS Form 1099 Mistakes That Trigger Big Taxes On Phantom Income

Some tax mistakes make it look like you collected big, when you really didn't. They can cause tax problems, and it can be hard convincing the IRS that you are right. Take the recent case of a woman who was giddy over winning a $43 million casino jackpot. Her excitement was short-lived, as the casino claimed the slot machine malfunctioned. Oops, you didn't win after all, they said. The slot machine said it was "printing cash ticket $42,949,672.76," but it was a mistake. The casino offered her a steak dinner instead, but Katrina Bookman is suing the Resorts World Casino over the $43 million jackpot, demanding her payout. She alleges negligence, breach of contract, and negligent misrepresentation, according to Courthouse News Service.

There's no suggestion that the IRS actually believes she got the money in that case. But what if she had received a Form 1099? What if the IRS read about the jackpot and came calling? That can happen with lawsuit recoveries, and it got me thinking: can fake income you actually do not receive turn into real taxes? Plainly, the answer is yes, and it happens more times than you might think. At tax time, you probably receive many IRS Forms 1099, and incorrect Forms 1099 are not uncommon.

Most companies interpret the IRS Form 1099 regulations broadly, erring on the side of reporting. When in doubt, issue a Form 1099, many companies say. A few observers may even think of issuing IRS Forms 1099 in a kind of punitive way, to turn the tax tables on someone. Every year, check to see if you received any Forms 1099 that you think are wrong. If someone actually paid you $1,000, but reported that they paid you $10,000, you'll have to explain that to the IRS on your return.

Boxer Floyd Mayweather Jr. once sent an IRS Form 1099 to a strip club to report that he dropped $20,000. Mayweather Promotions LLC sent the form to the Hustler Club for $20,000, mostly cash tips for dancers. The club claimed it didn't see the money paid to the 'independent contractors.' Still, the club must report it. Forms 1099 are critical to tax returns, and you are almost guaranteed an audit or tax notice if you fail to report one. Each Form 1099 is matched to your Social Security number, so the IRS can easily spew out a tax bill if you fail to report one. It matters a lot, especially now that the IRS has six years to audit, not three.

That's just one example of how a report saying that you were paid can make it awfully tough to prove that you never received the payment. Another circumstance involves the write off of a debt. How can writing off a debt become a tax problem? You can have income despite an absence of cash if you have a discharge of debt. It is also called cancellation of debt or “COD” income.

Loans are not taxed as income. So if a relative or the bank loans you money, you get the cash but do not have income. After all, you have to pay back the debt. But if you are relieved of the obligation to repay, so your debt is cancelled? That's usually COD income and it is taxed. Here again, the reports can hurt. There used to be spotty reporting of COD income, with no rigorous reporting system. But today, lenders are required to issue a Form 1099-C reporting this COD income to ensure that you don’t omit it from your tax return. There are a few exceptions from the harsh COD income rules. Debts forgiven while you’re in bankruptcy–or if not in bankruptcy when you are technically insolvent with more debt than assets–don’t count as income.

Phantom income from entities can be a big problem too. Partnerships, limited liability companies (LLCs) and S corporations are pass-through entities. They are generally not taxed themselves; their owners are taxed. Each owner receives a Form K-1 that reports his or her appropriate share of the income (or loss), even if that income is retained by the business and not distributed to the owners. You are obligated to report it, regardless of whether you received any payout. The IRS matches Forms K-1 against individual tax returns.

By Robert W. Wood for Forbes Magazine

Published: June 20, 2017

For Letter Rulings and Similar Requests: Electronic Payment of User Fees Starts June 15

Beginning June 15, taxpayers requesting letter rulings, closing agreements and certain other rulings from the Internal Revenue Service will need to make user fee payments electronically using the federal government’s system. allows people to pay for a variety of government services online using a credit card, debit card or via direct debit or electronic funds withdrawal from a checking or savings account. In the past, ruling requesters could only make required user fee payments by check or money order. During a two-month transition period, June 15 to Aug. 15, requesters can choose to make user fee payments either through or by check or money order. After Aug. 15, 2017, will become the only permissible payment method.

Rulings described in Revenue Procedure 2017-1 and sent to the Docket, Records and User Fee Branch of the Legal Processing Division of the Associate Chief Counsel (Procedure and Administration) (CC:PA:LPD:DRU) are affected by this change. These include private letter rulings, closing agreements, and rulings using Form 1128, 2553, 3115 or 8716. Determination letters are not affected because they are sent to other offices as described in the revenue procedure.

A letter ruling is a written determination issued to a taxpayer by IRS Chief Counsel in response to the taxpayer’s written inquiry, submitted prior to the filing of returns or reports required under federal law. In general, it concerns the requester's status for tax purposes or the tax effects of its acts or transactions. Letter rulings and other similar ruling requests interpret the tax laws and apply them to the taxpayer’s specific set of facts. User fees range from $200 to $28,300, depending upon the type of ruling being sought. is used to accept payments only. The original, signed ruling request and supporting materials must still be submitted by mail or hand delivery to the IRS.

Published: June 7, 2017

Three-Day Storm Supply Sales Tax Holiday Starts Friday

Planning ahead for hurricane season could save you a little money.

From 12:01 a.m. Friday through 11:59 p.m. Sunday, Florida will not charge sales tax on certain emergency preparedness supplies.

More than a dozen types of supplies — as small as reusable ice packs and as large as portable generators — are covered by what's officially being called the "2017 disaster preparedness sales tax holiday."

The tax holiday was approved by the Florida Legislature and signed into law by Gov. Rick Scott as part of House Bill 7109, which includes what the governor said was a $180 million package of tax cuts. 

This weekend's tax holiday accounts for $4.5 million of that amount.

In a statement, Florida Department of Revenue Executive Director Leon Biegalski said the disaster preparedness sales tax holiday presents "an opportunity for Floridians to purchase supplies in preparation for a variety of storm-related activity."

"From powerful thunderstorms and tornadoes, to tropical storms and hurricanes, Florida experiences a range of potentially dangerous weather throughout summer and fall," Biegalski said.

The sales tax holiday covers both Florida's 6 percent sales tax and Brevard County's two temporary 0.5 percent special sales taxes — one for school infrastructure and the other for projects to restore the health of the Indian River Lagoon.

Separately, Florida will have a back-to-school sales tax holiday on Aug. 4, 5 and 6, in which the savings for consumers is expected to total $33.4 million.

This is the first time Florida has specifically had a "disaster preparedness sales tax holiday," according to the Florida Department of Revenue. But it has had similar "hurricane preparedness sales tax holidays" four previous times — in 2005 for 12 days, in 2006 for 12 days, in 2007 for 12 days and in 2014 for nine days.

Hurricane season begins June 1 and ends Nov. 30. 

What's covered

Here's what's covered by the disaster preparedness sales tax holiday, along with the maximum price on what's covered by the tax:

Selling for $10 or less: Reusable ice packs.

Selling for $20 or less: Any portable self-powered light source (powered by battery, solar, hand-crank or gas). This includes flashlights, lanterns and candles, including candles with wicks.

Selling for $25 or less: Any gas or diesel fuel container, including liquefied petroleum gas and kerosene containers.

Selling for $30 or less: 

• Batteries, including rechargeable batteries, in  these sizes: AA-cell, C-cell, D-cell, 6-volt and 9-volt. Automobile and boat batteries are excluded.

• Coolers and ice chests for food-storage that are nonelectrical.

Selling for $50 or less:

• Tarpaulins/tarps.

• Visqueen, plastic sheeting, plastic dropcloths and other flexible waterproof sheeting.

• Ground anchor systems.

• Tie-down kits.

• Bungee cords.

• Ratchet straps.

• Radios powered by battery, solar or hand-crank, including regular AM/FM radios, two-way radios and weather-band radios.

Selling for $750 or less: Portable generators used to provide light or communications, or to preserve food in the event of a power outage.

The sales tax holiday does not apply to the rental or repair of any of the qualifying items.

Additionally, the sales tax holiday does not apply to sales that take place in a theme park, entertainment complex, public lodging establishment or airport.

Published: May 31, 2017

7 Things To Do Right Now To Save On Taxes This Year

With the beginning of summer just around the corner, chances are that you're not thinking about your 2017 taxes - but you should be. The beginning of summer is a great time to take stock of your financial picture and make any necessary changes. Why? You have a number of 2017 pay periods under your belt and you've had several months to work through any changes from 2016. A quick review now can save hundreds (or thousands) of dollars in taxes later.

Here are seven things you can do right now to save on taxes this year:

1. Review last year's tax return. It's tempting to just simply toss your tax return in a pile right after Tax Day. And that's okay for a few weeks. But before you get too comfortable with your tax return in the filing cabinet, pull it out and take a second look. Check your return for errors: you can always file an amended return if you've left something out. If any deductions, such as your charitable deductions, were disallowed because of a lack of documentation, etc., make a mental note to get it right this year. If you owed taxes last year, think about how you can reduce the hit at the end and eliminate any potential penalty; if you were owed taxes last year, consider tweaks to your withholding (keep reading) to get that money back during the year instead of all at one time. Finally, if you've had any significant changes in circumstances since last year, you'll want to consider how that might affect your overall tax picture; such changes would include changes in your personal life (such as marriage, divorce, or a new baby), job situation (including a new or second job, raise, or change in hours), or financial picture (like an inheritance, theft, or loss).

2. Double check your retirement contributions. Making contributions to retirement accounts is an easy way to save for the future and get an immediate tax break since deductions may be deductible or excludable. Think you can't afford it? Think again. Let's say you make $50,000 per year. By opting for a 1% contribution rate, you're moving $500 per year to a tax-deferred account; if your employer offers a match, you're moving $1,000 per year to a tax-deferred account. That money isn't subject to tax now which means that at a 25% marginal rate, you're deferring $125 in tax ($250 if you count the employee match) - plus, it grows tax-free until retirement. While $500 might feel like a big hit to your wallet all at once, if it's automatically debited each pay period, you likely won't miss it since it works out to just $42 each month. The more you stash away now - without paying taxes on that money today - the more you'll have for retirement later.

Quick note: not all retirement plans are tax-deferred. If you opt for a Roth IRA or other retirement account, you'll pay the tax now, but your money will grow tax-free forever.

3. Make sure that you're taking your proper retirement withdrawals. Most taxpayers are aware that they are subject to a penalty if they withdraw money too early from certain retirement accounts but did you know that you can also get hit with a penalty for withdrawing money too late? By law, you are required to withdraw funds from certain retirement accounts each year after you reach age 70½ (or the year in which you retire if you retire after that age). That amount is referred to as a required minimum distribution (RMD). Failure to make those RMDs can leave you with a penalty come tax time. To avoid the hit, make sure that you're making those withdrawals on time. The rules can be tricky - different rules apply to inherited or estate retirement accounts, for example - so be sure to consult with your financial advisor if you have questions..

4. Fund or top up your Health Savings Account (HSA) or Flexible Spending Account (FSA). Medical costs feel like they keep going up - and with a recent adjustment to the floor for medical expenses (you must itemize on a Schedule A and your deductible medical expenses are only those that exceed 10% of your adjusted gross income (AGI) to claim), it's less likely that you can take advantage of the medical expense deduction. To help with those costs, consider funding a savings plan for health care now so that you can sock away money to pay expenses on a pre-tax basis for the rest of the year (the HSA can also roll over to next year). If your employer offers a flexible spending account (FSA), you can put aside pre-tax dollars to be used for qualifying medical expenses, including insurance copays and deductibles. Consider a health savings account (HSA), too, since the payment of qualified medical expenses from your HSA is federal income tax-free and you don't need to have an employer-sponsored plan. Putting away just $1,000 to help with medical expenses could save the average individual taxpayer $250 in taxes (25% of $1,000).

5. Make changes to your W-4 or consider changing your withholding. The form W-4 is the form that you complete and give to your employer - not the IRS - so that your employer can figure how much federal income tax to withhold from your pay. You typically fill out a form W-4 when you start a new job or at the beginning of the year. However, you may also want to fill out a new form W-4 when your personal or financial situation changes (see #1). Generally, the more allowances you claim on your W-4, the less federal income tax your employer will withhold from your paycheck (the bigger your take home pay) while the fewer allowances you claim, the more federal income tax your employer will withhold from your paycheck (the smaller your take home pay). You want to get this number right since if you owe too much at tax time, you could be subject to an underpayment penalty.

6. Review your estimated payments. If you receive payments or other money throughout the year without having any federal income taxes withheld, you should consider making estimated payments. If you are filing as an individual taxpayer, you generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your federal income tax return. This rule applies not only to the self-employed or occasional freelancers but also to those taxpayers who may receive income from other sources not subject to withholding; these tend to be landlords, S corporation shareholders, partners in a partnership or taxpayers with significant investments. For estimated tax purposes, the year is divided into four payment periods, about once every quarter. Each period has a specific payment due date as determined by IRS (usually April 15, June 15, September 15 and January 15). Watch the dates carefully: if you don’t pay on time, you may be subject to a penalty.

7. Make an appointment to see us - your tax professional! Believe it or not, not all tax professionals close up shop once Tax Day passes: there is work to be done all year long. If you manage a small business or run your own show, you should likely be meeting with your tax professional quarterly - just to make sure that you're on top of things. Most individual taxpayers who don't run a business find that a quick check-up once a year works out just fine to make sure that you won't encounter any nasty surprises at year-end: a tax professional can also help you determine whether you need to make a change in your withholding or pay more (or less) in estimated payments.

Don't assume that hiring a good tax pro will be complicated or expensive. Pricing is important but don't hire just on cost: ask questions and get a referral from a friend. Another plus? Fees for tax advice are generally deductible.

From Forbes #TaxTime

Published: May 25, 2017

Can Digital Nomads Take A Tax Deduction For Moving Expenses?

Federal tax law allows a deduction for moving expenses related to starting a new job or transferring to a new location for your present employer. To take the deduction, you have to meet all three of the following requirements:

  • The move closely relates to the start of work. In general, that means all moving expenses were incurred within one year from starting work in your new location.
  • The move meets the distance test. Your new workplace must be at least 50 miles farther from your old home than the old job location was from your old home.
  • The move meets the time test. An employee must work full-time for at least 39 weeks during the 12 months immediately following arrival in the general area of the new job location. (Although there are a few exceptions to the time test in the event of death, disability, and involuntary separation, among others, as outlined in IRS Publication 521.)

The rules for deducting moving expenses for a self-employed person are a little trickier.

In general, self-employed people can deduct moving expenses if they work full time for at least 39 weeks during the year following the move. Additionally, you must work full-time for a total of 78 weeks during the first two years immediately following your arrival to your new home.

But IRS rules are sometimes slow to adapt to changes in the way we work. They don’t specifically address self-employed people who can work from anywhere.

David Levi, Senior Managing Director at CBIZ MHM, says, for a location-independent worker, there would need to be a new client or a new situation to “trigger” a moving opportunity. “A consultant who has been working with the same four clients for several years is unlikely to be able to deduct moving costs without a significant reason for the move,” he says.

That doesn’t mean a digital nomad is completely out of luck. Craig W. Smalley, an IRS Enrolled Agent with CWSEAPA Accounting and Financial Services says you could deduct any expenses directly related to moving business items. “For instance,” he says, “if you have a desk, server, or anything that needs special attention when it is moved, you could deduct those items as a necessary and ordinary business expense.”

Digital nomads can’t take advantage of the tax breaks for moving just because they’d like to relocate closer to the beach or mountains. But if you are a married couple filing jointly, only one spouse needs to pass the tests above to qualify for the deduction.

A couple more notes on deducting moving expenses. If you meet the requirements outlined above, deductible expenses include reasonable costs for moving household goods and personal effects. That might include moving trucks, professional moving services, packing supplies, and storing and insuring your belongings for up to 30 days. You can also deduct the cost of traveling to your new home. If you travel by car, you can claim either actual expenses (i.e. the amount you pay for gas and oil for your vehicles) or take the standard mileage deduction of 19 cents per mile. You can’t deduct expenses for meals along the way.

Moving expenses are an “above the line” deduction, meaning you don’t have to itemize to take advantage.

From Forbes Women@Forbes by Janet Berry-Johnson

Published: May 22, 2017

Preparing for Hurricanes, Floods and Other Natural Disasters

With the start of the Atlantic hurricane season looming on June 1, the Internal Revenue Service today offered advice to taxpayers who may be affected by these types of storms, as well as other  natural disasters. The IRS also wants taxpayers to know that the agency is here to help, including offering a special toll-free hotline to people in federally declared disaster areas, staffed with IRS specialists trained to handle disaster-related issues.

Don’t Forget to Update Emergency Plans

Because a disaster can strike any time, be sure to review emergency plans annually. Personal and business situations change over time, as do preparedness needs. When employers hire new employees or when a company or organization changes functions, they should update plans accordingly and inform employees of the changes. Make plans ahead of time and be sure to practice them.

Create Electronic Copies of Key Documents

Taxpayers can help themselves by keeping a duplicate set of key documents including bank statements, tax returns, identifications and insurance policies in a safe place such as a waterproof container and away from the original set.

Doing so is easier now that many financial institutions provide statements and documents electronically, and financial information is available on the Internet. Even if the original documents are provided only on paper, these can be scanned into an electronic format. This way, taxpayers can download them to a storage device such as an external hard drive or USB flash drive, or burn them to a CD or DVD.

Document Valuables

It’s a good idea to photograph or videotape the contents of any home, especially items of higher value. Documenting these items ahead of time will make it easier to claim any available insurance and tax benefits after the disaster strikes. 

Photographs can help anyone prove the fair market value of items for insurance and casualty loss claims. Ideally, photos should be stored with a friend or family member who lives outside the area.

Check on Fiduciary Bonds

Employers who use payroll service providers should ask the provider if it has a fiduciary bond in place. The bond could protect the employer in the event of default by the payroll service provider.

Published: May 18, 2017

Strange Taxes In the U.S. & Around the World

Perhaps certain taxes make more sense, like a tax on inheritance or investment gains. But let’s face it – some taxes are just plain crazy. Here are 12 of the weirdest taxes that exist today.

1. Kansas Taxes You to Stay On the Ground

Ever been hot air ballooning? It’s pretty fun at first, then that tether gets loosed and you realize the only thing holding you up is slightly less hot air than your grandpa talking about the good ole days. It can be nerve-wracking enough on its own. But if you happen to be ballooning in Kansas, you’ll pay even more than your sweat-drenched shorts. Kansas considers an untethered hot air balloon to be a form of transportation and a tethered one to be a device for amusement. Since amusement rides are taxed, you’ll pay extra for that tether. You can decide in the moment whether or not it’s worth the extra cost.

2. New York Taxes How You Get Your Bagel

Few things are more synonymous with New York than bagels. Sure, maybe the Yankees or people yelling at you to keep moving on the sidewalk are a little more prominent, but bagels definitely make the cut (see what we did there?). If you want your bagel cut for you in New York, or schmeared or topped in any way, it’s considered preparation for the purposes of taxation. Of course you could always just get a plain bagel that’s not cut, but what kind of New Yorker would you be then?

3. New Mexico Taxes You For Not Being a Centenarian

If you don’t feel like Googling that, a centenarian is someone who’s at least 100 years old. If you’ve lived in New Mexico for at least 6 months and are more than 100, you are exempt from state taxes. As if you needed another reason to not want to die, just think about how much you could save by spending your platinum years in the beautiful New Mexico desert. While away the days as you laugh at your great grandchildren complaining about taxes.

4. Arkansas Taxes Your Self-Expression

There aren’t many millennials who don’t have a tattoo on their skin or a piercing through something. It’s practically a rite of passage nowadays. But if you try to get any such mods done in Arkansas, you’re going to have to pay extra. This is how the government penalizes behavior it considers to be morally questionable (pretty unfair, right?). The state imposes a “sin tax” on body modifications such as tattoos, piercings, and even electrolysis hair removal. For a state that gave us Bill Clinton, they’re surprisingly strict.

5. Hawaii Gives You a Tax Break If You Have an Exceptional Tree

Just what is an exceptional tree, you may ask? Well, if you even have to ask then you’re probably like most people who still have no idea. But if you’ve got one growing in your front lawn in Hawaii, you can write off up to $3,000 worth of expenditures to take care of that tree and make sure it remains exceptional. The catch is that you do have to maintain the tree, so don’t run out and ask for the most exceptional tree at the tree store. You probably won’t end up saving any money.

6. Maryland Taxes You For the Rain

Maryland wants to protect the Chesapeake Bay from storm water runoff, so properties are taxed based on how developed they are. The state believes that a more developed property, one that has more concrete and building structures, will cause more runoff because there’s less grass and exposed land to absorb the rainwater. That’s all well and good… unless you live in a highly developed suburb of Washington, DC. In that case, too bad for you – you’ll probably be paying a pretty, rain-soaked penny.

7. Nevada Taxes Loud Music, But Not Soft Music

If you own a restaurant, bar, or club in Nevada, you’re probably used to dealing with lots of regulations. But you may not realize that you’ll be taxed based on how loud your music is. If you have live entertainment in your business, the state will tax you if it’s loud enough to be intended as entertainment. If, however, it’s soft enough that it doesn’t interfere with normal conversation or it’s really just there to fill in the awkward pauses during first dates, then you get by tax-free. So if you’re hiring a musician, maybe ask them to sing a few bars and see if you can still talk over them. They might be offended that you’re not paying attention, but at least you could save money in the end.

8. 40 States Tax Feminine Hygiene Products

If you’re like half the population of the human race that experiences menstruation, then you’re probably already aware of how much it can cost each month. If you’re in that other half, get ready to be surprised. 40 states in the U.S. tax such products either as a sales tax or a special “luxury” tax. So if you’re in any state other than Minnesota, Pennsylvania, Massachusetts, Maryland, or New Jersey and you feel your monthly visitor approaching, ask yourself, “Can I really afford this luxury right now, or should I just wait until I have the money?”

9. Ireland Gives Tax Breaks to Artists

Ireland has a long and beautiful tradition of fine art, from music to literature. Maybe that’s because the Irish government takes such a favorable stance on the profits of artists. If you derive your income from artistic work that is original, creative, and has cultural or artistic merit, you can be exempt from paying income taxes on that income up to €40,000. The work must be literature, music, a play, or a physical piece (like a painting or sculpture) – and yes, you must be an Irish citizen. You probably shouldn’t get your hopes up about fleeing to the Emerald Isle to live an artist’s life. But if you’re serious about art and really hate paying taxes on it, there are some things to think about.

10. Sweden Taxes You If They Don’t Like Your Baby’s Name

For anyone in the U.S. who’s heard their friend say, “Here’s my baby, Rainbow Pumpernickel Agamemnon,” you might think this tax is a really good idea. In Sweden, the Swedish tax agency must approve of the name you choose for your baby or they’ll fine you up to 5,000 kroner. (Pretty Orwellian, huh?) Sweden says it’s to keep people from copying the names of royalty, but let’s be real… they probably just want to avoid having a nation full of Applesauce Tsunami MacGyvers.

11. Canada Gives Tax Breaks For Cereal Boxes That Come With a Toy

Don’t get too sugar-happy yet; the tax breaks are for the cereal company. But you still get a fun toy in the box, so that’s something. If a cereal company puts a toy in their cereal boxes they become exempt from certain taxes on those boxes. While the toys can’t be alcohol – clearly someone beat us to that idea – they can be enjoyable for kids or adults who just like something fun to play with while they down bowl after bowl of sugary shapes.

12. China Taxes Cigarettes, But Still Wants You to Smoke

China receives a surprising amount of its tax revenue from cigarettes. While no one is surprised that cigarettes are taxed, it may surprise you to know that at least parts of the Chinese government have encouraged people to smoke as a way of beefing up their tax intake. Hubeii province issued a quota for cigarette sales and imposed fines on people who didn’t buy cigarettes. While they did raise plenty of funds, we have a feeling they’ll be seeing the obvious downside of heavy cigarette smoking pretty soon.

From the U.S. Tax Center

Published: May 17, 2017

Startups Can Choose New Option for Claiming Research Credit

Eligible small business startups can now choose to apply part or all of their research credit against their payroll tax liability, instead of their income tax liability, according to the Internal Revenue Service. 

This new option will be available for the first time to any eligible small business when filing its 2016 federal income tax return. Before 2016, the research credit, like most tax credits, could only be taken against income tax liability. The option to elect the new payroll tax credit may especially benefit any eligible startup that has little or no income tax liability.

To qualify for the new option for the current tax year, a small business must have gross receipts of less than $5 million and could not have had gross receipts prior to 2012. A small business meeting this standard with qualifying research expenses can then choose to apply up to $250,000 of its research credit against its payroll tax liability.

To choose this option, fill out Form 6765, Credit for Increasing Research Activities, and attach it to a timely-filed business income tax return. Because many business taxpayers request a tax-filing extension, they still have time to make the choice on a timely-filed return. A number of special rules and computations apply to this credit. See the instructions to Form 6765 for details.

For eligible small businesses that already filed and failed to choose this option, there is still time to make the choice. Under a special rule for tax-year 2016, they can still do so by filing an amended return. This return must be filed by Dec. 31, 2017.

Amended return forms vary depending upon the type of business. Sole proprietors file Form 1040X. Regular corporations file Form 1120X. S corporations file Form 1120S, identifying it as a corrected return (line H(4). For information on amending a partnership return, see the instructions to Form 1065.

After choosing this option, either on an original or amended return, a small business claims the payroll tax credit by filling out Form 8974, Qualified Small Business Payroll Tax Credit for Increasing Research Activities. This form must be attached to its payroll tax return, usually Form 941, Employer’s Quarterly Federal Tax Return.

Further details on how and when to claim the credit can be shared with you by any member of our knowledgeable staff! 


Published: May 10, 2017

Home Office Deduction Often Overlooked by Small Business Owners

For small business owners who work from a home office, there are two options for claiming the Home Office Deduction. The Home Office Deduction is often overlooked by small business owners.

As part of National Small Business Week (April 30-May 6), the IRS is highlighting a series of tips and resources available for small business owners.

Regular Method

The first option for calculating the Home Office Deduction is the Regular Method. This method requires computing the business use of the home by dividing the expenses of operating the home between personal and business use. Direct business expenses are fully deductible and the percentage of the home floor space used for business is assignable to indirect total expenses. Self-employed taxpayers file Form 1040, Schedule C , Profit or Loss From Business (Sole Proprietorship), and compute this deduction on Form 8829, Expenses for Business Use of Your Home.

Simplified Method

The second option, the Simplified Method, reduces the paperwork and recordkeeping burden for small businesses. The simplified method has a prescribed rate of $5 a square foot for business use of the home. There is a maximum allowable deduction available based on up to 300 square feet. Choosing this option requires taxpayers to complete a short worksheet in the tax instructions and entering the result on the tax return. There is a special calculation for daycare providers. Self-employed individuals claim the home office deduction on Form 1040, Schedule C , Line 30; farmers claim it on Schedule F, Line 32 and eligible employees claim it on Schedule A, Line 21.

Regardless of the method used to compute the deduction, business expenses in excess of the gross income limitation are not deductible. Deductible expenses for business use of a home include the business portion of real estate taxes, mortgage interest, rent, casualty losses, utilities, insurance, depreciation, maintenance and repairs. In general, expenses for the parts of the home not used for business are not deductible.

Deductions for business storage are deductible when the dwelling unit is the sole fixed location of the business or for regular use of a residence for the provision of daycare services; exclusive use isn't required in these cases.

Published: May 5, 2017

These 13 Home Energy Tax Credits Expire in 2016

At the end of 2016, the clock runs out on several federal tax credits for homeowners who made energy upgrades during the year. A tax credit reduces the amount of tax owed, so it's different from a tax deduction, rebate, or refund.

Use Energy Saver's reference list below to see if you are eligible for qualifying credits when filing IRS Tax Form 5695 with your taxes. Bonus points for having your receipts and manufacturer's certification statement on hand!


First-time claimers of the Residential Energy Efficiency Tax Credit can get as much as $500 back for qualifying installations in 2016. Follow the links below to review specific requirements for each product. Remember that to claim the credit, all products must have been placed in service by December 31, 2016.


  • Building Insulation
  • Exterior Doors
  • Roofs (metal and asphalt)
  • Windows


  • Central Air Conditioners
  • Biomass Stoves
  • Boilers
  • Furnaces
  • Heat Pumps
  • Water Heaters (non-solar)


Thanks to the Residential Renewable Energy Tax Credit, you can get a tax credit of 30% for the cost of adding these renewable energy technologies to your house: 

  • Fuel Cells
  • Geothermal Heat Pumps
  • Solar Photovoltaics*
  • Solar Water Heat*
  • Residential Wind Turbines

*We gave you 15, not 13, because the tax credit for home solar PV and water heating systems doesn't expire for another five years, but the percentage you can claim gradually drops off after 2019. Now is the time to start planning your solar energy system! 

Published: April 27, 2017

What Is The Savers Credit?

The Savers Credit gives a special tax break to low- and moderate-income taxpayers who are saving for retirement.

Formerly called the Retirement Savings Contributions Credit, the Savers Credit gives a special tax break to low- and moderate-income taxpayers who are saving for retirement. This credit is in addition to the other tax benefits for saving in a retirement account. If you qualify, a Savers Credit can reduce or even eliminate your tax bill.

Unfortunately, many eligible taxpayers don't take advantage of this break because they don't know about it. Indeed, a recent survey* shows that only 12% of American workers with annual household incomes of less than $50,000 are aware of the Savers Credit.

How much could the Savers Credit cut from my tax bill?

Depending on your adjusted gross income and tax filing status, you can claim the credit for 50%, 20% or 10% of the first $2,000 you contribute during the year to a retirement account. Therefore, the maximum credit amounts that can be claimed are $1,000, $400 or $200.

The biggest credit amount a married couple filing jointly can claim together is $2,000. But if you and/or your spouse took a taxable distribution from your retirement account during the two years prior to the due date for filing your return (including extensions), that distribution reduces the size of the Savers Credit available to you.

The Savers Credit is a 'non-refundable' credit. That means this credit can reduce the tax you owe to zero, but it can't provide you with a tax refund.

Which retirement accounts qualify for the credit?

The Savers Credit can be claimed for your contributions to a 401k, 403(b), 457 plan, a Simple IRA or a SEP IRA. (You can’t claim your employer's contributions to these accounts, however.) Your contributions to a traditional IRA or a Roth IRA are also eligible for the Savers Credit.

Am I eligible?

To claim a Savers Credit, you must be age 18 or older and you cannot be a full-time student or be claimed as a dependent on someone else's tax return. Your retirement contribution must have been made during the tax year for which you are filing your return. And you must meet the income requirements.

In 2016, the maximum adjusted gross income for Savers Credit eligibility is $61,500 for a married couple filing jointly, $46,125 for a head of household, and $30,750 for all other taxpayers. The maximum credit you can claim phases out as your income increases.


John and Maria are married and file jointly. He’ll contribute $1,000 to his 401(k) plan this year. She’ll contribute $1,000 to an IRA. Their 2016 combined adjusted gross income is $33,500. Each of them is therefore eligible to claim a 50% credit for their contributions. Together, their credits are worth $1,000.

Christine files as a head of household. She’ll contribute $1,200 to her 403(b) plan this year. If her 2016 adjusted gross income is $28,000, she can claim a 20% Savers Credit for her contribution, worth $240.

How do I claim the Savers Credit?

To claim the credit, use Form 8880, "Credit for Qualified Retirement Savings Contributions."

Heads-up: You can only claim the Savers Credit if you use form 1040A, 1040 or 1040NR (not supported in TurboTax) to file your federal tax return. Although the IRS has included information about the Savers Credit in the instructions for Form 1040EZ, those instructions direct you to a different form. You can't claim it on Form 1040EZ.

From the Intuit Tax Blog

Published: April 26, 2017

5 Tax Tips For Small Business Owners

Nobody looks forward to doing their taxes. Here are tips for small business owners that will make money management a little easier.

Tax season is a stressful time for everyone, but for small business owners, it can be especially challenging. 

Whether you’re among the 84 percent of small-business owners who hire a third party to manage taxes, or you manage business accounting independently, taxes are an unavoidable burden for entrepreneurs.

Here are some tax tips all small-business owners can incorporate to reduce the amount of time and money required to manage them.

Plan for Estimated Tax Payments

Nearly half of the respondents to NSBA’s survey said the financial burden of paying Federal taxes is one of the biggest challenges they face. Though quarterly estimated tax payments are required of business owners, proactive planning can help owners manage their financial implications. When determining

When determining the amount of quarterly payments for the year, establish a schedule to consistently transfer a portion of your business’s monthly income to a business account that is dedicated solely to quarterly tax payment.

Establish an account with The Electronic Federal Tax Payment System tax payment service (offered by the U.S. Department of the Treasury). Once your account is approved, you will receive a PIN, allowing you to schedule automated withdrawal of quarterly taxes from the designated account.

In addition to your state tax liability and estimated payment required, confirm the tax rules for the municipality in which you conduct business/earn income. You may need to pay estimated quarterly city income taxes to your local government, too.

Organize Financial Records Monthly.

Earmark an afternoon at the end of each month to scan receipts (don’t destroy the hard copy) for business expenses you plan to claim. Create a spreadsheet documenting the details of each receipt and its business purpose — keep a tally of monthly expenses relative to income. 

Create a spreadsheet documenting the details of each receipt and its business purpose — keep a tally of monthly expenses relative to income. Create monthly folders for your business finances, and store the records in the cloud. 

Use apps to help track your business mileage, and upload the data for each month to a designated folder, where you can also record the details of the trip. This system will make it far easier (and less expensive) if you hire a third party to manage your tax filing (that bills hourly), and will require less of your time if you manage tax filing by yourself. 

If you are audited, this detailed documentation is also required to substantiate the expenses claimed.

Review Business Finances Before Year’s End.

Review all business finances at least one month before the end of the year to recognize potential opportunities to minimize your tax burden. Base this on sales for the year and expected sales for the coming year. 

For example, it may behoove you to accelerate income from one year to the next if you foresee doing more business in the future (and entering a higher tax bracket). Likewise, you may be able to minimize tax burdens with charitable contributions, purchases of business equipment, or by increasing personal retirement contributions. 

Because many of these transactions come with the stipulation that it takes place before the tax year ends, you’ll need time to strategize, plan and execute accordingly.

Design Your Workplace Benefits With Taxes in Mind. 

Giving employees a raise may seem like the most logical way to reward for a job well done — but there are more ways to provide financial benefits than salary alone. 

For example, contributor Jamie Bsales at Small Business Computing says that “fringe benefits” like health and vision care benefits, and child-care assistance give employees financial perks, while also reducing business tax burdens.

Confirm That You Have Tax-Related Information From Employees and Contractors.

For employees who are part of your payroll, you’re required to withhold funds for things like Medicare, Social Security and unemployment from each paycheck. 

Secure signed W-9 forms and related tax documents from independent contractors before the tax season begins to ensure you have the necessary information to issue 1099-MISC forms for services performed. This is generally required if you pay them more than $600 in a tax year. 

Managing taxes requires a time and financial investment for small-business owners, but some basic planning and organization reduces the burden. Put these tips into action to keep more of your hard-earned money — and significantly reduce time spent suffering through tax season.


Published: April 25, 2017

Little-Known Tax Tips For Small-Business Owners

At tax time, small businesses look for ways to save money and maximize credits and deductions. “One of the most overlooked ways for small businesses to save at tax time starts at the beginning of each tax year,” advises David Ayoub, CPA in Syracuse, N.Y. “It’s simple. Keep every receipt. Find a way to corral all the loose receipts lying around your desk, in your purse and in your car. They can add up to a lot of deductions.” Another easy and often overlooked deduction is the cash transactions that many small businesses do. “Keep track of everything in a log,” adds Ayoub.

Carry forward the health credit

The healthcare tax credit is offered on a sliding scale. Businesses that employ fewer than 10 full-time-equivalent employees with average wages under $25,000 per person get the most benefit. To claim the credit, use form 8941 to calculate your eligibility. If your business did not owe taxes in that year, you may be able to carry the credit forward. If a remainder of the tax premium exists, you can claim business expenses against it.

Deduct section 179 property

Small businesses can opt to deduct the full amount of certain property as expenses in the year the business began using them. This is referred to as section 179 property and can include up to $500,000 of eligible business property in the 2016 tax year. Some eligible deductions include:

  • Property used in manufacturing, transportation and production
  • Any type of facility used for business or research
  • Buildings used to hold livestock or horticultural products
  • Off-the-shelf computer software


  • Land
  • Investment property
  • Land outside of the U.S.
  • Buildings that provide lodging
  • Buildings that are used to store air conditioning or heating units

TurboTax can assist you in choosing what types of property are appropriate deductibles.

Deduct appreciable stock contributions

Many small businesses make charity contributions throughout the year and deduct the amount that’s donated. Ayoub suggests a way to maximize these contributions. “Donate appreciable stocks instead of money,” he advises. “Your business can deduct the current worth of the stock at the time of contributing, as opposed to what the stock was originally purchased (for).” For example, if you donate one share of a stock that you bought a year ago for $50 per share, and that stock is now worth $100 per share, you can deduct $100 at tax time. This gives you a deduction of the $50 you paid for the share plus the additional $50 that the share appreciated.

From the Intuit Tax Blog

Published: April 24, 2017

IRS Will Use Private Debt Collectors

The private debt collection program was created by a federal law enacted by Congress in December 2015.

The IRS told reporters that for the first month they plan to send out 100 letters a week. Assuming there are no problems with that process, the plan is to then start issuing 1,000 letters a week thereafter.

Of course, whenever debt collection is outsourced to the private sector by a government agency, that can provide a boon to scammers posing as federal agents or as the approved debt collection firms.

So here's what every taxpayer needs to know to avoid getting duped by con artists:

You'll hear from the IRS first.

If your case will be farmed out to a private collection firm, the IRS will notify you and your tax representative first by letter. That letter will include the name of the firm you'll be dealing with, along with the firm's contact information. Then the designated firm will send its own letter confirming that it will handle your case.

Initial contact won't be by phone.

"To protect the taxpayer's privacy and security, both the IRS letter and the collection firm's letter will contain information that will help taxpayers identify the tax amount owed and assure taxpayers that future collection agency calls they may receive are legitimate," the IRS said.

You'll only be contacted if you have longstanding tax debts.

"Here's a simple rule to keep in mind. You won't get a call from a private collection firm unless you have unpaid tax debts going back several years and you've already heard from the IRS multiple times," said IRS Commissioner John Koskinen.

Only four firms are authorized by the IRS.

They are: CBE Group of Cedar Falls, Iowa; Conserve Of Fairport, New York; Performant of Livermore, California, and Pioneer of Horseheads, New York. Affected taxpayers will only be assigned to one of them. If you get a call or a letter from a different firm, they are not working with the IRS.

They can identify themselves as IRS contractors.

The private collection firms' agents who work on taxpayer cases are not IRS employees. But they are working on the federal government's behalf and should indicate that. And they "must be courteous and must respect taxpayer rights," according to the agency.

Only send payments directly to the IRS.

You should never be asked to send payment to the firm or to anyone other than the IRS or U.S. Treasury. All checks must be made payable to the "United States Treasury."

Anyone calling and demanding immediate payment by prepaid debit card, gift card or wire transfer -- or asking for your credit card or debt card number -- is a fraud. Hang up.

The debt collectors still have to follow the rules.

The collection agencies must follow all the provisions of The Fair Debt Collection Practices Act, which protects consumers from abusive collection practices. For instance, debt collectors can't call a person's work, threaten harm or use profane language. And the times they may call are limited to certain hours.

The collectors also are not authorized to take enforcement actions against taxpayers (e.g., filing a notice of a federal tax lien or issuing a levy).

Published: April 14, 2017

4 Things the IRS Doesn't Want You to Know!

It's the IRS's job to collect taxes for the federal government, so it's not surprising that most people are less than fond of the agency.

The IRS, in turn, does its best to keep certain facts under wraps -- either because it would make it easier for the agency if people don't know these details, or because taxpayers can use this information to get some of their money back .

1. You probably won't be audited

In recent years, the IRS's budget has been repeatedly slashed. As a result, it's been forced to reduce its personnel, including auditors. The inevitable result is a steep decline in audit rates: Fewer than 1% of taxpayers are audited these days, and as the budget cuts continue, this rate will likely drop further.

However, this doesn't give you carte blanche to throw whatever numbers you like into your tax return. Setting aside the ethical issues of cheating on your taxes, there's no guarantee that the IRS' budget or priorities won't change in the near future (before the statute of limitations runs out on your current tax return). So while it's natural to be happy that you are extremely unlikely to be audited, don't push your luck. Claiming legitimate deductions that you might otherwise be too nervous to take is one thing; committing tax fraud is entirely different.

2. The IRS may owe you interest

The IRS spells it out loud and clear that taxpayers owe the agency interest and penalties for late payments, but it's significantly quieter about the fact that if the IRS is late giving you your tax refund, it will owe interest to you. If the IRS doesn't issue you your refund within 45 days of the returns due date or the date it accepted your tax return (whichever comes later), it owes you interest for every day that the refund is late.

Note that the timing rule means that you can't cheat by turning your return in late, then claiming that the IRS owes you interest because it's been more than 45 days since the return due date.

The IRS's interest rates change quarterly; for first quarter 2017, the rate is 4%.

3. Qualified charitable distributions in lieu of RMDs

Once you hit age 70½, the IRS requires you to withdraw a certain minimum amount from your tax-deferred retirement accounts every year. It doesn't want you to be able to hang on to that money forever; after a certain point, it wants to be able to start collecting taxes on the money in these accounts. Thus, you'll be forced to take distributions (and pay taxes on them) whether or not you actually need the income. And because the distributions are taxed as income, this can cause all kinds of other tax complications such as raising your tax bracket (and your capital gains rate as a result), and making your Social Security benefits partially taxable.

You can't get out of taking the required minimum distribution from your tax-deferred accounts unless you're willing to pay a grotesquely high 50% penalty, but you can avoid paying income taxes on that money by donating it to charity instead of keeping it yourself. This would count as an RMD, but it would help decrease your tax liability.

In order for this to work, the distribution has to go straight from the retirement account to the charity -- you can't pull out the money and then write a check to the charity of your choice. Consult with your retirement account's trustee or your financial adviser to learn the nitty-gritty details of how to manage this transaction so as to meet IRS requirements.

4. Removing the penalty on early withdrawals from retirement accounts

Take money out of your tax-deferred IRA or 401(k) before age 59½, and the IRS will slap a 10% penalty tax on the distribution (in addition to taxing the distribution as income). However, there's an exception that's available to all: the substantially equal periodic payment rule.

What this rule says, in brief, is that if you commit to taking exactly the same amount from your retirement account every year -- an amount figured by one of three calculation methods offered by the IRS -- you won't have to pay penalties on the distributions. The three calculation methods are based on how much money you have in your retirement accounts, and on life expectancy tables provided by the IRS.

Note that this is not an exception you should take advantage of unless you really, really need to. There are significant drawbacks: You have to keep taking the distributions for at least five years or until you reach age 59½, and taking money out of your retirement accounts before you retire can cause you serious financial hardship later on. However, if you do end up needing the money before 59½, at least you have a way to avoid the 10% penalty.

From CNN Money

Published: April 13, 2017

Your taxes are not due on April 15! Here's why...

If you're among the nearly 40 million Americans who have yet to file their 2016 tax returns, the good news is you get a few extra days to file.

While the tax return due date is typically April 15, this year your return is due by Tuesday, April 18.

Why? When April 15 falls on a weekend, the filing deadline is scheduled for the following Monday, unless that Monday happens to be a holiday. This year, Monday, April 17, is Emancipation Day, which is a legal holiday in the District of Columbia. (That day celebrates President Lincoln's signing of the Compensated Emancipation Act in 1862, which freed over 3,000 slaves in D.C.)

Of course, if you still can't get everything filed on time, you should file for an automatic six-month extension by April 18.

But remember: An extension to file is not an extension to pay what you owe.

Tuesday, April 18 is still the day by which you have to pay any remaining taxes due for 2016. So if you think you're going to owe more than what has already been withheld from your sources of income, estimate how much more and include payment with your extension request.

If you don't pay what you owe, you will be subject to late payment penalties and interest.

Published: April 12, 2017

7 Tax Misunderstandings

While we can never know everything, there are times when ignorance can cost you dearly -- and tax season is one of those times. Here are seven tax misunderstandings Americans should clear up immediately.

A pile of little papers on which are written words such as "tax return" "tax audit" "tax advice" -- and many simply have big question marks on them

1. You shouldn't necessarily want a fat tax refund.

For starters, while it's wonderful to get a hefty check from Uncle Sam after filing your tax return, that's not really such a great thing. After all, it's technically your own money that you're getting back, and the government has been hanging onto it until you filed your return. Modest refunds are common and not a problem, but big refunds generally happen when we have too much withheld from our paychecks. You can adjust your withholding by submitting another W-4 form to your employer.

2. Tax credits are more valuable than tax deductions

Tax credits and deductions aren't the same thing. Both offer tax breaks, but tax credits are more powerful.

A deduction reduces your taxable income. Have gross income of $70,000 and a $4,000 deduction? Your taxable income is now $66,000. If you're in the 25% tax bracket, you avoid being taxed on that $4,000 and save $1,000. If you have taxable income of $70,000 and a $4,000 tax credit, however, the credit reduces your tax dollar-for-dollar. It's worth a full $4,000.

Credits are available for all kinds of things, such as education expenses, the adoption of children, and the care of children and dependents. A particularly valuable credit, if your income is low enough to qualify, is the Earned Income Tax Credit, which might shrink your taxable income by more than $6,000. The Child and Dependent Care Credit offers a credit of up to $3,000 for the care of one eligible dependent and up to $6,000, total, for two or more.

3. You do have to report all income

It can be easy to think that you only have to report income to the IRS that you get documentation for in the mail -- such as via a W-2 form or a 1099 form. Not true. You need to report all income, from rental income to prize money to gambling winnings. If you get paid in cash for some or all of the work you do, that, too, needs to be reported.

You should report all income because it's the right thing to do, but also because the IRS may already know about some income you're not reporting, and it will wonder why you're not reporting it. After all, entities that pay you will very often be reporting that expense to the IRS.

4. You can't get an extension for paying your taxes

Many people misunderstand the nature of a tax extension. When you file IRS Form 4868 for an extension, you are only postponing the filing of your return. You can't postpone paying the taxes that are due. That might sound tricky, as you may not know exactly how much you owe if you haven't yet completed your return, but the IRS expects you to make a good-faith estimate and pay that amount. (If you think your total taxes due will be around $15,000 and $12,000 was withheld by your employer, you would send in the difference, $3,000.)

The IRS imposes penalties for filing a late return and for paying taxes late. Penalties can be as much as 25% of the tax owed and the unpaid tax. Even if you can't pay, file your return. And if you can pay at least some of what you owe, do so, to minimize the penalty hit.

5. You can reduce your chances of being audited

Your chances of being audited are very low -- and were recently less than 1 in 100. Don't think it's all a matter of chance, though, because there are factors that can make an audit more likely. For example, if you have earnings that are well above average, you'll be more likely to have your return audited. If you're self-employed, you'll be more likely to be audited, as well, because it can be easier for a self-employed person to fudge numbers than it is for a salaried person.

Factors more under your control that can keep your audit odds low include being neat and legible when filling out your return, reporting all income on it (including all dividends and interest that's reported on 1099 forms), and not having math errors on it that will draw the attention of the IRS. If you report having no income at all, the IRS might question that -- which is not a problem if you really did have no income. It may also question bigger-than-usual deductions such as for charitable donations or business expenses. Again, such deductions might get you audited, but they won't cause much trouble if they're legitimate and you have documentation to back them up.

6. You have rights as a taxpayer

You might feel powerless against the IRS, but you do have rights. There is a Taxpayer Bill of Rights that was adopted by the IRS in 2014, assuring us the right to be informed, the right to quality service, the right to pay no more than the correct amount of tax, and the right to challenge the IRS, among others

There's even a Taxpayer Advocate Service, headed by our "National Taxpayer Advocate," Nina Olson. Ms. Olson regularly informs Congress of problems she sees in our tax system and makes recommendations for fixing them. Her office also helps thousands of taxpayers with various problems every year.

7. The IRS will not phone you

Finally, the IRS is never going to call you out of the blue -- and it won't send out unsolicited email, either. If you receive a phone call, as many people have, from someone saying they're with the IRS and that they need you to make a payment immediately or they need your Social Security number or bank account or credit card numbers, don't believe them. There are many tax scams out there bilking taxpayers out of money.

Getting your personal information can help a scammer engage in identity theft -- filing a tax return in your name and collecting a refund. The IRS is aware of and has been tackling this problem, and in fiscal year 2015, it initiated 776 identity theft related investigations, resulting in 774 sentencings. Working behind the scenes, in the first nine months of 2016, it reduced the number of people who filed affidavits with the IRS saying they were victims of identity theft by almost half, compared to 2015 -- with affadavits dropping from 512,278 to 237,750. Still, be warned and be wary.

From CNN Money

Published: April 3, 2017

Amazon Will Collect Sales Taxes Nationwide on April 1

Amazon, the online merchandise juggernaut, will collect sales taxes from all states with a sales tax starting April 1.

Tax-free shopping will be over as of next month in Hawaii, Idaho, Maine and New Mexico, the four remaining holdouts.

Since the beginning of this year, Amazon has added a number of states to its roster of jurisdictions where it collects sales taxes.

"Maine businesses can go toe-to-toe with the very best out -of-state companies, provided they are competing on an equal playing field," said George Gervais, commissioner of the Maine Department of Economic and Community Development, in a statement.

"Amazon's decision to collect and remit sales tax to the state of Maine is an important first step in leveling the playing field," he said, noting that the increased revenue from sales levies will help lower the state's income taxes.

After April, the only states in which Amazon won't collect taxes are Alaska, Delaware, Oregon, Montana and New Hampshire. These five states don't have sales levies.

Missing windfalls

The National Conference of State Legislatures estimates that states lost out on $23.3 billion in revenue in 2012 due to their inability to collect sales taxes from online purchases.

How states treat sales taxes for web and catalog purchases is tied to a 1992 Supreme Court case, Quill Corp. v. North Dakota.

The court ruled that states couldn't require retailers to collect sales taxes unless they had a physical presence in the same place where the buyer is located.

Major online retailers — namely, Amazon — more and more fall under that rule by building data centers, warehouses and other facilities in multiple locations.

You still owe

Even if your online retailer doesn't assess a sales tax because it doesn't have a brick-and-mortar location in your home state, your state may require you to pay use taxes on your purchase, according to Richard C. Auxier, a research associate at the Tax Policy Center.

Use taxes, which apply to items you buy outside your state of residence, generally are assessed at the same rate as a sales tax. The burden of reporting use taxes falls to the consumer, Auxier said.

"Everyone owes taxes on online purchases, be it from Amazon or a small retailer," he said. "The question we deal with is 'Who collects the tax?'"

Reporting responsibilities

States that assess use taxes give their residents a way to report it. California, for instance, provides a worksheet for taxpayers to calculate what they owe.

New York, meanwhile, offers forms for reporting these levies when you file your income tax return. In the Empire State, you may be subject to penalties and interest on any back use taxes.

In reality, states haven't been particularly stringent about collecting these use taxes — and many shoppers don't even know they owe.

"Very few taxpayers report it, even when systems are in place to make use tax payments easy," said Auxier.

As a result, a coalition of 24 states has adopted the Streamlined Sales Tax Agreement, which allows retailers to voluntarily collect taxes.

In practice, it's easier for online merchants to add the tax at checkout, as opposed to having states pursue residents for levies owed on purchases, Auxier said.

Expect your use tax holiday to come to an end as online retailers expand their operations into more states.

"I'm not going to look down upon or congratulate anyone, but there's something to be said about being a good resident and paying the use tax," said Auxier.


Published: March 24, 2017

Answers to Common Tax Questions

Death and taxes, as the saying goes, are the only two certainties in life. But another, if lesser, certainty centers around the same types of basic tax questions popping up each year. As the 2016 tax-return filing season nears, here are answers to some common tax queries:

What's new this tax season? 

Not a whole lot, at least compared to prior tax years. Legislation passed in late 2015 made several expiring provisions permanent, including the option of deducting state and local income taxes and a provision that allows seniors to donate IRA withdrawals to charities without having to declare them as taxable income.  Some numbers changed too, such as the personal exemption deduction rising to $4,050 from $4,000.

It's worth noting that the normal tax filing deadline this year is April 18, three days later than usual, and the Internal Revenue Service said it won't begin issuing refunds before Feb. 15 on returns that claim the earned income tax credit or the additional child tax credit.

Much bigger tax changes await for 2017 if president-elect Trump and Republicans in Congress carry through on their plans to cut income-tax rates, increase the standard deduction and make other notable moves that could affect most individual filers.

Do I need to file a return? 

The answer depends on a person's gross income, filing status and age. For most full-time workers, the answer is yes. For others, especially those 65 and over, it's a bit trickier.

For example, if you're under 65, you must file if your gross income last year was at least $10,350 (singles) or $20,700 (married filed jointly). If you're 65 and single, you file with gross income of at least $11,900. Married couples file if one spouse is 65 or over with joint income of at least  $21,950, or if both spouses have reached 65 with income of at least $23,200. Internal Revenue Service Publication 17, available at, provides details. The IRS website also has an online questionnaire to guide you through the process.

Even if not required, it might be worthwhile to file if you might recoup estimated federal taxes withheld during the past year or if you made estimated payments that might be refundable. Filing also makes sense if you can claim the earned income tax credit or various other credits.

What types of tax-return assistance are available?

There are many choices, such as hiring certified public accountants or tax-return specialists known as "enrolled agents," or other preparers who lack those credentials. The IRS requires all paid preparers to have a PTIN or preparer tax identification number. It's also a good idea to find out if a person is affiliated with a professional organization and attends continuing education classes. Hiring a CPA is the surest way to know that your tax professional is up to date with continuing education and qualified to give you the best advice possible! 

How can I minimize the risks of becoming a victim of tax ID theft? 

Tax fraud mainly involves criminals filing returns in someone else's name in hopes of collecting that person's refund. Consequently, the earlier you file, the less chance a criminal has to beat you to the punch.

That's one tip offered by credit bureau Experian. Others include checking out the professional you hire to prepare your return, and asking that person what safeguards he or she uses to protect client information. If you file yourself electronically, make sure you're using a secure tax-preparation software service and that your machine is protected with anti-virus and anti-malware software — and don't file using public Wi-Fi. Check your credit report periodically for signs that your other financial accounts might have been compromised.

Part of any ID-theft defense involves exercising common sense. So don't divulge sensitive information if someone claiming to represent the IRS contacts you in an unsolicited phone call, email or text message. The IRS generally will mail a bill if you owe taxes and won't call to demand immediate payment, especially with prepaid debit cards, gift cards or wire transfers. Also, the agency won't ask for credit or debit card numbers over the phone, threaten to have you arrested or demand payment without giving you a chance to question or appeal the amount.

From USA Today

Published: March 21, 2017

April 1 Deadline to Take Required Retirement Plan Distributions

The Internal Revenue Service today reminded taxpayers who turned age 70½ during 2016 that, in most cases, they must start receiving required minimum distributions (RMDs) from Individual Retirement Accounts (IRAs) and workplace retirement plans by Saturday, April 1, 2017.

The April 1 deadline applies to owners of traditional (including SEP and SIMPLE) IRAs but not Roth IRAs. It also typically applies to participants in various workplace retirement plans, including 401(k), 403(b) and 457(b) plans.

The April 1 deadline only applies to the required distribution for the first year. For all subsequent years, the RMD must be made by Dec. 31. A taxpayer who turned 70½ in 2016 (born after June 30, 1945 and before July 1, 1946) and receives the first required distribution (for 2016) on April 1, 2017, for example, must still receive the second RMD by Dec. 31, 2017. 

Affected taxpayers who turned 70½ during 2016 must figure the RMD for the first year using the life expectancy as of their birthday in 2016 and their account balance on Dec. 31, 2015. The trustee reports the year-end account value to the IRA owner on Form 5498 in Box 5. Worksheets and life expectancy tables for making this computation can be found in the appendices to Publication 590-B.

Most taxpayers use Table III  (Uniform Lifetime) to figure their RMD. For a taxpayer who reached age 70½ in 2016 and turned 71 before the end of the year, for example, the first required distribution would be based on a distribution period of 26.5 years. A separate table, Table II, applies to a taxpayer married to a spouse who is more than 10 years younger and is the taxpayer’s only beneficiary. Both tables can be found in the appendices to Publication 590-B. 

Though the April 1 deadline is mandatory for all owners of traditional IRAs and most participants in workplace retirement plans, some people with workplace plans can wait longer to receive their RMD. Employees who are still working usually can, if their plan allows, wait until April 1 of the year after they retire to start receiving these distributions. See Tax on Excess Accumulation in Publication 575. Employees of public schools and certain tax-exempt organizations with 403(b) plan accruals before 1987 should check with their employer, plan administrator or provider to see how to treat these accruals.

The IRS encourages taxpayers to begin planning now for any distributions required during 2017. An IRA trustee must either report the amount of the RMD to the IRA owner or offer to calculate it for the owner. Often, the trustee shows the RMD amount in Box 12b on Form 5498. For a 2017 RMD, this amount would be on the 2016 Form 5498 that is normally issued in January 2017.

IRA owners can use a qualified charitable distribution (QCD) paid directly from an IRA to an eligible charity to meet part or all of their RMD obligation. Available only to IRA owners age 70½ or older, the maximum annual exclusion for QCDs is $100,000. For details, see the QCD discussion in Publication 590-B.

A 50 percent tax normally applies to any required amounts not received by the April 1 deadline.

Published: March 17, 2017

Some Americans Would Prefer an IRS Tattoo to Paying Taxes: Survey

As tax season ramps up, a new survey shows that some Americans would rather scrub the toilets at Chipotle than hand over a portion of their salary to the Internal Revenue Service.

WalletHub conducted a nationwide survey of 1,000 taxpayers, asking respondents to comment on everything from their opinion on tax collectors to which presidential candidate has the best tax plan.

The results are rather interesting.

27 percent of people would rather get an IRS tattoo than pay taxes.

Six percent would rather sell a kidney, eight percent would rather name their first-born "Taxes," and 11 percent would rather spend three years cleaning the bathrooms at noro-torious Chipotle.

O.J. Simpson and Kanye West are only slightly more popular than the IRS.

Pope Francis ranked top of the list, at 52 percent more favorable. Barack Obama and Bernie Sanders tied for second place, with 44 percent; and Hillary Clinton came third, with 30 percent of the vote.

Doing your taxes is worse than folding 100 fitted sheets.

Thirty-two percent of Americans would rather wrestle with 100 fitted sheets, break their arm (related?), or tell their kids about the birds and the bees. Thirteen percent would prefer to spend the night in jail than do their taxes. (Hey! If you fail to file your return you might be able to do just that.)

Most people are more afraid of their own math skills than getting audited.

36 percent of respondents said they are afraid of making a silly math mistake, 26 percent are afraid of identity theft, and 19 percent fear getting audited.

Stop dawdling, because more than half of America has already filed.

Around 53 percent of Americans have already completed their tax returns. Six percent of those who have not yet filed intend to do so after the deadline.

We like getting refunds.

Just under half of Americans surveyed prefer to err on the side of caution, and expect some cash back.

And what are we doing with our "windfall?" Well, we're putting it in our savings accounts or paying off our debts. Well done, America

Published: March 10, 2017

Hal Hershkowitz to Receive Montefiore Society’s Leadership Award

The Cardozo and Montefiore Societies of Tampa Bay will host their first collaborative program on April 4 at the Bank of Tampa in downtown St. Petersburg.

The community will gather to honor the Cardozo Society’s Leadership

Award recipient, Gary Teblum of Tampa, and Hal Hershkowitz of St. Petersburg, the Montefiore Society’s Leadership Award recipient.

The two will be recognized for their steadfast commitment to the legal, accounting, finance/investment and insurance communities and to the Tampa Bay Jewish community throughout their careers.

The Cardozo Society aims to recognize the legal profession’s commitment to the principles of the Federation. The newly formed Montefiore Society serves a similar purpose for Jewish financial service professionals.

The Jewish Federation of Pinellas & Pasco Counties and the Tampa Jewish Community Centers & Federation are jointly presenting the program with the sponsorship of Bank of Tampa.

Les Barnett, David Abelson and Adam Abelson are chairing the event. It will kickoff with cocktails at 6:30 p.m. and will be followed by a prompt start to the program at 7:15 p.m. The evening will include a guest speaker, which is to be announced, in addition to the presentation of awards.

It is open to the entire community and free for all Federation donors; $25 per person for all non-donors. The bank is located at 200 Central Ave.

For more information about the Cardozo or Montefiore Societies or to RSVP, go to or or call either federation.

About the honorees

Gary Teblum is shareholder and attorney with Trenam Law. His litigation experience includes the areas of business transactions including mergers and acquisitions, corporate law, limited liability company law, commercial law, executive compensation, asset-based lending. Teblum’s practice also includes the financing of business entities.

In his legal career, Teblum has been named Lawyer of the Year for Corporate Law in 2015, Lawyer of the Year for Tampa Securities and Capital Markets Law and one of Best Lawyers in America. In 2016, he was recognized as a Florida Trend Legal Elite and was named a Ranked Lawyer in USA Chambers and Partners.

In the Jewish community, Teblum has held and continues to hold many leadership roles. He is a past president of Congregation Kol Ami in Tampaand continues as a board member, and is a former president of its Men’s Club. He is also a past vice president of the Tampa Orlando Pinellas Jewish Foundation, and board member of the Tampa JCCs and Federations.

* * *

Hal Hershkowitz is a Certified Public Accountant in Florida and New York. He has also earned the designation of Certified Florida Sales and Use Tax Auditor for the Florida Department of Revenue. Hershkowitz is the president and managing partner of the public accounting firm of Hershkowitz & Kunitzer.

He currently serves as the treasurer on the board of the Jewish Federation of Pinellas & Pasco Counties and chairman of the Budget and Allocations Committee. He also is treasurer of Vincent House of Pinellas Park/ Van Gogh’s Palette, Inc. – a nonprofit social and vocational recovery program for adults living with mental illness.

In the past, Hershkowitz has served as president and treasurer of Temple Beth-El in St. Petersburg and as treasurer of the now defunct Jewish Community Center of Pinellas County. He is also a former board member of Palms of Pasadena Hospital and the Florida Department of Juvenile Justice Advisory Board.

About the Montefiore Society

The Montefiore Society was created this year to augment the reach of the existing professional societies to provide an opportunity for community members to foster and grow professional relationships within the financial industry.

“Lawyers (Cardozo Society) and healthcare professionals (Maimonides Society) have benefited from comparable community offerings for some time now,” said Emilie Socash, executive director of Jewish Federation of Pinellas & Pasco Counties. “Gary Gould (CEO of the Tampa JCC & Federations) and I found that there is a growing need to serve those outside of the legal and medical industries and by starting a Montefiore Society, we will create an opportunity for industry-wide professional synergy.”

Montefiore Society membership is open to all Jewish accountants, stock brokers, bankers, financial planners and advisors, insurance brokers, investment consultants, wealth management advisors and others in financial services in the Tampa Bay area who contribute a minimum of $1,000 to the Annual Campaign. Financial service representatives age 35 and under must contribute a minimum of $360 to the Annual Campaign. Events sponsored by the Montefiore Society are open to all members and their guests.

The objective of this society is to support the activities of the federations, assisting to maximize federation gifts to preserve and enhance Jewish life in Tampa Bay, the U.S. and worldwide.

In addition, this society will serve as a forum for financial issues from a Jewish perspective and further strengthen our commitment to Jewish values, traditions and our professions through educational and cultural programs and activities.


Published: March 8, 2017

AICPA to Senate: "Get Moving on Tax Treaties!"


The American Institute of CPAs is asking the U.S. Senate to quickly consider and approve the various bilateral income tax treaties and protocols that are currently pending in Congress, although some of them have not advanced in years.

The list includes a proposed agreement with Chile that was signed in 2010, and updates to existing treaties with Hungary, Poland, Luxembourg, Switzerland and Japan. Many of the agreements and protocols have been held up in the Senate because of objections by some lawmakers to the Foreign Account Tax Compliance Act, or FATCA, which was part of the HIRE Act of 2010. Some of the proposed agreements involve exchanges of tax information between the U.S. and the tax authorities of other countries.

The AICPA argues the tax treaties and protocols are necessary. “The AICPA believes income tax treaties are vital to United States (U.S.) economic growth as well as U.S. trade and tax policy,” AICPA Tax Executive Committee chair Annette Nellen wrote in a letter last week to leaders of the Senate Foreign Relations Committee. “Tax treaties assist in harmonizing the tax systems of treaty nations and in providing certainty on key issues faced by businesses of all sizes that operate internationally. Tax treaties are also important tools used to promote a competitive environment to attract foreign investment into the U.S.”

Nellen pointed out that the full Senate has not approved an income tax treaty or protocol since 2010 and stated that tax treaties, which apply to both companies and individuals who are engaged in cross-border transactions, remain “pivotal in preventing the imposition of excessive or inappropriate taxes on foreign trade and investment.”

“In order to serve their intended purpose, tax treaties require updating to stay current with developments in the global economy,” she added. “The lack of action by the full Senate to ratify these treaties and protocols impedes the ability of Treasury to keep U.S. tax treaties in line with changes in policy and bilateral relationships. Outdated tax treaties increase the potential for double taxation as well as hinder the ability of the Internal Revenue Service (IRS) and foreign tax authorities to cooperate in the fair and efficient enforcement of tax laws.”

By Michael Cohn for TaxProToday

Published: March 6, 2017

$1 Billion In Refunds Waiting for People Who Haven't Filed a 2013 Tax Return!

The Internal Revenue Service announced that unclaimed federal income tax refunds totaling more than $1 billion may be waiting for an estimated 1 million taxpayers who did not file a 2013 federal income tax return.

To collect the money, taxpayers must file a 2013 tax return with the IRS no later than this year's tax deadline, Tuesday, April 18.

"We’re trying to connect a million people with their share of 1 billion dollars in unclaimed refunds for the 2013 tax year,” said IRS Commissioner John Koskinen. “People across the nation haven’t filed tax returns to claim these refunds, and their window of opportunity is closing soon. Students and many others may not realize they’re due a tax refund. Remember, there’s no penalty for filing a late return if you’re due a refund.”

The IRS estimates the midpoint for potential refunds for 2013 to be $763; half of the refunds are more than $763 and half are less.

In cases where a tax return was not filed, the law provides most taxpayers with a three-year window of opportunity for claiming a refund. If they do not file a return within three years, the money becomes the property of the U.S. Treasury. For 2013 tax returns, the window closes April 18, 2017. The law requires taxpayers to properly address mail and postmark the tax return by that date.

The IRS reminds taxpayers seeking a 2013 refund that their checks may be held if they have not filed tax returns for 2014 and 2015. In addition, the refund will be applied to any amounts still owed to the IRS, or a state tax agency, and may be used to offset unpaid child support or past due federal debts, such as student loans.

By failing to file a tax return, people stand to lose more than just their refund of taxes withheld or paid during 2013. Many low-and-moderate income workers may have been eligible for the Earned Income Tax Credit (EITC). For 2013, the credit was worth as much as $6,044. The EITC helps individuals and families whose incomes are below certain thresholds. The thresholds for 2013 were:

  • $46,227 ($51,567 if married filing jointly) for those with three or more qualifying children;
  • $43,038 ($48,378 if married filing jointly) for people with two qualifying children;
  • $37,870 ($43,210 if married filing jointly) for those with one qualifying child, and;
  • $14,340 ($19,680 if married filing jointly) for people without qualifying children.

As a reminder, taxpayers seeking a 2013 refund should know that their checks will be held if they have not also filed tax returns for 2011 and 2012. In addition, their refunds will first be applied to any amounts that they still owe to the IRS and may be used to offset unpaid child support or past-due federal debts caused by student loans, repayment of unemployment compensation and state taxes owed. 

If this office can help you become current with your tax filing obligations, please call us today!

Published: March 2, 2017

6 Surprising Tax Deductions for Freelancers

As a boutique accounting firm, we see businesses of all sizes. We've been fortunate to be able to guide many start-up businesses over the course of their growth from inception to success story, however, many clients who approach us later in the game often have a similar story:

"The first time I filed my taxes as a freelancer, I had no idea what I was doing. I had been setting aside money every time I got paid to cover my taxes, but when it came to deducting expenses, I was clueless. When it was all said and done, I tried to file my taxes myself but ended up calling in an accountant for help."

After walking our new client through the entire process, we helped find some expenses they had no idea they could claim as a business expense. So, if you're new to freelancing, you can't miss these surprising tax deductions:

Your Home Office

Even though you work from home, or maybe from the corner table in your favorite coffee shop, having a dedicated space for working has its perks. As long as you have a place in your home that is used only for work and you use it regularly, you can deduct a portion of your mortgage or rent on your taxes.


If you travel for you work, you can deduct those expenses on your taxes. To qualify for this deduction, your travel must be work related. If you travel for professional development, to conferences or training, you can write off the cost. Travel to meet with clients or to do research counts as well.

Food & Drink

Yes, you really can write off food and drink if you're a freelancer. There are some guidelines you can't miss when it comes to this surprising deduction. Grabbing coffee to work solo at a coffee shop doesn't qualify as a business expense. But, if you meet with a client for coffee or a meal, 50 percent of the cost can be deducted on your taxes. You can also write off half your food and drink expenses if you are traveling for work.

Reading Materials

Don't toss your receipt next time you head to the bookstore. If you are a freelancer reading anything related to professional development or if the reading materials you are buying are for research purposes, they can count as a business expense.

Your Phone Bill

If you are using your phone for work, you can write off a portion of the expense. Making phone calls to clients or spending time on the phone conducting interviews for a story are probably all done on your personal cell phone. An accountant can help you figure out exactly how much to write off, but it's based on an estimate of how much time spent on your phone is devoted to work.

Deadbeat Clients

There is nothing more annoying than a client who doesn't pay an invoice. There is good news — if you have unpaid invoices at the end of the year, you can write them off as a loss if you are self-employed.

Adapted from Mary Sauer's article for Sapling

Published: February 22, 2017

EITC and ACTC Refunds Expected to Arrive the Week of Feb. 27

As the IRS begins releasing refunds for taxpayers who claimed the Earned Income Tax Credit and the Additional Child Tax Credit, the tax agency reminded taxpayers that they should not expect refunds to be available in bank accounts or on debit cards until the week of Feb. 27. The additional time is due to several factors, including weekends, the Presidents Day holiday and the time banks often need to process direct deposits.

Many of these refunds had been held since the filing season started in late January due to new requirements the 2015 Protecting Americans from Tax Hikes (PATH) Act.

The IRS reminds taxpayers that the most common question taxpayers have about the status of their refund can easily be answered on by visiting the “Where’s My Refund?” tool.  “Where’s My Refund?” will be updated as of Feb. 18 for the vast majority of early filers who claimed the Earned Income Tax Credit or the Additional Child Tax Credit. Before Feb. 18, some taxpayers may see a projected date or a message that the IRS is processing their return. The IRS added that “Where’s My Refund?” is only updated once daily, usually overnight, so there’s no need to check it multiple times per day.

Here are a few important things to know about tax refunds:

  • Nine out of 10 refunds are issued in less than 21 days.
  • IRS customer service representatives cannot provide individual refund information before the 21 days has elapsed.
  • The filing season started later this year, on Jan. 23. Although taxpayers could submit returns with a software provider or tax preparer in early January, the return was not filed with the IRS until the filing season opened.
  • “Where’s my Refund?” can also be accessed through the mobile app, IRS2Go. 
  • “Where’s My Refund?” is updated once daily. Checking the tool multiple times each day will not produce new information or different results.
  • The Get Transcript tool will not reveal a tax refund status, despite the social media myth to the contrary.
Published: February 21, 2017

The Overtime Rule Has Been Blocked. Now What?

A federal judge in Texas has blocked the Department of Labor's (DOL's) new federal overtime rule, which would have raised the Fair Labor Standards Act's (FLSA's) salary threshold for exemption from overtime pay from $23,660 to $47,476.

Judge Amos Mazzant of the U.S. District Court for the Eastern District of Texas granted a preliminary injunction on Nov. 22 in a lawsuit challenging the DOL's authority to raise the salary threshold. For now, businesses and employees are in a holding pattern.

"A preliminary injunction preserves the status quo while the court determines the department's authority to make the final rule as well as the final rule's validity," Mazzant said.

What does this mean for employers? Here are some questions HR professionals may be grappling with in the aftermath.

Does my company still have to do anything by the Dec. 1 deadline? 

The short answer is no. For now, the overtime rule will not take effect as planned on Dec. 1, so employers may continue to follow the existing overtime regulations. 

Is this a final decision that permanently puts an end to the rule?

No. The overtime rule could still be implemented later down the road. 

A preliminary injunction isn't permanent, as it simply preserves the existing overtime rule—which was last updated in 2004—until the court has a chance to review the merits of the case objecting to the revisions to the regulation. 

However, the revised regulation may face an uphill battle: The judge wouldn't have granted the preliminary injunction unless, among other things, he thought the challenge had a substantial likelihood of succeeding. 

Can the Labor Department challenge the decision?

Yes. The department said in a statement that it is currently considering all of its legal options. 

The "overtime rule is the result of a comprehensive, inclusive rulemaking process, and we remain confident in the legality of all aspects of the rule," the DOL said. 

Does this ruling apply to all employers nationwide?

Yes. Because the overtime rule would apply to all states, the judge decided to apply the injunction nationwide.

"A nationwide injunction protects both employees and employers from being subject to different [executive, administrative and professional] exemptions based on location," he said.

What should I do if my company has already either raised exempt employees' salaries to meet the new threshold or reclassified employees to nonexempt status?

Employers will likely want to leave decisions in place if they have already provided salary increases to employees in order to maintain their exempt status, said Alfred Robinson Jr., an attorney with Ogletree Deakins in Washington, D.C., and a former acting administrator of the DOL's Wage and Hour Division. It would be difficult to take that back. 

If there are exempt employees who were going to be reclassified to nonexempt, but haven't been reclassified yet, Robinson said employers may want to postpone those decisions and give the litigation a chance to play out.

"This should be a welcome sign for employers, even if they've already made changes," Robinson said. "They can at least hold off on further changes."

Employers shouldn't assume, however, that the overtime rule will be permanently barred. They should still have a plan to move forward if necessary in the future.

By Lisa Nagele-Piazza for the Society for Human Resource Management

Published: November 23, 2016

Special Tax Breaks for US Armed Forces

As tax filing season approaches, the Internal Revenue Service wants members of the military and their families to know about the special tax benefits available to them.

Here are some of those tax benefits.

  • Combat pay is partially or fully tax-free. Service members serving in support of a combat zone may also qualify for this exclusion.
  • Reservists whose reserve-related duties take them more than 100 miles from home can deduct their unreimbursed travel expenses, even if they don’t itemize their deductions.
  • The Earned Income Tax Credit may be worth up to $6,269 for low-and moderate-income service members. A special computation method is available for those who receive nontaxable combat pay. Choosing to include it in taxable income may boost the EITC, meaning owing less tax or getting a larger refund.
  • An IRA or 401(k)-type plan might mean saving for retirement and cutting taxes too. Service members who contribute to a plan, such as the Thrift Savings Plan, may also be able to claim the Retirement Savings Contributions Credit.
  • An automatic extension to file a federal income tax return is available to U.S. service members stationed abroad. Also, those serving in a combat zone typically have until 180 days after they leave the combat zone to file and to pay any tax due. For more information see Miscellaneous Provisions — Combat Zone Service.
  • Both spouses normally must sign a joint income tax return, but if one spouse is absent due to certain military duty or conditions, the other spouse may be able to sign for him or her. A power of attorney is required in other instances. A military installation’s legal office may be able to help.
  • Those leaving the military and looking for work may be able to deduct some job search expenses, such as the costs of travel, preparing a resume and job placement agency fees. Moving expenses may also qualify for a tax deduction.
Published: November 15, 2016

5 Things You Can Learn from Your Tax Return

The IRS receives roughly 150 million tax returns each year.

If you’re like many Americans, preparing that filing is the closest look you’ve given to your finances for some time. Though it’s far from an exercise in budgeting, in many cases you can’t help but notice things such as investment activity, retirement account balances and debt levels.

It only makes sense, then, to seize the opportunity: If you’re putting in the time, you might as well take away something that can help you in the future. Even if you used a tax preparer, you can — should — still take a look at your return.

Here are five key things to note:

1. The interest you earned on cash savings

If you earn more than $10 in interest from a bank, brokerage or other financial institution, you’ll receive a 1099-INT reporting that interest, which is typically taxable.

This is a good reminder to reassess the interest rates on short-term money you keep in safer havens, such as savings accounts and CDs. Take a moment to shop around, comparing your current rate with rates from local banks, credit unions and online banks (which often are the winning option).

Then consider whether you’re keeping too much money in cash, when it could work harder for you invested through an IRA or brokerage account. Money you need in three to five years shouldn’t be in the market, but outside of that, you might want to consider taking a bit more risk.

2. The tax efficiency of your investments

If you’re investing within a brokerage account, it’s important to pay attention to how those investments might be affecting your tax burden, says Nick Bautista, a financial planner in Irvine, Calif.

For example, putting municipal bond funds in a taxable account often makes sense, as they are exempt from federal (and often state and local) taxes. You might want to avoid mutual funds, as they often pass capital gains on to investors at the end of the year.

“This is another reason why a lot of the movement has been toward exchange-traded funds in recent years,” Bautista says. “ETFs aren’t popping up these capital gain distributions.” That makes them a wise choice for taxable accounts as well.

If this is out of your comfort zone, get some help in the form of a financial adviser or a robo-adviser. Many robo-advisers will allocate your investments across your taxable and IRA accounts in a way designed to minimize taxes. These services also offer tax-loss harvesting, which can reduce the taxes you owe on capital gains.

3. Your retirement savings contributions

The Employee Benefits Research Institute notes that fewer than half of workers have attempted to ballpark their retirement needs. Filing your tax return is a good opportunity to right that wrong: Because it frequently requires reporting contributions to retirement accounts, you’ll get a good idea of how much you’ve saved this year.

That’s one item on the list of information you’ll need to use a retirement calculator. The others include your income, your retirement account balances and a rough idea of your spending needs.

Running the numbers will tell you whether you should aim to save more this year — and doing so by making tax-deductible contributions to a traditional IRA also will lower your tax bill for 2016.

4. Whether you can give yourself a raise

The average tax refund typically hovers around $3,000. That’s a big windfall, but it would go further if you changed your withholding: The money would show up in your paycheck in small increments, much like a raise.

If you’re struggling to make ends meet each month, that could be the extra wiggle room you need to avoid credit card debt. If you’ve been unable to scrape together 401(k) contributions, that boost to your paycheck could get you there.

The IRS has a surprisingly simple calculator to help you calculate your withholding.

5.  Your debt expenses

You can deduct some or all of the interest paid on certain debts, most notably student loans and your mortgage. The value of that deduction varies, but it could shave the equivalent of a point off your mortgage’s interest rate if you’re in the 25% federal tax bracket.

The section of your return used to report interest can serve a couple of purposes. For one thing, it’s a good check-in on the debt you’re carrying. But it’s also a reminder that it pays to be wise about how you prioritize your debts for payoff.

“My philosophy is not to worry so much about using interest for a deduction,” Bautista says. “But if you have extra income and outstanding debts, it’s wise to look and see what the best option is. If you have a mortgage at 4% and you make extra payments toward that, you’re locking in that 4% interest rate. Ask yourself if you could do better if you were to take the extra money and invest it, or whether it would be wiser to pay off a higher-interest-rate debt.”

From NerdWallet for USA Today


Published: November 11, 2016

How To Prove You Filed a Tax Return, If The IRS Says You Didn't

Sometimes taxpayers and the IRS just disagree on whether the taxpayer filed a return. The taxpayer faces a daunting task to prove the filing of a return.  In a recent bankruptcy case, McGrew v. Internal Revenue Service, the court held that the taxpayer proved her case.  Her success provides some insight into how a taxpayer might win this argument.  I have some other thoughts based on cases I have seen over the years.

Last year we “celebrated” the 30th anniversary of the famous incident at the Philadelphia Service Center in which IRS employees who had too many cases to process and too little time to do it decided to take matters into their own hands and flush the returns down toilets, hide them in ceiling tiles and otherwise find creative things to do with tax returns.  For stories and investigations concerning the little problem with returns the IRS had in 1985 see hereherehere and here.  Thirty years is a long time and only a small percentage of IRS employees working today worked at the IRS in 1986.  The Philadelphia Service Center has moved locations.  The institutional memory of IRS workers concerning this incident seems no longer to exist.  I had a conversation with two young attorneys from the Boston office this past year, neither of whom could even seem to contemplate the possibility that the IRS transcript could contain inaccuracies.  The IRS employee testifying in the McGrew case, stated that she had no knowledge of the IRS ever losing a tax return. 

The IRS does a great job of keeping track of millions of pieces of paper with a focus on tax returns; however, anyone who thinks that the IRS never loses tax returns is naive. On the flip side, many taxpayers have a similar naiveté because they seem to think they can just waltz into court and assert the IRS has lost their returns and the court will easily buy that story.  In the vast majority of cases, courts will reject such an argument, which makes the McGrew case interesting and instructive.  Before I get to the facts of the McGrew case, I want to detour to my practice for testing for lost returns when I tried these cases for the IRS and to the bankruptcy issue lurking in this case.

Taxpayers regularly asserted that the IRS lost their return when I worked for Chief Counsel’s office. I knew the possibility existed but doubted most of the taxpayers making the assertion.  Because I practiced primarily in Virginia and because Virginia has a state tax scheme that mirrors the federal one, even requiring taxpayers to attach a copy of their federal return to their state one, my go-to place for checking on lost tax returns was the state.  I figured the loss of one return by the IRS was low but possible.  The loss of two or more returns, each allegedly timely filed, got much lower.  The loss of the federal returns by the IRS and the state returns by an entirely different agency made the story one that was unbelievable.  So, the first thing I did when a taxpayer said the IRS lost a tax return was ask if the taxpayer filed a state tax return with Virginia.  If the taxpayer answered affirmatively, the state tax records were requested.  In every case I can remember, the state tax records matched the IRS records.  Taxpayers who alleged that the IRS lost their tax returns had to allege that the state also lost their returns for the same periods.  That basically ended the inquiry into the allegedly missing returns.  Courts found this coincidence too powerful to ignore.  No discussion of the parallel state tax return filings exist in the McGrew case, and I do not know if that is because the taxpayer had no state filing obligation or no one checked on those returns.

One aspect of the McGrew case that makes the lost return story more believable is that the lost return was one of multiple late returns filed many years after the due date.  When a taxpayer files a late return, the IRS may set that return to the side so that it can continue timely processing returns filed during the current cycle.  My experience suggests that late-filed returns have a higher incidence of getting lost in the system. 

By Keith Fogg for Forbes Magazine

Published: October 25, 2016

Tax Relief for Victims of Hurricane Hermine in Florida

Victims of Hurricane Hermine that took place beginning on August 31, 2016 in parts of Florida may qualify for tax relief from the Internal Revenue Service.

The President has declared that a major disaster exists in the State of Florida. Following the recent disaster declaration for individual assistance issued by the Federal Emergency Management Agency, the IRS announced today that affected taxpayers in the counties of Citrus, Dixie, Hernando, Hillsborough, Leon, Levy, Pasco  and Pinellas   will receive tax relief.

Individuals who reside or have a business in Citrus, Dixie, Hernando, Hillsborough, Leon, Levy, Pasco and Pinellas may qualify for tax relief.

The declaration permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after August 31, and on or before January 17, 2017 have been postponed to January 17, 2017.  This includes individual returns on extension to October 17, the September 15 deadline for making quarterly estimated tax payments, the 2015 corporate and partnership returns on extension through September 15, and for quarterly payroll and excise tax returns.

In addition, the IRS is waiving the failure-to-deposit penalties for employment and excise tax deposits due on or after August 31st, as long as the deposits were made by September 15, 2016.

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 that falls within the postponement period, the taxpayer should call the telephone number on the notice to have the IRS abate the penalty.

The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 866-562-5227 to request this tax relief.

Covered Disaster Area

The counties listed above constitute a covered disaster area for purposes of Treas. Reg. § 301.7508A-1(d)(2) and are entitled to the relief detailed below.

Affected Taxpayers

Taxpayers considered to be affected taxpayers eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts are those taxpayers listed in Treas. Reg. § 301.7508A-1(d)(1), and include individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Taxpayers not in the covered disaster area, but whose records necessary to meet a deadline listed in Treas. Reg. § 301.7508A-1(c) are in the covered disaster area, are also entitled to relief. In addition, all relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area and any individual visiting the covered disaster area who was killed or injured as a result of the disaster are entitled to relief.

Grant of Relief

Under section 7508A, the IRS gives affected taxpayers until January 17, 2017 to file most tax returns (including individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and trust returns; estate, gift, and generation-skipping transfer tax returns; and employment and certain excise tax returns), that have either an original or extended due date occurring on or after August 31, 2016 and on or before January 17, 2017. Affected taxpayers also have until January 17, 2017 to make tax payments, including estimated tax payments, having an original due date occurring on or after August 31, 2016 and on or before January 17, 2017.  

The IRS also gives affected taxpayers until January 17, 2017  to perform other time-sensitive actions described in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2007-56, 2007-34 I.R.B. 388 (Aug. 20, 2007), that are due to be performed on or after August 31, 2016 and on or before January 17, 2017.

This relief also includes the filing of Form 5500 series returns, in the manner described in section 8 of Rev. Proc. 2007-56. The relief described in section 17 of Rev. Proc. 2007-56, pertaining to like-kind exchanges of property, also applies to certain taxpayers who are not otherwise affected taxpayers and may include acts required to be performed before or after the period above.

The postponement of time to file and pay does not apply to information returns in the W-2, 1098, 1099 series, or to Forms 1042-S or 8027. Penalties for failure to timely file information returns can be waived under existing procedures for reasonable cause. Likewise, the postponement does not apply to employment and excise tax deposits. The IRS, however, will abate penalties for failure to make timely employment and excise tax deposits due on or after August 31, 2016, and before September 15, 2016, provided the taxpayer made these deposits by September 15, 2016.

Casualty Losses

Affected taxpayers in a federally declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return for either the year in which the event occurred, or the prior year. See Publication 547 for details.

Individuals may deduct personal property losses that are not covered by insurance or other reimbursements. For details, see Form 4684 and its instructions.

Affected taxpayers claiming the disaster loss on a 2015 return should put the Disaster Designation, “Florida, Hurricane Hermine.” at the top of the form so that the IRS can expedite the processing of the refund.

Other Relief

The IRS will waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned Disaster Designation  “Florida, Hurricane Hermine.” in red ink at the top of Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, as appropriate, and submit it to the IRS.

Affected taxpayers who are contacted by the IRS on a collection or examination matter should explain how the disaster impacts them so that the IRS can provide appropriate consideration to their case.

Published: October 17, 2016

Follow These 3 Savvy End-of-Year Tax Tips

There's an antidote to the end-of-the-year rush to stock up on business expenses.

Easy: Do a January-December swap. 

As you approach the end of the year, be strategic about your income and expenses. You may want to wait until January 2 to deposit earnings, or bump up paying January’s bills during the last week in December. Why? If you’re on the brink of moving into a higher tax bracket (or worse, the alternative minimum tax), some simple, smart decisions could keep you on the lower rung -- or, in the case of being several thousand dollars over the threshold, push you back down. 

Intermediate: Turn your LLC into a virtual S Corp. 

If you operate your biz as an LLC, filing two simple forms could save you thousands. Let’s say your business is on track to earn $200,000 this year. Given your current structure, be prepared to cough up an extra $30,600 on top of your state and federal income tax -- because as an LLC, 100 percent of your earnings is subject to a 15.3 percent employment tax (a.k.a. FICA). But if you file IRS Forms 8832 and 2553, you can remain an LLC but be taxed as an S Corp. This means that only your salary (let’s say it’s $75,000) is subject to this employment tax. The remaining $125,000 will then be considered an owner’s distribution or dividend, which isn’t taxed for FICA. That just saved you $19,125. 

Expert: Be creative with retirement plans. 

Sure, SEP IRAs and solo 401(k)s are good retirement vehicles for the average entrepreneur, but if you really want to save big on taxes, consider setting up your own defined benefit and pension plan alongside a Safe Harbor 401(k). This helped a business owner I know reduce his tax bill on a million in earnings down to $400,000 in earnings. That other $600,000? More than $450,000 went into his personal retirement account. (His employees’ retirement accounts got the rest.) Work with your tax accountant and wealth adviser to set up one for yourself.

By Steph Wagner for Entrepreneur Magazine

Published: October 4, 2016

Tax Issues When Renting Your Home on Airbnb or VRBO

Today many people earn extra money by temporarily renting out their entire home (or a room in their house or apartment) through rental services such as Airbnb, HomeAway, or VRBO. If you do this, you may have to pay federal and state income tax on your rental income. Rental services like Airbnb ordinarily report to the IRS the rental payments they send to their hosts each year by filing IRS Form 1099-MISC. So the IRS will know you have such rental income and expect it to appear on your tax return.

Unfortunately, the tax rules involved can be complex. But it’s up to you to understand and follow them because room and home rental services won’t do it for you.

Tax-Free Rental Income for Short-Term (Less Than 14 Days Annually) Rentals

You can rent out all or part of your home or apartment for up to 14 days per year and all the rental income you receive is tax-free, no matter how much you earn. In fact you don't even have to report the income to the IRS. Your rental income is tax free if, during the year:

  • you rent out your home for 14 days or less), and
  • the home is used personally for more than 14 days, or more than 10% of the total days it is rented to others at a fair rental price. (IRC Sec. 280A(g).)

If you only rent out a room in your home or apartment and continue to live in the rest of the space, you’ll have no problem meeting the personal use requirement. But if you rent out the entire home or apartment, you need to keep careful track of your rental or non-rental days.

If you qualify for such tax-free treatment, you may not deduct any operating expenses for the property or take any depreciation deduction. You don’t file Schedule E, the tax form landlords file to report their income and expenses, because your home is not classified as a rental property.

Tax Issues When Renting Your Home For More Than 14 Days Per Year

If you rent your main residence (house or apartment) over 14 days during the year, and live in it 15 days or more, you won’t qualify for the tax-free treatment described above. Instead, you’ll have to report and pay income tax on your rental income by filing IRS Schedule E along with your tax return. But you’ll also be allowed to deduct your rental-related expenses, within very strict limits.

You list your rental income and expenses on Schedule E. You must pay income tax on any profit left over after you deduct your rental expenses from your rental income. However, your annual rental deductions are limited to your rental income from the home. If your expenses exceed your income, you may not deduct the loss from other income you earn that year. Such a loss can be carried forward to future years and deducted from your rental income from the property, if you have enough.

You are allowed to deduct your expenses from your rental income, but there are strict limitations designed to ensure that you don’t deduct personal expenses as rental expenses.

Direct Rental Expenses

You are allowed to deduct 100% of your direct rental expenses. These are expenses that apply only to renting, such as fees or commissions you pay to the rental agency, advertising, credit checks, insurance for the rental, cleaning costs, repairs solely for the rental portion of your home, and depreciation (limited to the rental portion of the home).

General Expenses

You may also deduct a portion of your general expenses to own and operate your entire home, such as mortgage interest and real estate taxes, utilities, insurance for your entire home, cleaning expenses for the entire home, repairs for the entire home, Internet connection fees, gardening, and other home maintenance expenses. You must allocate your deduction for such general expenses based on the aount of time the property served as a rental, compared to the total time it was used during the year.

Example: Paul lives in his Bay Area condominium for 300 days during the year and rents it out for 65 days. The property was used as a rental 18% of the time ( 65 ÷ 365 = 18%). Thus, Paul can deduct 18% of his general expenses up to the amount of rental income he earned from the condo during the year, which was $10,000.

If, instead of renting your entire home, you rent out only a room or rooms you can only deduct your general expenses in proportion to the amount of the home rented. For example, if you have a five-room home and rent one room, you could deduct 1/5 of your general expenses for your entire home subject to the limits described above.

Tax Issues When Operating a Bed and Breakfast or Hotel

In some cases, renting out all or part of your house or apartment can be classified for tax purposes as the equivalent of running a bed or breakfast or hotel. This will be the case if you dedicate a room or rooms in your home solely for the use of paying customers and never personally live in such rooms. You’ll also be classified as running a hotel business if you provide substantial services that are primarily for your guest’s convenience, such as regular cleaning, changing linen, or maid service.

In this event, your rental activity will be treated as a business for tax purposes. This means you’ll have to pay both federal income and self-employment (Social Security and Medicare ) taxes on your rental income, which will increase your tax burden. On the other hand, the restrictions on your deductions described above won’t apply, except that there may still be limits on any annual losses you’re allowed to deduct. Ordinarily, you’ll report your rental income and expenses on Schedule C (Form 1040), Profit or Loss from Business.

Obviously, the way to avoid having your rental activity being classified as a bed and breakfast is not to provide substantial services to your guests—don’t provide them breakfasts, clean their rooms each day, or do their laundry. Charge renters a cleaning fee at the end of their visit that is separate from their daily rental charge.

By Stephen Fishman, J.D. for NOLO

Published: September 1, 2016

IRS Cyberattack Total is More Than Twice Previously Disclosed

Cyberattacks on taxpayer accounts affected more people than previously reported, the Internal Revenue Service said Friday.

The IRS statement, originally reported by Dow Jones, revealed tax data for about 700,000 households might have been stolen: Specifically, a government review found potential access to about 390,000 more accounts than previously disclosed.

In August, the IRS said that the number of potential victims stood at more than 334,000 — more than twice the initial estimate of more than 100,000.

"If somebody has all this information … we may see [a] resurgence next year of fraudulent tax returns," Paul Stephens, director of policy and advocacy for the Privacy Rights Clearinghouse, told CNBC in 2015.

The IRS discovered an incident involving its "Get Transcript" application last May, and the Treasury Inspector General for Tax Administration conducted a nine-month investigation. That review turned up the additional accounts that could potentially have been accessed.

Additionally, the IRS said there were 295,000 taxpayer transcripts that were targeted, but "access was not successful."

The agency said it will send mailings to affected taxpayers beginning February 29.

"The IRS is committed to protecting taxpayers on multiple fronts against tax-related identity theft, and these mailings are part of that effort," IRS Commissioner John Koskinen said in a statement. "We appreciate the work of the Treasury Inspector General for Tax Administration to identify these additional taxpayers whose accounts may have been accessed. We are moving quickly to help these taxpayers."

By Everett Rosenfeld for CNBC

Published: August 23, 2016

How do your tax deductions compare with the average American's?

The Internal Revenue Service recently released its preliminary statistics from the 2014 tax year, which showed that a total of 148,686,586 tax returns were filed, with an average adjusted gross income of $65,020. Included in the information are statistics on certain deductions, credits, and adjustments to income. Here are some of the averages and why it's important for you to know this information.

The average American's tax deductions and credits:
The 2014 preliminary data is divided by adjusted gross income (AGI) level to illustrate the difference in deduction amounts claimed by each income group.

Furthermore, the IRS also shows how many returns claimed each particular deduction — some of which are pretty rare. For example, as you'll see from the chart below, only 5.7% of all taxpayers claim a deduction for unreimbursed medical expenses, since only amounts that exceed 10% of AGI are deductible.

Having said that, here are 10 of the most common deductions and credits, the percentage of taxpayers who claimed each one for the 2014 tax year, and how much the average American claimed based on their income level.

Student loan interest: 8.2%

AGI under $15K: $908

$15K to $30K: $984

$30K to $50K: $1,133

$50K to $100K: $1,100

$100K to $200K: $1,014

$200K to $250K: N/A

$250K or more: N/A

Tuition and fees deduction: 1.2%

AGI under $15K: $2,884

$15K to $30K: $2,183

$30K to $50K: $1,966

$50K to $100K: $1,952

$100K to $200K: $1,804

$200K to $250K: N/A

$250K or more: N/A

HSA deduction: 0.9%

AGI under $15K: $2,656

$15K to $30K: $1,805

$30K to $50K: $1,648

$50K to $100K: $2,402

$100K to $200K: $3,168

$200K to $250K: $4,100

$250K or more: $4,855

Moving expense deduction: 2.5%

AGI under $15K: $5,236

$15K to $30K: $1,811

$30K to $50K: $2,179

$50K to $100K: $2,980

$100K to $200K: $4,363

$200K to $250K: $5,975

$250K or more: $7,172

Medical expenses: 5.7%

AGI under $15K: $8,787

$15K to $30K: $8,477

$30K to $50K: $8,209

$50K to $100K: $9,614

$100K to $200K: $11,122

$200K to $250K: $18,092

$250K or more: $38,992

Mortgage interest: 21.5%

AGI under $15K: $7,170

$15K to $30K: $6,438

$30K to $50K: $6,222

$50K to $100K: $7,216

$100K to $200K: $9,140

$200K to $250K: $11,611

$250K or more: $15,166

Charitable deduction: 24.3%

AGI under $15K: $1,427

$15K to $30K: $2,339

$30K to $50K: $2,594

$50K to $100K: $3,147

$100K to $200K: $4,130

$200K to $250K: $5,786

$250K or more: $21,596

Retirement saver's credit: 5.4%

AGI under $15K: $157

$15K to $30K: $163

$30K to $50K: $195

$50K to $100K: N/A

$100K to $200K: N/A

$200K to $250K: N/A

$250K or more: N/A

Education credits: 6.8%

AGI under $15K: $239

$15K to $30K: $738

$30K to $50K: $1,028

$50K to $100K: $1,269

$100K to $200K: $1,447

$200K to $250K: N/A

$250K or more: N/A

Child tax credit: 15.2%

AGI under $15K: $151

$15K to $30K: $445

$30K to $50K: $998

$50K to $100K: $1,604

$100K to $200K: $1,386

$200K to $250K: $1,913

$250K or more: $748

Why it's important:
The point here is that the IRS knows what the typical taxpayer with your income level claims, and claiming deductions and credits in excess of these amounts can raise red flags and increase the likelihood of your return being audited.

Not only are excessive deductions and credits a red flag, but claiming rare deductions can also be cause for additional scrutiny, even if they're not excessively large. I already mentioned the deduction for unreimbursed medical expenses, but there are some that are even more uncommon, especially to claim on a continuous basis. For example, moving for work-related purposes only applies to 2.5% of taxpayers in a given year, so if you claim a deduction for moving expenses several years in a row, the IRS may want to take a closer look. Granted, some people do move frequently, but it is rare.

Only a small portion of tax audits are completely random, and the rest are triggered by one or more variables that stand out. For example, higher-income individuals and those claiming a home office deduction tend to get singled out more. Similarly, if you earned $75,000 last year and are claiming $25,000 in unreimbursed medical expenses, the IRS may be extra curious to see proof that you actually paid them.

The bottom line on deductions and credits:
Under no circumstances should the fear of an audit prevent you from claiming a legitimate tax deduction or credit. For instance, if you were extremely generous last year and gave $20,000 of your $75,000 income to charity, you should certainly take credit for it. However, it's useful to know what areas of your return might stand out so you can prepare better. Of course, you should be able to thoroughly document all of the claimed information on your tax return, but this is even more important if some of your claims are out of the ordinary.

By Matthew Frankel for The Motley Fool

Published: August 19, 2016

What To Do If Your Tax Refund Is Stolen

There are few things worse than spending hours preparing your tax return only to discover that identity thieves have already snatched your refund.

For many people, the misery starts with an error message from their tax software saying that they’ve already submitted a return; for paper filers, a letter from the IRS is usually the red flag. Either way, if thieves come after your tax return, experts say there are a few steps you’ll need to take to deal with the damage.

1. Fill out IRS Form 14039.

“It's the affidavit that tells the IRS that you're a victim of IRS tax return fraud. You can also use it if your identity has ever been compromised or you're a victim of any other type of identity theft,” identity theft expert Carrie Kerskie  says.

As soon as you find out there’s a problem, send Form 14039 via certified mail with a return receipt request, so you’ll know that the IRS received it, Kerskie adds. Keep a copy of the form for yourself.

2. Shield your credit.

You’re entitled to a free 90-day fraud alert on your credit report if you’re a victim of identity theft. Fraud alerts require businesses to verify your identity before issuing credit, so they may try to contact you before opening new accounts.

After that, you can ask the credit bureaus for a seven-year extension, though that sometimes requires a police report — and those can be hard to get because tax return fraud is usually a federal rather than a local issue, Kerskie says.

A credit freeze may be better because it prevents potential creditors from accessing your credit report, which thwarts attempts to open accounts in your name — though you’ll have to remember to “thaw” your credit report each time you want to use it, Kerskie adds.

3. Lock down your cellphone.

Fraud alerts are linked to your phone number, Kerskie says. That’s why identity thieves frequently try to gain access to a victim’s cellphone account in hopes of redirecting fraud-alert calls. To mitigate the risk of an account takeover, make sure your email address is attached to your account.

4.  File your tax return.

You’ll still need to get the right return to the IRS, and the deadline waits for no one. Because the thieves have already filed in your name, you likely won’t be able to file electronically. Instead, you’ll need to submit a paper return and a photo ID with your Form 14039, Velasquez says.

5. Prove you’re you.

The IRS may ask you for additional documentation, such as a copy of your driver’s license or utility bills, Kerskie says. “They might have you send a copy of the previous year's tax return, because a criminal should not have that,” she adds. And watch your snail mail, because the IRS doesn’t request personal or financial information from taxpayers by email, text or social media. “You need to stay on top of it,” Kerskie says.

6. Don’t expect a quick resolution.

Once you report the theft, “Your complaint will be reviewed, delaying your refund for months,” security expert Robert Siciliano says. The IRS typically resolves identity theft cases within 120 days, according to the agency.

Velasquez encourages victims to call the IRS’ ID theft hotline (800-908-4490) but says they should be prepared to sit on hold. And there’s no way to estimate how long the whole process will take, she says.

“It's extremely inconsistent. We have talked to people where they have had resolution in just a couple of months, and we have talked to people who have been unable to resolve the issue and it's been over a year,” she says.

By Tina Orem of NerdWallet for USA Today

Published: August 17, 2016

Florida's back-to-school tax free weekend begins next week!

Shoppers looking to save money on back-to-school supplies will have the chance to buy items tax free in Florida from August 5-7. 

Florida state officials recently voted to cut allowances on clothing, shoes, computers, and dates for Florida 2016 Sales Tax Holiday.

For a full list of tax exempt items click here.

Up to $60 each. Florida legislators were a little more generous than years past. Garments and accessories are tax free up to $60 each. In 2013, the exemption stopped at $75 per piece.

Up to $60 per pair. Shoes are eligible for the tax exemption. As with clothing, however, only footwear costing less than $60 per pair will ring up tax-free.

Up to $15 each.

Sales tax will not be charged on items such as pens, pencils, erasers, rulers, and glue. The state set a price limit of $15 per item for this category, but left off items such as staplers and computer paper.

Personal computers and computer accessories are no longer subject to Florida Sales Tax Holiday.

All books, besides the Bible, are still taxable during the Florida Sales Tax Holiday 2016.

Lawmakers love tourists, but they did not want to give visitors a tax break. So, sales tax will still apply to purchases made in theme parks, entertainment complexes, hotels, and airports.

Published: July 27, 2016

Identity Thieves Love Small Businesses

Not long ago, a small business owner I work with found herself the target of an identity thief. He didn’t open credit lines in the name of the business, but instead stole its name and good reputation to bilk other entrepreneurs out of thousands of dollars. He was quite blatant about it, even representing himself on LinkedIn as a principal of the business.

Dealing with identity theft is bad enough, but if it hits your business it can be devastating. It can take enormous resources and time to straighten out — and what entrepreneur has lots of time to spare? It can even bring your business to a screeching halt if you don’t catch it and stop it quickly.

 Here are three reasons identity thieves love small business owners.

1. It’s Easier to Get Info

There are strict limits on who can review personal credit reports or scores, but the same limits do not apply to small business credit reports or scores. (That’s true as long as they don’t contain personal credit information about the owner — some do — and those are subject to restrictions).

“Because it’s not covered by Fair Credit Reporting Act protections, anyone can check a business’s credit report and get sufficient information (EIN, address, employees and principal owners’ details, etc.) to start the ID theft process,” says Caton Hanson, co-founder of Creditera. “Personal information is more difficult to obtain and requires nefarious means to do so,”

In addition, there are many more points of access to sensitive information. If you’ve been watching the series “Mr. Robot,” you know that the main character Elliott Anderson finds “phishing” — simply asking the right questions — to be an easy way to get into other people’s email or social media accounts. Similarly, in a small (or large) company sometimes all it takes is one employee with a weak password or a lack of skepticism to open the door to criminal activity.

2. It Can Be Lucrative

An established small business may have larger credit lines and larger bank accounts, both of which make them more attractive to a scammer. Why not steal $50,000 if it takes the same amount of work as stealing $5,000? In addition, small businesses may have a history of larger transactions so, for example, a large wire transfer overseas doesn’t set off alarm bells the way it might on an individual’s account.

3. It’s Harder to Detect

Small business owners are often surprised to learn there are many business credit reporting agencies they’ve never heard of before. There are a variety of credit reporting agencies that report small business credit information — and many specialized agencies that most entrepreneurs haven’t heard of. (I provide details on the various business credit bureaus in my new book Finance Your Own Business.)

And because some vendors and creditors don’t report business credit activity at all, it could be months before you realize you’ve been a victim. I learned of one business that was a victim, and the imposters rented office space in the same building where the actual business was located to pull off their scheme!

You’ve Been Warned

The steps for protecting yourself from business identity theft will likely sound very similar to those that are used to protect yourself from personal identity theft. They include:

  • Shredding all sensitive documents.
  • Using very strong passwords and changing them regularly.
  • Limiting access to sensitive information by employees on a need-to-know basis.
  • Keeping track of your credit. Companies such as Experian, DNB and Creditera offer business credit monitoring.
  • Making sure employees with access to sensitive information secure laptops, cellphones and all data related to your business.

There are many challenges when running a small business. There are a number of obstacles to overcome. Identity theft is a continuing challenge for small business owners. Put up your own road blocks and defenses to make sure you are not the next victim.

By Garrett Sutton for

Published: July 22, 2016

Should Your Small Business Offer Health Insurance?

Health insurance is expensive—and getting more so all the time. Does it make more sense for a small company to provide coverage (with employees paying some of the premiums) or let them get a policy on their own through the Affordable Care Act?

Not long ago, it could be difficult and often very expensive for individuals to buy their own health insurance, while the tax code gives an advantage to group insurance provided through the workplace. To keep employees happy and maintain a stable workforce, companies that could afford to offered group insurance.

Now Obamacare, as the law is known, has changed the calculus. Individuals these days can buy insurance with regulated benefits and premiums, and most are eligible for big subsidies. And while companies with the equivalent of at least 50 full-time employees must offer health insurance to those full-time workers or pay penalties, the ACA has no such requirement for smaller businesses.

The upshot is that in many cases, particularly when employees are relatively low-paid, both the company and its employees might be better off if workers buy their own insurance.

“Eighty percent of the time, we find an individual plan to be cheaper than a comparable group plan,” says Abir Sen, chief executive of Gravie, an employee benefits manager that seeks to wean companies from offering group health.

Plus, there’s the virtue of allowing employees to choose insurance that best fits their own needs, rather than cookie-cutter coverage designed for a “typical” but perhaps nonexistent employee.

Gravie and at least one health insurance agency,, offer software that incorporates the many moving parts of the equation. But if you have the patience to do a little digging, here’s the back-of-the-envelope approach to this very important decision.

Start with the group plan. You’ll probably want to settle on a network structure, like a preferred provider organization (PPO) or health maintenance organization (HMO). The first tends to cost more but gives you a greater range of physicians, and the second is cheaper and restricts your physician choice more.

Then you’ll have to decide how much of medical costs should come out of the patient’s pocket, through deductibles and other charges. The ACA uses four metal tiers, as they are called, with different cost-sharing levels, ranging from low-premium, high out-of-pocket bronze plans to steeper premium, lower personal outlay platinum plans. You can choose a specific plan through a broker or directly from a carrier.

You can also compare plans through your state’s government-run small business health insurance, or SHOP, exchange, though your options will be more limited. To get a quote, you’ll need to know the age, smoking status, and location of each employee and dependent you might offer coverage to.

Very small businesses paying modest wages are eligible for a three-year tax credit equal to as much as 50% of premiums paid for group insurance purchased on a SHOP exchange. The tax credit phases out as the number of full-time employees rises to 25 and average income increases to $50,000. 

Calculate the total cost for individual insurance. There are three components to the cost of a worker’s individual insurance: how much the plan costs him or her (the premium), how much federal subsidy is available, and how much an employee has to pay out of pocket.

To compare, pick an individual plan with the same network type and cost-sharing as the group plan. You can get successive quotes for premiums for each employee and family through your insurance exchange or through an online broker like eHealth. If you are shopping outside the ACA’s open enrollment period, which runs from this coming November through January 2017, the employee must have a “life event,” such as gaining a new child or getting married, to join an Obamacare plan.

How big will the federal subsidy be? You find out by comparing the cost of a specific health plan against the worker’s income, and the worker’s income against the federal poverty level. The Kaiser Family Foundation offers an easy-to-use subsidy calculator. You also need to know each employee’s household income and family size.

Subtract the subsidy from the premium and you have the employee’s cost. But the employee will have to pay that out of taxable income. Calculate the pre-tax wages your worker will have to earn to make that after-tax payment.

Be sure to add 15.3% for Social Security and Medicare (both the employer and employee share) to the combined marginal rate before doing your math.

Now compare—with caveats. Health insurance coverage is a good way to keep your current employees. That’s one big argument for offering group insurance, even if it’s much more expensive. Weigh how difficult it is to train employees or to replace them if they leave.

On the other hand, if you can’t afford to contribute to family coverage and your workers aren’t likely to afford it on their own, don’t offer it. If you offer family members insurance, they will be barred from getting a federal subsidy to buy their own insurance through the ACA, even if your offer is unaffordable to them. And if your insurer requires you to offer dependent coverage, switch to another carrier or drop out altogether.

If you decide to drop out and your employees tap the ACA, don’t think you can easily give them a backdoor subsidy to help them satisfy their premiums. Lawyers say the Internal Revenue Service won’t let an employer condition a raise on the worker buying insurance—employees have to be free to spend the money as they see fit. You can, however, tailor the additional compensation to the cost of the individual’s insurance. And that might be a good idea, since older people pay more for insurance.

Finally be wary of organizations, most prominently Zane Benefits, that say you can reimburse employees for a health plan they take out. Although Zane insists the subsidy is not taxable income to your people, the IRS has warned repeatedly that employers using those plans could be subject to penalties—up to $36,500 a year per affected employee.

Whether you offer a group plan or help employees navigate the ACA, seeing that they are covered ultimately is good business.

By Robb Mandelbaum for TIME Money

Published: July 19, 2016

Married? 6 Times You May Want to File Taxes Separately

A whopping 95% of married couples file taxes jointly, and for good reason: It’s almost always cheaper than filing separately. But what about the other 5% of the time? Here are a few cases where splitting up those returns might make more sense.

1. If You Have Income-Based Student Loan Payments

Income-based student loan payments usually key to adjusted gross income, or AGI. So your filing choice could dramatically change the size of your payment, according to Carrie Houchins-Witt, a certified financial planner in Coralville, Iowa. When you file separately, payments are based only on the borrower’s income, rather than on the couple’s joint income.

The IRS does nix certain breaks for couples who file separately, including the student loan interest deduction, but Houchins-Witt says many clients choose to file separately anyway.

“They might end up owing an extra $1,000 on their tax return, but if they’re going to save $400 a month on their student loan payments, then it makes sense to do that,” she says.

2. If You Have A Lot of Medical Expenses

Generally, only medical expenses that exceed 10% of AGI are deductible (the threshold drops to 7.5% for people 65 or older). So the higher your AGI, the higher the hurdle gets. Filing separately could lower that hurdle.

“If the spouse that has the health issues is not making a lot of money, but the other spouse is making significantly more … [for] the one that’s not making as much, it might be more advantageous,” says Ben Barzideh of Piershale Financial Group in Crystal Lake, Ill.

3. If Your Spouse Already Owes the IRS

If your spouse brought overdue taxes into the relationship, it may be worthwhile to file separately, says Samuel Jones of Capital Business Service in Napa, Calif. That way, the IRS won’t apply your refund to your spouse’s overdue bill.

The strategy isn’t that common, though. “Even in that particular circumstance, a married couple is usually willing to join their tax returns in order to reduce their overall burden,” Houchins-Witt notes.

4. If You're High Earners 

For the 2015 tax year, the IRS limits itemized deductions for joint filers with a combined AGI over $309,900. If you and your spouse are high earners, you could lose some deductions by combining incomes. But note that when you’re filing separately, if one spouse itemizes instead of taking the standard deduction, the other must itemize, too. You’ll also have to decide which spouse gets each deduction, which can get complicated, Jones says.

5. If You Don't Live In A Community Property State

Filing separately may not be viable if you live in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin. Those states are community property states: Anything couples earn generally belongs to both spouses equally. Couples filing separately there each have to report half of the income both spouses earned, which nullifies most of the advantages of filing separately, Barzideh says.

6. If You're Suspicious Of Your Spouse

If you’re getting a divorce or you aren’t sure your spouse is being upfront about tax matters, you should think about filing separately, says Bill Smith, managing director of the national tax office at financial consultancy CBIZ MHM in Bethesda, Md.

“It’s very important, because once you sign that joint return, you have joint liability,” Smith says. The IRS does offer relief for innocent spouses, but unless you’re willing to endure the process of getting the IRS to agree you’re innocent, you’re on the hook, he says.

By Tina Orem for NerdWallet

Published: July 14, 2016

3 Ways Student Loans Affect Your Taxes

Anxiety at tax time is common, but Millennials feel it more than others.

Millennials are the age group most worried about filing their taxes, according to a recent NerdWallet survey conducted by Harris Poll.

Factoring in student loan debt can be especially confusing. “You’d be surprised how many people out there don’t even think that’s relevant for their tax return,” says Eric Schaefer, a financial adviser at Evermay Wealth Management in Arlington, Va.

Here are three ways student loan debt affects your taxes, from deductions to tax bills you might owe in the future.

1. You can deduct student loan interest from your income.

If you paid interest on student loans last year, you can lower your taxable income by up to $2,500.

Student loan borrowers can deduct the interest paid last year through the student loan interest deduction. The IRS looks at modified adjusted gross income to see who qualifies and for how much. You qualify for the full deduction if your modified gross is less than $65,000 (filing as a single or head of household) or $130,000 (if married and filing jointly). You get a reduced amount if it’s up to $80,000 (single) or $160,000 (filing jointly).

The deduction can lower your taxable income by a maximum of $2,500, which gets you $625 back on your taxes if you’re in the 25% tax bracket. The borrower who took out the loan, whether it’s the student or the parent, will get the deduction — but neither will qualify if the student is listed as a dependent on a parent’s tax return.

Your student loan servicer, the company that collects your monthly bill, should have sent you a Form 1098-E interest statement by early February if you paid $600 or more  in interest last year. Ask your servicer for the document if you paid less than $600 in interest; you’ll still be able to deduct that amount, but you might not receive the form in the mail or by email without a request.

2. Filing jointly with a spouse could increase your student loan payment.

More and more grads are opting for income-driven repayment plans to pay off their federal student loans. These plans limit your monthly payment to a percentage of your discretionary income. Plus, they forgive your loan balance after you’ve made payments for 20 or 25 years.

The way you file your taxes can significantly affect how much you owe on income-driven plans, though. If you file jointly with your spouse, your monthly payment will be based on the two incomes combined. That could increase your bill or even disqualify you from certain repayment plans if your income jumps high enough.

Instead, consider filing your taxes separately. When you do, the income-based and Pay As You Earn repayment plans will calculate your monthly payment using the student loan borrower’s income alone.

“It might make financial sense to do that vs. having a monthly loan payment that’s twice as high,” Schaefer says.

There are a few financial considerations and potential downsides to choosing married filing separately, though. For example: You won’t be able to take certain tax deductions and credits (including the student loan interest deduction), and your ability to contribute retirement savings to a Roth IRA will be limited. When you file taxes separately, you can’t contribute to a Roth IRA  if your modified adjusted gross income is more than $10,000 a year — compared with the $184,000 threshold for married taxpayers.

“That is a huge disadvantage for doing married filing separately,” says Ara Oghoorian, an Encino, Calif., financial planner at ACap Asset Management who works primarily with health care employees. If you can’t otherwise afford your loan payment, however, the benefits of filing separately could outweigh the drawbacks.

To make it more complicated, Revised Pay As You Earn (known as REPAYE), the newest income-driven student loan repayment plan, combines married borrowers’ incomes when it calculates your payment even if you file taxes separately. That might influence whether you choose this option to repay your loans.

3. You could be in for a big tax bill if your loans are forgiven later on.

You’ll get your federal student loans forgiven after a certain number of years if you take advantage of the government’s Public Service Loan Forgiveness program, or if you choose an income-driven repayment plan. But these two options affect your taxes very differently.

You’ll qualify for Public Service Loan Forgiveness after you’ve made 120 on-time loan payments while working full time at a non-profit or government agency. There’s an extra benefit, too: The forgiven amount won’t be taxed.

As it stands now, however, a borrower on an income-driven plan will pay income tax on the forgiven loan balance the year his or her repayment period ends. That means grads or parents with large loan balances could be in for a big tax liability.

Use the Repayment Estimator tool on Federal Student Aid’s website to see how much you should expect to have forgiven in the future.

“You might want to set aside money knowing that that’s a risk,” Schaefer says. But there may be reason to be optimistic about a change in policy.

“I wouldn’t be surprised if the IRS came up with a program to pay those tax bills in installments,” he says.

By Brianna McGurran for NerdWallet

Published: July 13, 2016

Top Tax Issues for 2016

1. Supreme Court ruling on ACA

Millions of people will now continue to have access to affordable health care in the states which did not establish marketplace healthcare exchanges. It also tees up our next three major tax issues.

2. Affordable Care Act changes for individuals

The individual mandate penalty increases to the higher of 2 percent of yearly household income or $325 person per year, with a maximum penalty per family for those using this method of $975.

In addition, federal poverty level guidelines, used to determine if the individual qualifies for subsidy, have increased.

3. ACA provisions’ impact on businesses

Applicable large employers who have on average of 50 or more full-time equivalent employees in the prior calendar year must offer minimum essential coverage that is affordable to their FTEs and their dependents, or be subject to an employer shared responsibility payment. Transition relief for 2015 exists for ALEs with fewer than 100 FTEs in 2014, and only requires employers to offer minimum essential coverage to 70 percent of full-time employees and their dependents in 2015.

4. New forms to contend with

The Form 1095-B and Form 1095-C, which were optional for calendar year 2014, must be filed by any person that provides minimum essential coverage to an individual (1095-B) and by applicable large employers (Form 1095-C) who had on average at least 50 full-time equivalent employees during calendar year 2014 or small employers who are member of a controlled group that collectively had at least 50 FTEs and who offer an insured or self-insured plan or no group health plan at all.

5. Increase in identity theft

Under new policies announced by the IRS, taxpayers may receive a letter when the service stops suspicious tax returns that have indications of involving identity theft but contain legitimate taxpayer’s name and/or Social Security number. The IRS has agreed to reverse its policy and provide identity theft victims with copies of the fraudulent tax return that has been filed under their name by scammers, so they can take the proper steps to secure their personal information.

6. Extenders

Despite efforts to get ahead of schedule, Congress looks likely to pull its usual wait-until-the-last-minute trick for extending things like the Section 179 deduction, the R&D credit, and host of other credits and deductions that expired at the end of 2014. If not extended to cover 2015 before year’s end, this will make tax planning difficult, and result in delays in tax forms and software releases.

7. Supreme Court ruling on same-sex marriage

All states must now recognize all married couples in the same way for state income tax purposes, regardless of gender. This will impact the ability to file join income tax returns, the ability to transfer property to each other tax-free, the ability to leave an estate to the spouse without gift tax implications, and spousal treatment of inherited IRAs.

8. Trade legislation tax changes

The Trade Preferences Extension Act of 2015 contains a number of tax provisions in addition to its trade measures. Taxpayers who exclude foreign earned income under Code Section 911 cannot claim the child tax credit; taxpayers must receive a payee statement (1098-T) before they can claim an American Opportunity, Hope, or Lifetime Learning Credit or take the deduction for qualified tuition and related expenses. This is effective for tax years beginning after the TPEA’s date of enactment.

9. Tangible property regulations

These regs caused a number of headaches last tax season. Under the final regs, all costs that facilitate the acquisition or production of such property must be capitalized. Improvements to property that better a unit of property, restore it, or adopt it to a new and different use must also be capitalized.

Exceptions: De minimis safe harbor (annual election required); routine maintenance safe harbor; (no election required); per building safe harbor form small businesses (annual election required).

From Accounting Today

Published: June 29, 2016

The Most Overlooked Retirement Account

I work with hundreds of employees every year who are serious about retiring comfortably. They generally know the importance of contributing to their employer’s retirement plan and an IRA, which both have significant tax benefits. I’ve found that another of the best but most misunderstood retirement planning options is the health savings account (HSA), which has been around since 2003 in conjunction with the explosion of high deductible health plan (HDHP) options. Many employees think the HDHP is just a way for their employer to lower medical benefits costs, but for most employees, these plans offer so much more than that. Growing some retirement resources in an HSA can be beneficial for you in a number of ways:

Deferring money to an HSA is even easier to do than most retirement plans. You can have the funds taken directly from your paycheck, but you can also make direct deposits by check, by bank transfer and even in cash depending on where your HSA account is held. You also have until the tax filing deadline to contribute for the previous year.

They can be completely tax-free. HSA contributions are pre-tax and income and gains compound without tax dilution. For money you use to pay qualified medical expenses, there are no taxes ever.

There’s no use it or lose it. Not to be confused with a medical FSA, which often happens, HSA balances that aren’t used by year-end carry over indefinitely and can be invested as the HSA plan permits. Here’s what I’ve suggested to many employees: keep your HSA card at home and pay small co-pays (and perhaps the bigger ones) out-of-pocket. Let it go and let it grow! (You might want to keep the receipts though since you can still withdraw the amount you spent on qualified medical expenses from the HSA tax and penalty-free in the future.)

They can help reduce Medicare premiums. Most people don’t know that their Medicare Part B premiums are dependent on their taxable income from 2 years prior. If funds are taken from taxable accounts like an IRA or 401(k) to pay medical expenses, the resulting increased income can trigger premium surcharges referred to as IRMAA, doubling or even tripling your Medicare premiums. Using HSA balances for these expenses eliminates this additional taxable income.

They can supplement your retirement income.Generally, there’s a 20% tax penalty when you use money from an HSA for non-medical expenses. However, that penalty goes away when you turn 65 (and qualified medical expenses are still tax-free).

There are no required distributions.  As with a Roth IRA, HSA balances aren’t subject to required minimum distributions and thus don’t create unnecessary taxable income. This allows you to continue deferring the tax and perhaps avoid it altogether with future medical expenses.

They’re available for both spouses. If you have extra HSA balances when you pass away, your surviving spouse can access the rest of it and enjoy the benefits. But don’t use your HSA as a wealth transfer tool. Once both spouses die, the beneficiaries get the remainder but must pay taxes on it regardless of how it is used after paying off the deceased’s final medical bills.

So how do you take advantage of an HSA? If you’re covered only by an HDHP, you can contribute up to $6,750/yr if you’re married ($7,750 if over 55) or $3,350 if you’re single ($4,350 if over 55). Don’t forget to factor in any money added to it as an incentive at work before making that extra deposit though. That needs to be subtracted to get to your maximum contribution limit for the year. If your workplace health plan allows you to stay on it after age 65 without filing for Medicare, you can put off Medicare filing until after your employment ends and stay eligible to add to your HSA to build additional tax-free funds to use later.

Our 2016 Generational Report reinforces the idea that small improvements in financial behavior can dramatically increase expected retirement balances and help you retire earlier. People generally think of saving for retirement in their employer’s retirement plan and an IRA. Taking advantage of an HSA’s benefits as well is another one of those improvements that can help you become financially healthier and write smaller tax checks!

By Paul Wannemacher, Contributor for Forbes Magazine

Published: June 27, 2016

Will There Be a Rise of State Entity-Level Taxes?

The number of passthrough entities (which includes partnerships, limited liability companies, and S corporations) has been on the rise for the last 30 years. And along with the increase in the number of passthrough entities has been a decrease in the number of C corporations. According to the Tax Foundation, passthrough businesses now account for 94 percent of all businesses in the United States.

None of that is really news. The rise of the passthrough entity is well documented. It’s also not news that, at the federal level, partnership audits will be on the rise. Very briefly, under new federal rules, the IRS will assess tax on the partnership (at the entity level) and the partnership will be tasked with determining how to pass the tax through to partners. Stories have been written about the effect that the new partnership regime will have on state tax administration.

But I wonder what this means for states. Will states be able to manage an increase in federal adjustments to partnership returns? Will states be able to manage an increase in partnership audits in general? It seems unlikely. State taxing agencies are not well staffed to perform many additional complex or technical audits. This is one of the reasons states shied away from transfer pricing -- they don’t have staff that understands the complexities of transfer pricing or experts who could produce transfer pricing reports.

What will states do? And will they simply avoid doing partnership (and other passthrough entity) audits all together and turn to entity-level taxes?

There is certainly concern that states will struggle to adapt to the IRS’s new partnership audit regime. During a panel at the State and Local Taxes session of the ABA Section of Taxation meeting on May 6, representatives from the American Institute of CPAs, the American Bar Association, the Multistate Tax Commission, and the Council On State Taxation said they were discussing ways to jointly help states.

At the same panel, practitioners raised numerous concerns about how states would react. Bruce Ely of Bradley Arant Boult Cummings LLP said taxpayers want to avoid a situation in which states had 50 different reactions. That would set the stage for a compliance nightmare for taxpayers. Other issues raised included whether state laws would need to change for a partnership to be considered a taxpayer under state law and whether states would need to change composite return rules.

One state, Arizona, has enacted a measure to update the revenue agent report statutes to reflect the IRS’s new partnership audit rules. Beyond that, a few states have established working groups to examine these and other issues. It seems likely, however, that at least some states will consider their own entity-level tax regime and not bother trying to implement the new federal rules for partnerships. Currently, roughly half of the states impose some sort of entity-level tax on passthrough entities.

Some of the entity-level taxes are fixed annual assessments. For example, Connecticut imposes an annual “business entity tax” of $250 on LLCs and limited liability partnerships. Vermont imposes a $250 annual tax on LLCs and LLPs, and Rhode Island imposes a $500 tax on LLCs taxed as partnerships.

Other states impose entity-level taxes more analogous to an income tax. For example, Illinois imposes a 1.5 percent replacement tax on partnerships and LLCs. Kentucky imposes a limited liability entity tax that is equal to the lesser of 9.5 cents per $100 of Kentucky gross receipts or 71 cents per $100 of Kentucky gross profits.

Given the option of dealing with the many issues that will arise because of the new federal partnership audit rules or finding an alternative (hopefully less complex) means of taxing and auditing passthrough entities, I tend to think at least some states will choose the latter. In any case, it will be interesting to watch the discussion during the next year as states drill down and identify all the issues with the new federal partnership audit rules, and ultimately determine their next moves.

By Cara Griffith for The Tax Analysts Blog

Published: May 31, 2016

Paying Taxes by Credit Card? Read This First

This time of year many Americans would like to take a swipe at the IRS. Some taxpayers even should, experts say — with their credit card.

Though paying a bill in full is the best way to avoid late charges and other hassles, credit card payments can help those struggling with the their bills to buy time – and even save money. “If you’re going to need a year or more to pay it out you could borrow on a low interest credit card and it could be a good deal,” says Gregg Wind, a certified public accountant in Los Angeles.

While not ideal, credit cards and lines of credit can help people pay the tax man while avoiding potentially steep late payment penalties and interest charges. The IRS generally charges interest on any unpaid tax starting from the day the tax is due to the date it is paid. Currently at 3%, the interest rate is reset quarterly. And that doesn’t include late payment penalties, which are 0.5% of taxes owed a month. Between interest charges and late payment penalties, someone who is a year late in paying their taxes could see their bill increase by 9%, Wind estimates.

Those fees can be reduced if one pays with a low-interest credit card, he says. Take someone with a credit card that has a 4% APR. Including a onetime convenience fee of up to 2.4% that third-party service providers charge for using a credit card, fees would add up to 6.4% of taxes owed, he estimates. On a $10,000 bill, that could mean $260 in savings. Someone using a zero percent credit card may be able to save more, but they need to be careful not to carry the balance past the promotional period because the interest rate can shoot up and credit card charges could erase those savings, he says.

Some investors who don’t want to liquidate important investments to cover their tax bill may be able to set up a similar arrangement by opening a line of credit with their brokerage firm, says Phil Conway, U.S. head of lending for J.P. Morgan Private Bank. For those in the middle of a property sale that still hasn’t cleared or who expect a bonus coming up later in the year, a line of credit can provide more time to pay the bill without forcing them to sell other assets prematurely, says Conway. Interest rate charges can often be around 3% since they are usually 2 percentage points on top of the London Interbank Offered Rate, or the rate that banks charge to borrow from each other. Still, taxpayers should generally aim to clear their credit lines before next tax season to avoid having their debts pile up, Conway says. “We’re not trying to say to pay this back like you would pay back a car,” he says.

That said, there may be less expensive options for taxpayers who don’t qualify for a low interest credit card or line of credit. Those who need less than 120 days to pay the bill you may be able to set up an informal payment plan with the IRS, says Wind. And the IRS introduced a program this year that gives some filers more time to pay, penalty free. Some people may also be able to set up an installment agreement with the IRS, which would lower late payment penalties to 0.25% of taxes owed a month.

From the Wall Street Journal

Published: May 27, 2016

'Nanny Tax' Could Trip Up More Taxpayers This Year

Should you be worried about the dreaded "nanny" tax?

While the growing gig economy implicitly treats service providers as independent contractors, families who hire people to watch their kids, clean their houses, or perform other household tasks need to make sure they don't inadvertently run afoul of regulations this year that classify them as employers with wage and tax obligations.

For people looking to hire workers, the lure of getting a service performed cheaply could come with an expensive downside if they inadvertently take on an employee, then wind up having to pay back taxes or penalties.

"What's new this year that a lot of families need to be aware of is Department of Labor issued new guidelines on who is an employee and who is an independent contractor," said Tom Breedlove, director of HomePay.

Last summer, the IRS added two factors to a test for worker classification, Breedlove said, one pertaining to permanence and the other evaluating how much of their income is provided by you.

For the 2015 tax year, families who paid someone $1,900 or more over the course of the year to come into their home and perform jobs like personal assistance, cooking, cleaning or taking care of kids, elderly parents or even pets had to withhold and pay taxes, because that worker is considered an employee who must be paid hourly. For 2016, that amount goes up to $2,000. With recent minimum wage increases taking place in a number of states and municipalities, families are more likely to hit that threshold sooner.

"There used to be a gray area, [but] the DOL and IRS have really, really tightened the definition," Breedlove said. "They've essentially said all household workers should be treated as employees," he said.

There also is more awareness on the part of workers about their rights, said Guy Maddalone, founder and CEO of GTM Payroll Services. More are seeking out legal advice, and more attorneys are advertising their services to represent domestic workers.

"Six states have legislation that secures the rights of domestic workers, and five of those have full bills of rights," Marzena Zukowska, spokeswoman for the National Domestic Workers Alliance, said in an email. These laws generally spell out (among other things) requirements for tax-related compensation topics like minimum wage and overtime pay.

Along with stricter rules, the government today has a better chance of catching up with people who misclassify the people who do work for them. Since people now have to be able to prove their income to obtain subsidies for Affordable Care Act health insurance, there is less incentive for childcare, eldercare and other domestic workers to want to get paid off the books, and an additional opportunity for the government to spot discrepancies between reported incomes.

The rub is that while the stakes are higher, experts say a shift in the way service providers connect with the people they work for has created a knowledge gap that can leave people unaware of who they need to classify as an employee and when.

Maddalone said the rise of "gig economy" platforms is disrupting the traditional agency placement model for domestic workers.

"Their business is shrinking," he said, as more workers turn to sites that connect buyers and sellers of services but don't offer any guidance about worker classification or labor law and tax obligations. "The advice is not getting out there."

"All those sites and boards have really disrupted the ability of the local expert in the community [to] let them know there's certain laws here," Maddalone said.

From NBC News

Published: May 23, 2016

"When do I get my tax refund?"

The official word from the Internal Revenue Serviceis that it takes up to 21 days after the IRS accepts your e-filed tax return to get your refund.  If you mailed your tax return, the refund process for those paper returns can range from six weeks to eight weeks after the date the IRS receives the return.

You can check the status of your federal refund online at "Where's my refund?" at  You'd need your Social Security number, your filing status and the exact amount of the refund. Don't try to check every hour, though. The IRS said its refund information is only updated once every 24 hours or so, usually overnight.

But, (and isn't there always a but?) there can be plenty of reasons that a refund can take longer to process. Such as:

  • Did you file an amended tax return? It could take up to 16 weeks to get that refund. To check the status of an amended return, you'd go to for Where's my amended return? 
  • Is some of your refund money going toward past-due child support? Again, it's going to take longer for you to receive what's left. 
  • Were you a victim of ID theft where crooks filed a tax return using your ID? Mark Ciaramitaro, vice president of tax products for H&R Block, said it can take anywhere from six months to a year for some tax-refund victims to get their own tax refunds, as the ID theft mess is investigated.
  • Was your tax return incomplete? Did it contain some errors? If so, the tax refund could take longer than normal to process. 
  • Did you put the right bank account information on the return? The IRS notes that if you incorrectly enter an account or routing number that belongs to someone else and your financial institution deposits the money into someone else's account, you must work with the bank to recover your money. If you contact the bank and two weeks have passed with no results, file Form 3911 "Tax Statement Regarding Refund" with the IRS if the refund check is lost or if there has been trouble receiving the refund money.

"The fastest way to get your refund is to ensure the return you file is error-free," said Luis Garcia, a spokesman for the IRS in Detroit.

It's possible, he said, the refund could face further delays if you used nicknames, or your married name doesn't match up to the name on file with Social Security.

Susan Allen, certified public accountant and lead technical manager for the tax division for the American Institute of CPAs, said in order for an IRS employee to assist you, more than 21 days must have passed since you received your e-file acceptance notification (or more than six weeks has passed if you mailed your tax return).  You can also work with your CPA to resolve any IRS issue.

The refund process was slightly slower going into early April, according to the numbers from the Internal Revenue Service. About 76 million refunds were issued through April 1, down about 1.5% from a similar period last year. The average refund was $2,989 through April 1 — up $10 from the similar time last year.  More than 86% of refunds so far are directly deposited into bank accounts or onto prepaid cards.

Best tip of all: Don't spend the refund money the very second you e-file that tax return. It's going to take more than a few days to get that actual cash in your hands.

From USA Today

Published: May 17, 2016

Congress Might Make Your Gym Membership Tax-Deductible

You may not have known, but Wednesday was National Golf Day in Washington D.C., the day the industry’s leaders come together and push their agenda on issues that could help the game. Among them is a bill called the PHIT Act, which proposes to make the costs associated exercise tax-deductible.

Golf Digest has a nice explainer on what it would mean for golf:

Because if the PHIT Act passes as currently constituted it would, along with several other physical-fitness expenses, make golf camps and clinics, lessons and training aids, green fees and driving-range fees, tournament fees and, wait for it . . . golf balls and golf clubs tax deductible up to $1,000 for an individual or $2,000 for a head of household or family.

That’s great news for all the golfers out there, but the language of the PHIT Act is actually far broader. In fact, it’s rather limiting golf-wise when you consider what else it has the potential to do.

According to the bill:


“(A) IN GENERAL.—The term ‘qualified sports and fitness expenses’ means amounts paid—

“(i) for membership at a fitness facility,

“(ii) for participation or instruction in a program of physical exercise or physical activity, and

“(iii) for equipment for use in a program (including a self-directed program) of physical exercise or physical activity.

“(B) OVERALL DOLLAR LIMITATION.—The aggregate amount treated as qualified sports and fitness expenses with respect to any taxpayer for any taxable year shall not exceed $1,000 ($2,000 in the case of a joint return or a head of household (as defined in section 2(b))).

What does that mean? It means that gym memberships, classes, sneakers, fitness videos, books and exercise equipment are all some of the things you could potential write-off on your taxes.

But alas, if something’s too good to be true it probably is: Does the PHIT Act actually have a chance of passing? Right now, it doesn’t seem so.

100 lawmakers in both the House and Senate support the bill, but it’s been stuck before the House Ways and Means committee since it was introduced last year. Rep. Jerry Weller (D-IL) has been pushing this bill since 2006 so while it has been making slight progress, GovTrack still only pegs its chances of being signed into law at four percent.

But on the plus side, that’s right! Four! Whole! Percent! Do the math, and you’ll find that’s four percent more likely than zero percent.

Published: May 13, 2016

Now is a Good Time to Plan for Next Year’s Taxes

You may be tempted to forget about your taxes once you’ve filed but some tax planning done now may benefit you later. Now is a good time to set up a system so you can keep your tax records safe and easy to find.  Here are some IRS tips to give you a leg up on next year’s taxes:

  • Take action when life changes occur.  Some life events can change the amount of tax you owe. Examples  include a change in marital status or the birth of a child. When these happen, you may need to change the amount of tax withheld from your pay. To do that, file a new Form W-4, Employee's Withholding Allowance Certificate, with your employer. 

  • Report changes in circumstances to the Health Insurance Marketplace.  If you enroll in insurance coverage through the Health Insurance Marketplace for  2016 coverage, you should report changes in circumstances to the Marketplace when they happen. Report events such as changes in your income or family size. Doing so will help you avoid getting too much or too little financial assistance.

  • Keep records safe.  Print and keep a copy of your 2015 tax return and supporting records together in a safe place. This includes  W-2 Forms, Forms 1099, bank records and records of your family’s health care insurance coverage. If you ever need your tax return or records, it will be easier for you to get them. For example, you may need a copy of your tax return if you apply for a home loan or financial aid for college. You should use your tax return as a guide when you do your taxes next year.

  • Stay organized.  Make tax time easier. Have your family put tax records in the same place during the year. That way you won’t have to search for misplaced records when you file next year.

  • Shop for a tax preparer.  If you want to hire a tax preparer to help you with tax planning, start your search now. Choose your tax preparer wisely. Use the Directory of Tax Return Preparers tool on to find tax preparers in your area with the credentials and qualifications that you prefer.

  • Think about itemizing.  You may be able to lower your taxes if you itemize deductions instead of taking the standard deduction. Owning a home, paying medical expenses and qualified donations to charity could mean more tax savings. See the instructions for Schedule A, Itemized Deductions, for a list of deductions.

Published: May 11, 2016

Things You Should Know about Filing Late and Paying Penalties

April 18 was this year’s deadline for most people to file their federal tax return and pay any tax they owe. If you are due a refund there is no penalty if you file a late tax return. If you owe tax, and you failed to file and pay on time, you will most likely owe interest and penalties on the tax you pay late. To keep interest and penalties to a minimum, you should file your tax return and pay the tax as soon as possible. Here are some facts that you should know.  

  1. Two penalties may apply. One penalty is for filing late and one is for paying late. They can add up fast. Interest accrues on top of the penalties.

  2. Penalty for late filing. If you file your 2015 tax return more than 60 days after the due date or extended due date, the minimum penalty is $205 or, if you owe less than $205, 100 percent of the unpaid tax. Otherwise, the penalty can be as much as five percent of your unpaid taxes each month up to a maximum of 25 percent.  

  3. Penalty for late payment. The penalty is generally 0.5 percent of your unpaid taxes per month. It can build up to as much as 25 percent of your unpaid taxes.

  4. Combined penalty per month. If both the late filing and late payment penalties apply, the maximum amount charged for the two penalties is 5 percent per month.

  5. File even if you can’t pay. Filing on time and paying as much as you can will keep your interest and penalties to a minimum. If you can’t pay in full, getting a loan or paying by debit or credit card may be less expensive than owing the IRS. If you do owe the IRS, the sooner you pay your bill the less you will owe.

  6. Payment Options. Explore your payment options on our website at For individuals, IRS Direct Pay is a fast and free way to pay directly from your checking or savings account. The IRS will work with you to help you resolve your tax debt. Most people can set up a payment plan using the Online Payment Agreement tool on

  7. Late payment penalty may not apply. If you requested an extension of time to file your income tax return by the tax due date and paid at least 90 percent of the taxes you owe, you may not face a failure-to-pay penalty. However, you must pay the remaining balance by the extended due date. You will owe interest on any taxes you pay after the April 18 due date.
Published: May 6, 2016

Tip Income & How It Affects Your Taxes

If you get income from tips, you should know some things about tips and taxes. Here are a few tips from the IRS to help you file and report your tip income correctly:

  • Show all tips on your return. You must report tip income. This includes the value of non-cash tips such as tickets, passes or other items.
  • All tips are taxable. You must pay tax on all tips you received during the year. This includes tips directly from customers and tips added to credit cards. This also includes your share of tips received from a tip-splitting agreement with other employees. 
  • Report tips to your employer. If you receive $20 or more in any one month, you must report your tips for that month to your employer by the 10th day of the next month. Only include cash and check and credit card tips you received. Your employer must withhold federal income, Social Security and Medicare taxes on the reported tips. 
  • Keep a daily log of tips. Use Publication 1244, Employee's Daily Record of Tips and Report to Employer, to record your tips. This will help you report the correct amount of tips on your tax return.
Published: April 4, 2016

[Not So] Dumb Tax Questions You Might Be Embarrassed to Ask

Unless you're an accounting geek like us, chances are you don't like thinking about taxes.

But when it comes to the IRS, you can't just bury your head in the sand and claim ignorance. Here are answers to a few seemingly dumb and super-simple questions that actually are neither.

Do I really have to file a federal tax return?


The only time you're not required to file is if your income is less than your personal exemption plus your standard deduction, both of which are determined by your marital status and age.

You can use this table to figure out your personal situation. But generally, if you made more than $23,100 in 2015, you will have to file, according to Mark Luscombe, principal federal tax analyst of Wolters Kluwer Tax & Accounting US.

But here's the thing: Even if your income is too low to have to file, you may want to anyway. Why? You could be owed a refund.

Too much tax may have been withheld from your paycheck or you may be entitled to a refundable tax break like the Earned Income Tax Credit, which pays money to qualified filers even if the credit exceeds their tax bill.

How long will it be before I get my refund?

Most filers get refunds and the vast majority of them get their refunds in hand within 21 days from the day they file their returns.

Is it true the IRS can withhold my refund?

Yes, there are four situations in which the IRS will not send you part or all of your refund: If you're behind in paying federal student loans, child support, or state income taxes; or if you got too much of a government subsidy to buy health insurance on a federal or state exchange.

What if I know I owe money to the IRS but can't afford to pay?

First, file anyway. If you don't, you'll be hit with a failure-to-file penalty, which is steep.

Second, take a deep breath. There are different payment plan options you can work out with the IRS so that you don't have to pony up everything all at once.

If you owe more than $10,000, it's advisable to have a CPA with experience setting up payment plans to represent you.

If you owe less than that, you still might want to seek a tax professional's help if all this stuff seems too daunting.

Okay so when do I have to file?

The deadline this year is Monday, April 18. (Usually, it's April 15.)

If that doesn't fit into your schedule, you can file an automatic 6-month extension form.

Remember, though, an extension to file is not an extension to pay. Any remaining money you owe for tax year 2015 is due April 18.

So if you think you'll have to cut the IRS a check, estimate how much it will be and pay it when you send in your extension form.

If you don't, you'll owe interest on the amount due and could be hit with a failure-to-pay penalty.

Will I get audited?

Probably not. Audit rates are very low these days -- thanks largely to budget cuts at the IRS. But that doesn't mean your return will always escape scrutiny, especially if you go out of your way to invite it.

Be sure to report all your income. The IRS has copies of any tax forms you get -- from employers, banks, brokers, educational institutions or partnerships. And it uses an automated form-matching system to cross-check the numbers on your return match the numbers it has on file. If there's any discrepancy, that could trigger an audit.

You'll also call attention to your return if you blatantly try to claim tax breaks you don't qualify for -- say, trying to deduct all your housing costs for that home office you don't have or reporting several years of losses for a small business that's nothing more than a hobby.

By Jeanna Sahadi for @CNNMoney

Published: March 29, 2016

Retirees Face April 1 Deadline for Required Retirement Plan Distributions

The Internal Revenue Service today reminded taxpayers who turned 70½ during 2015 that in most cases they must start receiving required minimum distributions (RMDs) from Individual Retirement Accounts (IRAs) and workplace retirement plans by Friday, April 1, 2016.

The April 1 deadline applies to owners of traditional (including SEP and SIMPLE) IRAs but not Roth IRAs. Normally, it also applies to participants in various workplace retirement plans, including 401(k), 403(b) and 457(b) plans.

The April 1 deadline only applies to the required distribution for the first year. For all subsequent years, the RMD must be made by Dec. 31. So, a taxpayer who turned 70½ in 2015 (born after June 30, 1944 and before July 1, 1945) and receives the first required distribution (for 2015) on April 1, 2016, for example, must still receive the second RMD by Dec. 31, 2016. 

Affected taxpayers who turned 70½ during 2015 must figure the RMD for the first year using the life expectancy as of their birthday in 2015 and their account balance on Dec. 31, 2014. The trustee reports the year-end account value to the IRA owner on Form 5498 in Box 5. 

Though the April 1 deadline is mandatory for all owners of traditional IRAs and most participants in workplace retirement plans, some people with workplace plans can wait longer to receive their RMD. Usually, employees who are still working can, if their plan allows, wait until April 1 of the year after they retire to start receiving these distributions. Employees of public schools and certain tax-exempt organizations with 403(b) plan accruals before 1987 should check with their employer, plan administrator or provider to see how to treat these accruals.

The IRS encourages taxpayers to begin planning now for any distributions required during 2016. An IRA trustee must either report the amount of the RMD to the IRA owner or offer to calculate it for the owner. Often, the trustee shows the RMD amount in Box 12b on Form 5498. For a 2016 RMD, this amount would be on the 2015 Form 5498 that is normally issued in January 2016.

IRA owners can use a qualified charitable distribution (QCD) paid directly from an IRA to an eligible charity to meet part or all of their RMD obligation. Available only to IRA owners 70½ or older, the maximum annual exclusion for QCDs is $100,000. For details, see the QCD discussion in Publication 590-B.

Published: March 28, 2016

Six Facts You Should Know Before Deducting a Charitable Donation

If you gave money or goods to a charity in 2015, you may be able to claim a deduction on your federal tax return. Here are six important facts you should know about charitable donations.

1. Qualified Charities. You must donate to a qualified charity. Gifts to individuals, political organizations or candidates are not deductible. An exception to this rule is contributions under the Slain Officer Family Support Act of 2015. To check the status of a charity, use the IRS Select Check tool.

2. Itemize Deductions. To deduct your contributions, you must file Form 1040 and itemize deductions. File Schedule A, Itemized Deductions, with your federal tax return.

3. Benefit in Return. If you get something in return for your donation, you may have to reduce your deduction. You can only deduct the amount of your gift that is more than the value of what you got in return. Examples of benefits include merchandise, meals, tickets to an event or other goods and services.

4. Type of Donation. If you give property instead of cash, your deduction amount is normally limited to the item’s fair market value. Fair market value is generally the price you would get if you sold the property on the open market. If you donate used clothing and household items, they generally must be in good condition, or better, to be deductible. Special rules apply to cars, boats and other types of property donations.

5. Form to File and Records to Keep. You must file Form 8283, Noncash Charitable Contributions, for all noncash gifts totaling more than $500 for the year. The type of records you must keep depends on the amount and type of your donation. 

6. Donations of $250 or More. If you donated cash or goods of $250 or more, you must have a written statement from the charity. It must show the amount of the donation and a description of any property given. It must also say whether you received any goods or services in exchange for the gift.

Published: March 24, 2016

5 Changes You Must Know About Before Filing Your Taxes This Year

Congress did make a couple of notable changes last year, including making permanent some tax breaks that had been extended year to year.

"We've had 50 major tax law changes in the last 13 years," says Jeff Schnepper, a tax attorney in Cherry Hill, New Jersey, and the author of "How to Pay Zero Taxes 2016: Your Guide to Every Tax Break the IRS Allows." "Our tax code is a disaster. It's thousands of words dancing without rhythm."

One difference this year is the deadline: Federal tax returns this year are due April 18 because Washington, D.C., celebrates Emancipation Day and the holiday falls on April 15 this year. That gives taxpayers across the country three extra days to file their taxes.

Even if the tax law hasn't changed significantly since you filed your last return, you still may find yourself facing a completely different tax situation because your life has changed. Marriage, divorce, death, the birth of a child, buying and selling a house, an inheritance, big medical expenses, foreclosure, buying or selling a business – all those life events can significantly affect what you need to report on your return and what you pay (or don't pay) in taxes.

"Every time you have a lifestyle change, you're going to have some effect on the tax code," Schnepper says.

If your life has gotten more complicated, it may be time to find professional help.

"My advice to anybody is to always get a tax professional," says Steven Goldburd, a partner at Goldburd McCone tax law firm in New York. "There are ways to do it yourself. Doing it yourself will not always get you the best outcome." If your life changes, you may be eligible for deductions and credits you weren't before, or you may not realize you need to send additional information. Mistakes can cost you money and also make you more vulnerable to an audit.

He advises asking friends, family and colleagues for referrals. "Make sure you have someone that seems trustworthy," Goldburd says. "If it's too good to be true, it probably is. You've got to be careful with that person preparing tax returns out of his bodega."

This time of year, it may be hard to find an accountant with time to talk to you, but you can file for an extension and then seek help, including advice for next year's tax planning, after April 18. If you think you'll owe taxes, you are required to pay on time, even if you get an extension. Anyone can get an extension and delay filing a tax return until Oct. 15, when they might be in a better position to receive the tax guidance needed to prepare a suitable return. You'll have to make a rough estimate of what you owe based on last year's return and how much you have paid so far, either in quarterly estimated taxes or via payroll deduction.

"People fail to take the deductions they're entitled to," Schnepper says. "There's almost nothing that in the appropriate situation can't be deducted if structured correctly."

One piece of advice that has not changed: "The most important thing in terms of taxes is substantiation," Schnepper says. "Any time you don't have a record ... you're throwing away money. Get the receipt."

Here are five changes to be aware of for this year's tax return:

Deadline to file is April 18. This year's tax return deadline is Monday, April 18, because April 15 is Emancipation Day in Washington, D.C. If you live in Maine or Massachusetts, states that celebrate Patriots Day, the deadline to file is Tuesday, April 19. If you can't file on time, ask for an extension, which will give you six more months to send in your return.

The penalty for not having health insurance has risen. If you did not have health insurance in 2015, you may have to pay a tax penalty of 2 percent of your household income, or $325 per adult and $162.50 per child, up to a maximum of $975 per family. That's up from $95 per adult and $47.50 per child, with a maximum of $285, for 2014. However, there is a long list of exemptions from the penalty, including not being able to afford insurance. If you got insurance through the Affordable Care Act exchange and under or overestimated your income, you could either owe additional money or receive a tax credit. The IRS has extensive guidance on the ACA and your taxes.

Some key numbers have changed – slightly. The personal exemption for 2015 has risen from $3,950 to $4,000. That's the amount deducted from taxable income for each person on the return. The Alternative Minimum Tax exemption was increased to $53,600 ($83,400 for married couples filing jointly), from $52,800 and $82,100. The AMT is designed to make sure everyone pays at least some tax and requires a complex set of calculations once your income goes above the exemption threshold. You can see more of those changes here. The mileage rate for 2015 returns is 57.5 cents for business miles (up from 56 cents in 2015), 23 cents for medical or moving mileage (down half a cent from 2014) and 14 cents per mile for charitable work.

Some temporary tax breaks have become permanent. Every year, Congress waits until the end of the year to take up what are known as tax extenders – or tax breaks that expire. This makes it hard to plan. This year, several of those tax breaks were made permanent, including the ability for taxpayers over 70 1/2 to donate IRA funds up to $100,000 without paying taxes, the deduction of sales taxes for taxpayers in states that do not have a state income tax and the $250 above-the-line deduction for teachers who buy their own supplies, which will rise with inflation. The enhanced Child Tax Credit, American Opportunity Tax Credit, and Earned Income Tax Credit were made permanent.

The tax break for cancellation of debt on a primary residence was extended. Normally, if a creditor forgives debt you owe, that is considered income and you owe taxes. But after the foreclosure crisis, Congress created a tax break for homeowners who did short sales on underwater homes and had balances forgiven. The tax break, which applies only to primary residences, was extended through 2016.

From USA Today

Published: March 22, 2016

The Best And Worst States For Taxes In 2016

With tax day drawing near, it’s the time of year to gripe about why taxes are so darn high in your state. If you live in New York, New Jersey or Connecticut, that gut feeling you have is dead on. Resident of the Golden State? At least you’re better off than in New York. And Texas, we’re completely jealous.

Tax rates can be tricky to compare across state lines because there are so many variables. When it comes to income taxes, nine states in the U.S. charge residents a flat percentage regardless of the size of their salary. Most states take a graduated approach with multiple income brackets (Missouri and California lead the pack with 10). And seven states (Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming) charge no state income tax at all.

To come up with the cleanest comparison of taxes by state, data analysts from Forbes Magazine calculated the effective tax rate for single taxpayers earning a taxable $50,000 in each state. Why use $50,000 for our comparison? Since the median household income for 2014 (the latest year for which Census data is available) was $53,657, it’s reasonable that after taking each state’s standard deduction (from $0 in Indiana to $10,250 in Wisconsin), a single-earner household making the median income might land around a taxable $50,000. In most states, this taxable $50,000 spans multiple tax brackets, with each ascending bracket assessed at a higher rate. To come up with the effective rate at this taxable income level, we crunched the numbers using 2016 tax data from the Tax Foundation, a nonpartisan think tank in Washington, D.C., that tracks tax policy.

Of course, there are more kinds of taxes than income, with property and sales taxes the next biggest considerations. The Tax Foundation tallies total tax revenue collected by each state from both individuals and businesses. This total figure includes not only income, property and sales tax, but also special taxes like real estate transfer, personal property taxes on some vehicles, and special tax district fees. The Tax Foundation divides this total by the number of residents in each state, and calls this figure the total tax burden per capita in that state. Unfortunately, because of the way property tax data is collected, it’s very difficult to tease out the portion that is paid by people as opposed to businesses. Still, it’s the best state-by-state account of tax burden that we’ve encountered, and so it is a metric we support being used to rank the states. Analysts used the most recent data available, which is for the fiscal year that ended in 2012.

On the list of the Best And Worst States For Taxes, New York comes in dead last. The lowest tax burden is found in Alaska. Though the effective tax rate at $50,000 taxable income wasn’t used to rank the states, analysts also looked at the top income bracket for each state. It’s interesting to note that only nine states have special tax brackets for people earning more than $200,000 in taxable income annually: California, Connecticut, Maryland, New Jersey, New York, North Dakota, Ohio, Vermont, and Wisconsin–plus the District of Columbia.

As part of your strategy to minimize your taxes, maybe it’s time to think about a move!

This year, five states made changes to income tax policy, said Jared Walczak, policy analyst at the Tax Foundation. Hawaii bid adieu to its top three brackets for the upper incomes, which were temporary brackets anyway; now its top marginal rate is 8.25%, down from 11%. Arkansas adopted a new tax schedule for incomes between $21,000 and $75,000 and now has three different tax schedules. Maine lowered its tax rates and added a third bracket. Massachusetts hit a level of state revenue that triggered a drop of the flat tax rate by 0.05% to 5.1%. And Ohio’s top marginal rate fell from 5.333% to 4.997%. “They’ve been shifting away from individual income taxes but imposing higher taxes on corporations,” Walczak explains, of the Midwestern state.

For many married couples, it’s advantageous at the federal level to file jointly. Unfortunately, nearly half of the states—24—impose a marriage penalty, meaning that in those states married couples filing jointly pay more income tax than they would if they each filed on their own. Twenty-six of the states either have no marriage penalty or do not have an individual income tax at all. However, it’s tough to get around this marriage penalty, since states won’t let you file jointly at the federal level and separately for the state.

Finally, residents of several states this year may notice that though their taxable income hasn’t changed, their tax bracket has—to their advantage. That’s because many states index their brackets to inflation by tying them to the Consumer Price Index, Walczak says, and as the brackets rise the effective tax rate drops just a tad.

By Erin Carlyle for Forbes Magazine

Published: March 21, 2016

Is itemizing your taxes worth the hassle?

Come tax time, every American wants to get the biggest possible refund.

But Uncle Sam already gives taxpayers a pretty generous starting point via the so-called “standard deduction,” a tax break granted to everyone when they file; the standard deduction for single filers this April  is $6,300, while couples filing taxes together get a standard deduction of $12,600.

That means if you don’t have qualified expenses above those dollar amounts, you’re better off just taking the standard deduction on your Form 1040 and forgetting about the extra paperwork.

In fact, the vast majority of Americans rely on this standard deduction instead of filing itemized returns. According to the IRS, fewer than one-third itemize their taxes.

Still, just because fewer people itemize doesn’t mean you shouldn’t look into it,  said Lisa Greene-Lewis, a CPA and tax expert with tax-preparation software providerTurboTax. That’s because many Americans who claim only a standard deduction could be leaving money on the table simply because they don’t know what they can claim to win a bigger refund.

“When people are rushing around doing their taxes at the last minute, it’s easy to leave out tax deductions or credits,” she said.

When does itemizing pay off?

Greene-Lewis said that while every tax situation is different, there are a few major categories that can sometimes put taxpayers above the standard deduction even without any other qualified expenses.

“Generally, if you own a home, you should itemize,” she said, because mortgage interest and local property taxes are both deductible on your federal return. In many real estate markets, these items alone can get you a bigger refund than what’s offered via the standard deduction.

Other big home-related items that can be itemized include points paid on your home loan in the last tax year, or any property losses caused by disasters like tornadoes or hurricanes for which you’re not reimbursed by an insurance company, Greene-Lewis added.

Another big reason to itemize is if you pay steep local or state income taxes, said Maria Alexeychuk for Hammer Financial Group just outside of Chicago.

“Whatever the state deems taxable that year is a deduction on your federal return,” she said. “It seems like nobody realizes that.”

That means if you make a decent wage and live in a state with relatively high income taxes, such as  California, New York or Minnesota, you may want to itemize to get a break on your federal filing.

Big unreimbursed medical expenses or a large charitable donation to a qualified organization can also put you over the standard deduction, Alexeychuk said. And remember that even if these items can’t top the standard deduction by themselves, they may add up to a larger deduction when added up with other qualified deductions.

“There are numerous times where we’ve seen a young couple buy a house but then say, ‘Well, with the mortgage interest alone it’s not enough to itemize.’ But because they’ve never done an itemized return they just don’t realize all the other things they can write off,” she said.

There are certain situations where someone is highly unlikely to have many of the aforementioned expenses — most obviously being a single taxpayer in a rental or being an older American who has paid down their mortgage and has seen their children leave the nest.

But regardless of your personal situation or the specifics of your individual tax return, you should take any and all qualified deductions possible to earn a bigger refund from the IRS, she said.

“I don’t think itemizing makes you more likely to be audited. If you’ve got this stuff and it’s legitimate, write it off.” Alexeychuk said. “Just make sure you have your receipts for any itemized deductions.”

From USA Today

Published: March 18, 2016

Tax Forms You May Have Forgotten About

You likely already know you need some version of Tax Form 1040 to file your personal taxes, and you’ll also be needing your W-2 from your employer to help you fill it out. But you might be overlooking some of the other forms you’ll need if you, say, won big on that trip to Las Vegas or started paying back your student loans last year.

Here are some of the tax forms you might not have known you needed.

Form W-2G

What happens in Vegas stays in Vegas, except if you win money — then you might have to tell the IRS about it. Form W-2G, Gambling Winnings, is used to report gambling winnings (direct wager only) of $600 or more in any one session and 300 times the buy-in or wager.

Tax Form 1040X

Need to correct your tax return? Whether it’s reporting additional withholding, changing your tax deductions or personal exemptions, adding or removing dependents or reporting additional income, this is the form to use.

Remember, though, you do not need to file a 1040X if you are only correcting errors in math ― IRS computers automatically check the math and make those corrections for you.

Form 8822

Did you move? Well, the IRS would like to know. Form 8822 is used to report your change of address.

Tax Form 4868

Need an extension? If you are not able to file your federal individual income tax return by the due date, you may be able to get an automatic 6-month extension of time to file. To do so, you must file Tax Form 4868 by the original due date for filing your tax return

It’s important to note that Form 4868 does not extend the time for payment of tax, which is still owed by the original due date of your return. You will need to give an estimate of your taxes due when filing for a tax extension ― and you can pay none, all, or part of your estimated income tax due using a credit card or checking/savings account.

It’s also important to note that not paying your taxes can result in a tax lien, which can hurt your credit scores. 

Form W-10

Do you used child care or dependent care? Use this form to get the correct name, address and taxpayer identification number (TIN) from each person or organization that provides care for your child or other dependent if you plan to claim a credit for expenses related to their care, or if you receive benefits under your employer’s dependent care plan.

Form 1098

If you have a mortgage, you need Form 1098, the Mortgage Interest Statement, to report mortgage interest of $600 or more paid to your lender, which may be used as an itemized deduction.

From USA Today

Published: March 14, 2016

How to Protect Your Tax Refund From Scammers

Identity theft is a fast-growing problem for taxpayers.

The Internal Revenue Service said it investigated nearly 1,500 cases of tax fraud in 2013, up 66 percent from the year before.

"The scams are usually what they call phishing, where they're fishing for information. So you should not give out any information -- banking or Social Security numbers or anything like that -- on the phone," New York certified public accountant Charles Stein said, explaining the most common way criminals get their hands on people's tax refunds.

The IRS says it will never contact you for personal information over the phone, email or social media, and asks taxpayers to report suspected phishing to

Mixing up your online passwords also helps. Always use a mix of numbers and special characters, and make sure to keep all those passwords stored in a safe place.

The best way to protect yourself from scammers is to file your taxes as soon as you have all of your documents, Stein says.

If you think you've been scammed, call the IRS right away and they'll find a way to get you that refund.

"The IRS will send you a letter and they'll generally ask you to file via paper instead of electronically because somebody's probably beat you to filing," Stein said.

From ABC News

Published: March 11, 2016

As U.S. Passports For Domestic Flights Loom, IRS Can Now Revoke Passports

In October 2020, the hassle factor for domestic air travel may increase. Soon, your state’s driver’s license may not be enough to get you through security and on board. In fact, the Los Angeles Times reports that 26 states–including California–do not meet federal regulations. There is an extension of time for these states, through Oct. 10, 2016. But after that, there is worry that your U.S. passport may be needed.

Now, there is a reprieve until January 22, 2018. Homeland Security Secretary Jeh Johnson has issued a statement that, until then, residents of all states can continue to use their state driver’s license for domestic air travel. But by Oct. 1, 2020, every air traveler will need a Real-ID-compliant license, or another acceptable form of federal ID for domestic travel. The Real ID Act created a national standard for state-issued IDs. Some states initially refused to comply, fearing that the federal government would make a national database of citizens.

It is clear that a U.S. passport will have increasing importance even for domestic travel. And the rise of the passport’s importance coincides uncannily with a new law giving the IRS power to revoke passports. Plainly, the easy answer to travel worries may be to dig out your passport, and they are already often in evidence in domestic air check in lines. But what if your passport is cancelled because you owe the IRS?

H.R.22 added new section 7345 to the tax code, titled “Revocation or Denial of Passport in Case of Certain Tax Delinquencies.” The idea goes back to 2012, when the Government Accountability Office reported on the potential for using passports to collect taxes. Now that it has become law, the State Department will start blocking Americans with ‘seriously delinquent’ tax debts. That means anyone the IRS certifies as having a seriously delinquent tax debt in an amount in excess of $50,000.

Even months after the law passed, administrative details about how it will be administered remain scant. But in all likelihood, it will mean no new passport and no renewal. It could even mean the State Department will rescind existing passports of people who fall into that category. The list of affected taxpayers will be compiled by the IRS, using a threshold of $50,000 in unpaid federal taxes.

Notably, if you are contesting a proposed tax bill administratively with the IRS or in court, that should not count. That is not yet a tax debt. There is also an administrative exception, allowing the State Department to issue a passport in an emergency or for humanitarian reasons.

But how that will work isn’t clear, nor is the amount of time it will take to get special dispensation. You would still be able to travel if your tax debt is being paid in a timely manner, as under a signed installment agreement. Yet the dynamics are still significant and could drastically alter how people interact with the IRS.

Moreover, these harsh rules are not limited to criminal tax cases. They aren’t even limited to situations where the government thinks that you are fleeing a tax debt. In fact, you could have your passport revoked merely because you owe more than $50,000, and the IRS has filed a notice of lien.

Notably, the $50,000 figure includes penalties and interest. And as everyone knows, interest and penalties can add up fast. A lien filing is hardly unusual. In fact, the IRS routinely files tax liens to put creditors on notice. IRS tax liens cover all your property, even acquired after the lien is filed. The courts use liens to establish priority in bankruptcy proceedings and real estate sales.

To file a Notice of Federal Tax Lien, the IRS must simply assess the liability; send a Notice and Demand for Payment; and you then fail to fully pay the tax debt within 10 days. A tax lien can also be filed by mistake. Occasionally, the person may just need to straighten out a pile of paperwork. With all this in mind, is the law subject to challenge?

Consider the roughly eight million Americans living overseas, many of whom are already reeling from FATCA compliance problems. Although we think of passports as useful only when traveling internationally, even stateside flights may soon make passports even more fundamental.

From Forbes Magazine

Published: March 9, 2016

How to Save Over $1,000 on Your 2015 Tax Bill

Contributing to an IRA can significantly reduce the income tax you owe.

It's not too late to reduce your 2015 tax bill. Retirement savers continue to have a powerful option to decrease the amount they owe in federal income tax, if they are willing to deposit money in an individual retirement account. Depending on your tax rate, a last-minute IRA contribution could save you hundreds or even over $1,000.

The higher your tax bracket the more you save. You can defer paying income tax on up to $5,500 that you contribute to an IRA. "That $5,500 deduction is going to either lower your tax bill or bump up the refund you are owed," says Trent Porter, a certified financial planner for Priority Financial Partners in Denver. "A lot of tax programs can give you that hypothetical of how much more your refund will be if you contribute X amount of dollars to an IRA." Maxing out your IRA will reduce your tax bill by $825 if you are in the 15 percent tax bracket, $1,375 for those in the 25 percent bracket and $1,815 if you pay a 33 percent tax rate. Income tax won't be due on this money until you withdraw it from the account.

Workers over 50 can get an even bigger tax break. People who are age 50 or older can contribute an extra $1,000 to an IRA, which will get them a larger tax deduction. If a 55-year-old worker who is in the 25 percent tax bracket contributes $6,500 to an IRA, he will reduce his tax bill by $1,625.

Double your tax break with a spousal IRA. Married couples can double their tax break by each opening an IRA in their own name. If only one spouse works and you file a joint tax return, the working spouse can contribute to an IRA in each spouse's name. A married couple can claim a tax deduction on as much as $11,000 that they contribute to two or more IRAs. And if both spouses are 50 or older, the contribution limit climbs to $13,000. A married couple, both age 50, who are in the 25 percent tax bracket and max out an IRA in each of their names will save $3,250 on their income tax bill.

Contribution deadlines differ by state. IRA contributions that will qualify you for a deduction on your 2015 return are due by April 18, 2016. "IRA contributions can be made up until 11:59 p.m. on the tax deadline, assuming they are received in good order," says John Boroff, director of retirement product management at Fidelity Investments. Residents of Maine and Massachusetts get an extra day to contribute due to the Patriots' Day holiday celebrated in those states, so they have until April 19, 2016, to make 2015 IRA contributions. Several IRA providers, including Vanguard and Charles Schwab, say they won't be able to accept online IRA contributions for 2015 after April 18 but will accept in-person contributions and envelopes postmarked by April 19 from residents of Maine or Massachusetts.

You can file a tax return claiming an IRA deduction before the money is in the IRA account as long as you make the deposit by your tax filing deadline. "You could file your taxes on March 1 and tell the IRS you will make the contribution by April 15," Porter says. "You can get your refund and use that to go toward what you are going to be putting in the IRA." You can even deposit your tax refund directly into an IRA. When making a tax-year 2015 contribution during 2016, it's important to specify which tax year you would like the contribution to be applied to. IRA custodians are allowed to attribute contributions to the calendar year in which they are received unless you indicate otherwise.

Claim the saver's credit. In addition to the tax deduction on your IRA contribution, workers who earned less than $30,500 for individuals, $45,750 for heads of household and $61,000 for couples in 2015 are eligible for the saver's credit. This tax credit is worth between 10 and 50 percent of the amount you contribute to an IRA up to up to $2,000 for individuals and $4,000 for couples. A couple earning $30,000 who saved $2,000 in an IRA could receive a $1,000 credit, in addition to the tax deduction for the contribution.

Don't wait until the last minute. While contributions postmarked by the tax deadline are eligible to be counted as 2015 deductions, it's a good idea to contribute a few days or weeks in advance to allow for processing time or to correct mistakes. And, of course, contributing early gets the money compounding on your behalf sooner. "The whole idea behind an IRA is to have tax-deferred growth of your money," says Austin Chinn, a certified financial planner for Fountain Strategies in San Jose, California. "The sooner you put it in the longer it has to grow."

From US News & Reports

Published: March 7, 2016

The Costly Tax Mistakes Most People Make

About half of the nation's taxpayers do their own taxes, but not necessarily well.

From choosing the wrong filing status to not itemizing, many filers leave about $400 on the table, on average, by not claiming all the credits and deductions they could take, according to a study by tax preparer H&R Block.

"The biggest mistakes today are mistakes of omission," said Mark Steber, Jackson Hewitt's chief tax officer. These often go unchecked by the IRS but are also the ones that will leave you shortchanged. "The IRS's primary job is to make sure that you paid all your taxes, not that you got all the benefits you are due," he added.

Not Itemizing

"Itemizing can save hundreds of dollars in taxes," said Kathy Pickering, executive director of H&R Block's Tax Institute. Still, H&R Block estimates that only about 1 in 3 taxpayers itemize, although millions more should, particularly homeowners. For example, homeowners can deduct mortgage interest, premiums paid for mortgage insurance and interest up to $100,000 borrowed on a home-equity loan or line of credit.

As a general rule, if you have deductions that add up to more than the standard deductions (that's $6,300 if you are single or $12,600 for a married couple filing jointly), then you should be itemizing on your return. And it's pretty easy to hit those levels if you own a house.

Forgetting What You Learned

If you cracked open a textbook in 2015, chances are, there's a tax break for you. College students or those enrolled in their first four years of higher education are eligible for the American Opportunity Credit, which is currently as much as $2,500 per student for eligible expenses.

Beyond those first four years, anyone at any age who took an enrichment course to improve their job prospects can claim the Lifetime Learning Credit on their federal income-tax return. That credit is 20 percent of the first $10,000 of eligible expenses to a maximum of $2,000, and it applies to tuition, enrollment fees and any required books or supplies for just about any post-secondary course.

Not Claiming Expenses on a Schedule C

Not claiming all appropriate expenses to offset income on a Schedule C or failing to claim income properly on a Schedule C is one of the most common mistakes, Pickering said.

If you are self-employed or run a side business, there are likely a slew of expenses that can offset those earnings.

For example, if you run a lawn-mowing business, consider the cost of the lawn mower, depreciation, gas, maintenance and so on. Claiming all of those expenses will be to your benefit at tax time.

Using the Wrong Filing Status

Married filing jointly or separately? Choosing the appropriate filing status can be confusing, particularly if your relationship status is also unclear.

Pickering recommends calculating each option that could apply to you in order to see which results in the most favorable tax outcome. If you are married, then married filing jointly usually qualifies you for more tax credits, but that's not always the case, so it's wise to double check.

Skipping A Savings Contribution

Don't forget about socking money away for retirement, college or upcoming health-care costs — those contributions could qualify for federal or state tax benefits.

Many people don't realize that they can make a contribution to a health savings account, retirement account, like an IRA, or college savings account, like a 529 plan, and deduct a portion of that amount.

The rules vary by state and income, so check what, if any, contributions will qualify you for a tax deduction or credit. 

For example, if you already participate in a 401(k) plan, then the deduction for traditional IRA contributions are phased out at incomes between $61,000 and $71,000. For a married couple filing jointly, where one spouse is covered by an employer-provided retirement plan, deductions for IRA contributions are phased out from $98,000 to $118,000.

Children Can Claim Parents, Too

These days, children aren't the only ones who could qualify as dependents, as far as Uncle Sam is concerned.

"In the sandwich generation, children can claim their parents if they are providing support, even if they don't live together," Pickering said.

If you are providing more than half of the financial support to care for an elderly parent, which easily adds up if you are paying their monthly rent and a few other expenses, then you are entitled to claim them as a dependent and deduct up to $4,000 on your federal return.


Published: February 19, 2016

Claiming the Dependent-Care Tax Credit for 2015

The dependent-care tax credit is based on up to $3,000 in child-care expenses if you have one child or $6,000 if you have two or more children. The children must be no older than 12, and the care must be provided so you and your spouse can work or look for work (or so one spouse can attend school full-time while the other works). The dependent-care FSA lets employees set aside up to $5,000 in pretax money for child-care expenses, with the same definition of eligible expenses.

The way the child-care credit is calculated, the amount of money you set aside pretax in your employer’s dependent-care FSA must be subtracted from the $3,000 or $6,000 in eligible expenses for the dependent-care credit. That means if you contributed the maximum $5,000 to your dependent-care FSA at work and have just one child, you won’t be eligible to take the dependent-care credit, too. But if you have two or more children, you can max out your FSA and still take the tax credit for up to $1,000 of eligible expenses.

The size of that tax credit depends on your income. The credit is worth 20% to 35% of your eligible child-care expenses (up to the $3,000 for one child or $6,000 for two children). The higher your income, the smaller the percentage. If your income is more than $43,000, for example, the credit is worth 20% of your eligible expenses (the income limits are the same, whether you’re filing as single, head of household, or married filing jointly). Since you can take the credit for $1,000 of eligible expenses and earn more than $43,000, you qualify for a credit of $200. You can calculate the credit using IRS Form 2441, Child and Dependent Care Expenses.

Eligible child-care expenses include the cost of day care, a nanny or a babysitter while you work, as well as preschool (but not the cost of school for children in kindergarten or higher grades). You can also count the cost of before-school or after-school care and day camp during the summer and school breaks if using them allows you to work.

By Kimberly Lankford for Kiplinger

Published: February 17, 2016

Revaluing Family Treasures for the Taxman

On Friday, a bright red 1957 Ferrari rolled onto a stage in Paris and sold for 32 million euros, or about $35.8 million, making it, by some measures, the most expensive car ever sold at auction.

The celebrated racing car captured the attention of wealthy car collectors around the world — as well as the interest of the French tax authorities.

The Ferrari was sold by the Bardinons, a prominent French family whose members are feuding with one another and the French government over their famous Ferrari collection.

For tax purposes, some members of the family initially valued its stable of over a dozen Ferraris at around 70 million euros, or $78 million. And yet experts say the collection could be worth over $200 million. Especially after Friday’s sale, the French tax authorities are likely to take a closer look at the family’s math.

“This case is like a thriller,” said Vincent Grandil, a leading French tax lawyer with the firm Altexis.

The battle over the Bardinon Ferraris highlights an increasingly popular tax strategy being used by wealthy families around the world. Art, vintage cars and other collectibles passed down to family heirs are often subject to estate taxes or gift taxes. Yet the values of these trophy assets can often be subjective. So some families are using special appraisers and selective data to value their family heirlooms and lower their tax bill.

The problem has become even more acute in recent years as the prices for fine art, cars and wine have soared, giving families more leeway in valuations.

“A valuation for a painting 10 months ago may not be valid today given what’s happened in the art world and the auctions,” said David A. Handler, a trust and estates lawyer with Kirkland & Ellis who often advises wealthy families on valuing assets.

Mr. Handler said some clients asked him if they could simply avoid disclosing their costly paintings or collectibles to the Internal Revenue Service. “No one wants to pay more than they have to,” he said. “But I tell them, “If you try to hide it, there’s a good chance the I.R.S. will find out.’”

The I.R.S. rules surrounding fair-market value for collectibles are highly technical. The agency has a special panel of experts, called the Art Advisory Panel, that helps it determine values for big-ticket artworks claimed by taxpayers. The panel found that taxpayers were increasingly lowballing their art values.

In 2014, the panel looked at 54 taxpayers with 315 items valued at a total of $251 million. It challenged two-thirds of the valuations. The owners had valued the items at $103 million, but their actual total value was over $180 million, according to the panel’s annual report.

Conversely, rich taxpayers are overvaluing items they give to charity, increasing their deductions. The Art Advisory Panel report said the items it examined, valued at $3.8 million for charitable deductions in 2014, should have been valued at $1.7 million.

Patti Spencer, a trust and estates lawyer in Pennsylvania, said one of her clients gave a collection of dinner plates to a university and valued them at $200,000 for the tax deduction. The I.R.S. challenged the appraisal, and determined the value to be closer to $50,000, said Ms. Spencer, who advises her clients to be thorough and hire top appraisers.

“People just figure the checking on this stuff is so spotty, why not try?” she said.

The I.R.S. said its employees “have access to a variety of resources that allow them to stay abreast of changes in the art and collectible markets.”

On Friday, the Bardinon Ferraris brought the issue to the world stage. Pierre Bardinon, born in 1931, was an heir to the Chapal family, a French leather and fur dynasty famed for making pilot bomber jackets. As a boy, Bardinon fell in love with cars and started buying old racing Ferraris in the 1960s, when few other collectors were interested in them.

He went on to buy more than 70 rare Ferraris. He turned the family chateau at Mas du Clos, near Aubusson, into a Ferrari playground, with a museum housing the cars, and a two-mile racetrack.

After Mr. Bardinon died in 2012, and his wife a year later, the French government levied an inheritance tax of millions of dollars on their three children, according to court documents. The Bardinon siblings are now battling in court over the future of the collection.

The Ferrari collection had dwindled to around 20 cars by 2012, as Mr. Bardinon sold them off. Yet their value has soared. Classic Ferraris have led the recent explosion in collectible car prices; a Ferrari 250 GTO sold for $38 million in 2014 to become the most expensive car ever auctioned.

Marcel Massini, a Geneva-based Ferrari historian who knew Mr. Bardinon and frequently inspected the collection, said the remaining cars in the Bardinon collection could be worth over $200 million. He said at least three of them could fetch over $30 million each in today's market.

"These are like the Mona Lisas of the Ferrari world," he said. "They are the best of the best."

And yet for tax purposes, certain members of the family valued the entire collection at 70 million euros, according to court documents.

As the court fight continued, two of the siblings decided to auction off a trophy of the collection, a 1957 Ferrari 335 Sport Scaglietti, the one that sold at an Artcurial Motorcars auction on Friday. Measured in euro terms, it was the most expensive car ever sold at auction, but measured in dollar terms, it ranked second. Lawyers familiar with the case say the sale could lead the French government to increase the valuation for the family's collection — and demand more taxes.

The Bardinon family and their lawyers declined repeated requests for comment.

Some wealthy collectors hope that the situation could lead to more Ferraris being up for sale. "There are a lot of billionaires in the world who want these cars," Mr. Massini said. "So I think they are very happy with the result. But I don't know how happy the family is."

By Robert Frank for CNBC

Published: February 15, 2016

Tips for Your 2015 Filing

If you are one of the millions of Americans who has yet to file your taxes this year, we have some tips from tax expert Steve Schult.

"One of the first things I would tell you is file early because one of the biggest problems we have been having recently is identity theft and fraudulent tax returns," Schult said.

He says all thieves need is your name, birthday and social security number and they can steal your identity and file a false tax return.

"When we would go to file our clients tax returns they would come back and say that we couldn't file them because they had already been filed. Obviously when that happened we knew that was a problem. That basically tells you, you have a fraudulent tax return that was filed," Schult said.

Filing early can buy you some time to straighten things out if your identity is stolen. Also, Schult says don't fall for scams.

"Unless you know you are having a problem with the IRS, you are going through a tax its audit, the IRS will never call you. Again it's a major problem that we run into."

Several tax provisions that had expired were reinstated at the end of the year last year, including extending IRA contributions and the half a million dollars of depriciation that small businesses can take.

"It allows small businesses to deduct up to half a million dollars of depreciation of asset purchases so it really helps spur the economy and gives them a great tax benefit."

From NBC News

Published: February 11, 2016

Choosing the Correct Filing Status

It’s important to use the right filing status when you file your tax return. The status you choose can affect the amount of tax you owe for the year. It may even determine if you must file a tax return. Keep in mind that your marital status on Dec. 31 is your status for the whole year. Sometimes more than one filing status may apply to you. If that happens, choose the one that allows you to pay the least amount of tax. It's important to let your CPA know your personal situation so that we my assist you in choosing the most accurate and advantageous filing status. 

Here’s a list of the five filing statuses:

1. Single. This status normally applies if you aren’t married. It applies if you are divorced or legally separated under state law.

2. Married Filing Jointly. If you’re married, you and your spouse can file a joint tax return. If your spouse died in 2015, you can often file a joint return for that year.

3. Married Filing Separately. A married couple can choose to file two separate tax returns. This may benefit you if it results in less tax owed than if you file a joint tax return. You may want to prepare your taxes both ways before you choose. You can also use it if you want to be responsible only for your own tax.

4. Head of Household. In most cases, this status applies if you are not married, but there are some special rules. For example, you must have paid more than half the cost of keeping up a home for yourself and a qualifying person. Don’t choose this status by mistake. Be sure to check all the rules.

5. Qualifying Widow(er) with Dependent Child. This status may apply to you if your spouse died during 2013 or 2014 and you have a dependent child. Other conditions also apply, your CPA will help you to determine applicability. 

Published: February 1, 2016

Choose Your Tax Preparer Wisely

If someone helps you do your taxes, you're not alone. The IRS asks you to choose your tax return preparer wisely – for good reason. You are responsible for the information on your income tax return. That’s true no matter who prepares your return. Here are ten tips to keep in mind when choosing a tax preparer:

1. Check the Preparer’s Qualifications. Use the IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications on This tool can help you find a tax return preparer with the qualifications that you prefer. The Directory is a searchable and sortable listing of certain preparers registered with the IRS. 

Not all accountants can call themselves a certified public accountant (CPA). A CPA must adhere to certain professional and technical requirements. CPAs have undergone rigorous schooling and testing requirements and are also required to complete ongoing annual continuing education requirements to keep abreast of the ever-changing tax climate. CPAs can represent any client before the IRS in any situation. However, new rules apply to the rights of non-credentialed tax preparers to represent their clients before the IRS. Non-credentialed preparers without an Annual Filing Season Program – Record of Completion – may only prepare tax returns. The new rules do not allow them to represent clients before the IRS on any returns prepared and filed after December 31, 2015. Annual Filing Season Program participants can represent clients in limited situations. 

2. Check the Preparer’s History. Ask the Better Business Bureau about the preparer. Check for disciplinary actions and the license status for credentialed preparers. For CPAs, check with the State Board of Accountancy. 

3. Ask about Service Fees. Avoid preparers who base fees on a percentage of their client’s refund. Also avoid those who boast bigger refunds than their competition. Make sure that your refund goes directly to you – not into your preparer’s bank account. The CPAs at Hershkowitz & Kunitzer, P.A. will only every bill you based on our time. 

4. Ask to E-file Your Return. Make sure your preparer offers IRS e-file. Paid preparers who do taxes for more than 10 clients generally must file electronically. The IRS has safely processed more than 1.5 billion e-filed tax returns.

5. Make Sure the Preparer is Available. You may want to contact your preparer after this year’s April 18 due date. Avoid fly-by-night preparers.

6. Provide Records and Receipts. Good preparers will ask to see your records and receipts. They’ll ask questions to figure your total income, tax deductions, credits, etc. Do not use a preparer who will e-file your return using your last pay stub instead of your Form W-2. This is against IRS e-file rules.

7. Never Sign a Blank Return. Don’t use a tax preparer that asks you to sign a blank tax form.

8. Review Your Return Before Signing. Before you sign your tax return, review it and ask questions if something is not clear. Make sure you’re comfortable with the accuracy of the return before you sign it.

9. Ensure the Preparer Signs and Includes Their PTIN. All paid tax preparers must have a Preparer Tax Identification Number, or PTIN. By law, paid preparers must sign returns and include their PTIN. Be sure you get a copy of your return.

10. Report Abusive Tax Preparers to the IRS. Most tax return preparers are honest and provide great service to their clients; however, some preparers are dishonest. Report abusive tax preparers and suspected tax fraud to the IRS. 

Published: January 26, 2016

Tips on Whether to File a 2015 Tax Return

Most people file a tax return because they have to, but even if you don’t, there are times when you should. You may be eligible for a tax refund and not know it. Here are six tips to help you find out if you should file a tax return:

  1. General Filing Rules. Whether you need to file a tax return depends on a few factors. In most cases, the amount of your income, your filing status and your age determine if you must file a tax return. For example, if you’re single and under age 65 you must file if your income was at least $10,300. Other rules may apply if you’re self-employed or if you’re a dependent of another person. There are also other cases when you must file. Ask your CPA for more information. 
  2. Premium Tax Credit.  If you enrolled in health insurance through the Health Insurance Marketplace in 2015, you may be eligible for the premium tax credit. You will need to file a return to claim the credit. If you chose to have advance payments of the premium tax credit sent directly to your insurer during 2015 you must file a federal tax return. You will reconcile any advance payments with the allowable premium tax credit. You should receive Form 1095-A, Health Insurance Marketplace Statement, by early February. The form will have information that will help you file your tax return
  3. Tax Withheld or Paid. Did your employer withhold federal income tax from your pay? Did you make estimated tax payments? Did you overpay last year and have it applied to this year’s tax? If you answered “yes” to any of these questions, you could be due a refund. But you have to file a tax return to get it.
  4. Earned Income Tax Credit. Did you work and earn less than $53,267 last year? You could receive EITC as a tax refund, if you qualify, with or without a qualifying child. You may be eligible for up to $6,242. 
  5. Additional Child Tax Credit. Do you have at least one child that qualifies for the Child Tax Credit? If you don’t get the full credit amount, you may qualify for the Additional Child Tax Credit.
  6. American Opportunity Tax Credit. The AOTC is available for four years of post secondary education and can be up to $2,500 per eligible student. You, your spouse or your dependent must have been a student enrolled at least half time for at least one academic period. Even if you don’t owe any taxes, you still may qualify. 
Published: January 20, 2016

Higher Interest Rates Are Coming, How They'll Affect You

Will the increase affect you? In some way it will affect everyone, but how much depends on your particular circumstances. If you've got a fixed rate mortgage, minimum credit card debt, and you're not invested in bonds, any effect may go unnoticed. But if you're investing in real estate, have heavy credit card debt, loans where your interest rate is pegged to the prime or another benchmark, you may want to consider the potential effects.

Bonds. Bonds and other fixed income securities are the first investments that come to mind when interest rates change. Prices on these instruments move inversely to interest rates. That means they'll drop in price as interest rates increase. How much? The biggest effect will be on the longest-term bonds, the least on shortest-term ones. Within a term, some bonds will do worse than others. Junk or bonds with a low credit rating generally take a harder hit than better rated ones.

Real Estate. These sector of the economy is affected because most real estate has some debt financing associated with it. If interest rates rise a typical borrower who can't afford a higher monthly payment will have to look for a less expensive property. That puts pressure on prices. While the same logic affects many other purchases, real estate is particularly sensitive because of the long term financing involved. How much of an effect? The table below assumes that a borrower can afford no more than $477.42 per month on a 30-year fixed mortgage. Here's how much of a mortgage he can afford at various interest rates:

4% = $100,000
5% = $88,933
6% = $79,628
7% = $71,759

For example, you can just afford a $300,000 mortgage now, if interest rates move to 5%, you'd only be able to afford $266,799, $33,201 less ((100,000-88,939) x 3). That's significant. If you're selling a property, it means you're likely to get less. Higher rates are likely to dampen price increases, but not by as much as the table would suggest because of other factors.

We're not suggesting rates will be going to 7%. Historically, rates have average closer to 6%. Note that the biggest drop in affordability is between 4% and 5%.

If you've got a fixed rate mortgage and you're not moving, there's no effect. Want to refinance? If you've got a mortgage at a higher rate, consider refinancing. Got an adjustable rate mortgage? Consider locking in a fixed rate.

Other Consumer Loans. Other consumer borrowing rates could increase. Credit card rates are susceptible to increases and auto loans are likely to increase. On auto loans, the biggest increase is likely to be on the longest term. Most vulnerable are those five years or longer. Leasing? Payments are likely to increase because there's an implied interest rate component.

Many lenders will probably use any rate increase to raise rates in order to boost profits.

Business Loans. Much the same applies to business loans. If you've got a fixed rate loan, there's no effect. But more than likely your loan is tied to the prime or another benchmark. On a positive note, some lenders who haven't been interested in smaller businesses may consider making loans at the higher rates.

Stocks and Other Investments. Some stocks are likely to perform relatively better than bonds under a rate increase. But some stocks are interest-rate sensitive. For example, the purchase of heavy machinery is usually financed with debt. That means the same rules apply here as to real estate. Less affordability puts pressure on prices and affects a company's earnings.

And some companies routinely finance operations with debt for one reason or another. That increases their expenses.

What's in Your Portfolio? Year-end is a good time to take stock of your investments--for investment and tax purposes. Bond holdings and mutual funds that invest in bonds deserve particular attention. Pay attention to any high-yield funds--both taxable and tax-exempt. Need a loss for tax purposes? You could sell now and invest in similar bonds down the road.

Hold more exotic investments? Some hedge funds and other investments can be particularly sensitive to interest rate movements.

Before making any moves, talk to your financial advisor.

Flip Side. What about savings rates? Don't look for much of a change here. Getting 5% again in your savings account just isn't going to happen anytime soon. Same for CDs. But now isnot the time to go long term. Stay on the short side so you can roll over a CD to a higher rate when it expires. Same for bonds and other fixed income investments. Consider laddering your bonds and CDs.

From the A/N Group

Published: January 7, 2016

13 Smart Tax Write-Offs You Could Take Advantage Of

Thirteen smart entrepreneurs from YEC Young Entrepreneurs Council have saved some money by getting deductions for things they pay for regularly.

We're talking books, parking fees and even event-specific clothing. Things you would never have thought to deduct from your taxes. 

Scan this list to see what you can claim and how much you can save on taxes this year.

1. Health Insurance Premiums

If you pay for your own health insurance, you can deduct the premiums from your adjusted gross income. This can really add up over a year and especially over several years. Of course, there are requirements that need to be met so be sure to talk with your accountant before taking any action. – Alex Miller, PosiRank LLC

2. Education

Online courses, books, certifications, workshops, training and conferences can all be deductible for your business. I have a small education stipend set aside every year for me and my employees. This is a great way to increase your knowledge and a great perk for employees. – Vanessa Van Edwards, Science of People

3. Travel Expenses

Mileage to and from meetings and business-related activities adds up -- so do tolls, parking fees and gas. All of these can be documented easily if you are willing to take the time to do it. It might seem petty at first, but watch how much it adds up to over the course of a full year. The key is to stay up on it. Scan your receipts daily as soon as you get back to the office. – Jonathan Long, Market Domination Media

4. Self-Employed 401K

While it's technically not a tax write-off, contributing to a self-employed 401(K) plan can reduce your taxable income by up to $53,000. Contribution limits for 2015 allow for salary deferrals of up to $18,000 and profit sharing contributions of up to 25 percent of your compensation or an annual maximum of $53,000. These pre-tax contributions can significantly reduce your taxable income. – Brett Farmiloe, Markitors

5. International Sales

If your value added is over 50 percent domestically, and you export $1M or more, you can set up an IC-DISC and save taxes on your exports. – Wei-Shin Lai, M.D., AcousticSheep LLC

6. Association Membership Fees

Often, entrepreneurs forget that it is important to network with others in the same/similar industries. Industry and trade associations are important to network and stay abreast of latest trends. While most of them have membership fees, these fees can be used towards a write-off. It's a win-win! – Tamara Nall, The Leading Niche

7. Clothing

Any clothing that has to be purchased for a specific event or is uniquely required to accommodate a client can be written off. This includes company swag for a conference, a suite for a panel and a formal gown rental for an industry banquet. Any clothing expenditure that is needed to market your company, yourself or your client is a legitimate business expense. – Faithe Parker, Marbaloo Marketing

8. Hospitality Expenses

It’s often the little things that people forget to write off, either out of laziness or because they think that it won’t add up to anything. Coffee for clients, buying the team dinner after a long day’s work -- these little things add up. It’s not just the new computers and major business expenses that you have to worry about during tax time. It’s all the little pieces as well. – Matt Doyle, Excel Builders

9. Philanthropy

I am a huge believer of giving back to the community -- not only with money but time. In my eyes, what better way than giving money toward something beneficial to the community which also counts as a tax write-off? Even taking it a step further you can start your own philanthropy to offer other businesses the chance to donate and use it as a write-off. – Marc Devisse, Tri-Town Construction

10. Technology

You can write off technology, including your cell phone plan, so long as you're using it for business purposes. Also, the home office deduction is a nice one if you have a dedicated work space at home. – Brian David Crane, Caller Smart Inc.

11. Cost of Tax Prep Fees

Hands down, failing to deduct the cost of tax preparation; this is money right out of your pocket! We see this on 90 percent of the returns we process. Businesses can deduct these fees on their corporate returns, and individuals can deduct the fees on Schedule A. Of course, they have to itemize on their 1040 for this to work. – Marjorie Adams, Fourlane

12. Real Estate Ownership Deductions

Many entrepreneurs often overlook the benefits of owning their office/retail or commercial space versus renting them. If you're looking to build a sustainable company that is going to be around for a while, then being an owner-operator might be for you. Taking a few hours to meet with a real estate tax professional never hurt anybody. – Mikhail Zabezhinsky, OceanTech

13. Bonuses

This is true especially around the holiday season. Most of your employees have gone above and beyond for the company and for you. Why not reward your top-performing employees with a nice end of the year bonus check. This will in return lower the bottom line and soften your tax burden while simultaneously putting a huge smile on the face of your employees. I bet they will be roaring to hit the new year with a bang. – Engelo Rumora, Ohio Cashflow

Published: January 4, 2016

10 Random Breaks In The Tax Extenders Bill That Probably Won't Help You

  1. Extension of classification of certain race horses as 3-year property. If you followed the drama over Serena Williams beating out American Pharaoh for Sports Illustrated’s Sportsperson of the Year (even though American Pharaoh isn’t an actual person), you know that – at least in 2015 – Americans love their race horses. Now, the owners of those race horses get yet another break: the 3 year recovery period for race horses placed in service during 2015 or 2016 is extended (instead of reverting to 7 years).
  2. Extension of 7-year recovery period for motorsports entertainment complexes. Nothing kickstarts an economy like a motorsports entertainment complex, which is helpfully defined as “a racing track facility which is permanently situated on land and which during the 36-month period following its placed-in-service date hosts a racing event.” It also includes support facilities such as food and beverage vending. The shorter recovery period has been a favorite of the American Motorcyclist Association and International Speedway since 2011 when Sen. Debbie Stabenow (D-MI) attempted to make the 7 year rule permanent in order “to provide predictability and certainty in the tax law, create jobs, and encourage investment.” It’s not permanent, just extended. Again.
  3. Extension of credit for the production of Indian coal facilities. Among other things, the provision extends the credit for the production of Indian coal for two years through December 31, 2016 and exempts the Indian coal credit from the alternative minimum tax, which may sound great – except that most tribes don’t directly benefit from the provision. According to USA Today, only three tribes benefit at all from the credit: the Crow, the Hopi and the Navajo. And those tribes only receive an indirect benefit: the credit is actually attributable to corporations who mine inside reservations. The credit has been around – and highly criticized – since 2005. Yet, it still gets extended time after time.
  4. Extension of temporary increase in limit on cover over of rum excise taxes to Puerto Rico and the Virgin Islands. Yo ho ho – and a federally subsidized bottle of rum. Under the current law, an excise tax is imposed on distilled spirits produced in or imported into the US. The excise taxes for rum produced in Puerto Rico or the Virgin Islands are transferred back to those territories and referred to as a cover-over; the territories also split revenue from rum produced internationally in proportion to how much rum each produces (thus creating an incentive to try and “out rum” each other). Under the new provision, the $13.25 per proof gallon excise tax cover-over amount paid to the treasuries of Puerto Rico and the Virgin Islands is extended through 2016. Without the extension, the cover-over amount would simply be $10.50 per proof gallon.
  5. Extension of special expensing rules for certain film and television productions. The special expensing provision for qualified film, television, and live theater productions is extended through 2016. In general, only the first $15 million of costs may be expensed. And sorry, no porn (it’s expressly excluded). A qualified film or television production is defined “as any production of a motion picture (whether released theatrically or directly to video cassette…” Wait. I have to stop there. Yes, the provision alludes to video cassette. This year. In 2015. Video cassette. Congress apparently still thinks that people own video cassettes. You know, to watch their moving picture shows. I think that’s all we need to know about that provision.
  6. Extension of American Samoa Economic Development Credit. The provision extends through 2016 the existing credit for corporate taxpayers currently operating in American Samoa. With all due respect to the people of American Samoa, the total population in 2013 was 55,165 (in contrast, the population of Rhode Island is more than 1 million). People born in American Samoa are not US citizens (unless their parents are US citizens) and by law, they aren’t subject to US taxes on Samoan income. Nonetheless, Congress decided that it was important to encourage investment in American Samoa for years. The majority of the tax break reportedly benefits StarKist Co., which is why retired Sen. Tom Coburn (R-OK) referred to it as the “tuna tax break.”
  7. Modification of definition of hard cider. When is a beer a beer? Or a wine a wine? When it comes to excise taxes, it’s more or less whatever Congress says it is. That’s why Congress defined hard cider for purposes of alcohol excise taxes as “a wine with an alcohol content of between 0.5 percent and 8.5 percent alcohol by volume, with a carbonation level that does not exceed 6.4 grams per liter, which is derived primarily from apples, apple juice concentrate, pears, or pear juice concentrate, in combination with water.” Assuming it meets the criteria, hard cider is, for excise tax purposes, taxed at $0.226 per wine gallon.
  8. Modification of effective date of provisions relating to tariff classification of recreational performance outer wear. With a 60-something degree forecast on Christmas in the northeast, most of us aren’t running out to buy coats just yet but it’s good news for retailers of “certain recreation performance outerwear products” that won’t see tariff increases for awhile. The provision was tacked onto the House bill (and not explained in the JCT summary) which makes it feel like an add on.
  9. IRS employees prohibited from using personal email accounts for official business. I feel like this shouldn’t have to be a rule but Congress felt different. In their bid to continue to micro-manage the Internal Revenue Service (IRS), the new law prohibits employees of the IRS from using a personal email account to conduct any official business. Yes, this was already an established rule at the agency. But apparently it needed to be made law. You can perhaps blame Lois Lerner for this one.
  10. Duty to ensure that Internal Revenue Service employees are familiar with and act in accordance with certain taxpayer rights.. Yet another zinger at the IRS. This one is a legal requirement that – wait for it – IRS employees know how to do their jobs. Maybe I’m oversimplifying. The law is actually meant to ensure that IRS employees know and enforce the Taxpayer Bill of Rights introduced in June of 2014. While I know that the National Taxpayer Advocate was thrilled to get IRS to recognize the Taxpayer Bill of Rights, making it a law that IRS employees familiarize themselves feels – again – like micromanagement. I thought we wanted less government?
From Forbes Tax News
Published: December 17, 2015

IRS Announces 2016 Filing Season Start Date

The Internal Revenue Service (IRS) has announced the 2016 filing season start date. And surprise! There’s no delay. Tax season for paper and electronically filed returns will open on Tuesday, January 19, 2016. 

Even better? There’s no tiered opening season. All taxpayers can begin filing on January 19, 2016. There was some concern about what might happen if Congress did not sign off on all of the tax extenders. Fortunately, Congress eventually approved a tax extenders package which renewed all of those extenders – with no changes – making it possible for all taxpayers to start filing at the same time.

The IRS will begin accepting individual electronic returns on Tuesday, January 19, 2016.  The IRS expects to receive more than 150 million individual returns in 2016, with more than four out of five being prepared using tax return preparation software and e-filed. The IRS will begin processing paper tax returns at the same time. There is no advantage to people filing tax returns on paper in early January instead of waiting for e-file to begin.

“We look forward to opening the 2016 tax season on time,” IRS Commissioner John Koskinen said. “Our employees have been working hard throughout this year to make this happen. We also appreciate the help from the nation’s tax professionals and the software community, who are critical to helping taxpayers during the filing season.”

Tax Day is pushed out a bit this year. Tax Day will be Monday, April 18, 2016, rather than April 15, 2016.

Traditionally, Tax Day is April 15 unless that date falls on a Saturday or a Sunday, in which case the due date for federal income tax returns gets pushed ahead to the next business day. In some years, the District of Columbia observes Emancipation Day on the same day as Tax Day, which affects the nation’s tax filing deadline – so the deadline gets moved.

Emancipation Day falls on a Saturday in 2016. You’d think that Emancipation Day would get pushed ahead to Monday, April 18, 2016 – but it doesn’t. It actually gets pushed back. By law, when April 16 falls during a weekend, Emancipation Day is observed on the nearest weekday – not necessarily the following weekday. That means, in 2016, Emancipation Day will be observed on Friday, April 15, on what would normally be Tax Day. Tax Day, which falls on a Friday, gets pushed ahead by statute to the next business day, which is Monday, April 18, 2016.

It’s even more confusing if you file your return in Maine or Massachusetts: due to Patriots Day, the deadline will be Tuesday, April 19, 2016, in those states.

From Forbes Tax News

Published: December 14, 2015

In 2016, Some Tax Benefits Increase Slightly Due to Inflation Adjustments

For tax year 2016, the Internal Revenue Service announced annual inflation adjustments for more than 50 tax provisions, including the tax rate schedules, and other tax changes.

The tax items for tax year 2016 of greatest interest to most taxpayers include the following dollar amounts:

  • For tax year 2016, the 39.6 percent tax rate affects single taxpayers whose income exceeds $415,050 ($466,950 for married taxpayers filing jointly), up from $413,200 and $464,850, respectively. The other marginal rates – 10, 15, 25, 28, 33 and 35 percent – and the related income tax thresholds for tax year 2016 are described in the revenue procedure.
  • The standard deduction for heads of household rises to $9,300 for tax year 2016, up from $9,250, for tax year 2015.The other standard deduction amounts for 2016 remain as they were for 2015:   $6,300 for singles and married persons filing separate returns and $12,600 for married couples filing jointly
  • The limitation for itemized deductions to be claimed on tax year 2016 returns of individuals begins with incomes of $259,400 or more ($311,300 for married couples filing jointly).
  • The personal exemption for tax year 2016 rises $50 to $4,050, up from the 2015 exemption of $4,000. However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $259,400 ($311,300 for married couples filing jointly). It phases out completely at $381,900 ($433,800 for married couples filing jointly.)
  • The Alternative Minimum Tax exemption amount for tax year 2016 is $53,900 and begins to phase out at $119,700 ($83,800, for married couples filing jointly for whom the exemption begins to phase out at $159,700). The 2015 exemption amount was $53,600 ($83,400 for married couples filing jointly).  For tax year 2016, the 28 percent tax rate applies to taxpayers with taxable incomes above $186,300 ($93,150 for married individuals filing separately).
  • The tax year 2016 maximum Earned Income Credit amount is $6,269 for taxpayers filing jointly who have 3 or more qualifying children, up from a total of $6,242 for tax year 2015. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phase-outs.
  • For tax year 2016, the monthly limitation for the qualified transportation fringe benefit remains at $130 for transportation, but rises to $255 for qualified parking, up from $250 for tax year 2015.
  • For tax year 2016 participants who have self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,250, up from $2,200 for tax year 2015; but not more than $3,350, up from $3,300 for tax year 2015. For self-only coverage the maximum out of pocket expense amount remains at $4,450. For tax year 2016 participants with family coverage, the floor for the annual deductible remains as it was in 2015 -- $4,450, however the deductible cannot be more than $6,700, up $50 from the limit for tax year 2015. For family coverage, the out of pocket expense limit remains at $8,150 for tax year 2016 as it was for tax year 2015.
  • For tax year 2016, the adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit is $111,000, up from $110,000 for tax year 2015.
  • For tax year 2016, the foreign earned income exclusion is $101,300, up from $100,800 for tax year 2015.
  • Estates of decedents who die during 2016 have a basic exclusion amount of $5,450,000, up from a total of $5,430,000 for estates of decedents who died in 2015.
Published: December 11, 2015

Top Tax Issues for 2016

1. Affordable Care Act changes for individuals

The individual mandate penalty increases to the higher of 2 percent of yearly household income or $325 person per year, with a maximum penalty per family for those using this method of $975.

In addition, federal poverty level guidelines, used to determine if the individual qualifies for subsidy, have increased.

2. ACA provisions' impact on businesses

Applicable large employers who have on average of 50 or more full-time equivalent employees in the prior calendar year must offer minimum essential coverage that is affordable to their FTEs and their dependents, or be subject to an employer shared responsibility payment. Transition relief for 2015 exists for ALEs with fewer than 100 FTEs in 2014, and only requires employers to offer minimum essential coverage to 70 percent of full-time employees and their dependents in 2015.

3. New forms to contend with

 The Form 1095-B and Form 1095-C, which were optional for calendar year 2014, must be filed by any person that provides minimum essential coverage to an individual (1095-B) and by applicable large employers (Form 1095-C) who had on average at least 50 full-time equivalent employees during calendar year 2014 or small employers who are member of a controlled group that collectively had at least 50 FTEs and who offer an insured or self-insured plan or no group health plan at all.

4. Increase in identity theft

Under new policies announced by the IRS, taxpayers may receive a letter when the service stops suspicious tax returns that have indications of involving identity theft but contain legitimate taxpayer’s name and/or Social Security number. The IRS has agreed to reverse its policy and provide identity theft victims with copies of the fraudulent tax return that has been filed under their name by scammers, so they can take the proper steps to secure their personal information.

5. Extenders

Despite efforts to get ahead of schedule, Congress looks likely to pull its usual wait-until-the-last-minute trick for extending things like the Section 179 deduction, the R&D credit, and host of other credits and deductions that expired at the end of 2014. If not extended to cover 2015 before year’s end, this will make tax planning difficult, and result in delays in tax forms and software releases.

6. Supreme Court ruling on same-sex marriage

All states must now recognize all married couples in the same way for state income tax purposes, regardless of gender. This will impact the ability to file join income tax returns, the ability to transfer property to each other tax-free, the ability to leave an estate to the spouse without gift tax implications, and spousal treatment of inherited IRAs.

7. Trade legislation tax changes

The Trade Preferences Extension Act of 2015 contains a number of tax provisions in addition to its trade measures. Taxpayers who exclude foreign earned income under Code Section 911 cannot claim the child tax credit; taxpayers must receive a payee statement (1098-T) before they can claim an American Opportunity, Hope, or Lifetime Learning Credit or take the deduction for qualified tuition and related expenses. This is effective for tax years beginning after the TPEA’s date of enactment.

8. Proposed salary threshold for overtime pay

Under new rules proposed by the Obama administration, the Department of Labor would require most salaried workers earning less than $50,440 annually to be paid 1.5 times their normal pay for time worked beyond 40 hours. This is slated to take effect, if passed, on Jan. 1, 2016.

9. Tangible property regulations

These regs caused a number of headaches last tax season. Under the final regs, all costs that facilitate the acquisition or production of such property must be capitalized. Improvements to property that better a unit of property, restore it, or adopt it to a new and different use must also be capitalized.

Exceptions: De minimis safe harbor (annual election required); routine maintenance safe harbor (no election required); per building safe harbor form small businesses (annual election required).

10. New filing deadlines

In observance of Emancipation Day on Friday, April 15, 2016, taxpayers will have until April 18, 2016, to file their 2015 individual returns and make their first 2016 estimated tax payment. Taxpayers in Maine and Massachusetts will have until April 19, 2016, to file their returns so they can observe Patriots Day on April 18.

From AccountingToday

Published: December 9, 2015

IRS Audits Lowest In More Than a Decade

Thanks to persistent budget cuts, the IRS was only able to conduct 1.2 million individual audits this year, the lowest level in 11 years, according to new data from the agency.

Though dreaded by taxpayers, audits help keep filers honest and are an important source of income for the government. Revenue collected from audits sank to a 13-year low.

"Between 2005 and 2010, the revenue generated from audits averaged $14.7 billion annually. [Since then], it has averaged only $10.5 billion," IRS Commissioner John Koskinen said in an address to tax professionals on Tuesday.

For the upcoming tax season, Koskinen isn't expecting much better, unless Congress gives the agency more funding to replace at least some of the 5,000 enforcement personnel who were lost through attrition in the past five years.

"The government is forgoing billions just to achieve budget savings of a few hundred million dollars, since we estimate that every $1 invested in the IRS produces $4 in revenue," he said.

Taxpayer service is also unlikely to improve if lawmakers don't restore at least some of the budget cuts the agency has sustained -- which Koskinen said amounted to $1.2 billion over five years.

Service hit a new low last year, when only about 40% of calls to the IRS were answered and taxpayers seeking in-person help had to wait in long lines outside of IRS service centers.

It got so bad that callers who'd been waiting up to two hours on the phone for an agent would then be automatically hung up on -- a so-called "courtesy disconnect" -- when the system was overloaded, which often happened since so many people tried calling back, Koskinen said.

To avoid that fate this year, the IRS could upgrade to a "virtual hold" system wherein taxpayers could leave their phone number and get a call back when an agent is free. But to implement that would cost $45 million, Koskinen said.

He's asked Congress to provide more funding for the agency to hire and train more seasonal employees to answer taxpayer questions.

Congress hasn't decided yet on the IRS budget for this current fiscal year. But the expectation is the IRS won't see a big bump up in funding, if any at all. And there's some chance its budget could be cut further.

by Jeanne Sahadi for CNN Money

Published: December 7, 2015

Four Things about Advance Payments of the Premium Tax Credit

When you enroll in coverage through the Marketplace during "Open Season", which runs through Jan. 31, 2016, you can choose to have monthly advance credit payments sent directly to your insurer. If you get the benefit of advance credit payments in any amount, or if you plan to claim the premium tax credit, you must file a federal income tax return and use a Form 8962, Premium Tax Credit (PTC) to reconcile the amount of advance credit payments made on your behalf with the amount of your actual premium tax credit.  You must file an income tax return for this purpose even if you are otherwise not required to file a return.

Here are four things to know about advance payments of the premium tax credit:

• If the premium tax credit computed on your return is more than the advance credit payments made on your behalf during the year, the difference will increase your refund or lower the amount of tax you owe. This will be reported in the ‘Payments’ section of Form 1040.

• If the advance credit payments are more than the amount of the premium tax credit you are allowed, you will add all or a portion of the excess advance credit payments made on your behalf to your tax liability by entering it in the ‘Tax and Credits’ section of your tax return.  This will result in either a smaller refund or a larger balance due.

• If advance credit payments are made on behalf of you or an individual in your family, and you do not file a tax return, you will not be eligible for advance credit payments or cost-sharing reductions to help pay for your Marketplace health insurance coverage in future years.  

• The amount of excess advance credit payments that you are required to repay may be limited based on your household income and filing status.  If your household income is 400% or more of the applicable federal poverty line, you will have to repay all of the advance credit payments. Those whose household income is less than 400% above the federal poverty line will have a limited maximum of repayment costs. 

Feel free to contact our office if you have questions regarding the tax implications of the Premium Tax Credit. 

Published: November 24, 2015

The Gain On That Sale Of Stock May Be Tax Free

Long thought of as “the entity choice of last resort” — due to the corporate level tax and the resulting potential for double taxation upon distribution or liquidation — C corporations offer certain opportunities that S corporations and partnerships simply can’t match.

For example, only C corporation stock meets the definition of “qualified small business stock” under the meaning of Section 1202. And while you may not be aware you evenown  qualified small business stock (QSBS), if you do, and if you acquired this qualified small business stock (QSBS) between September 27, 2010 and December 31, 2014, you will eligible to exclude the ENTIRE gain from a subsequent sale of the stock, provided it has been held for five years prior to sale. And since five years from September 27, 2010 was six weeks ago, some of these sales eligible for 100% exclusion may now be coming home to roost.

Thus, now is as appropriate time as any to crank out a Tax Geek Tuesday to point out the advantages and pitfalls of Section 1202 stock.

Section 1202, In General

Section 1202 is nothing new; it’s just that until recent years, it has largely been toothless. Prior to 2010, if a noncorporate taxpayer sold QSBS that had been issued after August 10, 1993 and held for more than five years, 50% of the gain was excluded under Section 1202.  While that sounds wonderful, the remaining 50% of the gain was subject to tax at 28%, meaning the tax rate on the total gain was 14%. This offered only a 1% benefit over the long-term capital gain rate of 15% that was in place at the time. Couple this with the fact that 7% of the gain was also treated as an AMT preference item, and Section 1202 was rendered a rather useless provision.

In 2009, Section 1202 was amended to provide that for stock acquired after the date of the enactment — and subsequently sold after being held for five years — the exclusion rises to 75%.

The stakes were further raised with the enactment of the Creating Small Business Jobs Act of 2010, however, when Section 1202 was again amended to provide that QSBS stock acquired after September 27, 2010, and before January 1, 2014 would be eligible for a 100% exclusion, after a five-year holding period.

Sweetening the pot further, no portion of the exclusion is treated as a tax preference item for purposes of the alternative minimum tax. This presented a unique opportunity for noncorporate taxpayers to invest in Section 1202 stock between  2010 and the end of 2014 and enjoy the benefit of tax-free gain on a subsequent sale of the stock five years down the road, which at its earliest, is right now. And while the window to acquire stock eventually eligible for a 100% exclusion period technically ended on December 31, 2014, this provision is on the table to be reinstated as part of the extender package for 2015, meaning stock acquired this year may also make the cut.

In addition, assuming tax rates remain the same for the next five years, the 100% exclusion will be much more valuable that pre-2010 iterations of Section 1202 in that it will be offsetting tax rates that significantly exceed the 15% maximum rate on long-term capital gains that existed prior to 2013. Remember, after January 1, 2013, the maximum rate on such gains has increased to 23.8% for those taxpayers in the 39.6% ordinary income tax bracket who are also subject to the net investment income tax. This obviously makes the benefit of Section 1202 even more attractive, as taxpayers can now keep income otherwise taxed at 23.8% — rather than 15% — off of their tax return.

From Forbes Tax Geek

Published: November 18, 2015

How to Choose Between a Revocable and Irrevocable Trust

It's called a trust for a reason: You're counting on this stand-alone legal entity to do something you can't. You may want the trust to ensure that ownership of your assets will transfer to heirs smoothly and privately. You may want it to convey some tax advantages. You may think it can protect your assets from creditors.

Well, maybe. Maybe not.

The first thing to consider is not what type of trust to set up, but how much control you want and need over your assets. That will dictate the type of trust that is appropriate -- if any. Estate lawyers and financial advisors say that for many middle class families, trusts might be more bother and expense than they are worth.

Revocable trusts are just that: You can revoke and rewrite the terms of the trust as much as you want. Irrevocable trusts are the opposite. You set up the trust, then relinquish control to the trustee. You can't step back in and change the terms of the trust or fire the trustee without getting the approval of everyone involved, including the beneficiaries. For the most part, what's done is done.

The decision, then, is how much control you need and want over the trust. The more control you have, the fewer immediate benefits you have. The less control you have, the greater the potential benefits down the road.

Why bother with a trust of either type?

If your goal is to protect estate taxes -- the classic rationale for a trust -- recent changes to tax policy have come to your rescue.

The exemption on estate taxes is now $10.6 million for married couples. "That takes a lot of people out of the picture," notes estate lawyer Laird A. Lile, who is based in Naples, Florida.

You won't save any taxes by pouring assets into a revocable trust. "From the IRS' point of view, revocable trusts are invisible," Lile explains. "There are no tax considerations or gift tax considerations to having a revocable trust." Nor is such a trust as likely to shield assets from a creditor.

These days, the main reason for a revocable trust is to get it set up and ready to accept assets when you no longer have the ability to manage your own affairs, says Paul Pantano, senior financial planner with Luttner Financial Group LLC in Pittsburgh. When you move assets to a revocable trust, you provide direction for their use after you die, usually without going through probate and usually with a modicum of privacy. As soon as you die, a properly set up revocable trust will become an irrevocable trust, and the trustee will manage it. Thus, a revocable trust can become a partial substitute for a will, affording some privacy for the family.

That process is only worth it for assets that are not already jointly owned (such as real estate) or that have a direct beneficiary (such as an individual retirement account), Pantano says. In those cases, ownership of the assets transfers seamlessly, so it actually complicates things to have them in a trust.

Finally, a revocable trust can be useful for setting up plans for handling your assets and income if you become incapacitated, points out Michael A. Dribin, a trust and estate lawyer with Harper Meyer Perez Hagen O'Connor Albert & Dribin LLP in Miami.

"The trust makes a provision for the continued management of the assets without a formal court order. It might just take a letter from a physician to validate that you can't handle the assets for the successor trustee to take over," he explains. "It's designed to be pretty seamless. You don't have court interventions, and you can make quick decisions using the assets."

But, he adds, you might be able to achieve the same planning goals by using a durable power of attorney.

Irrevocable trusts: only for the very sure. The purported trust tax advantages of irrevocable trusts mainly exist for the very well off. Even then, they are in the form of complex constructs in irrevocable trusts that are costly to set up and administer, estate lawyers and advisors say.

For the rest of us, irrevocable trusts are mainly of value for addressing special circumstances, such as guaranteeing for the continued support of a disabled dependent or protecting assets from professional liability.

You might also turn to an irrevocable trust to protect assets from creditors, but only if you are thinking way ahead and put assets in the trust before you have credit problems, Lile says. "If you're trying to stay a step ahead of an emerging legal or credit situation, creating an irrevocable trust could be construed as a fraudulent conveyance," Lile says.

In any of these cases, you essentially permanently lose control of whatever is in the irrevocable trust.

Additional considerations:

  • Who will be the trustee or trustees? With a revocable trust, you can change the trustee any time you want. But with an irrevocable trust, you give up control, so you should be confident that the trustee will make decisions congruent with your desires.
  • Don't assume that a trust will keep your estate out of probate court completely. Depending on the state, probate laws still might apply to some degree.
By Joanne Cleaver for US New & World Reports

Published: November 16, 2015

The Downside of Striking It Rich

Who hasn’t daydreamed about striking it rich? Many people think winning the lottery or getting a hefty inheritance means all their problems will disappear. But sometimes when that daydream turns into a reality, it can actually become a nightmare.
Winning the lottery

Winning the lottery means you’re set for life, right? But when you win the lottery the government wins, too. Those three lucky Powerball winners from last week are in for a life-changing experience. But when they claim all that cash, the federal tax rate will kick in at the highest bracket of 39.6%.  And that doesn’t even take into consideration state taxes, which vary from state to state but average around 10%. Though lottery rules are not always identical – typically, about 50% of the total value of winnings is going straight to the government. A simple example: if you win $10 million, you’ll take home about $5 million.
Lottery fails

We’ve heard the horror stories of lottery winners who fly too high with their winnings and eventually crash and burn. Danielle and Andy Mayoras, attorneys and authors of “Trial & Heirs”, have covered lottery fails for many years.

“There have been lots of Lotto winners who have unfortunately mismanaged their money,” Danielle Mayoras says.
A USA Today article from 2006 described the myriad ways lottery winners have frittered away their windfalls. One example was Evelyn Adams, who won the New Jersey Lottery twice, in 1985 and 1986, for a total $5.4 million. She gambled and gave away all of her money, and by 2001 was living in a trailer.
Andy Mayoras says a Chicago man was another example of someone who regretted winning the lottery. He won $1 million in the lottery and then was poisoned shortly after.
Of course some lottery winners are savvier managers of their newfound wealth and avoid the mistakes other winners have made. Louise White, a 2012 Powerball winner from Rhode Island, put her $336.4 million windfall in an irrevocable trust. According to Danielle Mayoras, this was a smart move. “She paid the taxes, took the money in a lump sum payment, put all of it in the trust, and the trust actually had provisions as to how she could take the money out from the trust and how she could use it,” she said.
You can ask your tax professional at Hershkowitz & Kunitzer, P.A. about how to choose between a revocable and irrevocable trust.
Inheritance issues
About two-thirds of baby boomer households will receive an average inheritance of $64,000, according to the Center for Retirement Research at Boston College. And mishandling inheritance money is common among heirs.
Danielle Mayoras warns that in most cases inherited wealth will be gone by the time the grandchildren pass away. She says in many instances that hand-me-down cash can cause people of lose their work ethic.
Some celebrities have been vocal about working hard and making their own living despite their family’s deep pockets. CNN’s Anderson Cooper, during an interview with Howard Stern, said he won’t be getting any money from his mother, Gloria Vanderbilt.
"My mom's made clear to me that there's no trust fund,” Cooper said. He also called inheriting money a curse and an initiative sucker.
Before his death from a drug overdose last year, actor Philip Seymour Hoffman chose not to create trusts for his three children. “[He] did not leave money to his kids because he did not want to have what he called it – trust fund kids – he wanted to keep their work ethic intact,” says Danielle Mayoras.
Whether it’s unexpected money from a family member or unexpected fame from the lottery, time and again the pitfalls of striking it rich can be disastrous. Danielle and Andy Mayoras suggest seeking out advice from professionals. 
Andy Mayoras says: “A lot of people when they come into money don’t know what to do with it. They might not only spend it poorly but not know how to invest it properly. Use smart vehicles to grow that money slowly into something that can be there for you and your kids and grandkids.”

From Yahoo! Finance

Published: November 12, 2015

Business Travel Expenses

Travel expenses are among the most common business expense deductions. However, this type of expense is also one of the most confusing! When is the cost of a trip deductible as a business expense? How about conventions - particularly in other cities? What if you bring your family? 

It will be easier to plan your business trips, and to combine business with vacation when possible, if you become familiar with the IRS's ground rules.

The following is a list of expenses you may be able to deduct depending on the facts and circumstances:

  • 50 percent of the cost of meals when traveling
  • air, rail, and bus fares
  • baggage charges
  • hotel expenses
  • expenses of operating and maintaining a car, including the cost of gas, oil, lubrication, washing, repairs, parts, tires, supplies, parking fees, and tolls
  • expenses of operating and maintaining house-trailers—provided using one is "ordinary" and "necessary" for your business
  • local transportation costs for taxi fares or other transportation between the airport or station and a hotel, from one customer to another, or from one place of business to another, and tips incidental to the foregoing expenses
  • cleaning and laundry expenses
  • computer rental fees
  • public stenographer fees
  • telephone or fax expenses
  • tips on eligible expenses
  • transportation costs for sample and display materials and sample room costs

Travel Expenses Must Be Business Related 

Your travel must be primarily business-related in order to be deductible. Pleasure trips are never deductible. You can deduct travel expenses only if you are traveling away from home in connection with the pursuit of an existing business.

Travel expenses you incur in connection with acquiring or starting a new business are not deductible as business expenses. However, you can add these costs to your startup expenses and elect to deduct a portion of them and amortize the remainder over 180 months.

Expenses must be ordinary, necessary and reasonable. A travel expense is a type of business expense. Therefore, you must be able to meet the general business expense requirements in order to claim a deduction.

You can't deduct travel expenses to the extent that they are lavish or extravagant—the expenses must be reasonable considering the facts and circumstances. However, the IRS gives you a great deal of latitude here. Your expenses won't be denied simply because you decided to fly first class, or dine in four-star restaurants.

You must be "away from home" to deduct travel expenses. It sounds obvious, but you must be traveling in order to deduct traveling expenses. That is you must be "away from home." 

However, as with much of tax law, it's not as simple as it seems. For this purpose, you are traveling away from home if you meet the following two conditions:

  • The travel is away from the general area or vicinity of your tax home.
  • Your trip is long enough or far away enough that you can't reasonably be expected to complete the round trip without obtaining sleep or rest. This doesn't mean that you need to stay overnight at the destination; for example, it may be that you had an all-day meeting and needed to get a few hours sleep in a hotel before driving home.

Generally, your tax home is the entire general area or vicinity (e.g., a city and surrounding suburbs) of your principal place of business, regardless of the location of your personal or family's home.

There are special rules governing the following situations:

  • More than one place of business. If you conduct your business in more than one place, you should consider the total time you ordinarily spend working in each place, the degree of your business activity in each place, and the relative amount of your income from each place to determine your "principal" place of business.
  • No regular place of business. If you don't have a regular place of abode and no main place of business, you may be considered an itinerant - your tax home is wherever you work and, therefore, you can never satisfy the away-from-home requirement.
  • Temporary assignment.When you are temporarily (a year or less), as opposed to indefinitely, working away from your main place of business, your tax home doesn't change—all your "away from home" expenses are deductible.

Allocation Required if Travel Combines Business and Pleasure

What about travel that is both business-related and personal? The IRS is on the lookout for taxpayers who try to classify a nondeductible personal trip as a deductible business trip. So, if you travel to a destination and engage in both personal and business activities, you can deduct your traveling expenses to and from the destination only if the trip is primarily related to your business.

The primary purpose of a trip is determined by looking at the facts and circumstances of each case. An important factor is the amount of time you spent on personal activities during the trip as compared to the amount of time spent on activities directly relating to business. Travel expenses outside the U.S. may be further limited if any part of your trip is for personal purposes.

If the trip is primarily personal in nature, none of your traveling expenses are deductible. This is true even if you engage in some business activities while you are there. (However, you may be able to deduct particular expenses you incur while you're at your destination if they otherwise qualify as business deductions.)


Published: November 9, 2015

Tax Tips: 5 Rules for Deducting Business Meals

Like most business owners, you probably incur costs on wining and dining customers or clients. You’d think that this is an easy tax deduction, but you’d be wrong. The tax law is peppered with rules and limitations that curtail or prevent you from deducting meal costs you’d think would be a legitimate write off.

Here are five rules you need to know to optimize your deductions.

1. Only 50 percent is deductible.
You meet a customer for breakfast at the local diner or take a client to dinner at a fine restaurant. Provided the meal is for business and you’re not just socializing, you can only deduct 50 percent of the cost.

To be treated as a deductible cost at 50 percent, the meal must be directly related to the conduct of your business or the meal must directly precede or follow a substantial business discussion. For example, you’re trying to convince a prospect to do business with you in a meeting in your office. Following your presentation, you take the prospect to lunch. This would be a deductible business meal, subject to the 50 percent limit.

Special rules: There are several exceptions to the 50 percent rule, such as reimbursements to employees that are treated as taxable compensation to them or reimbursements to independent contractors for their meals; these are fully deductible. Also, those subject to Department of Transportation limitations on hours of service, such as independent interstate truckers, can deduct 80 percent rather than 50 percent of meal costs away from home.

2. No deduction for your in-town lunch.
If you eat out rather than brown bag it for lunch, the cost is on you. It’s a nondeductible personal expense.

This unfavorable result doesn’t change even if you’re across town and are forced to eat out because of business. As long as you aren’t “away from home” (in tax parlance this means out of town), your meal costs when eating alone are not deductible in any amount. If you are out of town, your meal costs -- eating alone or with others on business -- are subject to the percentage limitation discussed earlier.

3. Records are required.
If the meal is deductible, you need certain records to back up your claims. Technically, no deduction can be claimed without these records, although there are some limited exceptions. The IRS looks closely at deductions for meal costs because of the potential for abuse and, if your return is questioned, will ask to see required records:

  • A record stating when, where, and why you had the meal. For example, the record could indicate that on November 25, 2013, you had lunch with Ms. Davis, a customer, and you discussed a new project that you’re working on for Ms. Davis.
  • Receipts for expenses. Exception: You don’t have to retain receipts for a meal costing less than $75.

There are a number of apps for your smartphone that assist you with recordkeeping. You can input the date, location, etc. and take a photo or scan the receipt, making recordkeeping easier.

4. Standard meal allowance rates can ease recordkeeping.
If you have difficulty keeping records and receipts for meals when out of town on business, you can deduct a standard meal allowance. It may be less than your actual meal costs, but you won’t need receipts. If you have employees who travel on business, you may want to use the standard rate to reimburse them for their meal costs out of town.

For 2013, the standard meal allowance usually is $46 per day within the continental U.S. It’s higher in New York City, San Francisco and other high-cost locations, including some resort areas. The U.S. General Services Administration publishes the daily standard rates by state. Independent truckers and others in the transportation industry have a special daily meal rate of $59 per day within the continental U.S.

Caution: Using this rate does not relieve you of the responsibility to keep a record of the time, place and business purpose of the trip.

5. Holiday parties are 100 percent deductible.
If you hold a party for your staff -- in your facility or a restaurant -- you can deduct all of the cost in this instance. As long as the party is for the benefit of employees and is not limited to the top brass, you can write off 100 percent of your costs.

Be sure to discuss your business practices with respect to tracking and reporting meal costs with your Hershkowitz & Kunitzer tax advisor to make sure you’re in compliance with tax rules.

Published: October 20, 2015

Extension Filers: Don’t Miss the Oct. 15 Deadline

If you are one of the 13 million taxpayers who asked for more time to file your federal tax return and still haven’t filed, your extra time is about to expire. Oct. 15 is the last day to file for most people who requested an automatic six-month extension. If you have not yet filed, here are some things that you should know:

  • Use Direct Deposit.   If you are due a refund, the fastest way to get it is to combine direct deposit and e-file. Direct deposit has a proven track record; eight in 10 taxpayers who get a refund choose it. The IRS issues more than nine out of 10 refunds in less than 21 days.
  • Use IRS Online Payment Options.  If you owe taxes the best way to pay them is with IRS Direct Pay. It’s the simple, quick and free way to pay from your checking or savings account. You also have other online payment options. These include Electronic Funds Withdrawal or payment by debit or credit card. Just click on the “Payments” tab on the home page.
  • Don’t overlook tax benefits.  Make sure to check if you qualify for tax breaks that you might miss if you rush to file. This includes the Earned Income Tax Credit and the Saver’s Credit. The American Opportunity Tax Credit and other education tax benefits can help you pay for college.
  • File on time.  If you owe taxes, file on time to avoid a late filing penalty. If you owe and can’t pay all of your taxes, pay as much as you can to reduce interest and penalties for late payment. You can also file Form 9465, Installment Agreement Request, with your tax return.
  • More time for the military.  Some people have more time to file. This includes members of the military and others serving in a combat zone. If this applies to you, you typically have until at least 180 days after you leave the combat zone to both file returns and pay any taxes due.

Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and the IRS' obligations to protect them on

Published: October 2, 2015

Is it Ever OK to Finance a Startup with Home Equity?

Who are the big idea innovators in the startup world these days? Is it the fearless 20-year olds? Not so much.

Actually, the majority of new business owners are innovators who are over the age of 40. 

According to the Kauffman Foundation, during the last 16 years, entrepreneurship among 55 to 64-year-olds increased by an astounding 64%. For 45 to 54-year-olds, new business formation increased by 10%. Yet during the same period, entrepreneurs aged 20 to 34 dropped by 24%.

Given the recent recovery of home valuations and advancing age of new business founders, it makes sense that I’m getting more questions to my FOXBusiness inbox about funding a startup with home equity funds.

Is it a good idea or bad idea? 

Different types of businesses, at different stages of business development, call for different funding solutions. Drawing down funds from a home equity loan to invest in a startup is a riskier investment move than using home equity funds as an emergency source of capital for businesses that generate revenues from a reliable customer base.

Here are the factors every entrepreneurial homeowner should think about before turning to a home to fund a new business.

Real funding requirements. A common mistake of startup entrepreneurs and first-time business buyers is to estimate the funding requirements to start a business, not succeed in business. The difference is subtle but meaningful.

If the amount of funding required to complete product development, secure a first customer, or achieve positive cash flow far exceeds your family’s resources, don’t start your business with a home equity loan. Funding your new business with equity from investors rather than debt may be the smarter, risk-adverse way to go.

Your monthly payment. It’s easy to find free online tools that will help you calculate a monthly payment from a new mortgage or home equity loan. Can your family afford the increased monthly bill? For how long?

Of course, the real problem with funding a new business with a home equity loan is bad timing. Just at the time when the total home financing bill goes up, the family’s household income often goes down because one family member usually left another paying gig. If the new business is not able to pay any salary to the entrepreneur for some period of time, then the family’s finances can easily spiral out of control. 

Impact of rising interest rates. Most second mortgages and home equity loans are issued with variable interest rates. Can your family finances afford a sudden rate increase of one percent or more? Work the numbers, don’t just guess the numbers!

Budget for delays and unexpected problems. If you are pursuing a business that is outside your primary area of expertise, (for example an advertising executive starting a restaurant), budget some extra funds for beginner's mistakes and routine trial and error. 

A good exercise is to double your company’s projected startup expenses and delay the introduction of new products or services by a good six months or more. It also usually takes longer for startups to secure their first customers and get paid by their first customers, too.  

Reliance on investors to pay back loans. It’s quite common for older entrepreneurs to draw down funds from a home equity loan or personal savings and then “invest” the funds in the form of debt into the new business entity.  Their big hope—and deadly miscalculation—is that they will get paid back quickly by angel investors or venture capital funds.

The real deal is investors in young companies prefer to fund new product development, aggressive sales and marketing plans, patent filings and other initiatives that will boost a company’s revenue and profit generation. Paying off debt to founders or their family members is simply not a priority.  In these situations, expect investors to insist that any debt to founders or their family members will be rolled into equity as a condition of investment.  So, when will entrepreneurs get their money back? Usually when the company is sold, which can be years down the road. Yikes!

In general, debt is not a good funding option for startups especially if it adds strain to a family’s finances. Many banks understand this too and turn down home equity loan requests if it is revealed that the funds will be used for new business purposes.

Tapping a home equity loan, however, can be a reasonable solution for households that are not dependent on the new business for fast debt repayment or to pay other household bills. It also helps if the new business is not capital intensive and may start with one or more commitments from first customers or clients.

By Susan Schreter for FOX Business

Published: September 29, 2015

4 Rules for Legal Fees

When it comes to the deductibility of legal fees, don't make assumptions. Here's what you need to know.

Legal fees for your business can be high, with hourly rates reaching $500 or more, depending on where you are located and what type of services and expertise are in involved. Legal fees may be deductible as an ordinary business expense, with no dollar cap or other special limitations on the amount that is deductible (other than that they must be reasonable). However, there are some situations in which fees may not be currently deductible. Here are the four tax rules you need to know about legal fees.

1. Basic rule

Generally, legal fees may be currently deductible as ordinary and necessary business expenses. Examples of legal actions in which fees are currently deductible include:

  • Creating or reviewing contracts and agreements, suing for breaches or defending against claims of breach of contract
  • Assistance in collecting outstanding accounts payable
  • Defending against trademark, patent or copyright infringement claims
  • Defending against wrongful discharge or other employee (or former employee) claims
  • Obtaining tax advice, actions involving the IRS or state tax departments or obtaining an IRS ruling

2. Rule for start-up costs

When a business is getting started, there may be legal fees involved. Special rules apply in this case. Legal fees related to creating a partnership or corporation are immediately deductible up to $5,000.

Excess costs can be written off ratably over 180 months (15 years). However, if legal fees exceed $50,000, then the $5,000 up front deduction is reduced by one dollar for every dollar over $50,000; no upfront deduction can be claimed if fees are more than $55,000. For example, if you pay $2,500 to the ABC Law Firm to create articles of incorporation and another $500 to your state to incorporate, you can deduct the $3,000 in legal fees in the corporation’s first year.

3. Rule for capitalized costs

No deduction can be claimed for legal fees that are viewed as capital expenditures. These are costs related to creating, acquiring, or protecting a capital asset, such as real estate and intellectual property. These costs are added to the basis of the capital asset.

However, in some cases, the legal fees that are capitalized may be recovered through depreciation or amortization. For example, your company buys an office building and incurs legal fees of $3,000. Because the fees relate to the acquisition of a capital asset—the building—the fees are added to the cost basis of the building. The cost of the building (minus the land) can be depreciated over 39 years, so effectively the fees will be written off over 39 years.

Examples in which legal fees must be capitalized and are not currently deductible:

  • Fees to defend title to realty
  • Fees for suing for trademark, patent or copyright infringement

4. Rule for personal costs

No deduction is allowed for legal fees that are purely personal in nature and not otherwise deductible (i.e., do not relate to the production of income, such as a recovery of a taxable award in a lawsuit). For example, no deduction can be claimed by a business owner for obtaining a divorce, even though the business is a marital asset subject to division or distribution during the course of the divorce.

Final word

When it comes to the deductibility of legal fees, don’t make assumptions. In the case of fees related to lawsuits, look at the “origin of the claim” giving rise to the legal action. If it relates to business issues and is not required to be capitalized, a current deduction may be appropriate. Discuss the deductibility of any legal fees with your tax advisor.

By Barbara Weltman for OPEN Forum

Published: September 28, 2015

Tips about Filing an Amended Tax Return

We all make mistakes so don’t panic if you made one on your tax return. You can file an amended return if you need to fix an error. You can also amend your tax return if you forgot to claim a tax credit or deduction. Here are ten tips from the IRS if you need to amend your federal tax return.

1. When to amend.  You should amend your tax return if you need to correct your filing status, the number of dependents you claimed, or your total income. You should also amend your return to claim tax deductions or tax credits that you did not claim when you filed your original return. 

2. When NOT to amend.  In some cases, you don’t need to amend your tax return. The IRS usually corrects math errors when processing your original return. If you didn’t include a required form or schedule, the IRS will send you a notice via U.S. mail about the missing item. 

Form 1040X has three columns. Column A shows amounts from the original return. Column B shows the net increase or decrease for the amounts you are changing. Column C shows the corrected amounts. You should explain what you are changing and the reasons why on the back of the form.

3. More than one year.  If you file an amended return for more than one year, a separate return will need to be filed for each tax year. 

4. Amending to claim an additional refund.  If you are waiting for a refund from your original tax return, don’t file your amended return until after you receive the refund. You may cash the refund check from your original return. Amended returns take up to 16 weeks to process. You will receive any additional refund you are owed.

5. Amending to pay additional tax.  If you’re filing an amended tax return because you owe more tax, you should file Form 1040X and pay the tax as soon as possible. This will limit interest and penalty charges.

6. Corrected Forms 1095-A.  If you or anyone on your return enrolled in qualifying health care coverage through the Health Insurance Marketplace, you should have received a Form 1095-A, Health Insurance Marketplace Statement. You may have also received a corrected Form 1095-A. If you filed your tax return based on the original Form 1095-A, you do not need to file an amended return based on a corrected Form 1095-A.  This is true even if you would owe additional taxes based on the new information. However, you may choose to file an amended return.

In some cases, the information on the new Form 1095-A may lower the amount of taxes you owe or increase your refund.  You may also want to file an amended return if:

  •  You filed and incorrectly claimed a premium tax credit, or
  •  You filed an income tax return and failed to file Form 8962, Premium Tax Credit, to reconcile your advance payments of the premium tax credit.

Before amending your return, if you received a letter regarding your premium tax credit or Form 8962 you should follow the instructions in the letter. 

7. When to file.  To claim a refund file Form 1040X no more than three years from the date you filed your original tax return. You can also file it no more than two years from the date you paid the tax, if that date is later than the three-year rule.

8. Track your return.  You can track the status of your amended tax return three weeks after you file with “Where’s My Amended Return?” available on the IRS website. 

Published: August 31, 2015

Your Health Insurance Company May Ask for Your Social Security Number

Your health insurance company may request that you provide them with the social security numbers for you, your spouse and your children covered by your policy.  This is because the Affordable Care Act requires every provider of minimum essential coverage to report that coverage by filing an information return with the IRS and furnishing a statement to covered individuals. The information is used by the IRS to administer – and individuals to show compliance with – the health care law.

Health coverage providers will file an information return, Form 1095-B, Health Coverage, with the IRS and will furnish statements to you in 2016, to report coverage information from calendar year 2015.

The law requires coverage providers to list social security numbers on this form. If you don't provide your SSN and the SSNs of all covered individuals to the sponsor of the coverage, the IRS may not be able to match the Form 1095-B with the individuals to determine that they have complied with the individual shared responsibility provision.

Your health insurance company may send a letter that discusses these new rules and requests social security numbers for all family members covered under your policy. The IRS has not designated a specific form for your health insurance company to request this information. The Form 1095-B will provide information for your income tax return that shows you, your spouse, and individuals you claim as dependents had qualifying health coverage for some or all months during the year. You do not have to attach Form 1095-B to your tax return. Keep it with your other important tax documents.

Anyone on your return who does not have minimum essential coverage, and who does not qualify for an exemption, may be liable for the individual shared responsibility payment.

The information received by the IRS will be used to verify information on your individual income tax return. If you refuse to provide this information to your health insurance company, the IRS cannot verify the information you provide on your tax return and you may receive an inquiry from the IRS. You also may receive a notice from the IRS indicating that you are liable for a shared responsibility payment.

Published: August 27, 2015

For Most, Highway Use Tax Return is due Aug. 31

The Internal Revenue Service today reminded truckers and other owners of heavy highway vehicles that in most cases their next federal highway use tax return is due Monday, Aug. 31, 2015.

The deadline generally applies to Form 2290 and the accompanying tax payment for the tax year that begins July 1, 2015, and ends June 30, 2016. Returns must be filed and tax payments made by Aug. 31 for vehicles used on the road during July. For vehicles first used after July, the deadline is the last day of the month following the month of first use.

Though some taxpayers have the option of filing Form 2290 on paper, the IRS encourages all taxpayers to take advantage of the speed and convenience of filing this form electronically and paying any tax due electronically. Taxpayers reporting 25 or more vehicles must e-file.

The highway use tax applies to highway motor vehicles with a taxable gross weight of 55,000 pounds or more. This generally includes trucks, truck tractors and buses. Ordinarily, vans, pick-ups and panel trucks are not taxable because they fall below the 55,000-pound threshold. The tax of up to $550 per vehicle is based on weight, and a variety of special rules apply. 

Published: August 21, 2015

Don’t Fall for New Tax Scam Tricks by IRS Posers

Though the tax season is over, tax scammers work year-round. The IRS advises you to stay alert to protect yourself against new ways criminals pose as the IRS to trick you out of your money or personal information. These scams first tried to sting older Americans, newly arrived immigrants and those who speak English as a second language. The crooks have expanded their net, and now try to swindle virtually anyone. Here are several tips from the IRS to help you avoid being a victim of these scams:

  • Scams use scare tactics.  These aggressive and sophisticated scams try to scare people into making a false tax payment that ends up with the criminal. Many phone scams use threats to try to intimidate you so you will pay them your money. They often threaten arrest or deportation, or that they will revoke your license if you don’t pay. They may also leave “urgent” callback requests, sometimes through “robo-calls,” via phone or email. The emails will often contain a fake IRS document with a phone number or an email address for you to reply.
  • Scams use caller ID spoofing.  Scammers often alter caller ID to make it look like the IRS or another agency is calling. The callers use IRS titles and fake badge numbers to appear legit. They may use online resources to get your name, address and other details about your life to make the call sound official.
  • Scams use phishing email and regular mail.  Scammers copy official IRS letterhead to use in email or regular mail they send to victims. In another new variation, schemers provide an actual IRS address where they tell the victim to mail a receipt for the payment they make. All in an attempt to make the scheme look official.
  • Scams cost victims over $20 million.  The Treasury Inspector General for Tax Administration, or TIGTA, has received reports of about 600,000 contacts since October 2013. TIGTA is also aware of nearly 4,000 victims who have collectively reported over $20 million in financial losses as a result of tax scams.

The real IRS will not:

  • Call you to demand immediate payment. The IRS will not call you if you owe taxes without first sending you a bill in the mail.
  • Demand that you pay taxes and not allow you to question or appeal the amount that you owe.
  • Require that you pay your taxes a certain way. For instance, require that you pay with a prepaid debit card.
  • Ask for credit or debit card numbers over the phone.
  • Threaten to bring in police or other agencies to arrest you for not paying.
Published: August 11, 2015

Tax Filing Problems Could Jeopardize Health Law Aid

About 1.8 million households that got financial help for health insurance under President Barack Obama’s law now have issues with their tax returns that could jeopardize their subsidies next year. Administration officials say those taxpayers will have to act quickly.

“There’s still time, but people need to take action soon,” said Lori Lodes, communications director for the Centers for Medicare and Medicaid Services, which runs

The health care law provides tax credits to help people afford private insurance. Nationally, that aid averages $272 a month, covering roughly three-fourths of the premium. By funneling the aid through the income tax system, Democrats were able to call the overhaul the largest middle-class tax cut for health care in history. But they also spliced together two really complicated areas for consumers: health insurance and taxes. Confusion has been the result for many.

Consumers who got health care tax credits are required to file tax returns that properly account for them, even if they are unaccustomed to filing because their incomes are low. Unless they follow through, “they will not be able to receive tax credits to help lower the cost of their health insurance for 2016,” Lodes explained.

Treasury officials said 1.8 million households are at risk of losing subsidies for next year, and that number breaks down as follows:

—About 710,000 households that have not filed a 2014 tax return, although they were legally required to account for health insurance tax credits that they received.

—Some 360,000 households that got tax credits and requested an extension to file their returns. They have until Oct. 15.

—About 760,000 households that got tax credits and filed their tax returns omitted a new form that is the key to accounting for the subsidies. Called Form 8962, it was new for this year’s tax filing season.

“I think it was definitely confusing for people,” said Elizabeth Colvin of Foundation Communities, an Austin, Texas, nonprofit that helps low-income people with health insurance and taxes. “It could have been worse, quite honestly. I think a lot of tax preparers didn’t know how to do these (forms) either.”

The 1.8 million households with tax issues represent 40 percent of 4.5 million households that had tax credits provided on their behalf and must account for them. The rest had their returns successfully processed by the IRS as of the end of May.

Earlier this summer, a Supreme Court decision preserved health care tax credits for consumers in all 50 states, turning back a challenge from conservatives opposed to “Obamacare.” Because of the law’s built-in complexity, some of those consumers may now be at risk of losing their assistance.

Administration officials say they’re working hard to prevent that. An estimated 16 million people have gained health insurance since opened for business in late 2013, and the White House does not want any slippage.

The IRS has started reaching out to consumers with tax issues. is reporting an increase in tax-related calls to its consumer assistance center. That telephone number is 1-800-318-2596. The Health and Human Services department plans another outreach campaign in the fall, coordinated with the start of the 2016 sign-up season on Nov. 1.

“What the IRS is doing here is sending these people a not-so-gentle reminder that they need to file or they will put their subsidy at risk,” said Mark Ciaramitaro, vice president for tax and health care at H&R Block, the tax preparation company. He cautioned that many consumers will find the process cumbersome, so they should waste no time getting started.

Despite a thinning out of taxpayer services due to budget cuts, IRS Commissioner John Koskinen says the tax-filing season went relatively smoothly, even with the health care law added. Nonetheless, he acknowledged that there’s a learning curve for everybody on health care.

“This is the first year for this new provision,” Koskinen wrote in a letter to lawmakers last month. “We expect that taxpayers will continue to better understand this process as it becomes more routine.”

The administration and the health law’s supporters could be doing a better job educating consumers, said Judy Solomon of the Center on Budget and Policy Priorities, which advocates for low-income people.

“There is definitely room for improvement to make sure people understand how it works,” she said. “They are getting an advance payment of a tax credit, and to finish the process they need to file a tax return. They have to look at it as a process that is a year long and has multiple steps.”

By Ricardo Alonso-Zaldivar for The Associate Press 

Published: August 7, 2015

Don’t Miss the Health Insurance Deduction if You’re Self-Employed

If you are self-employed, the IRS wants you to know about a tax deduction generally available to people who are self-employed.

The deduction is for medical, dental or long-term care insurance premiums that self-employed people often pay for themselves, their spouse and their dependents. The insurance can also cover your child who was under age 27 at the end of 2012, even if the child was not your dependent.

You may be able to take this deduction if one of the following applies to you:

  • You had a net profit from self-employment. You would report this on a Schedule C, Profit or Loss From Business, Schedule C-EZ, Net Profit From Business, or Schedule F, Profit or Loss From Farming.

  • You had self-employment earnings as a partner reported to you on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc.

  • You used an optional method to figure your net earnings from self-employment on Schedule SE, Self-Employment Tax.

  • You were paid wages reported on Form W-2, Wage and Tax Statement, as a shareholder who owns more than two percent of the outstanding stock of an S corporation.

There are also some rules that apply to how the insurance plan is established. Follow these guidelines to make sure the plan qualifies:

  • If you’re self-employed and file Schedule C, C-EZ, or F, the policy can be in your name or in your business’ name.

  • If you’re a partner, the policy can be in your name or the partnership’s name and either of you can pay the premiums. If the policy is in your name and you pay the premiums, the partnership must reimburse you and include the premiums as income on your Schedule K-1.

  • If you’re an S corporation shareholder, the policy can be in your name or the S corporation’s name and either of you can pay the premiums. If the policy is in your name and you pay the premiums, the S corporation must reimburse you and include the premiums as wage income on your Form W-2.
Published: August 4, 2015

Compilations vs. Review vs. Audits

What is the difference between a financial statement compilation, review and an audit?

The difference is the level of service, which is determined by your needs and what your creditors and/or investors require.

The higher the level of service required, the more time a CPA needs to complete the engagement and, therefore, the more costly the engagement.

While companies often opt for compiled or reviewed statements, credit agreements with lenders often require audited statements.


Compiled financial statements represent the most basic level of service CPAs provide with respect to financial statements.

In a compilation engagement, the accountant assists management in presenting financial information in the form of financial statements without undertaking to obtain or provide any assurance that there are no material modifications that should be made to the financial statements.

In a compilation, the CPA must comply with Statements on Standards for Accounting and Review Services (SSARSs), which require the accountant to have an understanding of the industry in which the client operates, obtain knowledge about the client, and read the financial statements and consider whether such financial statements appear appropriate in form and free from obvious material errors.

A compilation does not contemplate performing inquiry, analytical procedures, or other procedures ordinarily performed in a review; or obtaining an understanding of the entity’s internal control; assessing fraud risk; or testing of accounting records; or other procedures ordinarily performed in an audit.

The CPA issues a report stating:

  • The compilation was performed in accordance with Statements on Standards for Accounting and Review Services
  • The accountant has not audited or reviewed the financial statements
  • And accordingly does not express an opinion or provide any assurance about whether the financial statements are in accordance with the applicable financial reporting framework.


Reviewed financial statements provide the user with comfort that, based on the accountant’s review, the accountant is not aware of any material modifications that should be made to the financial statements for the statements to be in conformity with the applicable financial reporting framework.

A review engagement involves the CPA performing procedures (primarily analytical procedures and inquiries) that will provide a reasonable basis for obtaining limited assurance that there are no material modifications that should be made to the financial statements for them to be in conformity with the applicable financial reporting framework.

In a review, the CPA designs and performs analytical procedures, inquiries, and other procedures as appropriate, based on the accountant’s understanding of the industry, knowledge of the client, and awareness of the risk that he or she may unknowingly fail to modify the accountant’s review report on financial statements that are materially misstated.

A review does not contemplate obtaining an understanding of the entity’s internal control; assessing fraud risk; testing accounting records; or other procedures ordinarily performed in an audit.

The CPA issues a report stating:

  • The review was performed in accordance with Statements on Standards for Accounting and Review Services
  • Management is responsible for the preparation and fair presentation of the financial statements in accordance with the applicable financial reporting framework and for designing, implementing and maintaining internal control relevant to the preparation performs analytical procedures, inquiries and other procedures, and fair presentation of the financial statements
  • A review includes primarily applying analytical procedures to management’s financial data and making inquiries of management;
  • A review is substantially less in scope than an audit and that the CPA is not aware of any material modifications that should be made to the financial statements for them to be in conformity with the applicable financial reporting framework.


Audited financial statements provide the user with the auditor’s opinion that the financial statements are presented fairly, in all material respects, in conformity with the applicable financial reporting framework.

In an audit, the auditor is required by auditing standards generally accepted in the United States of America (GAAS) to obtain an understanding of the entity’s internal control and assess fraud risk.

The auditor also is required to corroborate the amounts and disclosures included in the financial statements by obtaining audit evidence through inquiry, physical inspection, observation, third-party confirmations, examination, analytical procedures and other procedures.

The auditor issues a report stating:

  • The audit was conducted in accordance with GAAS
  • The financial statements are the responsibility of management
  • An opinion that the financial statements present fairly in all material respects the financial position of the company and the results of operations are in conformity with the applicable financial reporting framework (or issues a qualified opinion if the financial statements are not in conformity with the applicable financial reporting framework).
  • The auditor may also issue a disclaimer of opinion or an adverse opinion (if appropriate)
From information from the "Guide to Financial Statement Services: Compilation, Audit and Review" by Barfield, Murphy, Shank & Smith. 

Published: July 31, 2015

IRS Scales Back to Absorb Funding Cuts

The Internal Revenue Service has been scaling back its activities and using some of its budgeting flexibility to absorb funding cuts, according to a new government report.

The report, from the Government Accountability Office, pointed out that the IRS’s budget shrunk from $12.1 billion in fiscal year 2010 to $11.3 billion in fiscal year 2014, a reduction of approximately 7 percent. The IRS's budget declined by an additional $346 million from fiscal year 2014 to fiscal year 2015.

The IRS used some of its budgeting flexibility to absorb the budget reductions by allocating user fee revenue, which made up 3.4 percent of its budget, or $416 million, in fiscal year 2014. In addition, to increase agency-wide coordination of budget decisions, the IRS formed a new office and committee to inform budget formulation and execution decisions.

To absorb the budget cuts, the IRS’s Human Capital Office, Office of Chief Counsel, and Small Business/Self-Employed Division each reduced their staff by 16 to 30 percent.

According to officials, they also prioritized legally required programs, such as tax litigation, and reduced some programs or services, such as limiting non-filer investigations, postponing software acquisitions, and delaying approximately 24,000 employee background reinvestigations.

Such scaled back activities potentially reduce program effectiveness or increase risk to the IRS and the federal government, the GAO noted.

For fiscal year 2016, the Obama administration has requested $12.9 billion in appropriations for IRS. The request is almost $2 billion (18 percent) more than the IRS's fiscal year 2015 appropriation.

However, last month the House Appropriations Committee adopted a fiscal year 2016 budget proposal that would provide the IRS with a budget of $10.1 billion—$838 million less than the current level and $2.8 billion below the Obama administration’s proposal. The Senate Appropriations Committee voted last Thursday to reduce IRS funding to $10.5 billion. Meanwhile, a highway-funding bill pending in both the House and Senate calls for new tax enforcement efforts by the IRS to pay for fixing the nation's highways rather than raising gasoline taxes.

Declining Taxpayer Service
National Taxpayer Advocate Nina Olson released her midyear report to Congress and pointed to dramatic decreases in taxpayer service by the IRS as the agency struggled to absorb the impact of the budget cuts. The IRS answered only 37 percent of taxpayer calls routed to customer service representatives overall, and the hold time for taxpayers who got through averaged 23 minutes. This level of service represents a sharp drop-off from the 2014 filing season, when the IRS answered 71 percent of its calls and hold times averaged approximately 14 minutes.

The IRS also answered only 45 percent of calls from practitioners who called the IRS on the Practitioner Priority Service line, and hold times averaged 45 minutes. The agency answered only 39 percent of calls from taxpayers seeking assistance from the Taxpayer Advocate Service on the National Taxpayer Advocate Toll-Free hotline, and hold times there averaged 19 minutes.

The IRS answered just 17 percent of calls from taxpayers who called after being notified that their tax returns had been blocked by the Taxpayer Protection Program on suspicion of identity theft, and the hold times averaged about 28 minutes. In three consecutive weeks during the filing season, the IRS answered fewer than 10 percent of these calls.

The number of “courtesy disconnects” received by taxpayers calling the IRS skyrocketed from about 544,000 in 2014 to about 8.8 million this filing season, an increase of more than 1,500 percent. The term “courtesy disconnect” is used when the IRS essentially hangs up on a taxpayer because its switchboard is overloaded and cannot handle additional calls.

By Michael Cohn for Accounting Today

Published: July 28, 2015

Tips About Vacation Home Rentals

If you rent a home to others, you usually must report the rental income on your tax return. However, you may not have to report the rent you get if the rental period is short and you also use the property as your home. In most cases, you can deduct your rental expenses. When you also use the rental as your home, your deduction may be limited. Here are some basic tax tips that you should know if you rent out a vacation home:

  • Vacation Home.  A vacation home can be a house, apartment, condominium, mobile home, boat or similar property.
  • Schedule E.  You usually report rental income and rental expenses on Schedule E, Supplemental Income and Loss. Your rental income may also be subject to Net Investment Income Tax.
  • Used as a Home.  If the property is “used as a home,” your rental expense deduction is limited. This means your deduction for rental expenses can’t be more than the rent you received. 
  • Divide Expenses.  If you personally use your property and also rent it to others, special rules apply. You must divide your expenses between the rental use and the personal use. To figure how to divide your costs, you must compare the number of days for each type of use with the total days of use.
  • Personal Use.  Personal use may include use by your family. It may also include use by any other property owners or their family. Use by anyone who pays less than a fair rental price is also personal use.
  • Schedule A.  Report deductible expenses for personal use on Schedule A, Itemized Deductions. These may include costs such as mortgage interest, property taxes and casualty losses.
  • Rented Less than 15 Days.  If the property is “used as a home” and you rent it out fewer than 15 days per year, you do not have to report the rental income. In this case you deduct your qualified expenses on schedule A.
Published: July 17, 2015

4 Ways to Get the Most out of Your CPA Relationship

Successful business owners and leaders build a network of trusted advisors to help them achieve their goals, including CPAs. But how can you ensure you are using your CPA relationship to the fullest? Here are four tips for getting the most out of your relationship with a CPA.

1. Partner with a CPA with industry expertise

If you’re not currently working with a CPA, seek out a firm that has specific expertise in your industry. Interview several CPAs to find the right fit for your organization’s needs. Ask them about other clients they work with that are in your industry, and find out if you can speak directly with some of those clients.

2. Communicate proactively

Keep your CPA informed on what’s happening at your business.Although many clients naturally build solid relationships with their CPAs through the normal course of doing business, a little proactive communication can go a long way towards heading off any financial challenges and fostering a rewarding relationship.

3. Ask questions

If you have questions about the tax effects of certain decisions, or about how to approach banking relationships, do not hesitate to ask your CPA. He or she has probably addressed those same issues many times before and can offer valuable input.

4. Make their jobs easier

What’s one of the best ways to build a relationship with someone?Make his or her job easier. Many companies opt to share access to employee data and reports through online reporting tools. By allowing their CPAs to view fiscal year-to-date reports and other information, you can help make the year-end process run more smoothly and save your CPA valuable time—which in turn, saves you money.

From Paycor Industry Insights

Published: July 15, 2015

Last-Minute Tax Savings: 5 Things to Know

Some small-business owners are scrambling in this last week of the year to try to reduce their tax burden. Reporting income when you receive it and deducting expenses when you pay them gives you more control over your taxes. Ready to make some very last-minute tax moves that may save you money? According to Weltman, here are five things you need to know.

1. Don't bill yet for work you're doing now. Typically you'd send an invoice as quickly as possible, but Weltman suggests at this point, for tax purposes, you "consider waiting until the end of the year to send it. This will ensure payment is received the following year, and taxes on the income are deferred for another year." One caveat, according to Weltman, is if you expect to be subject to the alternative minimum tax (AMT). If so, the opposite approach may make more sense -- bill immediately to receive the income so "your income will be taxed at no more than 28 percent under the AMT vs. a regular tax rate of up to 35 percent," Weltman says.

Another factor to keep in mind: If you have any concerns about getting paid, it's not worth it to delay invoicing just for the tax benefits. "The sooner you start collections," Weltman says, "the more likely you'll receive all that you're owed."

2. Buy office supplies before the end of the year. Assuming you have the space to store it, try to stock up on the paper, toner or other office supplies you project to use throughout the next year. "Order them now so that the cost is deductible now," Weltman says.

Weltman says an exception to this deduction is prepaid expenses for something that extends beyond the end of next year. For example, if you prepay a three-year subscription to a trade journal or renew a three-year membership to a trade association, that cost is deductible over three years, not just in the year you pay.

3. Invest in a qualified retirement plan. "If the current year is expected to be profitable and you don’t yet have a qualified retirement plan, sign the paperwork to establish one for your business before the end of the year," Weltman says. "You'll then have until the extended due date of your return to fund the plan."

Weltman suggests you talk to a brokerage firm, mutual fund or other financial institution about what you need to do to adopt the plan for the current year. Find more information about qualified retirement plans in IRS Publication 560.

4. Splurge on equipment. Want an iPad? Need more office computers? Tempted by the after Christmas sales? According to Weltman, if you buy the equipment and start to use it in your business before the end of the year, you can claim a full-write off. The write-off is available whether you finance the purchase in whole or in part. Here's what Weltman says you need to do to get this deduction:

  • Use the Section 179 ("expensing") deduction for pre-owned property. This write-off is allowed only if you are profitable. The dollar limit on purchases is $500,000.
  • Use 100 percent bonus depreciation for new property, whether or not you are profitable. The write-off of the entire cost of eligible property can create or increase a net operating loss, which can mean a refund of some or all of the taxes paid in the prior two years.

5. Settle up your accounts payable. "You may have bills piled up that are not due until next year -- if you pay them now, you can deduct the expenses for this year," says Weltman. If you don’t have the funds in your bank account at the moment, Weltman says you should consider putting the expenses on your business credit card if the vendor or other party allows it. Costs charged to a major credit card before the end of the year are deductible this year even though the credit card bill isn’t due until the following year.

Though you may be tight on time, Weltman says you shouldn't skip one more important step: "Contact your CPA or other tax advisor immediately to discuss whether these or other last-minute actions make sense for your tax situation," she says.

By Janean Chun for the HUffington Post

Published: July 13, 2015

Tech Company Converts Its Contractors Into Employees

Yet another Silicon Valley company is hiring its contractors as employees.

Shyp, which helps customers mail packages, said Wednesday it planned to reclassify hundreds of couriers as employees. The news follows a similar announcement made last month by grocery delivery startup Instacart.

Depending on how many hours they work, Shyp's couriers will now receive access to benefits such as healthcare. The company -- which operates in San Francisco, Los Angeles, Miami and New York -- also promised to pay for vehicle expenses, unemployment, Social Security and Medicare taxes.

“As a rapidly growing business, we want to ensure that each time a customer uses Shyp they have an incredible experience,” CEO Kevin Gibbon wrote in a blog post. “We want to provide our couriers with additional supervision, coaching, branded assets and training, which can only be done with employees, so a shift is needed.”

The move comes amid a heated debate over the role of contractors at startups. Ride-hailing services such as Uber and Lyft rely on armies of contracted drivers to make up their workforces.

Last month, the California Labor Commission ruled that an Uber driver qualified for back pay as an employee. Uber appealed, claiming the ruling threatened its entire business model.

Shannon Liss-Riordan, a Boston lawyer who filed pending suits against Uber and Lyft, filed similar complaints against Shyp and rivals Washio and Postmates earlier this week, according to the San Francisco Business Times.

"I cannot comment on it at this point in time aside from saying that we didn't receive it until after this morning's announcement," Johnny Brackett, a Shyp spokesman, told The Huffington Post in an email. "I can assure you that our decision to transition from 1099 to W2 had absolutely nothing to do with it."

Shyp no doubt watched the Uber case closely. Couriers already wore branded t-shirts, used certain brand phrases and were responsible for finding coworkers to cover their shifts when they were unable to work -- all of which may constitute inappropriate requirements for independent contractors, according to a report on BuzzFeed News.

Now, Shyp’s decision will likely add pressure to the entire startup industry to address the employment status of its contract workers.

By Alexander C. Kaufman for the Huffington Post

Published: July 9, 2015

Write Off Your Car

If you are self-employed, you likely use your personal car or truck for business as well as pleasure. If so, the business portion of your vehicle expense is deductible.

If you work for The Man and use your vehicle on the job and are not reimbursed for your mileage, you have a write off as well.

Did you know that you can write off mileage every time you run to the pharmacy to pick up a prescription or visit your eye doctor or embark other trip for medical purposes? And if you do volunteer work for a qualified nonprofit, your unreimbursed volunteer mileage may be deductible.

It gets better. If you work two jobs and drive between job #1 and job #2 (without going home first), you can deduct those miles. I have a client who saves about a grand a year in taxes because he writes off the mileage between his two jobs.

You’re thinking, “Yeah! This is great!” Sure, it’s great, but it’s not necessarily easy. Naturally, there are rules to follow, forms to complete, data to track. In fact, the IRS regulations state that you should basically attach a clipboard to your steering wheel and keep a mileage log. You need to track every deductible mile you drive. You must report the exact number of total miles you drive every year breaking out commuting mileage, which, by the way is not deductible, personal miles driven, and business miles; like you’re really going to jump on that one. Even if you make it a New Year’s resolution, it’s hard work to keep a complete and accurate mileage log.

I’ve been representing taxpayers in audits for more than 20 years and here’s the deal when it comes to that mileage log: The auditor asks for it and I say “Come on, you know nobody, absolutely nobody, keeps one.” (Well I did have a client once who kept one but was he ever audited? No!) So the auditor will argue for a bit saying he can disallow the deduction because no contemporaneous records were kept. I carry on about how it’s unreasonable to expect folks to really do this, and finally the auditor consents to a reconstruction.

So if you have an appointment book (always retain your appointment books in your tax file) you can go through it and using Mapquest if necessary, compile the numbers the IRS is looking for.

You should keep some basic records that are easy to manage:

  1. On January 1 log in your beginning mileage from your odometer into your appointment book.  If you use a PDA, record the mileage on a sheet of paper and place it in your current year tax file.
  2. Put a note on your December 31 calendar to list your ending odometer reading.
    1. Note: If you’re going through an audit and don’t have odometer readings, look for repair receipts near the beginning and end of the year. The odometer reading will be listed there and it’s possible to extrapolate the numbers.
  3. By subtracting your beginning from your ending odometer reading you will have your total mileage figure for the year. The IRS asks for this number on your tax return.
  4. Mark as many business destinations as you can throughout the year in your appointment book. At year end do a rough calculation to determine what your deductible business usage is.
  5. If your business usage is greater than 50% you may qualify to deduct that percentage of your total actual expenses including: gas and oil, tires, repairs, maintenance (car washes, etc.), insurance, loan interest, vehicle registration, and depreciation. Or you may elect to take the standard mileage rate times the total business miles driven. Your tax pro can help you decide which method is best for your particular situation. If you use your vehicle less than 50% for business, you can only take the standard mileage rate.

Due to the advent of PDAs, appointment books are becoming obsolete. If you use an electronic calendar and printout capability is not available, than you will want to log reminders to mark the odometer readings and store that information in your tax files. Quarterly, you should manually track business versus personal usage to establish and substantiate your percent of business usage.

It’s unfortunate that we have to spend so much time keeping these sorts of records, but you will be happy you did if the IRS knocks at your door.

By Bonnie Lee for the Taxpertise Blog

Published: July 7, 2015

All About Medical Expenses

Lots of folks have misconceptions about what can be deducted - what is and what isn’t allowable when it comes to medical expenses.

First of all, one must be able to itemize deductions in order to take the medical expense deduction. The IRS grants us an option of the standard deduction – generally taken by renters and lower income individuals or itemized deductions – generally available to homeowners and higher income individuals.  Either the standard deduction or the total of itemized deductions (reported on Schedule A) is subtracted from your income. Income tax liability is calculated on the remainder. So the more itemized deductions you can list, the more you will save in taxes.

Know this; you generally have to have an awful lot of medical expenses in order to take these expenses as an itemized deduction. You don’t just list your medical then deduct it. After totaling your medical expenses, the IRS requires that you subtract 10% (7.5% if you are 65 or older) of your adjusted gross income from the total of your medical expenses. You then write off the remainder.  So if you made $100,000 last year, you can write off the amount above $10,000 ($7,500 if 65 or older) in medical expenses. If you’re healthy, you might not have enough medical bills to enjoy the write-off. But don’t quit reading yet. You can deduct more than just doctor visits.

A complete list of deductible medical expenses is available in Publication 502. Most people track medical insurance, doctor visits, prescriptions, eye and dental care. You may be surprised to find the following are deductible medical expenses:

  1.  Capital improvements to your home or vehicle to accommodate a disability
  2. Transportation and lodging in another city if the primary purpose is medical care
  3. Medicare premiums deducted from your Social Security check
  4. Chiropractor, acupuncture, therapeutic massage, psychologist, psychiatrist, marriage counselor, naturopath
  5. Alcohol and drug addiction for inpatient treatment at a therapeutic center, including meals and lodging
  6. Dentures, birth control pills, and pregnancy test kits, fertility enhancement
  7. Cost of buying, training, and maintaining a guide dog or other service animal when required to assist you or your dependent with physical disabilities
  8. Unused sick leave to pay for your health insurance premiums
  9. Cost of medical conferences and transportation to same if the topic concerns the chronic illness of yourself, your spouse or your dependent
  10. Adapters to television sets and telephones for the hearing-impaired.
  11. Braille instruction, Braille books and magazines
  12. Bandages
  13. Health, dental and eye insurance, long term care insurance, HMO fees, disability insurance withheld from your paycheck
  14. Lead-based paint removal in your home
  15. Cost of weight loss clinic if prescribed by a doctor for treatment of obesity or hypertension
  16. Cost of medical care, lodging and meals in a nursing home if there for medical reasons
  17. Medical mileage – trips to see practitioners, pharmacy, etc
  18. Cosmetic surgery for breast reconstruction after a mastectomy for cancer or to correct a birth defect or other condition that interferes with one’s health.

Generally cosmetic surgery is not deductible.  However, a stripper won a court case several years ago and was allowed a deduction for breast enhancement. However, it was not allowed as a medical expense. Instead, she was able to write it off as an “ordinary and necessary” business expense.

Also not deductible are vitamins and supplements, gym membership, dance lessons and swimming lessons even if recommended by your physician, prescriptions for controlled substances (marijuana, laetrile, etc. that violate federal law) or prescription medicines from foreign countries, hair transplants and teeth whitening.

TIP: stack your medical expenses into one year. So for example, if you had a surgery this year and also need a root canal and new glasses, don’t wait until January to have that work done. Do it now so you can maximize the tax benefit. You cannot pay for them now and take the deduction unless you actually undergo the treatment or procedure.

By Bonnie Lee for Taxpertise

Published: July 1, 2015

Supreme Court Strikes Down Maryland Law That Double-Taxes Income

The Supreme Court struck down as unconstitutional a Maryland tax that has the effect of double-taxing income residents earn in other states.

Maryland officials say the 5-4 ruling means the loss of hundreds of millions of dollars in tax revenues. It also could affect similar tax laws in nearly 5,000 local jurisdictions in other states, including New York, Indiana, Pennsylvania and Ohio.

The justices agreed with a lower court that the tax is invalid because it discourages Maryland residents from earning money outside the state.

The unusual split wasn't along ideological lines. Writing for the court, Justice Samuel Alito said the tax "is inherently discriminatory" under the Constitution's Commerce Clause. The court has interpreted that provision to ban states from passing laws that burden interstate commerce.

Alito was joined by Chief Justice John Roberts and Justices Anthony Kennedy, Stephen Breyer and Sonia Sotomayor.

Maryland allowed its residents to deduct income taxes paid to other states from their Maryland state tax, but it did not apply that deduction to a local "piggy back" tax collected for counties and some city governments.

Maryland officials argued that the state has authority to tax all the income its residents earn to pay for local services like public schools.

The case arose after Maryland residents Brian and Karen Wynne challenged their tax bill. They had been blocked from deducting $84,550 that they had paid in income taxes to 39 other states. Brian Wynne's out-of-state income resulted from his ownership stake in a health care company that operates nationwide.

The Wynnes argued that Maryland was unfairly subjecting them to double taxation and taxing earnings that have no connection to the state.

Maryland's highest court ruled in 2013 that the tax violates the Constitution's Commerce Clause.

Maryland officials have said an adverse ruling could cost local governments in the state $45 million to $50 million annually and warned that Maryland might have to refund up to $120 million in taxes.

In dissent, Justice Ruth Bader Ginsburg said nothing in the Constitution requires a state to avoid taxing its residents just because another state has a similar tax regime targeting the same income. She was joined in dissent by Justices Antonin Scalia and Elena Kagan.

Scalia also wrote separately to note his longtime opposition to "a judge-invented rule under which judges may set aside state laws that they think impose too much of a burden on interstate commerce." Clarence Thomas wrote separately to say the Commerce Clause cannot be used to strike down a state law.

From the Associated Press

Published: June 30, 2015

10 States Where Taxes Are Going Up

Some states, still facing tight budgets after years of recession and slow recovery, are turning to tax increases to make up for the shortfalls. In some states, you'll soon pay more for Gucci bags and other luxury goods. In others, soft drinks, cigarettes, gasoline and live entertainment will cost more.

Pay attention even if your state isn't on this list. Some of the taxes are aimed at tourists and motorists passing through the states. And many other states may follow suit with similar tax hikes if these states' efforts prove successful at raising revenues without upsetting voters.

The tax increases may come as a surprise, since there are more pro-business, antitax Republicans in state legislatures than at any point since 1920. Here's a look at some of the tax increases kicking in this summer:


Buying a pair of Jimmy Choo shoes or even a T-shirt from the Gap will cost a little more in the Constitution State under a budget deal that is expected to yield nearly $1.7 billion in new revenue.

Starting July 1, yachts and other luxury items will be taxed at 7.75%, up from 7%, as part of a state budget plan for the next two years. And clothing and shoes under $50 will no longer be exempt from the state's 6.35% sales tax.

The state tax on cigarettes also will climb -- from $3.40 to $3.65 per pack on October 1, 2015, and to $3.90 per pack on July 1, 2016.Connecticut's wealthiest citizens and businesses will feel the biggest pinch. A projected $300 million will come from the addition of two income tax brackets above the state's current highest rate of 6.7%. The new top rate: 6.9%.


Hotel guests will have to pay $5 more each night, thanks to a tax package that could yield up to $1 billion to fix the Peach State's backlog of road and bridge repairs.

Drivers and owners of electric cars will also have to pay more. Motorists will pay an additional 6 cents for each gallon of gas starting July 1, 2016, under a new law that moves the state from a series of sales and excise taxes on gasoline to a single excise tax. Owners of electric vehicles face new registration fees ($200 a year for noncommercial electric vehicles, $300 for commercial). Meanwhile, heavy trucks will have to pay an extra "highway impact fee" of $50 to $100.

Counties also were given the green light to ask voters to approve a sales tax of up to 1% to fund local transportation projects.


Kansans will pay more for nearly everything they buy in the Sunflower State. Lawmakers raised the state's sales tax to 6.5% to close a $400-million budget gap. The hike came three years after Gov. Sam Brownback, a Republican, backed the largest tax cut in the state's history.

The new rate, up from 6.15%, is effective July 1. Coupled with local sales taxes, Kansas now leapfrogs California to have the eighth-highest sales tax in the United States, according to the Tax Foundation.

Smokers will pay more, too. The per-pack tax on cigarettes goes to $1.29, from 79 cents, effective July 1. And beginning July 1, 2016, people who use e-cigarettes will be taxed 20 cents per milliliter of consumable material.


What happens in Vegas may stay in Vegas, but so will more of your money, thanks to a historic tax package that is expected to raise $1.5 billion over the next two years. Everything from hailing a cab, smoking and attending events will cost more in the Silver State.

Taxi passengers, including Uber users, will see a 3% excise tax on all fares, and the cigarette tax will go up a buck, to $1.80 per pack. That's still a far cry from the nation's highest tobacco tax, $4.35 per pack in New York state.Most venues with live entertainment will have to charge a 9% ticket tax, instead of a sliding scale of 5% to 10%. The tax applies to fees for escort services, but not to rates charged by prostitutes at the state's legal brothels.

Finally, a 0.35% sales tax boost that was due to expire became permanent. Nevada relies heavily on the sales tax and tourism because it doesn't have an income tax. Most of the increases start July 1, although the live entertainment levy kicks in on October 1.

South Dakota

Motorists will have to pay more, but in return they'll be able to drive faster on two major highways.

State lawmakers passed sweeping legislation earlier this year that raised the gas tax by 6 cents per gallon on April 1, to 28 cents. It also added 1 percentage point to the excise tax on vehicle purchases, making it 4%. The legislation allows counties and townships to raise property taxes for road and bridge work, if voters agree. The entire funding package is expected to raise $85 million per year for state and local infrastructure work.

In exchange, drivers can legally travel 80 miles per hour on Interstates 90 and 29, 5 mph faster than the old maximum speed.


Motorists will pay 5 cents more per gallon at the pump, starting Jan. 1, 2016. The revenue will help fund transportation projects and maintenance. In addition, counties can add a sales tax increase of a quarter-cent per dollar if voters give an OK. Before the hike, the Beehive State faced an $11-billion funding gap for critical road projects through 2040.

Meanwhile, homeowners will see a boost of $50 on property tax bills in November. The $75 million in new revenue will be used for education programs.


Soft drinks and cigarettes will cost more, while wealthy taxpayers will be able to take fewer deductions. The changes were aimed at closing a budget gap of nearly $100 million.

For the first time, Vermont's 6% sales tax will hit soft drinks. The tax applies to nonalcoholic beverages that contain natural or artificial sweeteners, but not to those containing milk or milk substitutes, or to drinks that include at least 50% vegetable juice or fruit juice by volume. Also, smokers will pay an extra 33 cents in state taxes for cigarettes, raising the rate to $3.08 a pack by next year.

Millionaires in Vermont could pay about $5,000 more in taxes. The plan limits the amount filers can deduct from income taxes to $15,000 for an individual and $31,500 for a household. Vermonters also won't be able to deduct from this year's tax liability what they paid in state and local taxes the previous year.

Idaho, Iowa, Nebraska

Gas tax increases are also coming in Idaho (7 cents a gallon), Iowa (10 cents per gallon) and Nebraska (a 6-cent hike spread over four years).

Other states are likely to boost gas taxes in the coming years as Congress struggles to pass a long-term surface transportation bill to fund road and bridge repairs, and as the cost of deferred maintenance soars.

By Pamela M. Prah for Kiplinger

Published: June 29, 2015

Uber Case Spotlights a Challenge: When Is a Worker an Employee?

Regulators from California to Washington are trying to determine when a worker is an employee in an economy that increasingly relies on contractors and temporary hires.

The debate holds big financial consequences for companies including start-ups like Uber Technologies Inc., the San Francisco-based developer of ride-sharing software for drivers and passengers, as well as traditional businesses that perform construction, trucking and cleaning services.

Companies using contractors don’t have to pay a minimum wage, reimburse expenses or contribute to Social Security. Employees, but not contractors, can form labor unions.

“This is a stealth issue; technical on the surface, but with tremendous underlying importance,” said Gary Chaison, a professor of industrial relations at Clark University in Worcester, Massachusetts. “This is about classifying workers as full participants in the workforce and capable of being unionized.”

Last week, California’s labor commissioner ruled an Uber driver was an employee, ordering the company to reimburse her expenses. Federal labor attorneys in Boston and Chicago are reviewing a complaint brought by a driver for Uber competitor Lyft Inc. who is trying to organize a union. The U.S. Labor Department is preparing new guidance on the subject, and is spending more time investigating companies that may be misclassifying workers to avoid having to pay minimum wage or meet federal workplace standards.

On Demand

The developing “on demand” economy, which links workers - - drivers and cleaners, for example -- directly with customers, is creating new challenges for regulators. But classification issues are broader and, analysts say, increasing as the nature of work shifts away from permanent jobs that last a career.

“It’s going to impact not just independent contractors and sharing economy stuff, but a whole range of employment relationships,” said Alexander Passantino, a partner at Seyfarth Shaw in Washington. “There are some businesses whose whole business model may be called into question.”

If upheld in court, the California labor commission ruling against Uber could lead more drivers to seek reimbursement for gasoline and other expenses, a direct challenge to its business model.

Uber spokeswoman Jessica Santillo said the decision contradicts rulings in five other states that concluded that drivers were independent contractors.

"The majority of them can and do choose to earn their living from multiple sources, including other ride sharing companies,'' Santillo said in an e-mail.

Contingent Workers

In addition, Uber and Lyft face federal lawsuits that contend their drivers should have legal protections afforded employees.

The ranks of contingent workers, including the self-employed, temporary hires and independent contractors, swelled to 40 percent of the workforce in 2010, from 31 percent in 2005, the Government Accountability Office, Congress’s investigative arm, said in an April report. Most of the growth came in part-time workers, possibly due to the recession, the report said.

The National Employment Law Project, a New York-based group that advocates for workers, said in a report last year that the 2.8 million temporary workers in the U.S. was a record.

Labor Investigations

David Weil, who heads the U.S. Labor Department’s wage and hour division, said he’s concerned that the shift is costing workers wages and workplace protections provided to employees.

The agency has stepped up investigations into back pay violations by more than 20 percent since 2009, and has signed cooperation agreements with 21 states as part of a campaign against misclassification.

Weil said he plans to issue a new “administrative interpretation” to provide further guidance to help companies judge who’s an independent contractor and who’s an employee.

“Employment relationships in more and more industries have been broken apart,” said Weil, who as an economics professor at Boston University wrote an influential book on the subject called the “Fissured Workplace.”

In a fissured workplace, workers at a hotel may not be directly employed by the brand name on the door but a subcontractor hired by a staffing agency. Companies can reduce costs as much as 30 percent by using contractors instead of employees, Weil said.

Reduce Costs

“As each business takes its cut, things like pensions and other benefits fall out,” said Rebecca Smith, deputy director of the employment law project.

The employer-versus-independent contractor question also is arising in labor disputes.

Attorneys with the National Labor Relations Board’s regional offices in Chicago and Boston are looking into a complaint by a driver at Lyft who is trying to organize a union at the company.

As a first step, board investigators will have to determine if the driver is an employee and therefore eligible to organize under labor law.

Shannon Liss-Riordan, an partner at Lichten & Liss-Riordan, P.C. in Boston, is representing the Lyft worker. She also represents Uber drivers in California. Liss-Riordan didn’t return a call for comment.

‘Not Employees’

“Lyft drivers are not employees,” said Chelsea Wilson, a Lyft spokeswoman, in an e-mailed statement. “They use Lyft, and other on-demand services, as a flexible and reliable way to make ends meet without having to be stuck in a schedule that doesn’t work for them. We hear from drivers that this flexibility is one of the main reasons they choose Lyft.”

The NLRB also is reconsidering its definition of an employer. The five-member panel, which investigates worker claims and adjudicates labor disputes, soon may rule on a proposal from its general counsel to rewrite its “joint employer” standard, which could change the responsibility some businesses have over the working conditions and benefits of the contractors and temporary staff.

Business group are challenging the shift, arguing a new classification would raise costs and slow expansion in a growing segment of the economy.

“Upending the current, well-established, joint employer standard would cause uncertainty and disruption for many small business owners, force some small businesses to close and deter aspiring entrepreneurs from opening businesses and creating new jobs,” said Matthew Haller, a spokesman for the International Franchise Association, which opposes the proposed revision to the NLRB’s joint employer standard.

The issues over classification are “much more visible, much more complicated and much more significant in many ways,” due to the shifting nature of the workforce, Wilma Liebman, a former chairwoman of the National Labor Relations Board, said in an interview.

By Jim Snyder for Bloomberg Business

Published: June 24, 2015

Should you and your spouse file taxes separately?

If you are married, conventional wisdom says you should file a joint Form 1040 with your spouse. However, there are exceptions to the conventional wisdom, and you should consider them when preparing your 2014 return.

Here’s what you need to know:

Married at year-end equals married all year

Your marital status for federal income tax purposes generally depends on whether you were married as of Dec. 31 of the year in question. For example, say you got married near the end of last year. As far as the IRS is concerned, you were married for all of 2014. So your tax filing options for last year are limited to: (1) filing jointly with your spouse by combining your income and deductions on one return for the entire year or (2) using married filing separate (MFS) status, which requires you and your spouse to file separate returns that include your respective income and deduction items.

Why not file jointly?

Filing jointly will reduce the combined tax hit on you and your spouse, right? Not necessarily. In many cases, the biggest reason to file jointly is simply because it eliminates the need to file two separate returns. You may not save a dime in taxes.

That said, filing jointly usually does lower your tax bill when one spouse earns a lot more than the other. Reason: the joint-filer tax brackets are exactly twice as wide as the MFS brackets. So when one spouse earns quite a bit and the other not so much, filing jointly will usually cut your tax bill because more of the higher-earning spouse’s income gets taxed at lower rates. In this situation, the conventional wisdom is correct, and filing a joint return is usually the tax-smart choice. Still, you should not reflexively reject the MFS option. It can save taxes in certain circumstances that could apply to you. So please keep reading.

When and how to file separately

You should always check out the potential advantage of using MFS status whenever: (1) you and your spouse both have taxable income and (2) at least one of you (preferably the person with the lower income) has significant itemized deductions that are limited by adjusted gross income (AGI). AGI is the sum of all your taxable income items (salary, capital gains, dividends, and so forth) reduced by certain write-offs claimed on Page 1 of Form 1040 (such as deductible IRA and self-employed retirement plan contributions, alimony paid, and moving expenses). When you use MFS status, you separately calculate your AGI and your spouse’s AGI, and this can work to your advantage.

The three most common itemized write-offs that are limited by AGI are:

  • Medical expenses (deductible only to the extent they exceed 10% of AGI or 7.5% of AGI if you or your spouse was age 65 or older as of De. 31, 2014).
  • Personal casualty losses (deductible only to the extent they exceed 10% of AGI).
  • Miscellaneous itemized write-offs such as unreimbursed employee business expenses, fees for tax advice and preparation, and investment expenses (deductible only to the extent they exceed 2% of AGI).

 When you have these types of expenses, filing separately can lead to tax-saving results, because the AGI numbers on your separate returns will be lower. Therefore, your allowable deductions for these types of expenses may be considerably higher if you file separately.

Here’s the rub: You and your spouse cannot just split your income and deductions up any way you want in order to maximize the MFS tax savings. Instead, state law determines how you must divide up your income and deductions.

The single most important factor is whether you live in one of the nine community property states (Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington, and Wisconsin). If you do, you may be unable to gain much or any benefit from filing separately because you will probably have to split most or all of your income and deductions 50/50. (See the sidebar below.)

If you live in one of the 41 non-community property states or the District of Columbia, the general rule is that you and your spouse can each report the income you earn and the deductible expenses you pay on separate returns. For instance, the tax savings in the preceding example can be collected as long as the husband paid all the medical bills out of his own account and split the other deductible expenses 50/50 with his wife (by paying them out of a joint account funded by both spouses, for example).

Beware of the dark side of filing separately

It is important to understand that using MFS status can disqualify you from a number of potentially valuable tax breaks. For instance, the following goodies are off limits.

  • The child and dependent care tax credit.
  • The deduction for college tuition expenses.
  • The American Opportunity and Lifetime Learning tax credits for higher education expenses.
  • The college loan interest write-off.
  • The deduction for up to $3,000 of net capital losses (the deduction is limited to only $1,500 on a separate return).
  • The right to make a Roth IRA contribution if your separate AGI exceeds $10,000.

By Bill Bischoff for MarketWatch

Published: June 23, 2015

Your Tax Bill Isn't As Bad As You Think!

Tax Day is always a grim reminder of how much of the money you earn you don’t get to keep. But taxes are the price of living in a civilized society (ahem) and here in the United States, the tax burden isn’t all that bad, in general.

The typical American pays 31.5% of his or her income in taxes, including federal, state and local income taxes, plus the amount taken out to fund Social Security and Medicare. (That figure also includes the employer contribution to Social Security and Medicare, which might otherwise be added to your paycheck as income.) That’s a big chunk of money, but it’s lower than in most other advanced countries.

The average tax burden in developed countries is 36%, according to the Organization for Economic Cooperation and Development. Twenty-four advanced countries have a higher tax burden than the United States, while only 9 have lower taxes. Two countries similar to the U.S. have very similar tax burdens: Canada (also 31.5%) and the U.K. (31.1%).

Belgium, Austria and Germany have the highest tax burden, on account of extensive social assistance programs and nationalized healthcare (which virtually all developed countries have, except for the U.S.). At the bottom of the list are Chile (7%), New Zealand (17.2%) and Mexico (19.5%), countries that don’t fund big militaries and have low social security taxes

For all the angst over taxes in America, the tax burden on most people has declined during the last 35 years. President Obama raised some taxes beginning in 2013, but that mostly affected high earners. For many middle-income families, the effective federal tax rate -- after deductions and other tax breaks -- is the lowest it has been in decades.

By Rick Newman for Yahoo Finance

Published: June 19, 2015

Tax Breaks Remain In Limbo

It sounds like a cruel prank: Congress creates juicy tax breaks but makes them only temporary. Then, after the benefits expire, lawmakers procrastinate, leaving taxpayers wondering for many months whether those breaks will be extended—and whether they might be altered.

Some prank. Actually, that is the sad reality, thanks to continued Washington paralysis, especially on tax issues. This bizarre situation has sparked reader questions about the fate of “extenders” legislation, Washington shorthand for legislation to extend the life of numerous tax laws that died at the end of last year.

Here’s a look at three tax breaks that may or may not be revived for 2015 and what it all means for taxpayers.

Among the expired provisions that have sparked reader interest is one that encouraged many taxpayers to donate directly to charities from their individual retirement accounts. Charitable organizations loved this provision. They said it helped bring in large amounts of donations that might not otherwise have been made.

Here’s how it worked for the 2014 tax year: Taxpayers who were 70½ or older typically could transfer as much as $100,000 directly from an IRA to a qualified charity without having to include any of that money as income. Done properly, such transfers, known as qualified charitable distributions, counted toward the taxpayer’s minimum required IRA distribution for the year.

Bob Farney, a reader from Evansville, Ind., writes to ask whether this now-deceased law has been “re-approved” for 2015. If not, he asks, “how can a person plan for doing this? Having to possibly wait until December for Congress to re-approve (as happened last year for the 2014 tax year) is pretty risky.”

Answer: No, the law hasn’t been resurrected, says Greg Rosica, a tax partner at Ernst & Young and a contributing author to the EY Tax Guide. But most tax experts I have spoken to predict Congress probably will approve an extenders bill later this year that will include this provision, among others.

“Since these provisions are popular and impact many taxpayers, there is interest in continuing these provisions,” Mr. Rosica says. “However, there is a revenue impact to the government that needs to be considered.”

“Based on past practice, extending almost everything for another year would be a good bet, but it’s not guaranteed,” says Len Burman, Pozen Director of the Tax Policy Center, a joint venture of the Urban Institute and the Brookings Institution.

To be on the safe side, “taxpayers should probably put off taking their required minimum distribution for the year as long as possible to see what action Congress might take,” says Mark Luscombe, principal analyst at Wolters Kluwer Tax & Accounting U.S. in Riverwoods, Ill.

For more details on how this law worked, including some important twists, see go to

Sales-tax deduction

Under another expired tax provision, taxpayers who filed Form 1040 and itemized their deductions on Schedule A had a choice. They could deduct either their state and local income taxes or their state and local sales taxes, but not both.

The option to deduct sales taxes has been a big hit in states that don’t have a state income tax, such as Florida, Texas and Washington. But many people in other states chose that option, too. The IRS has estimated, based on preliminary data, that nearly 9.8 million federal income-tax returns claimed sales-tax deductions, totaling more than $16.2 billion, for the 2013 tax year.

Here’s my take: While nothing is sure these days, especially when it comes to taxes, this provision has an exceptionally good chance of being extended, at least through 2015. It has been so popular and affects so many voters that Congress will feel intense pressure to restore it.

Under the expired provision, taxpayers had a choice of how to calculate their sales-tax deduction. If they kept receipts, they could deduct the total amount of general sales taxes they paid during the year.

If they didn’t save those receipts or didn’t want to bother with the calculations, they could fill out an IRS work sheet and use the optional general sales-tax tables in the instructions for Schedule A. (They were allowed to add sales taxes on certain big-ticket items, such as a motor vehicle, aircraft or boat.) Or they could use the IRS’s sales-tax-deduction calculator.

This can be surprisingly tricky, especially for people who moved during the year. See the IRS website for details.

My advice: If you think you might benefit from this provision for 2015, save your sales-tax receipts, even though that’s a pain and even though it’s still not definite that this provision will be available for 2015. Many people probably will find they will get higher deductions that way than by relying on the IRS tables.

A reader asked whether this provision existed for the 2013 tax year. Answer: Yes. If you didn’t claim the sales-tax deduction for 2013 and want to do so, you can file an amended return using Form 1040X.

Educator-expense deduction

Millions of elementary- and secondary-school educators were eligible to deduct as much as $250 of their out-of-pocket expenses for classroom supplies, such as books and computer equipment, including related software and services, under a provision that has expired.

A friend asked whether this applied only to teachers. No. To qualify, you had to be a teacher, instructor, counselor, principal or aide who worked at least 900 hours in a school year in a school that provides elementary or secondary education, kindergarten through grade 12, based on state law, the IRS said.

This was an especially attractive break because educators who qualified could claim it whether or not they itemized their deductions. More than 3.9 million returns claimed it for the 2013 tax year, according to IRS estimates.

By Tom Herman for the Wall Street Journal

Published: June 18, 2015

The Triple Tax Benefit of Health Savings Accounts

Americans are generally aware of tax-advantaged investment vehicles such as 401(k) plans, individual retirement accounts and 529 college savings plans. But one instrument, the health savings account, isn't as well known, although it offers three separate tax benefits.

An HSA allows account owners to pay for current health care expenses and save for those in the future. Its first advantage is that contributions are tax-deductible, or if made through a payroll deduction, they are pretax. Second, the interest earned is tax-free. Third, account owners may make tax-free withdrawals for qualified medical expenses.

Qualified expenses include most services provided by licensed health providers, as well as diagnostic devices and prescriptions. They even include acupuncture and substance-abuse treatment.

Unlike health care flexible spending accounts, which have a maximum year-to-year carry-over of $500, HSAs have no limit on carry-overs or when the funds may be used. Even if the account is opened through an employer-sponsored program, all money in an HSA belongs to the account owner. Accounts are held with a trustee or custodian, which may be a bank, credit union, insurance company or brokerage firm.

Although the tax advantages are appealing, advisors say investors shouldn't overlook HSAs' role as vehicles to save for medical expenses in retirement, when health care expenses generally rise.

"When they are discussed, they're thought of as a tax shelter, which is true," says Shelby George, senior vice president of advisor services at Manning & Napier, a Fairport, New York, investment manager.

"There's no other vehicle under the tax code that has the kind of preferential treatment that health savings accounts have. But it's a way for those who are not focused on tax-shelter opportunities to put the money aside as well," she adds.

HSAs were established under the Medicare Modernization Act of 2003 and are available to people covered by high-deductible health plans. According to the IRS, those are plans "with an annual deductible that is not less than $1,300 for self-only coverage or $2,600 for family coverage, and the annual out-of-pocket expenses (deductibles, co-payments and other amounts, but not premiums) do not exceed $6,450 for self-only coverage or $12,900 for family coverage."

As employers try to shift health care costs away from the company and onto workers, high-deductible plans are becoming more common. That means more Americans are becoming eligible for HSAs. It also means financial advisors see more opportunities to educate clients about the benefits of HSAs.

Ann Reilley Gugle is co-owner and principal at Alpha Financial Advisors in Charlotte, North Carolina. For people who are eligible, an HSA is a good choice, she says.

"We typically advise clients to take advantage of enrolling in HSA-eligible, high-deductible health plans if their employer offers them and they don't typically have high out-of-pocket health care expenses. We recommend contributing the maximum amount to the HSA annually, as this vehicle allows you to save tax-free for future health care costs," she says.

Gugle adds that there is a strategy to maximize the account's benefits. She suggests investing the money for long-term appreciation, letting it grow tax-free, rather than spending it on current health care needs.

"In this sense, the HSA resembles a Roth IRA, in that it grows tax-free, but you also get the benefit of a current deduction. We advise clients to keep growing the HSA as long as possible as a hedge against the risk of rising health care costs," she says.

HSAs have contribution limits. For 2015, an individual may contribute up to $3,350; for a family, that amount is $6,650. People over 55 may add another $1,000 per year as a catch-up contribution.

Rising health care expenses. The investment industry often appeals to retirement savers with images of healthy, attractive couples walking on the beach. But it leaves out an unpleasant reality of aging: increased medical expenses.

HealthView Services, a Danvers, Massachusetts, maker of health care cost-projection software, studies retiree medical expenses. In a 2015 report, it found that medical expenses for a 65-year-old couple retiring today rose by 6.5 percent over a year ago.

Rapidly rising health care expenses are a reason to designate funds specifically for medical costs, says Ryan Monette, a financial advisor at Savant Capital Management in Rockford, Illinois.

"Because the HSA grows tax-deferred and distributions for qualified medical expenses are tax-free, I recommend funding the HSA even at the expense of lowering retirement plan contributions for those near retirement age," he says. "We know that medical expenses will play a role at some point, so why not take advantage of the deduction from current contributions and the tax-free nature from the distributions? In a way, it is saving for retirement, but the funds are earmarked towards qualified medical expenses."

To quickly fund an HSA, Monette suggests a transfer from an IRA. An individual may make a tax-free rollover from an IRA to an HSA once in his or her lifetime. The rollover is limited to the maximum allowable contribution for the year, minus any amount already contributed.

Before age 65, account owners face a 20 percent penalty for withdrawals for nonqualified medical expenses. These include elective cosmetic surgery, hair transplants, teeth whitening and health club memberships, among other things.

Starting at age 65, account owners may take penalty-free distributions for any reason. However, to be tax-free, withdrawals must be for qualified medical expenses.

Although HSAs may seem a little more complex than other retirement-savings vehicles, advisors say some research can pay off.

"An HSA is really an important financial planning tool," George says. "Individuals could benefit from taking some time to understand how these plans and savings accounts work."

By Kate Stalter for US News 

Published: June 11, 2015

4 Costly Misconceptions About Student Loans

Student loans may be designed to help your child become smarter, but after trying to find some, you may end up feeling pretty stupid.

It doesn't help that by the time you get to looking at student lending options, you're probably mentally exhausted from helping your college-bound kid apply to schools – and from filling out the Free Application for Federal Student Aid form, aka FAFSA, which can be completed annually by students looking for financial aid. But even if you didn't have to go through all of that, student loans are simply complicated because there are so many options.

Taking out loans also equals taking on debt, which is why you don't want to make big mistakes. In a recent report from the Institute for College Access & Success, 69 percent of 2012 graduates had an average $28,400 in student loan debt. The report, however, noted that because most for-profit colleges don't report what their students owe, that number may be higher.

Charles Wareham, CEO of Valark Financial Services in Hartford, Connecticut, says he’s seen many clients' kids graduating with $60,000 or more in student loans.

As far as monthly payments go, Wareham says, "That's at the level of having a condo mortgage without the condo."

What you don't want to do is allow your misconceptions about student loans to exacerbate your kid's student loan problems. And there are so many misconceptions swirling about, including:

False belief No. 1: No need for student loans. High grades will pay the way. It's a nice fantasy, thinking your kid's grades are going to yield a full ride. But in most cases, it’s just a pipe dream.

While full-ride scholarships do exist, they’re more rare than many parents and students realize, says Maggie Mittuch, associate vice president for student financial services at University of Puget Sound, a private liberal arts institution in Tacoma, Washington.

"The full ride or paying full-freight thing isn't the standard experience, not on my campus, or most universities, from what I've seen," Mittuch says.

So unless you've saved up everything for college, expect to take out some student loans. "With the high cost of college, it’s almost impossible for the everyday family to pay for college without debt," Wareham says.

False belief No. 2: You have to lock in student loans ASAP. Sure, it's always nice to get something checked off your to-do list, but if you're a natural-born procrastinator, that's OK in this instance.

"One of the biggest misconceptions about loans is around timing. Many families think they must make a decision about accepting a student loan very early in the process, and [that] once that decision is made, they can't change their minds," says Jill Nutt, director of financial aid at Hope College in Holland, Michigan.

Nutt works with many families who aren't sure how much money they'll need – if they even need a loan at all. "No problem," Nutt says. "Federal loans can be certified and originated well into the school year, assuming the student continues to meet all eligibility criteria."

False belief No. 3: All student loans are created equal. As your eyes glaze over while reading the fine print, you may be tempted to assume there aren't major differences between the loans, especially if you're looking at a loan you know you can get. But student loans are not created equally, and some private loans are predatory, warns Adam Minsky, a Boston attorney who devotes his entire law practice to assisting student loan borrowers.

"You can basically think of student loans as two broad groups," Minsky says. "Loans that are guaranteed directly by the federal government, and then everything else."

The “everything else” describes private loans, offered by places including banks, credit unions, state agencies and the universities and colleges themselves. "As a general rule, private loans are much more restrictive, and you don't have much wiggle room in how you make your payments. They also usually have a higher interest rate," Minsky says.

And it is dangerous not to make distinctions between federal and private loans, Minsky says, citing a former client who came into his office with numerous loans, including one for $30,000 from a private lender.

"The borrower was on some sort of payment plan – a very long plan that lasted between 20 and 30 years, and the interest rate was very high, over 10 percent, and the loan had origination fees,” Minsky explains. “Since it was a private loan, interest was accruing the moment the borrower was in school." So by the time the loan would be paid off, the borrower will have paid $100,000 in interest.

"It's mind-blowing to think that to get an education, you're going to spend $100,000 [extra] for a $30,000 loan," says Minsky, who was able to help the borrower reduce other student loans, making it easier to pay off the $30,000 private loan faster, which was loaded with restrictive contractual language locking the borrower into paying it all off.

False belief No. 4: You think your student loans are … [insert your own misconception]. Plenty of borrowers, especially students, don't understand the terms of their loans, and they end up creating their own realities. For instance, Mittuch says a lot of the student borrowers she works with either think "the loan payments will be crippling, or that paying them off won't be difficult."

She adds that her office works hard to educate the students in financial literacy, but you should help your college student at least understand how much the payments will be and when the monthly payments will begin.

Many parents evidently don't do that. Brian Quisenberry, director of financial planning at Birmingham-Southern College in Birmingham, Alabama, says he meets borrowers who don't even realize they will need to make payments after college.

"Some students seem to forget that they took out the loans," he says.

Of course, to some extent, this is understandable. You live a lot of life during four or more years of college. Between tightly scheduled classes, late-night studying, making new friends, dating, drinking, getting a hangover, having midnight pizza fests, packing on the freshman 15, working a job while going to college, pledging to a fraternity or sorority, sleeping – whatever your kids do in college, they’ll do a lot of it. By the time they leave college, those high school years, when you were all fretting about how to pay for everything, feel a lifetime away.

Plus, if your kid forgets, it may be your fault.

"Part of this may be that their parents are the ones completing the student’s loan entrance and exit counseling on their son or daughter’s behalf," Quisenberry says. "Then, when the loan payment information arrives from the servicer six months after graduation, the student either doesn’t remember taking out the loans in the first place or thinks it’s a mistake and doesn’t begin making payments."

But knowing how much fun it is to pay off debt, can you really blame your kid for wanting it to be a mistake?

By Geoff Williams for US News

Published: May 15, 2015

4 Ways the New Overtime Rules May Affect Your Paycheck

In the coming months, millions of employees around the country could learn that they will become newly eligible for overtime pay due to a change in federal rules.

Everyone's first assumption is that the rule change will mean bigger paychecks. But that may not be how it plays out for some or even many.

Today, the only way you're automatically guaranteed time-and-a-half pay after logging 40 hours a week is if you earn less than $23,660 a year ($455 a week).

A soon-to-be unveiled proposal from the Department of Labor is expected to raise that threshold. Observers believe the proposed salary threshold will fall somewhere between $42,000 and $52,000, although some advocates would like to see it go as high as $69,000.

One of four changes could occur if your pay falls below the new threshold:

1. You'll start getting overtime: Right now, workers who make a little more than $23,660 and are given some managerial duties are considered "exempt" from overtime pay. Under the new rules, such low-paid managers would be reclassified as "non-exempt," so when they work more than 40 hours they would be compensated at time and a half.

2. You'll get a small raise. If you earn just under the new threshold, an employer may decide to just raise your base pay by a few thousand dollars to avoid having to pay you overtime, said Tammy McCutchen, a management-side lawyer with firm Littler Mendelson.

3. No more pay, but your hours could be limited. If you regularly work long hours but don't get paid overtime because you're exempt, you might be able to start heading home earlier. Your boss might just prefer to send you home after an 8-hour day, rather than pay you extra.

4. You could see no change in hours or pay. Even if you become eligible for overtime, you may still end up working long hours but not get paid a dime more, because your employer could lower your base pay to offset any overtime you'll be owed.

Say an assistant manager makes $40,000 a year or $770 a week. And say she usually puts in about 50 hours a week.

If she becomes eligible for overtime pay under the new rules, her employer may decide to reset her hourly rate so that her pay still won't top $40,000, even with her 10 extra hours of work every week.

The "cost-neutral" rate would come to $560 a week, or $14 an hour, said McCutchen, who used to run the DOL's Wage and Labor Division.

Add to that $210 for 10 hours of overtime at $21 an hour and the employee's paycheck for a 50-hour week is still $770.

But there's a big downside here: If she puts in fewer than 50 hours, she'd essentially see a pay cut because, unlike an exempt employee, she will only be paid for the hours she works.

That may feel all kinds of wrong. But it is not illegal.

The federal government can't tell employers how much they should pay their employees so long as they're paying at least minimum wage under federal and state laws, said McCutchen, who will draft public comments on the new rules for the U.S. Chamber of Commerce.

Still, employers who exercise this option could pay a different price.

"[Workers] will understand loud and clear just how valuable they are to the employer and probably jump ship the first chance they get," said Judy Conti, federal advocacy coordinator of the National Employment Law Project.

Other potential effects: Sometimes companies offer less generous benefits to non-exempt employees than to their exempt staffers, McCutchen noted. So some workers who are reclassified as non-exempt under the new rules may find changes to their vacation accrual schedules and health benefits. Or they may no longer be entitled to bonuses or profit-sharing.

By Jeanne Sahadi for @CNNMoney

Published: May 13, 2015

When You Should (and Shouldn’t) Worry If Your Tax Refund Is Delayed

For those anxiously awaiting a check in the mail or a sum deposited directly into their bank account, the wait can be fraught with worry.

After all, a delayed refund can mean more than waiting a few extra days for your cash – it can signal problems with your return. So when should you give worrying a rest, and when is there real cause for concern?

Where’s My Return?

According to the IRS, refund information is available as soon as 24 hours after an e-filed return is received, while the status on a mailed return takes about three to four weeks. The IRS’s Where’s My Refund? tool is popular with taxpayers wanting to check on their return. In fact, it’s so popular that the tool has been known to get jammed by eager taxpayers checking on their returns several times a day.

By early March, the website and mobile app had received more than 179 million hits, although the IRS has only processed 72 million tax returns by roughly the same period. An incredible backlog isn’t to blame for the disparity. It’s the result of people making multiple visits per day.

“Where's My Refund? is the quickest and easiest way for taxpayers to get important information about their tax refund," IRS Commissioner John Koskinen said in a statement this month. "Taxpayers need to remember that the Where’s My Refund? system is updated every 24 hours, usually overnight, so there's no need to check more than once a day."

Repeat: There’s no need to check it more than once a day.

We’re starting to get on the tail end of it, but the early-season filers are blowing up the IRS with Where’s My Refund?” says Brian Ashcraft, director of operations for Liberty Tax. “But the IRS recently announced that more than 90 percent of refunds are being issued in less than 21 days.” The only question that remains, he says, is “what’s the issue with the remaining 10?”

Ashcraft says there are a number of reasons a refund could be delayed, any of which are a legitimate cause for concern. “Incomplete or glaring errors on the return could do it, or they could get an additional IRS review,” he says. “Certain returns are flagged, or if your return has been impacted by identity theft or fraud.”

But Melissa Labant, director of the American Institute of Certified Public Accountants tax staff, says taxpayers will know that’s an issue long before they go to check the status of their refund. “If there’s an issue of identity theft, in most cases, you’ll know when you attempt to file your return,” she says. “The IRS won’t allow you to file your return because another one has been filed under your Social Security number.”

Earlier in the tax season, some TurboTax customers encountered this sort of fraud when they attempted to file a state return, only to discover one had already been filed with their information.

The holdup with your tax refund could also be an issue of withholding.

“Unpaid child support, federal agency debt, outstanding student loans, back state income tax – any of these things could offset the refund,” Ashcraft says. “But if it does, you’ll be notified.”

Before you assume the worst, remember a few things: The IRS is short-staffed, most Americans are filing their returns in April and sometimes a delay is just a delay.

“With the recent budget cuts at the IRS, it may simply take longer to process everyone’s returns,” Labant says.

When to Take Action

If you haven’t heard anything three weeks after of filing your return, it’s time to check in with the IRS.

“After 21 days, that would be the only time you’d realize that something didn’t go through as normal,” Ashcraft says, “and you can talk to an IRS representative.”

If a month goes by and you haven’t heard anything, visit the Where’s My Refund? page for more information. If your refund has been lost, you can request a replacement check if it has been more than 28 days from when your refund was mailed. 

And keep in mind there's always the possibility that a minor error is holding things up.

“It’s not always 'the sky’s falling' if you didn’t get your refund,” Ashcraft says. “Sometimes, you just didn’t fill it out properly.”

By Molly McCluskey for US News

Published: May 12, 2015

When It's OK to Tap Your IRA

You've been saving diligently for your retirement, but now you need some of that cash to cover today's expenses. Can you get to it without incurring Uncle Sam's tax wrath? In some instances, the answer is yes.

The tax laws governing early distributions are toughest when it comes to traditional IRAs, but they also apply, albeit slightly differently, to Roth accounts. For both types of retirement plans, the IRS generally considers IRA withdrawals made before you reach age 59 1/2 as premature distributions. In addition to owing any tax that might be due on the money, you could face a 10 percent penalty charge on the amount.

But there are times when the IRS says it's OK to use your retirement savings early.

Two popular, penalty-free withdrawal circumstances are when you use IRA money to pay higher-education expenses or to help purchase your first home.

OK for School

When it comes to school costs, the IRS says no penalty will be assessed as long as your IRA money goes toward qualified schooling costs for yourself, your spouse or your children or grandkids.

You must make sure the eligible student attends an IRS-approved institution. This is any college, university, vocational school or other postsecondary facility that meets federal student aid program requirements. The school can be public, private or nonprofit as long as it is accredited.

Once enrolled, you can use retirement money to pay tuition and fees and buy books, supplies and other required equipment. Expenses for special-needs students also count. And if the student is enrolled at least half time, room and board also meet IRS expense muster.

First-Home Exemption

Then, there's your home. Uncle Sam offers various tax breaks for homeowners. He'll even bend the IRA rules a bit to help you get into your house in the first place.

You can put up to $10,000 of IRA funds toward the purchase of your first home. If you're married, and you and your spouse are first-time buyers, you each can pull from retirement accounts, giving you $20,000 in residential cash.

Even better is the IRS definition of "first-time homebuyer." Technically, you don't have to be purchasing your very first abode. You qualify under the tax rules as long as you (or your spouse) didn't own a principal residence at any time during the previous two years. In fact, you can even share your IRA wealth. The IRS says the first-time homebuyer using your IRA funds for a down payment can be you, your spouse, one of your children, a grandchild or a parent.

But be careful not to take out your money too soon. You must use the IRA funds within 120 days of withdrawal to pay qualified acquisition costs. This includes the costs of buying, building or rebuilding a home, along with any usual settlement, financing or closing costs.

Different Treatment for Roths

These homebuying IRA options apply to traditional retirement accounts. The rules are a bit different if your nest egg is in a Roth IRA.

The $10,000 you take out for your first home is a qualified distribution as long as you've had your Roth account for five years. This means you can take out your retirement money without penalty, and because Roth earnings are tax-free, you'll have no IRS bill, either.

If, however, you opened your Roth IRA less than five years ago, the withdrawal is an early distribution. As with a traditional IRA early withdrawal, a Roth holder can use the first-home exception to avoid the 10 percent penalty but might owe tax on earnings that are withdrawn.

You can reduce the tax bite by first withdrawing the already-taxed contributions you made to your Roth. In fact, the IRS has specific rules about the order in which you can take unqualified Roth distributions: contributions, conversions from traditional IRAs and earnings.

Military Exceptions

Members of the military reserves also can receive early IRA distributions without penalty. To qualify, the following conditions must be met.


  • You were ordered or called to active duty after Sept. 11, 2001.
  • You were ordered or called to active duty for a period of more than 179 days or for an indefinite period because you are a member of a reserve unit.
  • The distribution is from an IRA or from an elective-deferral plan, such as a 401(k) or 403(b) plan or a similar arrangement.

In addition, the early distribution cannot be taken before you received your orders or call to active duty or after your active duty period ends.

Personnel eligible for this early withdrawal exception include members of the Army or Air National Guard; the Army, Naval, Marine Corps, Air Force or Coast Guard Reserves; and the Reserve Corps of the Public Health Service.

Allowable (but not preferable) Distributions

Early IRA withdrawals also are penalty-free in a few other instances. Unfortunately, most of these are hardship situations that no taxpayer wants to face.

Hardship circumstances for penalty-free withdrawals:

  • Payment of excessive unreimbursed medical expenses.
  • Payment of medical insurance premiums while unemployed.
  • Total and permanent disability.
  • Distribution of account assets to a beneficiary after you die.

You also can get IRS-approved early access to your nest egg if you take IRA money on a specific schedule. Known as substantially equal periodic payments, this method allows you to begin withdrawing from your IRA early as long as the amounts are determined by an IRS-calculated life expectancy table.

Finally, keep in mind that the early withdrawal exceptions do not eliminate your tax bill if you take the money out of a traditional IRA. Unlike Roth accounts where you eventually can withdraw your money tax-free, taxes are merely deferred on traditional IRAs. So when you take the money out of such an account, regardless of your age or the purpose of the withdrawal, you'll owe your regular tax rate on the amount.

But the early withdrawal exceptions do protect you from paying the IRS more in penalty charges. To let the IRS know that you used the retirement money early for a tax-acceptable purpose, file Form 5329. When you report your withdrawal here, you'll also enter a code, found in the form's instructions, that lets the IRS know the distribution is penalty-free.

By Kay Bell for

Published: May 8, 2015

CPAs Play an Essential Role in Improving Financial Education of Americans

As Financial Literacy Month draws to a close, it’s important to reflect on the essential role CPAs play in helping improve the financial knowledge of Americans.  Educating consumers about their finances is the volunteer cause of the CPA profession.  Through the AICPA’s 360 Degrees of Financial Literacy program (360), thousands of CPAs from all over the country volunteer their time to speak with consumers of all ages about their finances. Increasing our citizens’ financial education is critical to our country’s financial success, and the AICPA is leading the way for the CPA profession.

During my tenure as chair of the National CPA Financial Literacy Commission, CPAs across the country achieved much and celebrated many milestones in financial literacy.  I have been involved with developing and releasing several rounds of creative from Feed the Pig, the AICPA’s PSA campaign with the Ad Council, and, along with the rest of the Commission, participated in releasing the AICPA’s first consumer publication, Save Wisely, Spend Happily, authored by Commission member Sharon Lechter, CPA.  Commission members promote 360 and its related programs, and represent 360 before the media and national organizations. Our members are essential in promoting 360 with AICPA leadership, committees, state society leadership and key accounting organizations. I am proud of the work Commission members do and the leadership they provide.

CPAs in public service have also played an important role in the profession’s financial literacy efforts. On April 22, U.S. Representative and Congressional Caucus on CPAs and Accountants member Michael Conaway, CPA (TX-11) gave a speech on the House floor highlighting April as Financial Literacy Month. Representative Conaway noted the important role that CPAs across the country play in improving the financial literacy of Americans, and how, for over 10 years, the AICPA, members and state CPA societies have worked together through 360.

Since 360 was launched eleven years ago, more than 2,500 financial education events have been held by the AICPA and all 55 state CPA societies. In honor of this year’s Financial Literacy Month, the AICPA launched an updated 360 website, the centerpiece of our financial literacy program, with revised tools and content to provide enhanced guidance and support to consumers everywhere. The website contains information on making smart financial decisions through every life stage.  Earlier this month, the AICPA also launched a new Tumblr campaign for Feed the Pig, designed to educate young adults about their finances through memes and humor.

The road to financial well-being is a lifetime endeavor.  As a father of five grown boys, I know firsthand the importance of planning for college, a career and a secure retirement.  I told each of them early on that there are many paths to a secure financial future.  It is important to first decide where you have your passion, then determine how to fund the education needed to get there.  Getting a solid education leads to good employment and an affordable lifestyle. 

Through one united effort of the profession, CPAs are playing an essential role in the financial education of our nation. I am proud of the work the AICPA, members, state CPA societies and the National CPA Financial Literacy Commission has accomplished over the past three years and look forward to continuing to play an active role in improving the financial well-being of all Americans.

By Ernest A. Almonte for AICPA Insights

Published: May 6, 2015

Could You Owe Taxes of College Scholarships?

Paying for college isn’t getting any cheaper, so in order to avoid going into unaffordable education debt, families and students either need to save more money, go to less expensive schools or find someone else to pay for it.

There are hundreds of thousands — maybe even millions — of scholarship opportunities out there, but receiving monetary awards can do more than affect your financial aid situation. It may also affect your taxes.

Defining ‘Scholarship’

Whether or not a scholarship is taxable depends on a few things, mostly on how you receive it. A lot of schools give students discounts on tuition and fees and call it a scholarship, but the institutions aren’t really giving students money to help pay for school; they’re just charging them less.

That sort of scholarship isn’t taxable, said Elliott Freirich, a certified public accountant in Chicago. It sill affects the scholarship recipient’s taxes, because reduced tuition may mean a reduced amount of education credit he or she can claim.

If a school is actually giving you money, that changes things. Such a situation often comes up in graduate programs, when students sometimes receive stipends for work they do at the university or to cover living expenses during a demanding, time-consuming program. Stipends are taxable and should be reported as Form W-2 income, Freirich said. In his experience, however, that doesn’t always happen.

“Universities often screw up how it’s reported,” he said. “In some cases, they have reported it as self-employment income, which means the student is going to have to pay both halves of Social Security and Medicare on that income.” He’s also encountered students who didn’t receive any tax forms from their universities — just letters stating the stipend amount — and it’s up to the student to figure out the tax part.

“I would ask for a tax document first,” Freirich said. “Ask for some kind of official documentation from the school, and if the school doesn’t know … find a good CPA to help you.”

How to Handle Checks

Sometimes, a scholarship program will dole out awards by paper check directly to its recipients. From a tax perspective, there are two things to consider when you receive a scholarship: What you're using it for and how you're receiving it. If you use the money to pay for tuition, fees books, supplies or equipment required for enrollment at your institution, the scholarship is tax-free. It's paying for optional expenses (anything you're not required to pay for in order to be enrolled) when your scholarship would be subject to taxes.

If you receive and deposit the check, and you use the funds to pay for optional education-related expenses, you are required to claim that check as taxable income, Freirich said. However, if the scholarship program sends the payment directly to the school, essentially paying on your behalf, you never receive that money and do not pay taxes on it.

"The school just issues a document called a 1098-T, and it shows how much is paid for tuition and how much is a scholarship, but it doesn’t say 'This much was for room and board and is taxable,'" Freirich said. (Room and board can get tricky with scholarships, because if it's not required for enrollment, it could be considered an incidental expense and subject to taxes). The key here is to communicate with the scholarship provider and make sure you understand how the funding will be delivered.

Scholarships are a fantastic resource for students looking to reduce how much they pay for their educations. They’re generally quite competitive, which is why financial aid experts often recommend applying for as many as you can and treating the scholarship search-and-application process like a job. The less of your education you have to finance with student loans, the better, because while student loans can be a good resource for making higher education attainable for people of various financial backgrounds, the debt can be a serious, lifelong burden if it’s mismanaged. Student loan debt can generally not be discharged in bankruptcy, and falling behind on loan payments will destroy the borrower’s credit for years.

By Christine DiGangi for Fox Business

Published: May 4, 2015

Obamacare Took $729 Bite Out of Tax Refund

The majority of filers who received federal help to pay for their health insurance in 2014 got an unwelcome surprise when it came to their refund.

Sixty-one percent of filers saw their refunds reduced by an average of $729 -- or a third of the group's overall average of $2,195, consumer tax services providers said Monday.

The reason for the decline: they'd underestimated what their 2014 household income would be when they signed up for insurance on a health exchange back in 2013.

The lower your income, the higher your federal subsidy. Anyone earning up to 400% of the poverty line is eligible for a subsidy. That means any individual earning up to $45,960 (or $94,200 for a family of four).

If you received a subsidy based on an estimated income that turned out to be lower than your actual income, you must repay a portion of the subsidy.

Roughly 13% of prepared returns involving health insurance subsidies saw no change in their refunds, while about 25% actually saw their refunds increase by an average of $425 because those filers had overestimated their 2014 incomes.

Filers who remained uninsured for more than three months in 2014 were subject to a penalty. The average penalty paid was $178 among affected clients, according to those polled preparers.

The penalty for being uninsured in 2014 was $95 or 1% of income, whichever is greater. This year, it will be the greater of $325 or 2% of income. That means an uninsured family of four with a $60,000 income would see their penalty jump to $975 from $400 in 2014.

If you don't have the money to pay the penalty or if you refuse to pay, the only legal way for the government to collect that money is to withhold as much of your refund as necessary.

There are, however, some exemptions to the penalty that a filer may claim. Among H&R Block clients who claimed a penalty exemption, 46% said their income fell below the tax-filing threshold.

H&R Block did not reveal how many 2014 returns it prepared that had a federal subsidy component. But the company did say it prepared 20.5 million returns overall.

The IRS, which is the final arbiter on tax statistics for the country, has not yet released a statistical analysis of the 2014 returns.

By Jeanne Sahadi for @CNNMoney

Published: April 28, 2015

Tax Season Is Over - Or Is It?

April 15 has come and gone and perhaps you filed your tax return and perhaps you instead filed for an extension. If you filed for an extension, remember that’s only an extension of time to file, not an extension of time to pay. If you think you will owe, you should send the IRS a payment, making sure you write: “2014 Form 1040” and your Social Security number on the check.

If you have filed, you likely have exhaled, happy to have the chore accomplished.

But guess what? Tax season is never really over. And I’m not saying that purely from a tax professional’s point of view. Keeping as much of your own money in your pocket and out of the hands of the IRS is the goal of pretty much everyone in this country. And in this day and age with loopholes closing and tax laws changing seemingly every twenty minutes, it pays to take steps to ensure that next year you will legally pay the minimum necessary.

Below are some tips to help you on the journey:

1. Review your 2014 income tax return. If you are number savvy, you might be able to do this on your own. If not, make an appointment with your tax professional for later next month (he or she is likely off to Barbados right now!) to look over your taxes and determine if there are any cost saving measures that you can employ to reduce your liability this coming year.

2. If you will experience any major life-changing events this year – marriage, divorce, birth of child, move to another state, changing jobs, losing a job, becoming self-employed, getting rich or poor from the stock market, whatever it may be - get with your tax pro for a planning session. It’s important to crunch the numbers to not only predict next year’s tax liability, but to find ways to minimize it and to prevent any big surprises next April 15. A client came to me a year ago who had gone through a divorce, turned his personal residence into a rental property, and changed jobs. He was shocked at what he owed. If he had sat down with a tax professional during the course of the year, there may have been steps he could have taken to reduce his liability. But by the April 15th due date it was too late. Most transactions must occur during the tax year.

3. Start a tax file for 2015. Throughout the year put in the receipts and data and charitable organization acknowledgement letters and any other information that will be necessary for preparing your 2015 income tax return. Getting organized as you go is so easy and rewarding. Then come next January, slide in those important tax documents that arrive in the mail – W2s, 1099s, K-1s etc. You will magically be prepared to file your taxes by the beginning of February.

4. File early. Your tax pro is considerably more clear-headed and relaxed in February than on April 14th. Some preparers offer a discount for bringing in data before February 10th for example. Preparing your return far in advance of the due date may provide you with a window of opportunity to stockpile your retirement plan before the April 15th due date thus saving you money. It may also give you time to review your finances and determine if you had missed any deductions.

By Bonnie Lee for Taxpertise

Published: April 27, 2015

Taxes are Filed – Now What?

If you filed your tax return by April 15, you can exhale, kick back and wait for your refund – if you’re getting one.  Here are some answers to many post tax season questions that most taxpayer have:

1. When will I get my refund?. The most secure method of receiving your refund is direct deposit to your bank account - checking or savings.  You don’t have to worry about thieves at the mailbox if the funds are transferred to you electronically. It doesn’t cost extra to receive your refund in this manner. If you elected to receive your refund by check and have already filed your taxes, it’s too late to ask the IRS to perform a direct deposit. Just keep this method in mind for next year.  Your bank will not tell you when the refund arrives but usually it can take anywhere from one to two weeks depending upon when in the season you electronically filed your tax return.  If your paper filed your return, it could take as much as four to six weeks. Continue to check with the bank to determine if it has arrived.

2. Why is my tax refund being held up?  If it has been more than two weeks since you electronically filed or more than four weeks if you paper-filed your return, go to the Where's My Refund button on the IRS website home page to discover the progress of your refund. The step-by-step procedure is very easy to follow. You need to know your filing status, your Social Security number and the exact amount of the refund from the tax return. You can expect a hold up or relinquishment in the refund for various reasons: past due student loans, unpaid child support, unpaid state income tax liabilities, claiming injured spouse, or questions about the validity of the Earned Income Tax Credit claimed on your return.

3. What if I can’t pay? If you filed your return without paying the tax owed, don’t panic. The good thing is that you filed the return. I often hear stories of taxpayers who don’t file because they can’t pay. Big mistake. By not filing, you incur a “failure to file” penalty on top of the failure to pay penalty. And it can get expensive. The failure to file penalty racks up at 5% per month, capping out at 25%. That’s $250 on a $1,000 liability. So if you haven’t filed for this reason, file now! And if you have filed but didn’t pay and you think you can pay off the balance within six months then begin making payments as soon as possible. Write “Form 1040 2014” along with your Social Security number on the memo line of the check to ensure that the payment is applied to the 2014 tax year. Better yet, make your payments electronically at EFTPS, the IRS secured website for receiving payments. The IRS will bill you with penalties and interest for not paying the total due by April 15. Just make the payments accordingly. The first six months you will receive correspondence from the IRS requesting payment. Be assured that these are computer generated. A human is not handling your account; no one is going to send out Roscoe and Vinnie to collect. If after six months, you have not paid in full, set up an Online Payment Agreement Application. There is an application fee.

4. I made a mistake on my tax return. Now what? If after filing your taxes, you review your return and encounter an error, know that this doesn’t necessarily flag your return for a face-to-face audit with an actual agent from the IRS. Every year the IRS mails out “correspondence audits” that also are not handled by humans. The IRS matches documents filed by banks, your employer and other sources to individual tax returns to ensure that the proper amounts of income and deduction have been reported. For example, your employer provides you with a W2 showing taxable wages of $50,600 but on your tax return you showed only $50,000 - $600 less. The IRS will catch this error – it might take up to a year – and generate a letter called a CP2000 showing the correct amount and billing you for any difference in tax this error generated. You will also owe a bit of interest. You have the option to amend your income tax return to show previously omitted items or to correct other errors. These returns are processed by actual humans so it’s important to provide as much back up documentation as possible to substantiate any additional deductions. It’s usually best to have a professional prepare an amended return for you.

By Bonnie Lee for Taxpertise

Published: April 24, 2015

When the IRS Can Keep Your Refund

People rely on their tax refunds. 

So it may come as an unhappy surprise to learn that the IRS may legally keep some or all of your refund in at least four situations.

While your refund is about taxes, you could end up losing all or part of it because of non-tax debts you owe the government or court-ordered payments you failed to make, according to Lindsey Buchholz, principal tax research analyst at The Tax Institute at H&R Block.

Delinquent student loans: If you're more than 90 days delinquent on your federal student loan payments and the agency to which those payments are due has given you (or any co-signers on your loan) a chance to cure the situation, it may request that the federal government redirect some or all of your refund toward the balance.

Obamacare payments due: There are two measures in the Affordable Care Act that allow for your refund to be offset.

The first is the penalty you must pay if you failed to buy health insurance coverage during the tax year. If you don't have the money to pay the penalty or if you refuse to pay, the only legal way for the government to collect that money is to withhold as much of your refund as necessary.

The second situation involves any kind of subsidy you may have received to offset the cost of your policy. The subsidy is paid in the form of a tax credit. And as with any other tax credits, if you've received more than you should have, you must pay it back. To reclaim the money, the government may choose to garnish your wages, put a lien on your property or keep some your refund.

Earlier in the tax season, H&R Block reported that 52% of its clients who enrolled in Obamacare had to pay back a portion of their premium credit -- which resulted in an average refund offset of $530.

On the flip side, about a third of those who enrolled found out that they hadn't been paid enough of a premium tax credit, resulting in an average refund increase of $365.

Past-due state income tax: Many elements of your state income taxes are tied to your federal income taxes. For instance, any state income taxes you pay are deductible on your federal return. So if you're delinquent in paying state income taxes, the Treasury may withhold some or all of your refund for the state.

Past-due child support: If a court has ordered you to pay child support and you're behind on payments, a state may first try to garnish your wages or seize property. But it also may make a claim on your refund, which the federal government will collect on its behalf. This might be the case, for instance, if you move away from the state in which the judgment was made.

If you find yourself in any of these circumstances, you should get a heads-up by way of a letter from the Treasury's Bureau of Fiscal Service, which actually issues refund checks. The letter will include your original refund amount as well as the amount that will be offset. It will also include contact information for the agency that will receive the money. That's the agency you should talk to if you think a mistake has been made.

If it turns out you're right -- that your refund shouldn't have been offset because the debt in question has already been paid -- that agency is responsible for paying you back, not Treasury.

If, however, you're wrong, and this year's refund isn't enough to cover your outstanding payments due, your refund next year could be offset too.

By Jeanne Sahadi for @CNNMoney

Published: April 23, 2015

What Happens When You Can't Pay Everything You Owe the IRS?

Finding out that you owe the IRS serious money is enough to ruin your year.

But what if you can't come up with the money, at least not all at once?

The good news: There are options other than pawning everything you own or having the IRS go after your wages and bank account.

Your first step should be to file all your returns of the past few years if you haven't done so already. Otherwise steep failure-to-file penalties will accrue quickly, compounding your financial woes.

Second, you must weigh lots of variables to figure out the best payment plan for you -- and then hope the IRS agrees. Those variables include how much you owe, your capacity to pay, the time required under different plans to do so and how much financial information you must reveal to seal the deal.

Whatever deal you strike, follow the terms down to the letter. Because if you miss a payment you're considered in default and then "the gloves come off," said former IRS collections officer David Levine, now an enrolled agent in Reno, Nevada.

Getting help: If the IRS maze confuses you, find a qualified pro to help.

If you've always done your own taxes, you might want a tax professional to look them over to make sure you really owe as much as the IRS says before working out a payment plan, Levine suggested.

It's advisable to have a CPA with experience setting up payment plans represent you.

"The more that is owed to the IRS, the more complicated it becomes to negotiate with the government," the Gregorys noted.

Payment options include:

Personal loan: If available to you and you're sure it won't ruin your relationship, a personal loan from a family member or friend will let you pay what you owe in full, save you money in penalties and get the IRS off your back right away.

Assuming you can pay the loan back, Levine recommends this option.

But make sure you formalize the loan by writing down the repayment terms, including interest, and having it notarized, he said.

For many people, of course, a personal loan is not an option. So consider the following:

Short-term extension: If you think you can pay off your debt within 120 days, the IRS may let you do so, and that will curb how much you'll owe in interest and penalties. Plus there's no fee to set up this payment plan as there are with most other options.

Installment agreement: If it will take you time to pay your debt, an installment agreement may be your best bet. You can apply online or on paper.

To be considered for one, you generally must owe less than $50,000, be current on your tax return filings and can pay what you owe within 72 months or within the remaining portion of the 10-year collection statute, whichever is less, Garrett Gregory noted.

You may be able to get an installment agreement if you owe more than $50,000 too, but the bar for acceptance is much higher. In addition to everything those who owe less than $50,000 must do to apply, you also must produce a financial statement and all documents supporting income and expenses, he said.

Undue hardship extension: If you can document that paying your tax debt immediately would cause you undue hardship -- e.g., forcing a fire sale of your home -- the IRS may grant you up to 18 months to pay.

To apply for the extension you must include a statement of assets and liabilities, as well as itemize the income and expenses you had three months prior to the tax due date.

Offer in Compromise (OIC): If you can make the case with supporting documents that you will never be able to pay your tax debt in full, the IRS may agree to accept a lesser amount.

Keep in mind, though, the IRS only accepts a minority of OICs and undue hardship extensions.

By Jeanne Sahadi for @CNNMoney

Published: April 21, 2015

What to Do With Your Tax Refund

So you’re getting a tax refund? Good for you. I know a lot of folks like having that little – or sometimes big – windfall at this time of the year. It helps make up for the overspending from Christmas. According to personal finance expert and personal bankruptcy lawyer William Waldner, “The average refund this year will be approximately $3,000.”

One thing to consider before deciding on what to do with your refund is to analyze your withholdings and/or estimated tax payment situation. You obviously paid in more than was necessary, thus allowing the government to enjoy your money for the year rather than it being put to use for your own purposes.

Conventional wisdom dictates that you could have been making interest off the over withholdings. However, banks aren’t paying much these days so the amount of earnings is likely negligible. And for some, saving is difficult. Over withholding all year provides a means for creating a cushion. Whatever the case, it’s worth giving a few minutes thought as to whether or not you need to adjust your withholdings or estimated tax payments. Input from your tax professional and a financial planner might prove valuable in determining any adjustments and to receive guidance on the best course of action with the funds.

According to a report issued by the National Retail Federation survey, approximately 54.9% of millennials expecting a tax refund this year plan to deposit the refunds into their savings accounts.

“Americans are thinking of the future, and remaining financially secure is a big part of that,” NRF President and CEO Matthew Shay said in a statement on the NRF Website. “A check from Uncle Sam gives consumers the ability to pay down debt, add a cushion to their savings or splurge on a vacation or big-ticket item.”

The report also states, “Consumers have a plan for how they will use their refunds: 39.1 percent will pay down debt and 25.1 percent plan to use it for daily expenses. While 13 percent say they will splurge on a vacation, 10.5 percent plan to spend on a major purchase like a television or car.”

According to Waldner, “An overwhelming amount of young men and women like to splurge on a new gadget or device, especially phones or tablets, mistakenly treating a refund as a bonus or payday, rather than part of their annual salary they already earned then overpaid in taxes. Men buy electronics, women buy clothing, accessories and jewelry, which is fine if you have plenty of money.”

But if you don’t, then Waldner feels that building up your emergency fund is a good move. But even better, he believes, is to “invest in something slightly riskier. Go to a financial advisor to find a good portfolio and turn it into something exciting.”

Other good ideas include saving up to buy a home or if you already own your residence then you could make improvements that increase its value.

Waldner has analyzed the benefits of putting monies into a college savings plan for your children but in the final analysis, does not feel there is much benefit in that. “It’s important to understand why your child wants to go to college. So many kids going to college rack up huge debt, yet cannot find a job once they graduate. Starting your own business or getting into a profession that does not require a degree may be a better course of action.”

Putting the monies into an emergency fund rather than a college savings plan from which non college distributions can be penalized is a far better move. You can draw upon those funds to help if your child decides to go to college after all.

Waldner feels that “investing in your career by taking skill enhancing courses or freshening up your work attire would be a great personal investment of your tax refund.”

He adds, “A tax refund shouldn’t mark your foray into angel investing. Avoid loans of investing your refund into the ventures of your family and friends, no matter how promising they look.”

After all, it’s your money!

By Bonnie Lee for Taxpertise

Published: April 17, 2015

Celebrity Tax Troubles

Celebrities aren't exempt from troubles with the IRS! Here are few famous cases of celebs who've found themselves in some hot water with Uncle Sam:

The Real Housewives of New Jersey star has been sentenced to 15 months in prison on fraud charges. Her husband Joe was sentenced to 41 months in prison and ordered to pay $414,000 in restitution for fraud and failure to file federal income tax returns.

The actor plunked down $6.25 million in 2012 to help pay off the massive back taxes he owes the IRS, but he still owes somewhere around $7 million. Yeah, it's that bad.

The Internal Revenue Service filed a federal tax lien against LiLo in 2012, after the actress failed to pay not only her 2009 taxes, but those on her 2010 earnings as well, totaling around $140,203.30.

The Blade star was indicted in 2006 on eight counts of tax fraud. A jury acquitted Snipes of federal tax fraud and conspiracy charges but convicted him on three misdemeanor counts of failing to file a tax return. He has been serving three-years prison sentence since December 2010.

The former Sports Illustrated hottie owed the IRS a whopping half-million dollars in back taxes in 2011.

The "Make It Rain" rapper—real name Joseph Cartagena—faced up to two years in prison after pleading guilty to tax-evasion. He reportedly owed upwards of $700,000. 

The 62-year-old music legend is facing a $1.1 million debt to the Feds, from some leftover unpaid income taxes in 2010.

The former My Name Is Earl star owed more than $637,000 in deliquent taxes in 2011.

The hip-hop rapper owed $3,571 in back taxes to the state of Mississippi in 2011, but paid it all off.

The former Baywatch babe was in the red for more than $493,000 in personal income taxes in 2010.

The rapper was sentenced to 28 months in a federal prison for tax evasion in 2011, after he pleaded guilty to three counts of failing to file tax returns with the IRS for a whopping five years from 2004 to 2008.

Superstar hip-hop producer and sometime rapper owed more than $2.4 million in back taxes to Rockland County, N.Y., in 2010.

The former Indy 500 racing champ, who won the fifth season of Dancing With the Stars, got himself into hot water in 2008 after the feds obtained an indictment against him for failing to pay millions in taxes over a four-year period. But he plead not guilty and was later cleared.

The Rush Hour star owed more than $11 million in back taxes to the Internal Revenue Service in 2010.

The Pulp Fiction star acknowledged he short-changed the government and agreed to pay $607,400 in back taxes in 2000, about half the $1.1 million in back taxes and penalties the IRS had claimed Travolta owed for 1993-1995.

The Celebrity Apprentice star owed the IRS a whopping $50,000 in back taxes from 2009.

Former Wu-Tang Clan member was arrested in 2009 on felony charges of skipping out on $32,799 in taxes from 2004 to 2007. He pleaded guilty and avoided jail time after paying approximately $106,000 in restitution, penalties and interest he owed to New York State.

In 2009, word came out that Reynolds owed the government a relatively paltry $225,000.

In 2009, officials said the rapper owed the state of California $284,053 in back taxes and that a lien has been put on his home.

The Girls Gone Wild mastermind pleaded not guilty in 2008 to two felony tax-evasion charges in federal court in Los Angeles.after being accused of unlawfully deducting more than $20 million in bogus business expenses on his 2002 and 2003 corporate tax returns.

The Grammy winner owed  $2.1 million to the state of California in 2009, down a smidge from her $2.7 million two years prior, but she was "cooperating" and made a payment plan.

The Survivor winner was sentenced to four years and three months in prison for tax evasion and perjury in 2006, after he lied about failing to pay taxes on his reality earnings as well as other sources of income, including $327,000 he earned as cohost of a Boston radio show and $28,000 in rent on property he owned.

The Jingle All the Way star owed $2.5 million in back income taxes in 2009 dating to 1999.

The rock-star couple owed more than $1.7 million in back taxes in 2011, but they paid it off in full, days later.

The former NFL player copped up to owing the Internal Revenue Service $700,000 in back taxes in 1997, leaving him with the possibility of tax-evasion charges.

The Crocodile Dundee star was accused of using a complex system of offshore trusts to hide roughly $40 million from the Australian government in 2010, but that all got cleared up.

Compiled from Information from E Online. 

Published: April 15, 2015

Five Key Tax Tips about Tax Withholding and Estimated Tax

If you are an employee, you usually will have taxes withheld from your pay. If you don’t have taxes withheld, or you don’t have enough tax withheld, then you may need to make estimated tax payments. If you are self-employed you normally have to pay your taxes this way. Here are five tips about making estimated taxes:

  1. When the tax applies.  You should pay estimated taxes in 2015 if you expect to owe $1,000 or more when you file your federal tax return next year. Special rules apply to farmers and fishermen.
  2. How to figure the tax. Estimate the amount of income you expect to receive for the year. Also make sure that you take into account any tax deductions and credits that you will be eligible to claim. 
  3. When to make payments.  You normally make estimated tax payments four times a year. The dates that apply to most people are April 15, June 15 and Sept. 15 in 2015, and Jan. 15, 2016.
  4. When to change tax payments or withholding.  Life changes, such as a change in marital status or the birth of a child can affect your taxes. When these changes happen, you may need to revise your estimated tax payments during the year. If you are an employee, you may need to change the amount of tax withheld from your pay. If so, give your employer a new Form W–4, Employee's Withholding Allowance Certificate. 

How to pay estimated tax.  Pay online using IRS Direct Pay. Direct Pay is a secure service to pay your individual tax bill or to pay your estimated tax directly from your checking or savings account at no cost to you. You have other ways that you can pay online, by phone or by mail. Visit for easy and secure ways to pay your tax. If you pay by mail, use the payment vouchers that come with Form 1040-ES.

Published: April 9, 2015

The Premium Tax Credit - The Basics

If you get your health insurance coverage through the Health Insurance Marketplace, you may be eligible for the premium tax credit.

Here are some basic facts about the premium tax credit.

What is the premium tax credit?

The premium tax credit is a credit designed to help eligible individuals and families with low or moderate income afford health insurance purchased through the Health Insurance Marketplace.

What is the Health Insurance Marketplace?

The Health Insurance Marketplace is the place where you will find information about private health insurance options, purchase health insurance, and obtain help with premiums and out-of-pocket costs if you are eligible. 

How do I get the premium tax credit?

When you apply for coverage in the Marketplace, the Marketplace will estimate the amount of the premium tax credit that you may be able to claim for the tax year, using information you provide about your family composition and projected household income. Based upon that estimate, you can decide if you want to have all, some, or none of your estimated credit paid in advance directly to your insurance company to be applied to your monthly premiums. If you choose to have all or some of your credit paid in advance, you will be required to reconcile on your income tax return the amount of advance payments that the government sent on your behalf with the premium tax credit that you may claim based on your actual household income and family size.

What happens if my income or family size changes during the year? 

The actual premium tax credit for the year will differ from the advance credit amount estimated by the Marketplace if your family size and household income as estimated at the time of enrollment are different from the family size and household income you report on your return. The more your family size or household income differs from the Marketplace estimates used to compute your advance credit payments, the more significant the difference will be between your advance credit payments and your actual credit.

Published: March 25, 2015

Five Key Points about Children with Investment Income

Special tax rules may apply to some children who receive investment income. The rules may affect the amount of tax and how to report the income. Here are five key points to keep in mind if your child has investment income:

1. Investment Income.  Investment income generally includes interest, dividends and capital gains. It also includes other unearned income, such as from a trust.

2. Parent’s Tax Rate.  If your child's total investment income is more than $2,000 then your tax rate may apply to part of that income instead of your child's tax rate. 

3. Parent’s Return.  You may be able to include your child’s investment income on your tax return if it was less than $10,000 for the year. If you make this choice, then your child will not have to file his or her own return. See Form 8814, Parents' Election to Report Child's Interest and Dividends, for more.

4. Child’s Return.  If your child’s investment income was $10,000 or more in 2014 then the child must file their own return. File Form 8615 with the child’s federal tax return.

5. Net Investment Income Tax.  Your child may be subject to the Net Investment Income Tax if they must file Form 8615. 

Published: March 24, 2015

Good Records are Key to Claiming Gifts to Charity

For any taxpayer, keeping good records is key to qualifying for the full charitable contribution deduction allowed by law. In particular, this includes insuring that they have received required statements for two contribution categories—each gift of at least $250 and donations of vehicles.

First, to claim a charitable contribution deduction, donors must get a written acknowledgement from the charity for all contributions of $250 or more. This includes gifts of both cash and property. For donations of property, the acknowledgement must include, among other things, a description of the items contributed.

In addition, the law requires that taxpayers have all acknowledgements in hand before filing their tax return. These acknowledgements are not filed with the return but must be retained by the taxpayer along with other tax records.

Second, special reporting requirements generally apply to vehicle donations, and taxpayers wishing to claim these donations must attach any required documents to their tax return. The deduction for a car, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value is more than $500. Form 1098-C or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return.

The IRS also reminded taxpayers to be sure any charity they are giving to is a qualified organization. Only donations to eligible organizations are tax-deductible. Select Check, a searchable online tool available on, lists most organizations that are eligible to receive deductible contributions. In addition, churches, synagogues, temples, mosques and government agencies are eligible even if they are not listed in the tool’s database.

Only taxpayers who itemize their deductions on Form 1040 Schedule A can claim gifts to charity. Thus, taxpayers who choose the standard deduction cannot deduct their charitable contributions. This includes anyone who files a short form.

A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceed the standard deduction. Use the 2014 Form 1040, Schedule A to determine whether itemizing is better than claiming the standard deduction.

Besides Schedule A, taxpayers who give property to charity usually must attach a special form for reporting these noncash contributions. If the amount of the deduction for all noncash contributions is over $500, a properly-completed Form 8283 is required.

The IRS provided these additional reminders about the special rules that apply to charitable contributions of used clothing and household items, monetary donations and year-end gifts.

Rules for Charitable Contributions of Clothing and Household Items

  • This includes furniture, furnishings, electronics, appliances and linens. Clothing and household items donated to charity generally must be in good used condition or better to be tax-deductible. Clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return.

Guidelines for Monetary Donations

  • A taxpayer must have a bank record or a written statement from the charity in order to deduct any donation of money, regardless of the amount. The record must show the name of the charity and the date and amount of the contribution. Bank records include canceled checks, and bank, credit union and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date and the transaction posting date.
  • Donations of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.

Year-End Gifts

  • Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of 2014 count for 2014, even if the credit card bill isn’t paid until 2015. Also, checks count for 2014 as long as they were mailed in 2014.
Published: March 19, 2015

Taxpayers Receiving Identity Verification Letter Should Use

The Internal Revenue Service today reminded taxpayers who receive requests from the IRS to verify their identities that the Identity Verification Service website,, offers the fastest, easiest way to complete the task.

Taxpayers may receive a letter when the IRS stops suspicious tax returns that have indications of being identity theft but contains a real taxpayer’s name and/or Social Security number. Only those taxpayers receiving Letter 5071C should access

The website will ask a series of questions that only the real taxpayer can answer.

Once the identity is verified, the taxpayers can confirm whether or not they filed the return in question. If they did not file the return, the IRS can take steps at that time to assist them. If they did file the return, it will take approximately six weeks to process it and issue a refund.

Letter 5071C is mailed through the U.S. Postal Service to the address on the return. It asks taxpayers to verify their identities in order for the IRS to complete processing of the returns if the taxpayers did file it or reject the returns if the taxpayers did not file it. The IRS does not request such information via email, nor will the IRS call a taxpayer directly to ask this information without you receiving a letter first. The letter number can be found in the upper corner of the page.

The letter gives taxpayers two options to contact the IRS and confirm whether or not they filed the return. Taxpayers may use the site or call a toll-free number on the letter. Because of the high-volume on the toll-free numbers, the IRS-sponsored website,, is the safest, fastest option for taxpayers with web access.

Taxpayers should have available their prior year tax return and their current year tax return, if they filed one, including supporting documents, such as Forms W-2 and 1099 and Schedules A and C.

Taxpayers also may access through by going to Understanding Your 5071C Letter or the Understanding Your IRS Notice or Letter page. The tool is also available in Spanish. Taxpayers should always be aware of tax scams, efforts to solicit personally identifiable information and IRS impersonations. However, is a secure, IRS-supported site that allows taxpayers to verify their identities quickly and safely. is the official IRS website. Always look for a URL ending with “.gov” – not “.com,” “.org,” “.net,” or other nongovernmental URLs.

Published: March 18, 2015

Standard or Itemized?

Most people claim the standard deduction when they file their federal tax return. But did you know that you may lower your taxes if you itemize your deductions? Find out if you can save by doing your taxes using both methods. Usually, the bigger the deduction, the lower the tax you have to pay. You should file your tax return using the method that allows you to pay the least amount of tax.

1. Figure your itemized deductions.  Add up deductible expenses you paid during the year. These may include expenses such as:  

  • Home mortgage interest
  • State and local income taxes or sales taxes (but not both)
  • Real estate and personal property taxes
  • Gifts to charities
  • Casualty or theft losses
  • Unreimbursed medical expenses
  • Unreimbursed employee business expenses

Special rules and limits apply. 

2. Know your standard deduction.  If you don’t itemize, your basic standard deduction for 2014 depends on your filing status:     

  • Single $6,200
  • Married Filing Jointly $12,400
  • Head of Household $9,100
  • Married Filing Separately $6,200
  • Qualifying Widow(er) $12,400             

If you’re 65 or older or blind, your standard deduction is higher than these amounts. If someone can claim you as a dependent, your deduction may be limited.

3. Check the exceptions.  There are some situations where the law does not allow a person to claim the standard deduction. This rule applies if you are married filing a separate return and your spouse itemizes. In this case, you can’t claim a standard deduction. You usually will pay less tax if you itemize. 

Published: March 17, 2015

Still Time to Contribute to an IRA for 2014

The Internal Revenue Service today reminded taxpayers that they still have time to contribute to an IRA for 2014 and, in many cases, qualify for a deduction or even a tax credit.

This is the eighth in a series of 10 daily IRS tips called the Tax Time Guide. These tips are designed to help taxpayers navigate common tax issues as the April 15 deadline approaches.

Available in one form or another since the mid-1970s, individual retirement arrangements (IRAs) are designed to enable employees and self-employed people to save for retirement. Contributions to traditional IRAs are often deductible, but distributions, usually after age 59½, are generally taxable. Though contributions to Roth IRAs are not deductible, qualified distributions, usually after age 59½, are tax-free. Those with traditional IRAs must begin receiving distributions by April 1 of the year following the year they turn 70½, but there is no similar requirement for Roth IRAs.

Most taxpayers with qualifying income are either eligible to set up a traditional or Roth IRA or add money to an existing account. To count for 2014, contributions must be made by April 15, 2015. In addition, low- and moderate-income taxpayers making these contributions may also qualify for the saver’s credit when they fill out their 2014 returns.

Eligible taxpayers can contribute up to $5,500 to an IRA. For someone who was at least age 50 at the end of 2014, the limit is increased to $6,500. There’s no age limit for those contributing to a Roth IRA, but anyone who was at least age 70½ at the end of 2014 is barred from making contributions to a traditional IRA for 2014 and subsequent years.

The deduction for contributions to a traditional IRA is generally phased out for taxpayers covered by a workplace retirement plan whose incomes are above certain levels. For someone covered by a workplace plan during any part of 2014, the deduction is phased out if the taxpayer’s modified adjusted gross income (MAGI) for that year is between $60,000 and $70,000 for singles and heads of household and between $0 and $10,000 for married persons filing separately. For married couples filing a joint return where the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range for the deduction is $96,000 to $116,000. Where the IRA contributor is not covered by a workplace retirement plan but is married to someone who is covered, the MAGI phase-out range is $181,000 to $191,000.

The deduction for contributions to a traditional IRA is claimed on Form 1040 Line 32 or Form 1040A Line 17. Any nondeductible contributions to a traditional IRA must be reported on Form 8606. 

Even though contributions to Roth IRAs are not deductible, the maximum permitted amount of these contributions is phased out for taxpayers whose incomes are above certain levels. The MAGI phase-out range is $181,000 to $191,000 for married couples filing a joint return, $114,000 to $129,000 for singles and heads of household and $0 to $10,000 for married persons filing separately. For detailed information on contributing to either Roth or traditional IRAs, including worksheets for determining contribution and deduction amounts, see Publication 590-A.

Also known as the retirement savings contributions credit, the saver’s credit is often available to IRA contributors whose adjusted gross income falls below certain levels. For 2014, the income limit is $30,000 for singles and married persons filing separate returns, $45,000 for heads of household and $60,000 for married couples filing jointly.

Eligible taxpayers get the credit even if they qualify for other retirement-related tax benefits. Like other tax credits, the saver’s credit can increase a taxpayer’s refund or reduce the tax owed. The amount of the credit is based on a number of factors, including the amount contributed to either a Roth or traditional IRA and other qualifying retirement programs. Form 8880 is used to claim the saver’s credit, and its instructions have details on figuring the credit correctly.

Published: March 16, 2015

Are You Self Employed? Check Out These Tax Tips

Many people who carry on a trade or business are self-employed. Sole proprietors and independent contractors are two examples of self-employment. If this applies to you, there are a few basic things you should know about how your income affects your federal tax return. Here are six important tips about income from self-employment:

  • SE Income.  Self-employment can include income you received for part-time work. This is in addition to income from your regular job.
  • Schedule C or C-EZ.  There are two forms to report self-employment income. You must file a Schedule C, Profit or Loss from Business, or Schedule C-EZ, Net Profit from Business, with your Form 1040. You may use Schedule C-EZ if you had expenses less than $5,000 and meet other conditions. See the form instructions to find out if you can use the form.
  • SE Tax.  You may have to pay self-employment tax as well as income tax if you made a profit. Self-employment tax includes Social Security and Medicare taxes. Use Schedule SE, Self-Employment Tax, to figure the tax. If you owe this tax, make sure you file the schedule with your federal tax return.
  • Estimated Tax.  You may need to make estimated tax payments. People typically make these payments on income that is not subject to withholding. You usually pay this tax in four installments for each year. If you do not pay enough tax throughout the year, you may owe a penalty.
  • Allowable Deductions.  You can deduct expenses you paid to run your business that are both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and proper for your trade or business.
  • When to Deduct.  In most cases, you can deduct expenses in the same year you paid for them, or incurred them. However, you must ‘capitalize’ some costs. This means you can deduct part of the cost over a number of years.
Published: March 9, 2015

Education Tax Credits: Two Benefits to Help You Pay for College

Did you pay for college in 2014? If you did it can mean tax savings on your federal tax return. There are two education credits that can help you with the cost of higher education. The credits may reduce the amount of tax you owe on your tax return. Here are some important facts you should know about education tax credits.

American Opportunity Tax Credit:

  • You may be able to claim up to $2,500 per eligible student.
  • The credit applies to the first four years at an eligible college or vocational school.
  • It reduces the amount of tax you owe. If the credit reduces your tax to less than zero, you may receive up to $1,000 as a refund.
  • It is available for students earning a degree or other recognized credential.
  • The credit applies to students going to school at least half-time for at least one academic period that started during the tax year
  • Costs that apply to the credit include the cost of tuition, books and required fees and supplies.

Lifetime Learning Credit:


  • The credit is limited to $2,000 per tax return, per year.
  • The credit applies to all years of higher education. This includes classes for learning or improving job skills.
  • The credit is limited to the amount of your taxes.
  • Costs that apply to the credit include the cost of tuition, required fees, books, supplies and equipment that you must buy from the school.

For both credits:

  • The credits apply to an eligible student. Eligible students include yourself, your spouse or a dependent that you list on your tax return.
  • You must file Form 1040A or Form 1040 and complete Form 8863, Education Credits, to claim these credits on your tax return.
  • Your school should give you a Form 1098-T, Tuition Statement, showing expenses for the year. This form contains helpful information needed to complete Form 8863. The amounts shown in Boxes 1 and 2 of the form may be different than what you actually paid. For example, the form may not include the cost of books that qualify for the credit.
  • You can’t claim either credit if someone else claims you as a dependent.
  • You can’t claim both credits for the same student or for the same expense, in the same year.
  • The credits are subject to income limits that could reduce the amount you can claim on your return.
Published: March 6, 2015

Rules for Deferral of Income from Gift Card Sales

The IRS issued guidance clarifying that taxpayers that sell gift cards can defer recognizing income from the sale of gift cards redeemable by an unrelated third party until the year after the payment is received (Rev. Proc. 2013-29, clarifying and modifying Rev. Proc. 2011-18). With the rapid growth in the use of gift cards in recent years and the increasing variety of ways in which they are sold and redeemed, the IRS has been issuing guidance to address the tax accounting issues that have arisen regarding recognition of revenue and expenses related to gift cards and gift certificates.

Revenue from sales of gift cards is not recognized immediately for financial reporting purposes and may also be deferred for tax purposes. Under the new rule, if a gift card is redeemable by an entity whose financial results are not included in the taxpayer’s applicable financial statement (as defined in Rev. Proc. 2004-34, §4.06), the taxpayer will recognize in income payment for a gift card to the extent the gift card is redeemed during the tax year. For a taxpayer without an applicable financial statement, if a gift card is redeemable by an entity whose financial results are not included in the taxpayer’s financial statement, a payment for a gift card will be treated as earned by the taxpayer to the extent the gift card is redeemed by the entity during the tax year. Any payment the taxpayer receives that is not recognized in income in the year of receipt must be recognized in the next year. 

Because the rule as it was originally drafted in Rev. Proc. 2011-18 appeared to apply only to gift cards that were redeemable by related parties, this clarification was necessary to permit deferral in cases where the cards were redeemable by an unrelated entity. The new rule applies both to taxpayers with applicable financial statements and those without applicable financial statements as if it was included in the original revenue procedure and will apply to tax years ending on or after Dec. 31, 2010. 

By Sally P. Schreiber for the Journal of Accountancy

Published: March 2, 2015

Key Points to Know about Early Retirement Distributions

Some people take an early withdrawal from their IRA or retirement plan. Doing so in many cases triggers an added tax on top of the income tax you may have to pay. Here are some key points you should know about taking an early distribution:

1.Early Withdrawals.  An early withdrawal normally means taking the money out of your retirement plan before you reach age 59½.

2.Additional Tax.  If you took an early withdrawal from a plan last year, you must report it to the IRS. You may have to pay income tax on the amount you took out. If it was an early withdrawal, you may have to pay an added 10 percent tax.

3.Nontaxable Withdrawals.  The added 10 percent tax does not apply to nontaxable withdrawals. They include withdrawals of your cost to participate in the plan. Your cost includes contributions that you paid tax on before you put them into the plan.

A rollover is a type of nontaxable withdrawal. A rollover occurs when you take cash or other assets from one plan and contribute the amount to another plan. You normally have 60 days to complete a rollover to make it tax-free.

4.Check Exceptions.  There are many exceptions to the additional 10 percent tax. Some of the rules for retirement plans are different from the rules for IRAs. 

5.File Form 5329.  If you made an early withdrawal last year, you may need to file a form with your federal tax return. Your tax professional will be able to guide you in filing all necessary forms with your return. 

Published: February 27, 2015

Changes to Small Business Health Care Tax Credit

Small employers should be aware of changes to the small business health care tax credit, a provision in the Affordable Care Act that gives a tax credit to eligible small employers who provide health care to their employees.

Beginning in 2014, there are changes to the tax credit that may affect your small business or tax-exempt organization:

  • Credit percentage increased from 35 percent to 50 percent of employer-paid premiums; for tax-exempt employers, the percentage increased from 25 percent to 35 percent.
  • Small employers may claim the credit for only two consecutive taxable years beginning in tax year 2014 and beyond.
  • For 2014, the credit is phased out beginning when average wages equal $25,400 and is fully phased out when average wages exceed $50,800. The average wage phase out is adjusted annually for inflation.
  • Generally, small employers are required to purchase a Qualified Health Plan from a Small Business Health Options Program Marketplace to be eligible to claim the credit.  Transition relief from this requirement is available to certain small employers.

Small employers may still be eligible to claim the tax credit for tax years 2010 through 2013.   Employers who were eligible to claim this credit for those prior years – but did not do so – may consider amending prior years’ returns if they’re eligible to do so in order to claim the credit.  

Published: February 26, 2015

5 Key Steps in Preparing for April 15

It is probably the most dreaded day on the calendar for many people, and it is right around the corner: April 15, the deadline for most Americans to file their income tax return. This dread usually stems from two primary factors: the fear of having to write a large check payable to the Internal Revenue Service; and/or the amount of time needed to gather and organize all of the paperwork, tax forms and receipts that are needed to prepare your tax return. This is true even if you hire a tax professional to prepare and file your tax return — because you still have to pull all of this together for him or her.

With just a few weeks remaining before the tax-filing deadline, it is probably time for you to shift into high gear when it comes to preparing your tax return if you haven’t yet. Here are some steps to get you started:

1. Contact your tax professional. - Filing income taxes has gotten so complicated that the majority of Americans now use a paid tax preparer to help them file their tax return. If you are among this majority and you have not contacted your accountant or CPA to arrange a meeting to discuss your taxes yet, pick up the phone to do so right now.

If you do not have an accountant or CPA but would like to hire one for tax help, start out by asking friends or associates whom you trust for a recommendation. But don’t settle for the first tax professional who says he or she can meet with you. Perform some research to check on the qualifications and credentials before hiring a tax professional — for example, do an Internet search on the individual or firm and see what comes up, or check with your local Better Business Bureau or state board of accountancy.

2. Get all of your paperwork organized. - Whether you work with a tax professional or prepare your tax return yourself, plan on setting aside some time to get all of your tax documentation and forms together either before your meeting with your CPA or before you sit down at your computer. Start by pulling out (or pulling up) last year’s tax return — this will serve as a good roadmap for getting started on this year’s return.

Other important forms you’ll need are your W-2 Form from your employer, Forms 1099-MISC from clients who paid you last year (if you’re self-employed), and bank account and brokerage statements like Forms 1099-DIV, 1099-INT and 1099-B. In addition, you’ll want to gather receipts to support any deductions you plan to claim on Schedule A, Form 1040 (see below).

3. Determine your deductions. - Each year, Americans over-pay their taxes by millions of dollars by failing to claim legitimate deductions on their income tax returns. While it is easier to just claim the standard deduction — $6,200 for singles, $9,100 for heads of household and $12,400for married couples filing jointly for 2014 returns (all under 65 years of age) — doing so could be leaving a lot of money on the table.

You could increase the size of your tax refund substantially by itemizing your deductions instead. Doing so requires careful recordkeeping throughout the year and the filing of Schedule A (Itemized Deductions) along with your Form 1040. Among the expenses that you might be able to deduct are contributions you made last year to qualified charitable (or501[c][18][D]) organizations, sales taxes or state and local income taxes (but not both), mortgage interest and points paid on a new mortgage or mortgage refi, expenses incurred while looking for a new job, and contributions to some qualified retirement plans (see below). 

If you operate a business out of your home, even if it is just a part-time or freelance business, you should determine whether you qualify for the home office deduction. You may qualify for the deduction if your home office is used exclusively and regularly as your principal place of business or it is used regularly to store product samples or inventory, as rental property or as a home daycare facility.

4. Make a last-minute retirement plan contribution. - You can make a 2014 tax-deductible contribution to an Individual Retirement Account (IRA) or Simplified Employee Pension plan (SEP) all the way up until the April 15 tax-filing deadline. This is a great way to lower your tax bill and possibly increase the size of your tax refund. 

For tax year 2014, you and your spouse can each contribute up to $5,500 to an IRA (or $6,500 if you are age 50 or over but under age 70 1/2 at the end of 2014 ). If you are self-employed or own a small business, you can deduct contributions to your employees' SEP-IRAs of up to $52,000 per participant or 25 percent of the compensation (which is limited to $260,000 per participant), whichever is less.

If you hear a faint ticking sound in the background, that might be the clock ticking down to the April 15 tax-filing deadline. At this point, you don’t have much time to lose: Now is the time to start preparations for filing your tax return. Following these five steps is a good way to get started — and also possibly maximize your tax refund.

Adapted from

Published: February 24, 2015

Social Security Benefits and Your Taxes

If you receive Social Security benefits, you may have to pay federal income tax on part of your benefits. These IRS tips will help you determine whether or not you need to pay taxes on your benefits. They also explain the best way to file your tax return.

• Form SSA-1099.  If you received Social Security in 2014, you should receive a Form SSA-1099, Social Security Benefit Statement, showing the amount of your benefits.

• Only Social Security.  If Social Security was your only income in 2014, your benefits may not be taxable. You also may not need to file a federal income tax return. If you get income from other sources you may have to pay taxes on some of your benefits.

• Tax Formula.  Here’s a quick way to find out if you must pay taxes on your Social Security benefits: Add one-half of your Social Security to all your other income, including tax-exempt interest. Then compare the total to the base amount for your filing status. If your total is more than the base amount, some of your benefits may be taxable.

• Base Amounts.  The three base amounts are:

  • $25,000 – if you are single, head of household, qualifying widow or widower with a dependent child or married filing separately and lived apart from your spouse for all of 2014
  • $32,000 – if you are married filing jointly
  • $0 – if you are married filing separately and lived with your spouse at any time during the year

Published: February 23, 2015

Tempted to Pump Up Your Fuel Tax Credit? Don't!

For all the gas you buy in a given year, chances are good you won't be allowed to claim a credit on your tax return for the federal fuel taxes you paid.

Eligibility rules for the fuel tax credit are pretty limited: Do you run a commercial fishing boat? A farm? A school bus company? Or does your business run vehicles primarily on local roads, rather than federal highways?

If not, you probably don't qualify.

And yet, shady tax preparers push the idea.

"The IRS routinely finds unscrupulous preparers who have enticed sizable groups of taxpayers to erroneously claim the credit to inflate their refunds," the agency said.

Identity thieves, too, have been known to file a fraudulent return for a business or farm to claim the credit.

Part of the problem may be that while you must have a log of the people from whom you bought the fuel and the purchase dates, you're not required to attach receipts to your tax return.

The only way that lack of evidence would be discovered is if the IRS decides to audit you, said Mark Luscombe, principal federal tax analyst for tax publisher Wolters Kluwer, CCH.

If the IRS sniffs out a fraudulent or inflated fuel tax credit claim, it can result in a penalty of $5,000. And if the claim is part of a larger scam, that can result in other penalties, interest and possible criminal prosecution.

The agency said that it has beefed up its detection system to root out fraudulent or excessive fuel tax credit claims through use of new identity theft screening filters and has taken additional steps to set aside more returns for review that claim the credit.

From CNN Money

Published: February 20, 2015

10 Facts You Should Know About Capital Gaines and Losses

When you sell a capital asset the sale results in a capital gain or loss. A capital asset includes most property you own for personal use or own as an investment. Here are 10 facts that you should know about capital gains and losses:

1. Capital Assets.  Capital assets include property such as your home or car, as well as investment property, such as stocks and bonds.

2. Gains and Losses.  A capital gain or loss is the difference between your basis and the amount you get when you sell an asset. Your basis is usually what you paid for the asset.

3. Net Investment Income Tax.  You must include all capital gains in your income and you may be subject to the Net Investment Income Tax. This tax applies to certain net investment income of individuals, estates and trusts that have income above statutory threshold amounts. The rate of this tax is 3.8 percent. For details visit

4. Deductible Losses.  You can deduct capital losses on the sale of investment property. You cannot deduct losses on the sale of property that you hold for personal use.

5. Long and Short Term.  Capital gains and losses are either long-term or short-term, depending on how long you held the property. If you held the property for more than one year, your gain or loss is long-term. If you held it one year or less, the gain or loss is short-term.

6. Net Capital Gain.  If your long-term gains are more than your long-term losses, the difference between the two is a net long-term capital gain. If your net long-term capital gain is more than your net short-term capital loss, you have a net capital gain. 

7. Tax Rate.  The capital gains tax rate usually depends on your income. The maximum net capital gain tax rate is 20 percent. However, for most taxpayers a zero or 15 percent rate will apply. A 25 or 28 percent tax rate can also apply to certain types of net capital gains.  

8. Limit on Losses.  If your capital losses are more than your capital gains, you can deduct the difference as a loss on your tax return. This loss is limited to $3,000 per year, or $1,500 if you are married and file a separate return.

9. Carryover Losses.  If your total net capital loss is more than the limit you can deduct, you can carry over the losses you are not able to deduct to next year’s tax return. You will treat those losses as if they happened in that next year.

10. Forms to File.  You often will need to file Form 8949, Sales and Other Dispositions of Capital Assets, with your federal tax return to report your gains and losses. You also need to file Schedule D, Capital Gains and Losses with your tax return. Your knowledgable tax professional will prepare the necessary forms on your behalf. 

Published: February 18, 2015

Florida has Highest Number of Consumers Buying Health Insurance in US

Florida has eclipsed California to become the state with the highest number of consumers buying health insurance in both the state and federal exchange under the Affordable Care Act.

Federal health officials said Wednesday that Florida's roughly 1.6 million enrollees includes both first time enrollees and some of the nearly 1 million Floridians who enrolled last year. California led the country last year with 1.2 million consumers, but lagged behind this year with a total of 1.4 million — 300,000 fewer than the state's goal.

According to the U.S. Census Bureau, 3.8 million of Florida's 19.5 million residents were without health insurance, making it the third-highest in the nation at 19.5 percent. By comparison, 6.5 million of California's nearly 38 million residents were without health insurance, about 17 percent.

From FOX Business

Published: February 17, 2015

Average Federal Tax Refund So Far: $3,539

It's still early days in the tax season, but the IRS has already received more than 14 million returns, the agency said Friday.

And it has issued refunds averaging $3,539 to nearly 7.6 million filers through January 30.

Refunds tend to be bigger early in the tax season, since those expecting a lot of money back are most likely to file first.

Over the course of the next few months, nearly 8 out of 10 filers will get a refund.

Normally, the IRS cuts its refund checks pretty quickly. But this year, because of budget cuts, IRS Commissioner John Koskinen has warned that there could be a delay in issuing some of them.

The agency said 9 out of 10 refunds will go out within 21 days from when a return is filed. But refunds for paper returns -- which normally take four to six weeks -- could take at least 7 weeks this year.

The vast majority of the returns filed so far this year (13.3 million) were filed electronically.

Overall, the IRS receives about 150 million returns a year.

From CNN Money

Published: February 13, 2015

Don't File a 'Frivolous' Tax Return

Wild, misguided notions of what's legal may make for amusing conversation, but when it comes to taxes, they're a problem.

There are still plenty of scam artists who are willing to use loopy ideas to convince fee-paying tax filers that they really don't owe any income tax at all.

The IRS calls these ideas "frivolous tax arguments" and has seen some doozies in recent years.

Among the most common: Filing and paying your taxes is voluntary. Only foreign-source income is taxable. You may refuse to pay your taxes on religious or moral grounds by invoking the First Amendment. And the only people subject to federal income tax are employees of the federal government.

Or there's this one: You won't owe federal income taxes if you simply file a return saying that you have no income and no tax liability. People apparently do this despite having recorded taxable income through, say, a paycheck. The same people often ask for a refund for the taxes their employer withheld, the IRS said.

All told the IRS has compiled more than 40 frequently made frivolous arguments.

"These arguments are wrong and have been thrown out of court," the agency said in a statement.

Any taxpayer, of course, is free to contest his tax liabilities. "But no one has the right to disobey the law or disregard their responsibility to pay taxes," the IRS noted.

If you choose to file a so-called frivolous tax return -- or let someone else do it on your behalf - you'll pay a $5,000 penalty for the privilege. You could also face accuracy-related penalties, a civil fraud penalty, and an erroneous refund claim penalty among others, according to the IRS.

From CNN Money

Published: February 12, 2015

Hiding Money in a Tax Shelter Can Come Back to Bite You

When someone tries to sell you on a complicated scheme that promises to slash or eliminate your tax bill, think twice. It's likely to be a scam.

These scam promoters set up abusive tax shelters in which they will move your income-producing assets -- including any business you own -- into a trust, limited liability company (LLC), limited liability partnership (LLP), international business company (IBC), or foreign financial account the IRS warned.

The IRS said it also has been seeing frequent misuse of "captive insurance" arrangements.

Regardless of the structure, however, the basic idea behind an abusive shelter is this: Once you put your assets into one of these entities, a string of complicated transactions are conducted solely for the purpose of hiding your money from the IRS and making it look like you can claim fat deductions, escape self-employment taxes, and shift money out of your taxable estate.

While some who perpetrate these scams are the taxpayers themselves, it's also common for business owners, physicians and other high-net-worth filers to be snookered by someone who promises the moon and backs up the scheme with official-looking documents to make it seem legal.

Before signing on: Ask whoever is trying to sell you the product whether he's collecting a referral fee from anyone, and get a second opinion about the set up from a trusted, independent tax advisor.

If you fall for this scheme and get caught, it could mean large penalties, interest and even criminal prosecution.

From CNN Money

Published: February 11, 2015

IRS Imposes New Limits On Tax Refunds By Direct Deposit

While taxpayers were popping returns into the mail this year, scammers were busy trying to figure out how to cash in. The Internal Revenue Service reported that, by Tax Day, they were investigating 1,800 active cases of identity theft investigations. Many of those cases involved millions of dollars each: just recently, a New York woman pleaded guilty for her part in a $65 million stolen identity tax refund fraud scheme.

The IRS has long walked a balance between trying to prevent fraud and issuing refunds to taxpayers in a timely manner. Taxpayers who file electronically and use direct deposit can get refunds in an average of 10 work days. That’s good news for taxpayers but even better news for fraudsters who hope to use the accelerated refund procedures to sneak in bogus claims. Putting the brakes on those refunds for fraudsters can, in some cases, slow down refunds for honest taxpayers. Finding ways to get refunds into the hands of honest taxpayers without increasing the opportunity for fraud has been difficult.

The IRS is introducing new procedures in 2015 which could help address some of these issues.

Effective for the 2015 tax season, the IRS will limit the number of refunds electronically deposited into a single financial account (such as a savings or checking account) or prepaid debit card to three. Under the new rules, any subsequent refunds will be issued by paper check and mailed to the taxpayer. The idea is to make it more difficult for criminals to obtain multiple refunds.

Of course, the new rules could make it more difficult for some honest taxpayers, too, such as families which use a single bank account. The IRS will not make an exception for accounts used by parents and children or other family configurations: those taxpayers will need to plan ahead by making other deposit arrangements or waiting a little longer for a paper check. Paper checks tend to take up to four weeks, compared to ten days by direct deposit. If you’re making other deposit arrangements, keep in mind that the IRS can only deposit tax refunds into accounts held by the taxpayer.

The rule also applies to preparers. I’ve long encouraged taxpayers to avoid using preparers who attempt to direct refunds into their own accounts. It’s not faster or better. Such preparers are often involved in schemes to steal taxpayer identities, money or both. Additionally, preparers are not allowed to get paid by splitting refunds using a federal form 8888 (downloads as a pdf) or by opening a joint bank account with the taxpayer. If a preparer suggests these options to you, walk away and do so quickly.

It’s worth noting that most taxpayers will not be affected by the new rules. The IRS continues to encourage the use of filing electronically in combination with direct deposit, claiming that it’s the “fastest, safest way for taxpayers to receive refunds.”

Expect the new rules to take effect in mid-January 2015.

By Kelly Phillips Erb for Forbes Magazine

Published: February 5, 2015

Lost or Haven't Received a W-2?

Form W-2 is one of the most essential pieces of paper when filing your taxes. If you've lost a W-2 - or if you never got one in the first place - there are a few things you can do:

Your employer is supposed to send a W-2 to both you and the Internal Revenue Service. The form reports how much you earned and the amount of taxes witheld from your paycheck.

Go ahead and contact the IRS. The IRS advises you to reach out if you haven't received the form by February 14. You should also contact your employer and ask them to issue you a W-2, or replace the one you lost.

If you run out of time, you can file your taxes using a Form 4852, estimating your income and witholding taxes yourself. If you get a W-2 after the tax deadline you can file an amended return.

You can contact the IRS about missing W-2s at 800-829-1040. Remember to provide your name, address, Social Security number and phone number, as well as your employer's contact information, the dates you worked there and your estimated wages and income tax witheld.

Published: January 30, 2015

Time to Send Out 1099s: What to Know

The 1099 can be mysterious. Business owners guess at its rules and requirements. Tracking changes to the procedures (some as recent as last February) can be so exasperating, some entrepreneurs just give up and file nothing at all. This can be dangerous as penalties can add up quickly. But the 1099 doesn't need to be complicated. To help simplify things, here are the basics.

To whom are you required to send a Form 1099? As a general rule, you must issue a Form 1099-MISC to each person to whom you have paid at least $600 in rents, services (including parts and materials), prizes and awards, or other income payments. You don't need to issue 1099s for payments made for personal purposes. You are required to issue 1099 MISC reports only for payments you made in the course of your trade or business. You'll send this form to any individual, partnership, Limited Liability Company, Limited Partnership or Estate.

What are the penalities? The penalties for not doing so can vary from $30 to $100 per form ($1.5 million for the year), depending on how long past the deadline the company issues the form. If a business intentionally disregards the requirement to provide a correct payee statement, it is subject to a minimum penalty of $250 per statement, with no maximum.

What are the exceptions? The list is fairly lengthy, but the most common is that you don't need to send a 1099 to corporations or for payments of rent to real estate agents (typically property managers -- yet they are required to send them to the property owners). Additionally, you don't need to send 1099s to sellers of merchandise, freight, storage or similar items.

Lawyers get the short end of the stick. Ironically, the government doesn't trust that lawyers will report all of their income, so even if your lawyer is 'incorporated,' you are still required to send them a Form 1099 if you paid them more than $600.

The W-9 is your "best friend." One of the smartest procedures a business owner can implement is to request a W-9 from any vendor you expect to pay more than $600 before you pay them. Using this as a normal business practice will give you the vendor's mailing information, Tax ID number, and also require the vendor indicate if it is a corporation or not (saving you the headache of sending them a 1099 next year). 

The procedure. Regrettably, you simply can't go to and download a bunch of 1099 Forms and send them out to your vendors before the deadline. The form is "pre-printed" in triplicate by the IRS. Thus, you have to order the Forms from the IRS, pick them up at an IRS service center, or hopefully grab them while supplies last from the post office or some other outlet. Next, don't forget you have to compile all of your 1099s and submit them to the IRS with a 1096 by the following month. Sounds like fun...right?

The deadlines. Finally, you are required to issue and essentially mail out all of your Form 1099s to your vendors by January 31. Then you have to send in the transmittal Form 1096 to the IRS before February 28. For those of you that 'outsource' this service, your accountant with the proper system can actually submit the 1096 and stack of 1099s electronically by March 31. Don't forget as well, that depending on state law, you may also have to file the 1099-MISC with the state.

What about foreign workers? Also, if you hire a non-U.S. citizen who performs any work inside the United States, you would need to file the 1099. It is your responsibility to verify that the worker is indeed a non-U.S. citizen, and performed all work outside the United States. For that purpose, in the future you might want to have that foreign worker fill out, sign and return to you Form W-8BEN.

Don't ignore the 1099 or the process and even if you miss the first deadline of January 31, get with your CPA and make sure to finish up the process before the end of March. This could save you major penalties if you get caught not filing the Forms and you can show reasonable cause for your delays.

By Mark J. Kohler for Entrepreneur Magazine

Published: January 29, 2015

Less than One Week to File W-2s and 1099s

The good news: you get two extra days this year to provide those W-2 and 1099-MISC forms. The bad news? You'll have to work the weekend!

Businesses with employees or anyone who has contracted for more than $600 in work to a freelancer or subcontractor: you have until February 2, 2015, to provide the appropriate wage and income reporting form – a W-2 or 1099-MISC – to all recipients. Due to the typical filing deadline (January 31) falling on a weekend, the 2015 deadline for businesses to mail these forms from the previous tax year is February 2. For those who procrastinate, sorting through the various IRS reporting requirements at the last minute can make a tight deadline even more stressful.

  • How late can I file and still meet my deadlines?
    When waiting to file, businesses should – ideally – leave ample time to get filings out.  Make sure your provider clearly states when their deadline is for accepting filings to meet government deadlines. For recipient W-2 and 1099 reporting through electronic filing with the federal government, businesses can file until 6 p.m. ET on March 31 and still have filings completed in time. Hershkowitz & Kunitzer, P.A. must recieve all applicable information by Friday, January 30th, to ensure that W-2s and 1099s are mailed to recipients prior to February 2nd. 
  • Do I need to file with my state also?  What are my requirements?
    The answer is: "it depends." If your state requires workers to file an individual income tax return, you most likely need to file a 1099-MISC or W-2 form with the state and provide the worker with a copy to file with his or her return. Many states require that the 1099-MISC form be sent to the recipient, but the recipient does not need to attach the 1099-MISC form to his or her income tax return.

For any labor payment, though, get those 1099s out by the end of the January. For several years now the IRS has a two-line questionnaire on the requisite forms that asks, “Were you required to file Forms 1099?” “Did you file Forms 1099?” YES or NO. The IRS does not put questions on a tax form for no reason. Expect extreme penalties and the possible disallowance of payments not reported on Form 1099.

It's easy with our help, so let's get it done and avoid the negative consequences!

Press Release via Virtual Strategy Magazine

Published: January 27, 2015

Getting Organized for Tax Preparation

The holiday season is behind us; our New Year’s resolutions are in place and now we must get ready to meet with our tax pro to file 2014 income tax returns. If you started a 2014 income tax file at the beginning of last year and have been filing away important tax documents throughout the year, you may find the task will not be too daunting. The backup data you require will be at your fingertips. If you kept your personal finances on an accounting program such as QuickBooks or Quicken, you will be able to generate reports that provide the data your tax professional requires to prepare your income tax return.

But if you must sit down instead and review your check registers and other receipts, the following tips should help you get organized quickly.

Start by labeling a file folder “2014 Income Taxes” to hold copies of cancelled checks, credit card statements and other back up data for the numbers you will be using on your tax return.

If your tax pro sent you an organizer, it is best to complete the appropriate fields within the organizer and return that along with your back-up documentation. But if you, like so many others, have your own system and do not use the organizer, then plow ahead compiling your data as you did in years past. Remember however, that your tax preparation fee is based on how organized you present your data as well as on the number of forms involved and the complexity of your tax situation. If you provide your tax pro with well-organized, complete, and totaled data, your fee may be lower. Discuss your presentation with your tax pro for organizational tips.

Most organizers have boxes to fill in with the information from your W2. Do not bother to fill in that data. Instead, simply staple your W2(s) to that page in the organizer. If a client presents me with a W2, I input the data directly from the W2. I never bother with what is listed on the organizer; there may have been transpositions or incomplete fields. The same principle applies to all other data requests that are backed up with 1099s or K-1s. Simply provide the document. 

This will save a lot of time doing copy work.

In lieu of using the organizer you might prefer a spreadsheet program that can list all data and provide accurate totals. Refer to the organizer to make sure that you have not missed an important reportable item. The organizer normally contains columns with prior year data. This will jog your memory as to what deductions to look for as you review your financial data.

This year, because of Obamacare, there are two additional tax forms that may be required to file with your tax return. Your tax pro will likely provide an ACA questionnaire or worksheet for you to complete along with the organizer. If you did not have health insurance coverage for the entire year, you may be required to pay a penalty. Your tax professional will need dates of coverage and amounts paid listed by month in order to make the calculation or to determine if you are exempt from the penalty. Because tax pros have been put in a position to police the Affordable Care Act, your tax preparation fees will likely be slightly higher than last year. If you or your employer provided health care coverage for the entire year, you will not be required to break down the monthly costs.

As you organize your data think in terms of audit proofing your tax return. Make sure that you put receipts and cancelled checks in your tax file in the event of audit. Also be sure that all charitable contributions are backed up with an acknowledgement letter from the nonprofit. This is required and must be in place before filing the tax return. You cannot obtain the letter years later when you are audited. The IRS will disallow the deduction. If you have deductible automobile, travel and entertainment expenses – all red flags in the eyes of the IRS – be sure to have other documentation in your tax file to provide a bona fide tax deductible purpose for the expense. To substantiate automobile mileage you should have a mileage log, but absent that, you should have at least an appointment book or some other documentation showing dates, destinations, and number of miles traveled.

In this day and age, it’s rare to see an actual paper appointment book. Review your electronic calendar and on paper make a list of dates, destinations and miles driven to substantiate the expense. Keep this information in your tax file.

If you purchased or refinanced your home, second home, or a rental property during 2014, provide your tax pro with the settlement papers from escrow. There may be deductible items such as points or property taxes paid that provide a tax benefit.

Once you have compiled your data, review the organizer to ensure that you have completed all requirements for filing your return.

By Bonnie Lee for TAXpertise

Published: January 22, 2015

2015 Florida Taxable Wage Base Decrease & Minimum Wage Increase

Reemployment Tax Rates for 2015 

The 2015 reemployment (formerly unemployment) tax rate notices (RT-20) will be mailed to Florida employers by late January. Under Florida law, reemployment tax rates are calculated each year. The taxable wage base has decreased from the first $8,000 in wages per employee to the first $7,000 per employee for wages paid in 2015. Businesses should use the correct tax rate identified on the Reemployment Tax Rate Notice (RT-20) when filing the 1st quarter report in April 2015.

The State of Florida pays reemployment assistance benefits to qualified claimants using monies from theUC Trust Fund, which is funded by the reemployment (formerly unemployment) tax paid by Floridaemployers; Florida employees do not pay into the fund.

Reemployment tax is calculated by multiplying thetax rate by the taxable wages for the quarter.

2015 Tax Rates (effective January 1, 2015)

  • Minimum rate: .0024 or $16.80 per employee
  • Maximum rate: .0540 or $378.00 per employee

(The 2015 rate is based on annual salary up to $7,000 per employee.)

Florida's 2015 Minimum Wage

Effective January 1, 2015, Florida’s minimum wage will increase from $7.93 to $8.05, with a minimum wage of at least $5.03 per hour for tipped employees.

The minimum wage rate is recalculated yearly based on the percentage increase in the federal Consumer Price Index for Urban Wage Earners and Clerical Workers in the South Region for the 12-month period prior to September 1, 2013. 

On November 2, 2004, Florida voters approved a constitutional amendment which created Florida’s minimum wage.  The minimum wage applies to all employees in the state who are covered by the federal minimum wage.

Florida Statutes require employers who must pay their employees the Florida minimum wage to post a minimum wage notice in a conspicuous and accessible place in each establishment where these employees work. This poster requirement is in addition to the federal requirement to post a notice of the federal minimum wage.

Published: January 21, 2015

5 Things That Can Stop You From Getting a Tax Refund

For the average person, a tax refund check can end up being the equivalent of around two paychecks (give or take). This amount of money can serve many purposes for the typical household: it can pay an extra mortgage payment or two, pay off a few credit cards, or it can be enough money to take that much-needed vacation. 

But before you go packing your bags or making other plans for your check, you have to make sure you’re entitled to a refund first, and that nothing is standing in your way of receiving a check this tax season.

Although most taxpayers receive a refund, there are some things that can stop that from happening. Here are a few things that can stop you from receiving a refund this tax season. 

1. You (or your spouse) defaulted on student loans

Student loans are one of most common reasons that people have their tax refund checks offset. A default generally occurs after a borrower fails to make payments for 270 days, according to the Department of Education. Around 14% of borrowers default on their loans soon after they are scheduled to begin making payments.

Your joint return can also be intercepted for your spouse’s student loan debt. If only one spouse has a student loan debt (and only one spouse is legally responsible for that debt), you can fill out Form 8379, injured spouse allocation, and request to have only one spouse’s portion of the refund taken, as opposed to the entire refund.

2. You owe child support

According to the Office of Child Support Enforcement, federal refunds have been offset to pay past-due child support since 1982. “Since the program began in 1982 through the beginning of March 2013, more than $35 billion in past-due support was collected from 38 million intercepted tax refunds,” it explains.

As with student loans, if a spouse is not legally responsible for child support, that person may be able to collect his or her portion of the tax return by filling out an injured spouse allocation (From 8379). This, however, depends on individual state laws.

3. You owe an IRS debt

If you were audited by the IRS or you have a debt from a prior tax year for any other reason, the IRS is more than likely going to collect the money you owe to it prior to issuing any refund.

Generally speaking, the more money involved, the higher your risk of audit. That is, a person with a $50,000-per-year income is less likely to be audited than someone earning $1 million per year. In any case, either taxpayer has a chance of being audited.

In some cases, a spouse (or former spouse) may be able to be relieved of the tax debt, interest, and penalties. A tax debt is different from other types of debts, like child support and student loan debts. With a tax debt, the spouse generally would not file for injured spouse relief but for a different type of relief, such as innocent spouse relief or separation of liability.

4. Your income went up (or your tax situation changed)

If you made more money this tax year than you did last year, you may no longer be eligible for certain credits, like earned income tax credit (EITC), which is a refundable tax credit that results in large refunds for millions of taxpayers. According to the IRS, in 2013, more than 27 million taxpayers received a combined total of $65 billion in EITC.

An increase in income may also impact other tax benefits, like the premium tax credit. If you used the premium tax credit to lower the cost of your marketplace health insurance plan, and then your income increased throughout the year, you may even end up owing money because you are not entitled to as much tax credit as you received.

Even if your income didn’t change, your tax situation can change if you adjusted the amount of tax you paid throughout the year. For instance, an employee who adjusted withholding allowances to increase his or her paycheck — and underestimated the amount of tax that person needed to pay — may have to pay that money when it’s time to file.

5. Someone stole your identity

Identity thieves will steal information that can provide them with some sort of financial benefit, and this may include stealing a Social Security number and filing a tax return using that false Social. In the Tampa Bay Times, one taxpayer discussed her experience with this situation, and she didn’t receive her refund until nearly six months after she initially filed.

According to the Tampa Bay Times, “The IRS identified more than 2.9 million incidents of identity theft in 2013 and has described identity theft as the No. 1 tax scam for 2014.”

The IRS has identity theft-related notices that it issues, such as these:

  • CP01:”We received the information that you provided and have verified your claim of identity theft. We have placed an identity theft indicator on your account.”
  • CP01A: “This notice tells you about the Identity Protection Personal Identification Number (IP PIN) we sent you.”
  • CP01S: “We received your Form 14039 or similar statement for your identity theft claim. We’ll contact you when we finish processing your case or if we need additional information.”

If you think someone has stolen your identity, the IRS suggests you contact your local police, file a complaint with the FTC, place a fraud alert on your credit report, contact your creditors, and close any fraudulent accounts. Also, respond to any IRS notices, submit IRS Form 14039, “Identity Theft Affidavit,” and continue to send in your tax return (even if you send in a paper return).

By Erika Rawes for Personal Finance Cheat Sheet

Published: January 20, 2015

3 Steps to A Smoother Tax Season

April 15 is rapidly approaching and now is a good time to start getting ready.  

The following are some suggested steps to take now while there is still time to ensure a less stressful tax season and also save money on taxes, whether you prepare your own returns or have them done for you.  

1. Gather Your Charitable Receipts

Many of us make charitable contributions of cash or goods.  The IRS allows a deduction for these contributions typically up to 50% of AGI.  Proper documentation is required to substantiate these deductions so it is wise to gather these now.

Individuals making cash contributions of $250 to any single organization must obtain a written acknowledgment from the organization in order to claim a deduction.  This letter must be received before the filing date of the tax return.  Single contributions of less than $250 can be substantiated by cancelled check.

If you make total non-cash contributions over $500 you must complete a detailed IRS form that is attached to the tax return listing each item and its fair market value.

2. Organize Tax Documents

You will soon be receiving various tax documents from your employer, the federal government and the various financial institutions you do business with.  Forms such as the W-2, reporting your income and withholdings from employment, the 1099-B, reporting stock and mutual fund transactions, and the 1099-DIVand 1099-INC, reporting bank paid dividends and interest, are issued by the end of January.  Key data from these forms must be correctly reported on your tax return as the IRS also receives copies and will send you a notice if these are not reflected on your return.  As you receive these forms, place them in a folder so that they will be handy when needed.  Scanning them to a secure digital folder is also a good idea in case the paper originals are ever lost.  Follow up with issuers immediately if you have not received an expected tax form by early February.  

3.  Spend Your Flexible Spending Account (FSA) Money

Many employers offer their employees a way to set aside a portion of their salary on a pre-tax basis to pay for out of pocket medical expenses.  Given that the IRS does not allow a deduction for medical expenses that do not exceed 10% of adjusted gross income, a Flexible Spending Account (FSA) is usually the only way to save taxes on these expenses.  FSAs are particularly valuable for taxpayers who are impacted by the AMT tax as a way to lower their taxes via pre-tax savings thereby offsetting some of the deductions lost due to the AMT.  

The IRS allows employers to give employees until March 15 to spend prior year FSA savings before they are forfeited.   IRS rules also allow employers to offer the option of rolling over up to $500 of unused savings to the following year, but this is not mandatory.  Review your unclaimed out of pocket medical expenses for 2014 and make sure to claim enough of these to use up any FSA savings that will otherwise be lost.

Tax season is inherently a stressful time.  Getting an early jump on your preparation will allow you not only to lower your stress level but also avoid letting key tax saving opportunities fall through the cracks.

By Joe Alfonso for GoLocalPDX

Published: January 16, 2015

Tax Credits for Parents

More and more parents can't afford to pay for child care. College tuition is always on the rise, and the general costs of living are harder to cover as the national economy struggles to right itself. Parents, however, may find some help at tax time. There are credits for education, child care and for simply having children.

Child Credits

Most of the tax breaks for parents pertain to child care and education, but the easiest break of all is to simply have children. The Child Tax Credit provides up to $1,000 for every child under 17 in your care if you meet certain income requirements. Those filing a joint return will see the amount of the credit begin to phase out if their adjusted gross income exceeds $110,000. The phase-out starts at $75,000 for single parents.

The number of children you have also figures into your eligibility for the Earned Income Tax Credit, which can significantly reduce the amount of tax you owe. In 2014, you are eligible for the credit if you have three or more children and earned less than $46,997 as a single person, or $52,427 as a married couple filing jointly. The income thresholds then drop according to the number of children you have.

"If you have really low income and you are single, you can get an earned income credit as long as you have wages," says Barbara Steponkus, an Edgerton, Wisconsin-based board member with the National Association of Tax Professionals. "If you have one child, you can make more money. If you have two children, you can make more money yet (and still qualify)."

Parents may also get a break if they're spending a lot of money on child care. As of 2014, child care could cost more than $18,000 a year, according to the National Association of Child Care Resource and Referral Agencies. The answer for that is the child and dependent care credit, which will cover up to 35 percent of child-care expenses, or up to $3,000 for a child under 13. A second child may also qualify you for up to $3,000. Both credits depend on your income.

Also, your employer may exclude up to $5,000 from your taxable wages for child-care expenses.

"If you have one child, that's a great way to get it because you get $5,000 instead of only $3,000," Steponkus said.

The employer deduction may not be added on top of the child and dependent care credit, so it's not as sweet if you have more than one child. All things being equal, credits against taxes owed are preferable to deductions from taxable income, Steponkus says. That’s because a tax credit is applied dollar-for-dollar to your taxes owed, rather than simply reducing the amount of income that can be taxed.

School Benefits

A slew of tax benefits are available if you're putting your children through school. Some states offer benefits for parents paying for parochial-school tuition and supplies for children in kindergarten through high school.

"But everything in a federal return is just for college (or other post-secondary education)," said Jo Ann Schoen of Rochester, Minnesota, treasurer for the National Association of Tax Professionals.

As with child care, federal education benefits come in the forms of credits and deductions. These benefits do not overlap, however, so you must know which ones you are eligible for and which to claim.

The American Opportunity Credit is available through 2017. It allows for a credit of up to $2,500 for tuition and related expenses for each of the first four years attending college at least half-time. Individuals who earn no more than $80,000 and couples earning no more than $160,000 are eligible for the full American Opportunity Credit, which basically expands on and replaces the Hope Credit. The credit phases out over the next $10,000 ($20,000 married filing jointly) of income.

The Hope Credit had lower income limits, a maximum credit of $1,800, did not cover books and other supplies, and was good only for the first two years of college. These rules are likely to go back into place if the American Opportunity Credit expires at the end of 2017.

The Lifetime Learning Credit has lower income limits and applies to students in non-degree and career skills training programs. Eligibility for the Lifetime Learning Credit is capped at $61,000 for single filers and $122,000 for couples filing jointly. The maximum benefit is $2,000. Also, the Lifetime Learning Credit is available on a per-household basis. The American Opportunity Credit is available on a per-student basis.

There are other key differences to consider when choosing between the American Opportunity Credit and the Lifetime Learning Credit. The Lifetime Learning Credit doesn’t take into account felony drug convictions, is available year after year, and requires enrollment in only one course. The first 40 percent (up to $1,000) of the American Opportunity Credit is refundable, which means you can receive that amount even if your tax is zero.

"They split it out when you actually go through the tax form," Steponkus said. When you use TurboTax to prepare your taxes, we’ll recommend the credit that gives you the best tax outcome.

If you don’t claim either of the education tax credits, you still have the option to deduct up to $4,000 of tuition and fees. The income limits for the tuition and fees deduction are $80,000 for single taxpayers and $160,000 for married couples filing jointly.

529 Plan

Qualified tuition plans, or 529 plans, offer yet another way to save on taxes while providing for your child’s education. A 529 plan is not a deduction or a credit. It’s a shelter. The state-by-state 529 plans authorized by the Internal Revenue Service allow you to invest and earn interest on the funds without subjecting you to federal income taxes. In many cases, it also wipes out state income taxes.

Jo Ann Schoen, treasurer for the National Association of Tax Professionals, says "529 plans are a good way of starting that nest egg for college."

You must ensure that the withdrawals are spent on eligible education expenses, including tuition and room and board. Otherwise, you’ll get hit with income taxes after the money is spent. The Securities and Exchange Commission recommends you assess your overall financial situation before starting a 529 plan. After all, there's no point in depositing money into a restricted account for future savings if you're presently struggling to pay the bills.

From TurboTax Tips

Published: January 14, 2015

IRS Warns of Tax Refund Delays

The IRS normally refunds quicker, but this year, some filers are going to have to wait. 

Due to budget cuts, people who file paper tax returns could wait an extra week for their refund — "or possibly longer," wrote IRS Commissioner John Koskinen in a memo to employees Tuesday. And filers with errors or questions that require additional review will also face delays.

Last month, Congress approved a $10.9 billion budget for the IRS for fiscal year 2015, which ends in June. That's the lowest level of funding since 2008, Koskinen said.

Koskinen said the budget cuts would result in several other changes at the agency, including:

Fewer audits. Due to cuts in enforcement staff, collection efforts for individuals and businesses will be reduced.

Hiring freeze. The freeze, plus normal attrition rates, will result in 3,000 to 4,000 fewer full-time employees at the agency by the end of June. Including the headcount losses incurred since 2010, that means the agency's full-time staff will be reduced by as many as 17,000 employees over the course of five years.

Less taxpayer help. Cuts in overtime and temporary staff hours will not only delay refunds, but hurt correspondence with taxpayers as well. Koskinen said it's likely that fewer than half the taxpayers that call the agency will be able to get through.

A possible two-day shutdown after tax season. To minimize disruptions, Koskinen said a temporary shutdown, if needed, would likely occur closer to June. But, he added, the agency will do what it can to avoid this option, which he called a "last resort."

Delays in IT investments. Among the delays, will be technologies that offer new taxpayer protections against identity theft.

By Jeanne Sahadi for @CNNMoney

Published: January 9, 2015

5 New Year's Resolutions to Save on Taxes

Another year has rolled in and it's time to make those ever-challenging New Year's resolutions. Sometimes resolutions can be hard to keep. But when money is at stake, I bet the odds of compliance increase. Here are some New Year’s resolutions that are worth keeping in order to keep your money in your pocket, rather than in Uncle Sam’s:

1. Pack away 2014. This one is easy. Take all those receipts, stuff them in an envelope or in file folders or place in a plastic tub marked 2014 and shove it in the shed. I suggest going through the receipts first. Some that don’t need to be around for legal or tax reasons can be discarded. If there is a tax purpose, create a file for 2014 Income Taxes and place the receipts in this file. Later in the month you can add your W2, 1099s, K-1s and other important tax documents that arrive in the mail for preparation of your 2014 Income tax return. Also set up files for 2015 for bank account statements, credit card statements and general categories that you want to track. During the year, file away receipts and other documents as they come in in order to enjoy an orderly and easily accessible financial life.

2. Make a 2015 Tax File. It’s never too early to prepare for 2015 income taxes. In fact, you will be glad you did. Throughout the year you can slide receipts for medical expenses, property tax payments, vehicle registration fees, and other tax data into the file. It is especially critical to keep copies of acknowledgement letters from nonprofit organizations for charitable contributions made. This has been a major audit point for the IRS the past several years. Copies of cancelled checks and credit card receipts are not enough. By inserting tax documentation as you go during the year, you cut down on the angst and stress of preparing your data for the tax return. Almost all of the work has been done; the data has been pre-assesmbled and you can just pick up the file and head out to your tax appointment come tax time.

3. Set up QuickBooks. If your personal tax situation is complex, for example, you own one or more rental properties and you itemize deductions, it might be prudent to set up your tracking on accounting software. Bill paying, tracking, checkbook reconciliation are facilitated as well. Plus, you can generate financial reports that summarize income and expenses for each rental property. And you can view financial statements that disclose household spending. This is great for creating future budgets and for discovering where all that money went.

4. Tax Planning. In this day and age with the complexity of tax law, it is important to stay ahead of the game. This involves a midyear sit down with your tax professional to review the current year and set up a game plan to minimize your tax hit. This is especially true if you experience any significant changes in finances: divorce, marriage, buying and selling real estate, cashing out stock, IRA withdrawals, changing jobs, losing a dependent, losing a job. Don’t let the following April 15 slap you in the face. When you see your tax pro this season set up a post season appointment for planning.

5. Make your Estimated Tax Payments. Almost everyone with a tax liability who does not receive a W2 at year end is a candidate for estimated tax payments. This includes those who are self-employed or who make their living from investments. Your tax pro will set you up with quarterly vouchers to prepay your current year tax liability. Estimated tax payments are required if your federal liability is greater than $1,000. You may also have a requirement at the state level as well. Check with your state taxing agency or tax pro to determine if you do. It can be easy to blow off paying the estimates when other things like a new car or a vacation beckon. However, you can be penalized for not prepaying your liability and you may end up in tax trouble if you cannot come up with the total due by April 15. It might be advisable to have a separate “tax savings account,” in which to deposit money for disbursing quarterly to the IRS and the state.

By Bonnie Lee for FOX Business

Published: January 5, 2015

Business Drivers Get a Bigger Tax Deduction in 2015

Gas prices are at their lowest point in more than four years, yet the Internal Revenue Service has raised the tax break for employees using their vehicles for work in 2015.

The IRS revised its standard business mileage — the amount the federal agency will allow taxpayers to deduct for unreimbursed driving expenses for cars, vans, pickups and panel trucks — to 57.5 cents per mile, up from 56 cents in 2014.

The 2015 rate is the second highest in the tax service’s history. In 2008, record high gas prices drove the rate to 58.5 cents.

The increased deduction is good news for drivers, but puzzling to anybody who has been watching gas prices plummet since September.

Fuel costs only represent a portion of what the IRS considers when it produces mileage rates, said Jennifer Jenkins, Western Pennsylvania spokeswoman for the tax service. The IRS relies on a variety of fixed and variable factors.

The government has calculated that it is becoming more expensive for drivers to own, lease, insure and maintain their vehicles. Those increases more than offset fuel savings, at least for now.

IRS mileage rates are based on research from Runzheimer International, a travel management firm in Wisconsin. The government has worked with the company for the past 35 years, said Cris Robinson, research analysis supervisor with Runzheimer.

“Even when your operational costs are going down — that’s the fuel, the maintenance, the tires, the oil, all of those things — the fixed costs are usually a little bit more as far as the annual cost of the vehicle,” Ms. Robinson said.

Those fixed costs, which include vehicle depreciation, have been rising steadily since the late 2000s, she said.

Runzheimer does not provide suggested rates to the IRS. The IRS uses the company’s data to set the annual mileage rates, Ms. Robinson said.

Though the business mileage rate is going up, the rate that taxpayers can deduct for driving related to medical or moving purposes is going down — to 23 cents from 23.5 cents. That rate is factored using only variable rates, such as gas prices.

In 2015, the mileage rate for charitable activities, which also is calculated separately, is unchanged at 14 cents.

Though falling fuel prices weren’t enough to drive down the business mileage rate this year, Ms. Robinson said fuel prices are an important factor in setting rates. That’s reflected in historical business mileage rates, which were set at 9 cents as recently as 1995 before climbing significantly in the following years. An average gallon of gas cost $1.15 in 1995.

Ms. Robinson said Runzheimer does not factor speculative statements in its research, so gas price predictions are ignored. 

Ms. Jenkins noted individuals who claim mileage deductions must be prepared to show documentation for those miles driven — such as mileage logs, event calendars and even work schedules.

“The key thing is that it doesn’t look like they’re coming up with numbers out of thin air,” she said.

While the standard mileage rate is useful for many drivers, it is an imperfect figure. An individual’s actual driving costs might vary — much the same way the standard deduction differs from actual deductible tax expenses — and some drivers might opt to itemize their costs for a more accurate figure.

But for those who don’t want to track and document every business expense, the standard mileage rate is a “safe harbor,” Ms. Robinson said.

By Michael Sanserino for the Post-Gazette

Published: January 2, 2015

Hate Taxes? Be Thankful You're Not a Pro Athlete

Former Chicago Bears linebacker Hunter Hillenmeyer was willing to pay his fair share of taxes to cities where he played. Cleveland, he says, got greedy. Hillenmeyer and former Indianapolis Colts center Jeff Saturday are suing the city in the Supreme Court of Ohio for refunds of $5,062 and $3,294, respectively. They say it’s not the sum that matters but the principle: Cleveland taxes all the athletes on a visiting team for every game, even players who are hurt or don’t attend. “Nobody likes paying taxes—that’s obvious—but they should be fair,” says Hillenmeyer, who retired in 2010 after eight years in the National Football League. “It was just such an egregious and shameless money grab by the city of Cleveland, it just felt wrong not to try to do anything about it.”

Twenty-one states and eight cities that are home to major professional sports teams—including Detroit, Kansas City, and Philadelphia—tax visiting players, coaches, trainers, and others who accompany the team, says Sean Packard, an accountant in Virginia who handles taxes for about 200 athletes. These income taxes, often based on players’ salaries and how often they play in the state, can be a major revenue source. California collected $163.8 million in 2011 from resident and nonresident professional athletes for MLB, the NBA, NHL, NFL, WNBA, golf, tennis, and soccer, according to the state Franchise Tax Board. About $151 million of that came from the top four sports, the board said. Pittsburgh took in $3.1 million from pro athletes in 2013. Not all states and cities break out tax revenue from players.

Athletes are attractive targets because they make billions in combined income, have no say in where they play, and aren’t exactly objects of public pity. The taxes became widespread after California used its income tax laws to extract money from players for the Chicago Bulls, who’d defeated the Los Angeles Lakers in the 1991 NBA championship, says Robert Raiola, an accountant in New Jersey who represents about 125 athletes. Illinois retaliated with its own taxes on out-of-state athletes in what became known as “Michael Jordan’s Revenge,” he says.

Although players can get credit in their home states for out-of-state taxes paid, they generally can’t get credit for taxes that cities make them pay, Packard says. Hillenmeyer and Saturday are challenging the way Cleveland assesses its tax, which they say is unfair. The city uses a games-played calculation that divides the number of games a team plays in the city by the number of games in a season. The players prefer a formula known as duty days. It divides the number of games played in the city by the number of days in a season, which means lower taxes per game.

Here’s how it works out: In 2006, Hillenmeyer’s salary was $3.2 million. Using its formula, the city of Cleveland calculated that his per-game taxable income was $162,002, according to papers Hillenmeyer filed with the Ohio Board of Tax Appeals. Under the more common duty-days calculation that other cities and states use, Hillenmeyer’s taxable income would have been $38,557, according to the filing.

Saturday’s complaint isn’t only that he had to pay Cleveland too much but that he shouldn’t have had to pay at all. A six-time Pro Bowl center, he played 13 years with the Colts and won a Super Bowl in 2007 before finishing his career with the Green Bay Packers in 2012. In 2008 he was injured and missed the Colts’ only game in Cleveland that year. He was still hit with a $3,294 tax, thanks to city regulations that count payments an employer makes to a sick and absent employee. “It just became a tipping point,” says Saturday, who retired last year and is an analyst for ESPN. “I didn’t want other guys to have to face the same thing.”

Hillenmeyer’s and Saturday’s protests spent years working their way up to the Ohio Supreme Court, which has agreed to hear the cases but hasn’t yet set a date. Cleveland city spokeswoman Maureen Harper declined to comment on the case. The city has said in filings that it has discretion as long as the tax is reasonable. The games-played formula is precise because athletes are paid to perform in games, the city has said.

States usually give visiting executives a little leeway before they have to start forking over local income taxes. Ohio law says nonresidents who work in a city for 12 or fewer days a year don’t have to pay anything. Sports stars and entertainers are specifically exempted from this grace period. And it’s no use for a linebacker or center fielder to try to slip in and out of the state unnoticed, says New Jersey CPA Raiola. “Athletes,” he says, “are high-profile, high-salary, and very easy to track.”

By Mark Niquette for BusinessWeek

Published: December 31, 2014

ObamaCare Fines Rising in 2015

Don't have health insurance? Get ready to pay up. 

The ObamaCare-mandated fines for not having insurance are rising in 2015 -- and for the first time, will be collected by the Internal Revenue Service. 

The individual requirement to buy health insurance went into effect earlier this year. But this coming tax season is the first time all taxpayers will have to report to the IRS whether they had health insurance for the prior year. 

The fines for the 2014 year were relatively modest -- $95 per person or 1 percent of household income (above the threshold for filing taxes), whichever is more. 

But insurance scofflaws face a sharp increase if they don't get covered soon. The fine will jump in 2015 to $325 or 2 percent of income, whichever is higher. By 2016, the average fine will be about $1,100, based on government figures. 

The insurance requirement and penalties remain the most unpopular part of the health care law. They were intended to serve a broader purpose by nudging healthy people into the insurance pool, helping to keep premiums more affordable. But the application of fines in 2015 could renew criticism of the law, at a time when Republicans are taking control of Congress and looking at ways to undercut the policy. 

According to government figures, tens of millions of people still fall into the ranks of the uninsured. 

Unclear is how many would actually be assessed a fine. The law offers about 30 different exemptions, most of which involve financial hardships. Further, it's unclear how aggressively the IRS would go after the fines. 

Many taxpayers may be able to get a pass. 

Based on congressional analysis, tax preparation giant H&R Block says roughly 4 million uninsured people will pay penalties and 26 million will qualify for exemptions from the list of waivers. 

Deciding what kind of waiver to seek could be crucial. Some can be claimed directly on a tax return, but others involve mailing paperwork to the Department of Health and Human Services. Tax preparation companies say the IRS has told them it's taking steps to make sure taxpayers' returns don't languish in bureaucratic limbo while HHS rules on their waivers. 

Timing also will be critical for uninsured people who want to avoid the rising penalties for 2015. 

That's because Feb. 15 is the last day of open enrollment under the health law. After that, only people with special circumstances can sign up. But just 5 percent of uninsured people know the correct deadline, according to a Kaiser Family Foundation poll. 

"We could be looking at a real train wreck after Feb. 15," said Stan Dorn, a health policy expert at the nonpartisan Urban Institute. "People will file their tax returns and learn they are subject to a much larger penalty for 2015, and they can do absolutely nothing to avoid that." 

In a decision that allowed Obama's law to advance, the Supreme Court ruled in 2012 that the coverage requirement and its accompanying fines were a constitutionally valid exercise of Congress' authority to tax. 

Sensitive to political backlash, supporters of the health care law have played down the penalties in their sign-up campaigns. But stressing the positive -- such as the availability of financial help and the fact that insurers can no longer turn away people with health problems -- may be contributing to the information gap about the penalties. 

Originally published by with information from The Associated Press. 

Published: December 30, 2014

Tax Return Filing Season Opens January 20, 2015

Ready, set, file? Not quite. If you’re waiting on a tax refund, you can’t get it until you file, and the IRS says it will accept returns starting January 20, 2015. Following the passage of the extenders legislation, the IRS says it anticipates opening the 2015 filing season as scheduled in January.

The IRS will begin accepting tax returns electronically on Jan. 20. Paper tax returns will begin processing at the same time. The IRS had previously announced that it planned a Jan. 30 tax season opening for 1040 filers, so this isn’t bad at all.  After all, Congress was tweaking the tax law at the last minute, renewing a number of “extender” provisions that expired at the end of 2013.

These provisions were renewed by Congress through the end of 2014. The final legislation was signed into law Dec 19, 2014. Some had predicted that the IRS would not start accepting returns until January 30 or later. But here’s what the IRS Commissioner said:

“We have reviewed the late tax law changes and determined there was nothing preventing us from continuing our updating and testing of our systems,” said IRS Commissioner John Koskinen. “Our employees will continue an aggressive schedule of testing and preparation of our systems during the next month to complete the final stages needed for the 2015 tax season.”

The IRS reminds taxpayers that filing electronically is the most accurate way to file a tax return and the fastest way to get a refund. According to the IRS statement, there is no advantage to filing tax returns on paper in early January instead of waiting for e-file to begin. The IRS says more information about IRS Free File and other information about the 2015 filing season will be available in January.

By Robert W. Wood for Forbes Magazine

Published: December 29, 2014

2015 Capital Gains Tax: 5 Things You Need to Know

Your main goal when you invest is to make money. But the IRS wants its cut of your profits, and usually, you have to pay taxes on any capital gains that you have when you sell an investment that has gone up in price. You can expect the 2015 capital gains tax rates to stay pretty much the same as they were in 2014, but many people still get confused about the ins and outs of paying taxes on capital gains more broadly. Let's look at a few basic tips you can use to pay as little as possible in capital gains taxes in 2015 and beyond.

1. Don't want to pay capital gains taxes? Don't sell

Perhaps the most important tax break that many people don't realize they get is that no matter how much a stock you own goes up in price, you don't owe capital gains taxes on your profits until you actually sell the stock. That means long-term investors get a huge tax break in the form of deferral of tax, even if they own a stock in a regular taxable account.

Investors in mutual funds have to deal with different rules, though, whereby funds can actually pay out capital gains distributions even if you don't sell your shares. The reason: when thefund sells the investments it owns, it has to pass through the resulting capital gains to you for you to include on your tax return. Using exchange-traded funds rather than traditional mutual funds can help cushion the blow here, as their different structure makes them less prone to generate capital gains.

2. Long-term traders sometimes pay nothing in capital gains taxes.

If you hold investments for longer than a year, then you qualify for long-term capital gains treatment, which involves lower rates. In fact, for those who are in the 10% or 15% tax brackets for ordinary income like wages or interest income, long-term capital gains qualify for a special 0% tax rate -- meaning you won't pay a penny on your profits. Even those who are in higher brackets will pay a maximum of 15% unless you're in the top bracket, in which case a 20% maximum applies. The 20% rate took effect in 2013; before that, 15% maximums applied all the way up the income scale. Keep in mind, though, that for taxpayers who earn more than $200,000 for singles or $250,000 for joint filers, an extra 3.8 percentage point net investment income surtax applies, boosting your total effective tax rate.

3. Short-term traders pay the highest capital gains taxes.

If you hold property for a year or less, then you don't get to take advantage of any of the favorable long-term capital gains tax rates you've heard about. Instead, you'll pay the same tax rate you do for other types of income, including wages, interest income, and retirement-account distributions. You could pay short-term capital gains taxes of as much as 39.6%, as well as having to add on the 3.8% from the net investment income surtax. The easiest way to avoid the high short-term capital gains tax: hold onto stocks for longer than a year so you can get the better long-term rate.

4. Another smart tax-cutting strategy: use losses to offset gains.

Toward the end of the year, many investors look for capital losses that they can use to offset any capital gains from earlier in the year. Because you only have to pay tax on any net capital gains, a loss on one investment can cancel out gains on another. So if you expect to have a big capital gains liability early in 2015, then you spend the rest of the year looking for losing stocks in your portfolio whose losses you can use to reduce or eliminate any net capital gains.

5. The ultimate tax dodge (warning: it comes at a high price)

One little-known way to avoid capital gains tax forever is to hold onto your assets until your death. Assets you own in a taxable account get a step-up in their tax basis when you die, and as a result, your heirs won't have any capital gains tax liability at all if they sell shortly after your death. Of course, that's not a strategy you can use for yourself, and so it represents a tension between your own financial interests and those of your broader family.

Tax planning can seem complex, and in some cases, it is. But dealing with capital gains doesn't have to be hard. Keep these simple tactics in mind, and you'll go a long way toward reducing your 2015 capital gains tax bill.

By Dan Caplinger for The Motley Fool

Published: December 23, 2014

Tax Filing in 2015: 4 Important Things to Know

The year is coming to an end, and before you know it, it will be time to start working on your taxes. No matter whether you have a refund coming and will be itching to file as soon as possible, or you plan to wait until the last minute to delay paying a hefty tax bill, tax season always involves collecting necessary documents and then using them to prepare a timely return. Let's look at four important things you'll need to know to make your tax filing in 2015 go smoothly.

1. Don't jump the gun.

Many people figure they can file their tax returns as soon as the new year begins. If you have a pay stub that indicates your total income for the year, it's tempting to get a jump on the filing season by grabbing an online copy of the tax forms you need and sending them in.

But each year, the IRS sets an opening date before which it will not accept tax filings. In 2014, the IRS originally set that date for Jan. 21, but last-minute revisions to the tax laws forced the agency to push back the date to Jan. 31. Similarly, in 2013, major tax law changes tied to the expiration of tax cut provision passed in the early 2000s required the IRS to delay accepting returns until Jan. 30.

For tax filing in 2015, IRS Commissioner John Koskinen warned that delays from lawmakers in passing provisions extending many well-established tax breaks could push the tax filing date back again. Although those extensions were largely renewed earlier this month, that might nevertheless come too late for the IRS to start on time, especially with reduced resources for the government agency.

2. Know when your tax documents are coming.

To file your taxes, you need accurate information, which employers and financial institutions are required to provide. However, the government gives them time beyond the end of the year to prepare those documents, which can force you to hold off on tax filing as early as you might like.

Employers have until Feb. 2 to send W-2 forms to their personnel. The same date applies to many of the 1099 information returns that you receive on interest and dividend income. Those with brokerage accounts, though, might have to wait until mid-February to receive information returns covering sales of assets. Moreover, those who invest in master limited partnerships and other specialized investments could wait much longer to get their necessary tax information, with due dates running from mid-March to mid-April in some cases. Investors should watch closely to ensure all their income is reflected on statements before filing a final tax return.

3. Dealing with erroneous information.

Often, you'll get information returns that have mistakes on them. Because the IRS also receives a copy of those returns, it's critical that you not just fix the mistake on your own taxes, but have your employer or financial institution file an amended information return. Otherwise, the discrepancy between what the form says and what you put on your return could trigger a red flag that could lead to an audit.

Some financial institutions realize on their own that they have made mistakes in the information provided to you. That can lead to you receiving an amended information return; if you have already filed your taxes, then you'll need to amend your own tax filing to reflect the new information.

4. Rein in your expectations for a speedy refund.

Many people have high expectations about how soon they will receive their tax refund after they file their taxes. But before you make plans for your refund money, keep in mind that the IRS makes no claims about when you should expect to see a check. In fact, the IRS says, "Don't count on getting your refund by a certain date to make major purchases or pay other financial obligations."

That said, the IRS has traditionally been good about making speedy refunds to those taxpayers who file electronically. According to IRS figures, more than 90% of taxpayers receive their refunds within 21 days. The more complex your return is, the more likely it will need additional review that could delay your refund.

By Dan Caplinger for The Motley Fool

Published: December 22, 2014

Congress Passes Tax Extenders

The U.S. Senate passed a $42 billion package of tax incentives, reviving dozens of lapsed breaks for 2014 and setting them to expire two weeks from tomorrow.

After the 76-16 vote, the bill heads to President Barack Obama. The House passed the measure Dec. 3 on a 378-46 vote.

Congress will have the “dubious distinction” of starting next year with all of the provisions expired, said Senator Orrin Hatch, a Utah Republican who is poised to become chairman of the Senate Finance Committee in January.

“Never in the history of tax legislation have so many voted for so little and been so disappointed,” he said.

Beneficiaries of the breaks include multinational corporations such as General Electric Co. and Intel Corp., along with individuals who sold homes in short sales or live in states without income taxes.

By extending the tax breaks through 2014, Congress did the bare minimum necessary to avoid creating a major disruption to the 2015 tax-filing season or saddling taxpayers with unexpectedly higher bills.

“Congress is turning in its tax homework eleven-and-a-half months late and expects to earn full credit,” Finance Chairman Ron Wyden, an Oregon Democrat, said on the Senate floor before the vote this evening.


Eight Democrats

Wyden, who wanted an extension through 2015, was one of eight Democrats who voted no; the others were Elizabeth Warren of Massachusetts and Joe Manchin of West Virginia. Eight Republicans voted no, including Pat Toomey of Pennsylvania and Rob Portman of Ohio.

Lawmakers didn’t provide predictability or certainty for 2015. That will put the lapsed tax breaks back on the agenda next year.

The tax breaks are known as extenders, because they are routinely set to lapse and then are continued.

The package includes some provisions with broad bipartisan support, such as incentives for charitable donations from retirement accounts, the research tax credit for companies and higher capital writeoff limits for small businesses.


Wind Energy

It also includes a few items targeted to particular industries, such as the production tax credit for wind energy and accelerated depreciation for motorsports tracks.

Though some are occasionally dropped from the list, the tax breaks have survived for years as a group, propelled by corporate lobbying and lawmakers’ willingness to vote for each others’ priorities. They often are attached to broader must-pass legislation, though not this year.

The last three times Congress considered the package -- in October 2008, December 2010 and January 2013 -- the breaks were revived retroactively and extended for a full year going forward.

This time, lawmakers aren’t extending the breaks beyond Dec. 31 or making any of them permanent.

House Republicans and Senate Majority Leader Harry Reid were close to a deal in late November that would have made some of the breaks permanent, including the research tax credit, the state sales taxdeduction and a tuition tax credit that doesn’t lapse until the end of 2017.

That proposal collapsed when Obama threatened to veto it, with administration officials saying it aided businesses without providing enough to individuals. In particular, Obama wanted permanent extensions of expanded tax credits for low-income families that expire at the end of 2017.

Separate from the tax-break extensions, the bill would create a new type of tax-advantaged account. Disabled people would be able to set money aside for future needs while remaining eligible for government benefit programs.

By Richard Rubin for Bloomberg

Published: December 19, 2014

Save Twice with the Saver's Credit

If you are a low-to-moderate income worker, you can take steps now to save two ways for the same amount. With the saver’s credit you can save for your retirement and save on your taxes with a special tax credit. Here are six tips you should know about this credit:

  1. Save for retirement.  The formal name of the saver’s credit is the retirement savings contributions credit. You may be able to claim this tax credit in addition to any other tax savings that also apply. The saver’s credit helps offset part of the first $2,000 you voluntarily save for your retirement. This includes amounts you contribute to IRAs, 401(k) plans and similar workplace plans.

  2. Save on taxes.  The saver’s credit can increase your refund or reduce the tax you owe. The maximum credit is $1,000, or $2,000 for married couples. The credit you receive is often much less, due in part because of the deductions and other credits you may claim.

  3. Income limits.  Income limits vary based on your filing status. You may be able to claim the saver’s credit if you’re a:
    • Married couple filing jointly with income up to $60,000 in 2014 or $61,000 in 2015.
    • Head of Household with income up to $45,000 in 2014 or $45,750 in 2015.
    • Married person filing separately or single with income up to $30,000 in 2014 or $30,500 in 2015.

  4. When to contribute.  If you’re eligible you still have time to contribute and get the saver’s credit on your 2014 tax return. You have until April 15, 2015, to set up a new IRA or add money to an existing IRA for 2014. You must make an elective deferral (contribution) by the end of the year to a 401(k) plan or similar workplace program.

    If you can’t set aside money for this year you may want to schedule your 2015 contributions soon so your employer can begin withholding them in January.

  5. Special rules apply.  Other special rules that apply to the credit include:
    • You must be at least 18 years of age.
    • You can’t have been a full-time student in 2014.
    • Another person can’t claim you as a dependent on their tax return.
Published: December 16, 2014

Homeowner Tax Tips: Consider These Smart Moves Before 2014 Ends

With just over two weeks remaining in the year and the holiday rush upon us, income taxes may be the last thing on your mind. But property owners would be smart to check their to-do lists twice to make sure they get the maximum homeowner tax benefit from the IRS in 2015.

The good news is that 2014 looks an awful lot like 2013 in terms of tax policies affecting homeowners—nothing has really changed. Forbes spoke with two CPA financial planners, Jerry Love of Abilene, Tex., and Michael Schulman of Central Valley, N.Y., who offered the following suggestions homeowners might want to consider as they close out the year.

1. Pay your property taxes early. In states where property taxes are due in multiple chunks, it may make sense to pre-pay next year’s first installment before this year ends. This is especially the case for people expecting their incomes to go down in 2015. Just be sure that your mortgage company allows for pre-payments. “If [property tax payments] are being done through your escrow account, you may not have any control over that at all,” notes Love.

2. Accelerate mortgage payments. Following the same logic, it may make sense to push January’s mortgage payment into December so that you can accelerate that interest deduction in the current year. Just writing a check on Dec. 29 isn’t a guarantee that the mortgage company will cash—or count—for in 2014. “Absolutely communicate with the mortgage company on when the mortgage company needs to receive it to count it for the current year,” Love notes. “Because if it’s not on that form 1098, it’s going to be difficult to get the deduction.”

3. Consider bunching deductions. Now is the time to plan ahead in terms of itemizing versus standard deduction, for both this year and next, notes Love. In some cases, it may make sense to switch off between these two strategies. For example, consider a married couple, who for 2014 have a standard deduction of $12,400. Let’s assume that in 2013 they had itemized deductions worth $7,500, meaning it would make more sense for them to take the 2013 standard deduction (then $12,200). “But let’s say that $5,000 of that $7,500 is their property tax,” says Love. He would have advised such a couple to take the standard deduction for 2013, and then to pay their 2013 year-end property taxes in January 2014 and their 2014 taxes in December, in order to create a total “property tax for 2014 of $10,000.” Add in $3,000 in about charitable donations and suddenly this hypothetical couple would want to itemize. Again, this kind of bunching requires planning ahead. “If someone were starting that strategy, they would be looking at their property tax and saying I need to not pay my property tax in December, I need to pay in January so I could have two in 2015,” Love says.

4. Watch the tax extender bill. In early December the House passed the “Tax Increase Prevention Act of 2014,” which extends energy credits for windows, as well as energy-efficient building envelope components including insulation, exterior windows (or skylights), exterior doors and some roofing materials, among other items. The measure has not yet made it through the Senate. Just make sure all this has shaken out before taking advantage of the expected extensions.

Other homeownership-related aspects of tax time don’t necessarily need action steps now, but may be a bit confusing. Here are some items you can’t do anything about, necessarily, but want to understand before you visit the taxman or file on your own.

  1. Private mortgage insurance. PMI is deductible and should show up on your 1098. Homeowner’s insurance is not deductible. Love says he’s seen many a client confused on this point.
  2. Limit on mortgage interest deductibility.  Mortgage interest is always deductible—almost. There are limits to how much mortgage interest you can deduct, based on the amount of the mortgage: “Its $1 million on the first mortgage and $100,000 on the second mortgage,” says Schulman. “So if you have a house that cost $5 million with a $4 million mortgage, you won’t be able to deduct the entire mortgage interest you pay on that.” (Limits are for two people who jointly own the property.) Be very careful, Schuman warns. “The IRS has been actively going after this.”
  3. Vacation/second homes. Mortgage interest payments and property taxes are deductible on second homes. So, too, are other business expenses on rental properties. “You can’t deduct your own homeowner’s insurance [on a primary residence], but you can deduct it on a rental property,” says Schulman. The same is true for costs for snowblowing, gardening, or maintenance charges for a co-op.
  4. Home equity loans. These instruments generate mortgage interest that you can claim on your taxes. “If you have a home equity loan that was secured by your home—in other words, your home is the collateral—the bank should be issuing a 1098 for the interest that you pay, and that’s deductible,” says Love.
  5. Casualty losses. If a big storm damaged your home, you may qualify to claim casualty losses on your taxes. This is based on the net loss after insurance has been paid and must be more than your adjusted gross income (AGI). Let’s hope you don’t qualify.
  6. Home office deduction. The simplified standard is now $5 per square foot up to a maximum of 300 square feet.
  7. Exclusions on gains from sales: This rule has been around for a decade but is still worth noting: home sales in 2014 qualify for an exclusion on the net sales gain (selling price minus purchase price, plus any improvements) of up to $250,000 for an individual, $500,000 for a couple. However, this only applies to homes used as a primary residence for two out of five years. If you’ve moved out and then moved back in, you must live in the home for five years before you can take this exclusion.

By Erin Carlyle for Forbes Magazine

Published: December 15, 2014

Don't Forget These Year-End Retirement Planning Tips

You only have a few weeks left to make a 401(k) contribution that will get you a tax deduction on your 2014 return. The deadline is also rapidly approaching for retirees to take required minimum distributions from their retirement accounts. Here’s a look at the retirement planning moves you need to make before the end of the year.

Make last-minute 401(k) contributions. Workers age 49 and younger can contribute up to $17,500 to their 401(k) plan in 2014. Income tax won’t be due on the amount deposited in a traditional 401(k) account until the money is withdrawn. An employee in the 25 percent tax bracket who is able to max out his 401(k) would save $4,375 on his federal income tax bill, compared with $1,250 in tax savings for someone who deposits $5,000 in a 401(k). Contributions are typically due by Dec. 31, but it’s a good idea to avoid waiting until the last minute. “You can’t call on Dec. 29 and say you want to put in an extra five grand,” says Joyce Streithorst, a certified financial planner for Frisch Financial Group in Melville, New York. “They need to have a little lead time of at least one paycheck and sometimes two.” In some cases, you can also allocate part or all of a year-end bonus to your 401(k) account and avoid the extra tax bill on it. Workers age 50 and older can contribute an extra $5,500 to a 401(k) account as a catch-up contribution in 2014, or a total of $23,000.

Extra time for IRA contributions. While 401(k) contributions typically need to be made by the end of the calendar year, you have until April 15, 2015, to make IRA contributions that count toward tax year 2014. “For a lot of my clients, we wait until 2015 because we want to see what their tax return looks like,” says Robert Reed, a certified financial planner for Partnership Financial in Columbus, Ohio. “We can see if it will make more sense for us to do a traditional IRA and get the tax break this year or do a Roth IRA and pay the tax this year and then not pay tax again ever.” You can have your tax professional enter a hypothetical IRA or Roth IRA contribution into tax preparation software to see how much you could save on your tax bill. However, if you wait until 2015 to contribute to an IRA for tax year 2014, make sure you specify which tax year the contribution should be applied to. Financial institutions may automatically apply contributions to the calendar year when they are received unless you indicate otherwise.

Take your required minimum distributions. Distributions from traditional 401(k)s and IRAs are required after age 70½, and income tax will be due on each withdrawal. The penalty for missing a distribution is a 50 percent tax on the amount that should have been withdrawn. You have until April 1 of the year after you turn 70½ to take your first required minimum distributions, but subsequent distributions are due by Dec. 31 each year. And if you delay your first distribution until April, you will then need to take two distributions in the same year, which could result in an unusually high tax bill. “If you have to take two distributions in that year, you may want to be careful because it could push you up into a higher tax bracket,” Reed says. “You’re just looking at a difference of a few months, so for the vast majority of people, when you get to be 70½, just take it.”

Get the saver’s credit. Workers who earn up to $30,000 for individuals, $45,000 for heads of household or $60,000 for married couples in 2014 and save in a 401(k) or IRA are eligible for an additional tax perk, the saver’s credit. This valuable tax credit available to moderate-income households can be worth as much as $1,000 for individuals and $2,000 for couples, with the biggest credits going to people with the lowest incomes who manage to save for retirement.

Reset your contributions for 2015. In tax year 2015, the 401(k) contribution limit will increase by $500 to $18,000, and the catch-up contribution limit will also grow by $500 to $6,000. So if you can, consider setting your 401(k) direct deposits a little higher next year to get the biggest retirement savings tax break you can. “Make sure you take full advantage of your 401(k), especially if there is an employer match,” says Gwen Gepfert, a certified financial planner and principal of Oaktree Financial Planning in Basking Ridge, New Jersey. You can even use part of your 2014 tax refund to get a jump-start on saving for next year.

An Article From U.S. News & World Report by Emily Brandon

Published: December 10, 2014

Should You File Your Own Tax Return?

There are more than 75,000 pages of tax code and the tax laws become much more complex when one becomes self-employed. Many number-savvy individuals will look at Schedule C where sole proprietors list their income and business expenses and think that it’s a slam dunk to do it themselves. After all, there’s a line for listing your sales then there are fields in which to list the various business expenses incurred during the year. Add up the expenses, subtract the total from sales and you’re done, right?

Sounds simple, but in fact there is much more to it than that.

First of all, there are many things to consider: treatment of startup expenses, treatment of assets (depreciation and amortization), what qualifies as a business expense, automobile expense accounting, home office, self-employment tax, just to name a few. Unless you understand the principles behind these concepts, you may miss valuable deductions or at the other extreme, send up a red flag for audit. In fact, a self-prepared tax return with a Schedule C is an audit flag.

According to Poulos Accounting and Consulting, Inc., “The IRS is increasing its audit enforcement and conducting many more correspondence audits than in previous years.” He adds, “What a person saves on the front end in tax preparation fees, they could pay on the back end for representation. There is no substitution for a highly qualified tax professional such as an Enrolled Agent or Certified Public Accountant.”

But let’s say you are not self-employed but you own rental properties. The income and expenses for these ventures are listed on Schedule E. Here again, it appears to be a simple process of showing rents and rental expenses. But unless you know the rules for depreciation, amortization, taking passive losses, distinguishing between repairs and capital improvements, and what qualifies as a rental expense, you would be wise to turn over the preparation of this schedule to a seasoned tax professional as well.

Even if you are only a wage earner with a W2 but you need to complete Schedule A Itemized Deductions, you may find that the help of a tax pro is required. However, if you read the instructions carefully and don’t overlook any deductions – most commonly forgotten is vehicle registration fees – you can probably handle it and do very well.

Some people make the mistake of thinking that using tax software can replace the help of a tax pro. Not so. Years ago with the advent of modern technology, a phrase was spawned that holds true today: “Garbage in, garbage out.” Tax software can process numbers and in fact can ask leading questions to guide you (hopefully) to the correct fields and answers. But it’s not fool-proof and cannot cover every topic included in the tax code.

Another factor to consider are the ongoing changes in tax law. Preparing 2014 income tax returns will be even trickier than 2013 due to the passage of the Affordable Care Act. New provisions kick in and there are two new forms added to the existing batch. During December Congress will be making a decision on the status of the 55 extenders that expired at the end of 2013. There is always a lot to learn.

And what happens if you don’t know the rules and make a mistake? According to Poulos, “Not following the rules and regulations of tax laws can have serious consequences. It can range from getting a simple letter that you can handle yourself, to getting audited and owing thousands… and having a tax problem to solve.” Penalties and interest on unpaid liabilities are expensive.

By Bonnie Lee for FOX Business. 

Published: December 9, 2014

Divorce and Taxes Can Be Complicated

Going through a divorce can be a dramatic and trying time. Issues such as division of property, custody of children and family support are huge. And the decisions made to resolve these issues have a tax impact. It is important to know how you will be affected and take steps to minimize your tax liability.

The IRS doesn’t make it an easy chore. Even determining filing status can be complicated. A good rule of thumb is that your marital status at the end of the year determines your filing status.

If you are still married at the end of the year, in other words the divorce is in process but not yet final, you can still enjoy the tax benefits of filing married filing joint. However, you must both agree to this filing status. Otherwise, you will file married filing separate, which normally results in a higher tax to each filer but will protect you from the other spouse’s tax liability.

Taxpayers lose many benefits when electing the filing status of married filing separate. For example, both must elect to either take the standard deduction or itemize deductions. This could skew in favor of the spouse who is able to take the deductions when itemizing. For example, the spouse who is making the house payment will enjoy the mortgage interest deduction, usually a substantial write off. The other spouse will get zero. Other benefits lost by both parties include the American Opportunity Credit and Lifetime Learning Credit (for higher education), tuition and fees deduction, and student loan interest.  Dependent Care Credit and Earned Income Credit may also be affected.

If filing joint, the marital separation agreement (MSA) will not protect you from the IRS on the issue of tax liability. The IRS holds both parties signing a joint return responsible for the tax liability even if the MSA states one spouse or the other must absorb the expense. The IRS expects payment and will seek payment from each spouse and let you duke out with each other in court later on. So if the tax is not paid, they can easily garnish wages and levy bank accounts of both parties.

But let’s say you file jointly and enjoy a refund. The IRS provides 'Form 8379 Injured Spouse Allocation' to determine how the refund should be fairly split.

Your tax professional can run the tax return under either filing status to determine the additional tax liability, if any, and advise you on the best way to file.

You may also be eligible to file as Head of Household even if you are still married, which is an advantageous tax bracket. But you must fall within these requirements:

  1. You paid more than half the cost of maintaining your home during the tax year
  2. If still married, your spouse did not live in the home during the last six months of the year
  3. The home must be the main home for you and at least one child, step child or foster child for more than half the year
  4. You must be either unmarried or considered unmarried on the last day of the year

You cannot file head of household without a qualifying person in the picture. And that qualifying person is usually a child. A new boyfriend or girlfriend or roommate does not qualify a person for this filing status.

The only way you can file as single is if you have a settlement agreement and a final decree of divorce or if you were awarded a decree of annulment. This normally applies to divorced couples without children.

It is important to discuss the tax implications of divorce with your tax professional and determine a plan and course of action that benefits your tax situation.

By Bonnie Lee for FOX Business

Published: December 2, 2014

Taxes and Divorce, What You Need to Know

Finances and taxes are a significant issue during divorce, especially when children are involved. There are also special rules in the tax code that govern divorce and separation. It’s important to be apprised of these rules.

Dependency Exemption. If you are the custodial parent of the children, you can claim a dependent exemption of $3,950 (for 2014) for each child. The noncustodial parent may claim the dependent exemption and the child tax credit for the children with the consent of the custodial parent. For this change to be valid, the custodial parent must sign 'IRS Form 8332 Release of Claim to Exemption for Child of Divorced or Separated Parents'. The noncustodial parent must attach the signed release to his or her income tax return each year for which the dependency exemption is claimed.

Even if the noncustodial parent takes the exemption, the parent who has custody of the child can still claim Head of Household filing status, which results in a lower tax liability. The custodial parent may also qualify for the Child Care Credit, Exclusion for child Care Benefits and the Earned Income Credit. So, all is not lost if giving up the exemption credit.

Sometimes the parent who is not entitled to the exemption will attempt to take it anyway. In my tax practice, I see this happen every year. An electronically filed tax return is rejected because the dependency exemption has already been claimed. Resolving this issue is a long process, involving letters to the IRS with proof of the claim such as a statement in the Marital Separation Agreement (MSA). Or in the case where no MSA exists, the parent making the claim must provide proof of residency and of having provided more than 50% of the child’s support in order for the IRS to adjust the tax returns in his or her favor.

If you suspect your former spouse may try to hijack the exemption, my best advice is file early, file first.

Child Support. There are no tax issues revolving around child support. This is because child support is not deductible to the person paying it nor is it taxable income to the recipient. It doesn’t go on the tax return but it may be an element that comes into play when determining support issues for claiming the dependency exemption.

Alimony. Alimony however, is includible in income and is taxed at ordinary income tax rates. The party paying alimony may take it as a deduction. It’s listed an adjustment to income on Line 31a on Form 1040. Note that you must provide the social security number of your former spouse on Line 31b. This is because the IRS checks to ensure that the recipient is declaring the alimony income. There is also a match up to ensure that the amount claimed as a deduction matches what is claimed as income on the other party’s income tax return. If the numbers don’t match, someone is likely to get audited!

When you consider how much Uncle Sam gets from every paycheck, it becomes even more important to structure the elements of the divorce settlement in such a manner that benefits all parties. Therefore, one should consult with a tax professional as well as the attorney when filing for divorce.

By Bonnie Lee for FOX Business

Published: December 1, 2014

Is Your Business Being Audited? What the IRS is Looking For!

If you are self-employed your chances of being audited are three times higher than the average wage earning taxpayer.

Why is that?

If you are a wage earner, you will receive a Form W2 at year end. The IRS gets a copy of this form from your employer. If what the employer declares matches what you list on your tax return and there are no other sources of income and merely a standard deduction, you are pretty much audit-proof. The IRS has all the information it needs to determine if you have declared and paid the proper amount of income taxes. It’s very cut and dried.

But if you are self-employed, there is a greater opportunity to cheat by not declaring all income or by deducting personal expenses as business expenses. There is also the chance of not understanding tax law and making an error. After all, the tax code is lengthy and complicated and mistakes do happen.

So here is what the IRS does when it examines the tax return of a self-employed person:

Ensure that all income is declared. The first line on the business tax return or Schedule C is Gross Receipts. If yours is a service business like a graphic artist, web designer, attorney, or accountant, you will likely receive Forms 1099 at year end from your customers. The IRS receives copies of these 1099s, totals them and compares the total to what is declared on the Gross Receipts line.

Audit-proof tip: Total all 1099s you receive for the year and make the comparison yourself prior to filing the tax return. If your 1099s total $150,000 and you declare only $125,000 on your tax return, you can be sure that the IRS will show up at your door.

If you find an error on a 1099, make sure the originator files a correction with the IRS and provides you with a copy.

The next step the IRS takes to ensure proper reporting of income is a comparison of Gross Receipts from the tax return with total bank deposits for the year. It’s important to define additional bank deposits that do not relate to sales and keep a record of the details of the transaction. For example if the IRS sees $200,000 in bank deposits but you report Gross Receipts of $175,000 the IRS will want to know where the other $25,000 came from. If you cannot prove a legitimate source, it will likely assign the $25,000 difference to sales and charge tax on it. You must prove the bank deposits were not taxable sources of income. For example, the $25,000 difference may include capital contributions on your part of $10,000 from savings to help cash flow, and a credit line advance of $15,000. These two transactions are not taxable events and if you have canceled checks for your contributions and the credit line statement as proof, you’re home free.

Ensure that no personal expenses are deducted. Your taxable income is reduced by the total deduction of all “ordinary and necessary business expenses.” Classification of these expenses is a subjective task open to argument with the IRS. As long as the deduction falls within those parameters and was also not for an illegal activity (such as getting a parking ticket while attending a business meeting), you are fine.

Let’s say for example that wining and dining customers is common in your industry because you own a winery. These expenses will fly with the IRS as “ordinary and necessary.” However, if you are a car mechanic, you will likely have a very small amount of expense in this area. The IRS will not expect to see a large deduction for meals and entertainment and will disallow anything excessive, feeling that you are likely attempting to write off family meals, meals with friends and other personal meals.

If you have valid deductions that may be questionable (meals, travel, entertainment and vehicle expense are always suspect) keep all documentation that proves business rather than personal intent.

The IRS will look for personal use when touring your home office. The auditor will measure the square footage to determine if it matches what is declared on the tax return. He will also check out the space itself to see if the room is used for personal purposes. And if so, may disallow that portion of the room.

Basically the same rule applies if, for example, you have business inventory or assets in storage. The auditor will tour the storage facility to see if any personal items are kept therein. If so, the amount paid for storage expense may be reduced and result in a higher tax liability.

By Bonnie Lee for FOXBusiness

Published: November 19, 2014

7 Tax Extenders That Affect You

The elections are over and a Republican dominated Congress was voted in. It appears that expired tax extenders will be voted upon soon. The window for end of year tax planning will be snapping shut within the next six weeks. I’d advise you to get with your tax pro soon to determine your 2014 tax liability and prepay it before it becomes a potential penalty issue next April 15. Consider whether the elimination or revival of these tax laws will impact your tax scenario and plan for it to go either way. If not revived, determine the increase in your tax liability and prepare accordingly.

The tax laws that expired at the end of 2013 benefited many taxpayers. Congress will now determine if they are worthy of revival. Each year the vote on extenders is delayed to almost the end of the year. In fact, the extenders that were up for renewal during 2012 were not voted into law and signed off by the President until 1:00 a.m. on January 1, 2013. They were made retroactive to January of 2012, but as you can see, this did now allow for any decent tax planning.

We are in the same boat again.

According to the Expiring Provisions Improvement Reform and Efficiency (EXPIRE) Act Committee Report the following provisions are under consideration:

1. Deduction for expenses of elementary and secondary school teachers

The bill extends for two years the $250 tax deduction for teachers and other school professionals for expenses paid or incurred for books, supplies (other than non-athletic supplies for courses of instruction in health or physical education), computer equipment (including related software and service), other equipment, and supplementary materials used by the educator in the classroom. A two-year extension of this provision is estimated to cost $430 million over 10 years.

2. Mortgage debt forgiveness

This is a big one. If you experienced mortgage debt cancellation or forgiveness on your personal residence after 2013, you may be required to pay taxes on that amount as taxable income unless the exclusion is renewed by Congress. Under this provision, up to $2 million of forgiven debt is eligible to be excluded from income ($1 million if married filing separately) through tax year 2015. This provision was created in the Mortgage Debt Relief Act of 2007 to shield taxpayers from having to pay taxes on cancelled mortgage debt stemming from mortgage loan modifications, through 01/01/2010. It was extended through 01/01/2013 by the Emergency Economic Stabilization Act of 2008; and extended through 01/01/2014 by the American Taxpayer Relief Act of 2012. A two-year extension of this provision is estimated to cost $5.4 billion over 10 years.

3. Deduction for mortgage interest premiums

The bill extends the ability to deduct the cost of mortgage insurance, also known as PMI on a qualified personal residence. This deduction is driven by income levels. Depending upon how much you make, the deduction may be ratably reduced and is unavailable for a taxpayer with an AGI in excess of $110,000. The bill extends this provision for two additional years, through 2015. A two-year extension of this provision is estimated to cost $1.85 billion over 10 years.

4. Deduction for state and local general sales taxes

The bill extends the election to take an itemized deduction for State and local general sales taxes in lieu of the itemized deduction permitted for state and local income taxes for two years. The original passage of this bill leveled the playing field for those who lived in a state that did not levy a state income tax.  A two-year extension of this provision is estimated to cost $6.5 billion over 10 years.

5. Above-the-line deduction for higher education expenses

The Economic Growth and Tax Relief Reconciliation Act (EGTRRA) created an above-the-line tax deduction for qualified higher education expenses. Taxpayers could enjoy the deduction rather than take the American Opportunity Credit or the Lifetime Learning Credit. The maximum deduction was $4,000 for taxpayers with AGI of $65,000 or less ($130,000 for joint returns) or $2,000 for taxpayers with AGI of $80,000 or less ($160,000 for joint returns). The bill extends the deduction to the end of 2015. A two-year extension of this provision is estimated to cost $596 million over 10 years.

6. Tax-free distributions from individual retirement plan for charitable purposes

The bill extends for two years the provision that permits an Individual Retirement Arrangement (“IRA”) owner who is age 70-1/2 or older generally to exclude from gross income up to $100,000 per year in distributions made directly from the IRA to certain qualified charities. This deduction is beneficial for seniors that no longer itemize deductions. It essentially allows for a charitable deduction in addition to the standard deduction.  A two-year extension of this provision is estimated to cost $1.8 billion over 10 years.

7. Credit for energy efficient improvements to existing homes

The bill extends for two years, through 2015, the 10% credit for purchases of energy efficient improvements to existing homes. Homeowners can claim up to $200 for energy efficient windows, up to $150 for an efficient furnace or boiler, and up to $300 for other improvements, including insulation. The total credit is capped at $500 per taxpayer. The bill also allows energy efficient roofing products to qualify. A two-year extension of this provision is estimated to cost $1.65 billion over 10 years.

By Bonnie Lee for FOXBusiness

Published: November 17, 2014

Small Business Guide to Deducting Charitable Donations

Businesses can make tax deductible donations to bona fide nonprofit organizations. But you may be surprised to learn how it is deducted on your tax return. In fact, the only entity able to deduct a cash charitable contribution as a business expense is a C Corporation.

If you are a sole proprietor and you make a donation of $100 to a dog rescue society which is registered as a 501(c)(3) with the Internal Revenue Service – all bona charities must be registered as such for your gift to be tax deductible – and your business received no goods or services in return, the deduction is listed as an itemized deduction on Schedule A of your tax return. This provides a tax benefit only if you are able to itemize deductions.

You cannot deduct this contribution on Schedule C. It is not a business expense; it will not reduce your self-employment tax. The IRS views it as a personal expense paid from business funds.

But now let’s say you want to support young athletes and therefore donate $100 from business funds as a sole proprietor to the local soccer league. In exchange, they run a small display ad for your business on their program. This is no longer a donation. This is an advertising expense; you received something in return which can be classified as an “ordinary and necessary business expense,” and therefore the cost is deductible as such on Schedule C.

If as a sole proprietor you donate your services to a bona fide 501(c)(3), you have no deduction whatsoever. Doesn’t seem fair, does it? But the IRS places no value on your time or expertise. A manicurist donated her time to do nails for women clients at a shelter who were preparing for job interviews. While she was not allowed to deduct the $35 per manicure she would normally charge, she was able to deduct her mileage to and from the shelter, and the cost of all supplies and materials used in the performance of the manicures. She gave away bottles of nail polish to be distributed by the nonprofit to their clients. These were a write off for her as well.

By the same token, if this manicurist were to give away a nail care set of polish and files and other products to a poor individual who needs help, she would not be able to write off the donation. This is simply because the IRS does not allow the deduction of gifts to individuals, or for that matter to political organizations or candidates.

If your business is incorporated as an S Corporation or formalized as a partnership filing Form 1065, the same rules apply. In fact, any donations made at the S Corporate or partnership level flow out as a special line item on your Schedule K-1 and end up on Schedule A of your individual income tax return. Again, this is a tax benefit only if you are able to itemize deductions.

A C Corporation may take the deduction on Form 1120 but must follow all of the IRS rules regarding donations.

Remember to acquire and retain the acknowledgement letter from the nonprofit for your donation. Your cancelled check is not enough documentation and the IRS may disallow the deduction if you cannot provide this document. It must be obtained before filing your tax return. You cannot request it later during an IRS audit.

By Bonnie Lee for FOXBusiness

Published: November 14, 2014

Remember, Some Gifts Are Taxed

“It’s better to give than to receive.” Remember that adage as a child that Mom used to badger you with to get you to share? Now it’s become ingrained and if you are in the position to do so, you may wish to share gifts with friends and family. Especially with the advent of the holiday season, our giving hearts awaken and the sharing begins.

But be forewarned. Giving gifts can be a taxable event.

Most givers think they may be able to write off the gift they present to another individual, usually their child. Can I deduct it as a charitable contribution? The answer is no, you cannot. Donations to charity must be to bona fide 501(c)(3) organizations. Therefore, money given to homeless individuals or families in need, or to your son or daughter are not deductible as charitable contributions and therefore do not present any tax benefit for the giver.

Your generosity to family, friends, or other individuals goes unrewarded in this lifetime. And in fact, the converse is the case. The act of giving may be a taxable event for the giver. The recipient is home free. You can give someone a million bucks and that person does not have to pay taxes on it.

But you might have to.

Here are the rules. You are allowed to gift up to $14,000 (for 2014) per year to any person without having to declare the gift and pay gift tax. Every year the dollar amount of an allowable gift changes, so stay tuned for a new threshold in 2015 and beyond.

Let’s say you and your wife would like to gift $50,000 to your son and his wife so they can put a down payment on a house. You are allowed $14,000 per individual per giver. Therefore, you can give tax free a grand total of $56,000 in this instance without incurring a tax liability. As the giver, you may gift $14,000 to your son, $14,000 to his wife and your spouse may do the same. $14,000 x 4 = $56,000.

Let’s say however, that you wish to gift them $100,000. To prevent taxation of the excess, consider splitting the gift over a two year period rather than all at once. Or make a loan of the excess. But put it in writing, secure repayment, and be sure to charge interest. The IRS insists that you charge the Applicable Federal Rates for the transaction to be construed as a loan rather than as a gift.

The IRS provides guidance for certain acts that are excluded from the gift tax:

Gifts that are not more than the annual exclusion for the calendar year.

  1. Tuition or medical expenses you pay for someone (the educational and medical exclusions).
  2. Gifts to your spouse.
  3. Gifts to a political organization for its use.

If you find that you will provide the gift all at one time, and incur the taxable event, The gift is not declared on your Form 1040. Instead, file IRS Form 709. You may pay up to 40% of the value of the gift in taxes.

Keep in mind that gifts under $14,000 may sometimes have to be reported. A gift under the exclusion amount must be characterized as “a present interest,” meaning that the recipient can use the gift immediately. If it is not, let’s say it’s a gift to a trust, in which beneficiaries don’t have any rights until later. A gift of this nature that has no present interest value must be reported, no matter how small the amount.

There are many rules and regulations and exceptions governing this issue, so it would be wise to consult with your tax advisor at Hershkowitz & Kunitzer, P.A.

By Bonnie Lee for FOXBusiness

Published: November 13, 2014

S Corporations Cannot Always Write off Losses

If you are the owner of an S Corporation, the corporation pays no federal income tax. Instead, you enjoy a pass through of corporate profit or loss on your individual income tax return where it is taxed at your individual rate. This rate can vary depending upon your other tax transactions and the amount of corporate profit or loss you are declaring.

But did you know that you can write off corporate losses only to the extent of basis in the corporation? For this reason it is important that either you or your tax professional track basis every year to determine eligibility for deducting losses.

Stock basis is determined by a complex formula. Essentially, you begin with the initial value of your stock, the amount of which is determined when you become a shareholder. Each year you must combine certain elements from the financial statements to come up with an end of year basis for each shareholder. The elements you combine are: initial stock value plus ordinary income (profit) for the year less distributions less nondeductible expenses less ordinary business losses plus capital contributions.

Let’s examine some of the terminology.

You accountant can provide you with your intital stock value.

Ordinary income or loss is the difference between your total sales for the year less your total expenses and includes depreciation expense.

Distributions are draws that you take as a shareholder aside from your salary or wages. Salary and wages do not play a role in determining basis. Distributions may also include amounts paid out on your behalf not deductible by the corporation such as health and disability insurance premiums or contributions into an IRA or SEP IRA or SIMPLE plan.

Nondeductible expenses include 50% of meals and entertainment expenses, fines and penalties on delinquent payroll, sales, and excise taxes, fines for illegal activities like parking tickets.

Contributions are monies and other property that you assign to the corporation.

So let’s say you are the sole shareholder and your initial outlay for corporate stock is $10,000. During the year you have taken distributions of $30,000. This is aside from your regular salary totaling $120,000. Nondeductible expenses total $5,000. The business shows a profit for the year of $50,000.

Adding these elements together $10,000 – 30,000 – 5,000 +50,000 = $25,000. Your ending basis in the corporation is $25,000. You do not have to worry about the impact of basis this year because the business is not showing a loss.

However, let’s take a look at the subsequent year. You start the year with a beginning basis of $25,000. But it turns into a bad year. You put in $50,000 of your own money to help with cash flow. You suffer a loss for the year of $90,000. You therefore end the year with a negative basis, –$15,000.

What happens now? The IRS says, “A shareholder is not allowed to claim loss and deduction items in excess of stock and/or debt basis. Loss and deduction items not allowable in the current year are suspended due to basis limitations and are carried over to the subsequent year.”

You can’t take the loss. But at least you don’t lose it completely. You are allowed to carry it forward.

If you take distributions in excess of basis, they would be required to be reported on Schedule D of your income tax return as a long term capital gain if you’ve held the stock for more than one year.

Basis is a complicated issue. For S Corporations, other items to track include debt basis, passive activity loss limitations and at risk limitations. Check with your tax professional at Hershkowitz & Kunitzer, P.A. for more information.

By Bonnie Lee for FOXBusiness Taxpertise

Published: November 7, 2014

What is accelerated depreciation?

Accelerated depreciation is the allocation of a plant asset's cost in a faster manner than the straight line depreciation. Compared to straight line depreciation, accelerated depreciation will mean 1) more depreciation in the earlier years of an asset's life and 2) less depreciation in the later years of the asset's life. [Note that the total amount of depreciation over the asset's life will be the same regardless of the depreciation method used.] Hence, the difference between accelerated depreciation and straight line depreciation is the timing of the depreciation.

Three examples of accelerated depreciation methods include double-declining (200% declining) balance, 150% declining balance, and sum-of-the-years' digits (SYD).

The U.S. income tax regulations allow a business to use accelerated depreciation on its income tax return while using straight line depreciation on its financial statements. For profitable corporations this will likely result in deferred income tax payments being reported on its financial statements. 


Published: November 6, 2014

How One Government Spends Your Taxes

Want to know exactly how the government is spending your taxes?

Twenty-four million British taxpayers are about to find out as they receive personalized summaries that break down exactly where their hard-earned cash goes.

The program, considered one of the first of its kind by experts, aims to improve transparency and make the government more accountable for its spending.

Each person will get a chart showing, pound for pound, how the taxes they pay on their income are used.

About 25% goes towards welfare programs -- the biggest area of government spending -- including support for children and families, people with disabilities, pensioners and the unemployed.

Nearly 19% of tax money is funneled into healthcare, and roughly 5% towards defense.

"It's good for people to think about how their money is spent," said George Bull, a senior tax partner at accountancy firm Baker Tilly.

A worker making £30,000 ($48,000) per year -- or slightly more than the average wage -- will see that they pay £6,781 in income taxes each year. Nearly £300 goes towards criminal justice, while £114 is spent on "culture" programs including libraries and museums. Nearly £80 goes to overseas aid.

The new initiative may upset some people who disapprove of certain types of government spending.

"You pay your taxes, the government chooses how to spend them," said Bull. "The government doesn't send these out to give you a choice about how your taxes are spent."

The smallest item outlines how much each taxpayer contributes to the European Union. For a person making £30,000, they'll pay £51 a year.

Britain's relations with Europe have become increasingly strained in recent years. Prime Minister David Cameron has promised to hold a referendum in 2017 on whether the U.K. should remain a member of the EU, if he is re-elected next year.

By Alanna Petroff for @CNNMoney

Published: October 28, 2014

As Your Business Multiplies, Your Bank Accounts Shouldn't

Question: We recently expanded to open our third retail location this year. Should we have a separate bank account for each location? Or is it OK to have one account to run through all our operating expenses, payroll, etc.?

Answer: It’s easier, and probably cheaper, for you to route everything through one bank account. That’s true as long as all three locations operate under one corporate entity and use the same employer identification number.

If, however, you’ve established separate companies to operate the locations, you will need separate accounts, says Cece Mitchell, senior vice president and Small Business Administration lending manager at Zions Bank. That’s because with each company operating under its own identification number and filing its own tax return, you won’t want to mingle the funds.

Of course, maintaining separate accounts is a bigger hassle for you—and it will cost you more when it comes to banking fees, printing checks, and accounting processes.

Better to use one account and take advantage of your bank’s cash management services. They should allow you to concentrate all your business banking transactions, Mitchell says, while still tracking the revenues and expenses at each individual store. “Deposit slips and checks can be coded to indicate the separate locations, as can the individual merchant terminals,” she says. Most accounting software can be set up in a similar fashion, so you can track financials and produce reports by location.

Janet Coletti, senior vice president for business banking at M&T Bank, points out additional benefits of keeping your bank accounts to a minimum. With a single account you’ll only have to track a single balance, which will make managing payments simpler. And, if your bank requires a minimum balance on business accounts, you’ll be more likely to maintain that balance when all your revenues are combined. A bigger balance may give you leverage to negotiate on service fees, too.

As your business continues to grow, revisit your decision occasionally. “For some larger businesses, an additional account to manage payroll expenses separate from payables makes the reconciliation of those expenses much easier,” Coletti notes.

And if you’re still not decided, ask your bank to prepare an analysis of both scenarios and then bring your accountant in to help you determine which one works best for you.

By Karen E. Klein for Bloomberg Smart Answers

Published: October 27, 2014

5 IRS Penalties You Want to Avoid

Nobody sets out at tax time to figure out how to pay more money to the IRS. But careless mistakes can leave many people doing just that, thanks to the penalties the IRS imposes. According to tax experts, some IRS penalties are for very common mistakes. Those mistakes are avoidable through awareness of and strict adherence to the tax rules, including deadlines.

1. Late filing penalties

The first thing you must remember is the date April 15. Mark it on your calendar.

Coppell, Texas-based certified public accountant Wray Rives thinks you might need to circle the date in red.

“Nobody likes having to file their tax return, but we all know April 15 is the deadline to file, or at least request an extension,” said Rives. “Avoid being in so much angst over taxes that you just don’t file. The IRS knows you exist and they got copies of all those W-2s and 1099s you received in the mail, so they know you made some money last year.”

“Late filing penalties can add 25 percent to your tax bill,” Rives said.

You also must sign your return, he noted.

“Forgetting to sign a tax return is the most common mistake taxpayers make,” Rives said. “The IRS won’t accept your tax return if it is not signed, and that is just the same as not filing it at all.” When you use tax software like TurboTax to e-file your tax return, the IRS assigns a PIN that acts as your electronic signature.

2. A tale of two mileage rates

If you’re self-employed, and you intend to deduct all the wear and tear you put on your car last year getting the job done, it has to be done according to the new rules. You need to be accurate in your record keeping to avoid penalties.

Should your creative bookkeeping set off red flags to IRS employees, you will have to provide a journal detailing every mile you claimed on your return. You'll also have to turn over receipts for all other questions they may have on your entire tax return.

If you are unable to prove your side, there is a 25 percent inaccuracy penalty on top of the additional tax and then the interest on the entire amount.

3. Penalties for math errors

If you’re not good at math, then you had better sharpen your skills if you are preparing your taxes by hand. According to the experts, math errors are very common on pen-and-paper returns, so check and re-check your math.

If the math error results in you paying less tax than you should, the IRS is likely to require that you pay the additional amount of taxes owed plus interest accrued since the due date of the return.

The good news is, when you use TurboTax, we handle all the math and we guarantee that our calculations are 100% accurate.

4. Home office deduction penalties

If you run a home daycare service, use part of your home as an office, or designate a closet or other area to store inventory, you may confidently take a deduction for your home office.

The key is that you use your home office ‘exclusively and regularly’ as your principal place of business. You should only deduct the exact area(s) you use exclusively for business, so if your office doubles as a spare bedroom, you can only deduct the portion of the room used for business.

If the IRS determines the taxpayer does not qualify for the home office deduction, the damage can be twofold. First, because the deduction is taken on Schedule C, it may raise the taxpayer’s taxable income. Second, if the reduction in expenses leads to more income on the Schedule C, that amount is also subject to self-employment tax, which is 15.3 percent in most years.

5. Some not-so-charitable penalties for charitable donations

They say it’s always better to give than to receive. In the case of income tax filing that is true.

Paul Lupo of Shelton, Connecticut-based Lupo & Associates cautions taxpayers against making common mistakes when it comes to claiming non-cash charitable contributions.

“In donating clothing and other goods to a charitable organization, the donor must receive an itemized slip from the organization listing what has been donated and the condition of the items,” Lupo said. “There’s also a place where the person should be putting down a value and then signing the slip.”

If you are selected for an audit, he said, the deduction may be denied because there’s nothing specific listed on the slip, like the condition of the items and their value. “If denied, the filer will have to pay the additional taxes and perhaps a 25 percent inaccuracy penalty on top of the additional tax, and then the interest on the entire amount,” Lupo said.

From Intuit Tax Tips

Published: October 23, 2014

Social Security Benefits Rising 1.7% For 2015, Top Tax Up 1.3%

The nation’s nearly 64 million Social Security recipients will get a 1.7% cost of living increase for 2015, while the maximum Social Security tax, which is linked to a different measure, will go up by just 1.3%, the government announced today.

The 1.7% boost means the average retired worker will see a $22 increase to $1,328 a month and the average senior couple will get a $36 boost to $2,176, the Social Security Administration said. The maximum monthly Social Security check for a single baby boomer claiming benefits in 2015 at the “full” retirement age of 66 will be $2,663, up from $2,642 in 2014. The increase will show up in regular Social Security checks in January and in payments made to 8 million beneficiaries of Supplemental Security Income (SSI) benefits on Dec. 31, 2014.

By law, since 1975, the Social Security COLA has been linked to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). It is set each October based on the CPI-W for the 12 months ended September 30, which was announced by the Bureau of Labor Statistics this morning.  While advocates for the elderly argue CPI-W understates the true increase in costs the elderly face, deficit hawks have pushed for linking COLAs to an even lower measure of inflation known as the chained CPI.

The 1.7% COLA is up a tad from 2014′s 1.5% increase. Moreover, for the second year in a row, the Medicare Part B premiums withheld from retirees’ checks will remain unchanged at $104.90 a person per month. The additional Medicare Part B premiums charged to higher income seniors will also remain unchanged for the second year in a row. Those extra premiums start at $42 a month per person for singles with modified adjusted gross ranging from $85,000 to $129,000 and couples with MAGI from $170,000 to $258,0000 and top out at $230.80 per person a month for singles with income above $214,000 and couples above $428,000.

Workers can claim reduced Social Security retirement benefits at age 62, but lose some of those early benefits if they continue to work and earn above a certain amount.  As part of today’s announcement, the Social Security Administration said that recipients who are age 62 through 65 in 2015 will be docked $1 in benefits for every $2 in earnings they have above $1,310 a month  ($15,720 a year)  up from  $1,290 a month ($15,480 a year) in 2014.   A worker who turns 66 in 2015 can earn up to $3,490 a month before his or her birthday, without losing benefits. Above that threshold, the worker will lose $1 in benefits for each $3 earned. Social Security recipients can earn as much as they like without being docked once they reach the full retirement age of 66.

Meanwhile, for 2015, the maximum amount of a worker’s pay subject to the Social Security tax (the so-called “wage base”), which is linked to the increase in average wages, not the CPI-W, will climb by just 1.3% to $118,500 from $117,000 in 2014. That means about 10 million high wage workers will see $7347 in Social Security taxes taken out of their paychecks in 2015, up $93 from 2014.  In 2014,  the wage base and the top tax rose by 2.9%, while in 2013 all workers faced Social Security tax sticker shock as Congress allowed a temporary cut in the employee’s Social Security tax rate —from 6.2% to 4.2%—to expire.  (The employer’s 6.2% share of Social Security tax was never cut.)

Employees and employers also pay 1.45% each in Medicare taxes on all wages, with no cap. In addition,  as part of ObamaCare, wages and self-employment income above $250,000 for a couple or $200,000 for a single are subject to a 0.9% Medicare surcharge, which is paid on a household’s 1040 income tax return.

By Janet Novak for Forbes Magazine

Published: October 22, 2014

PolitiFact: Delayed Tax Refunds are Fake News

Readers recently forwarded us a claim they had begun seeing in their inbox -- and which their friends were believing. It was a link to a story headlined, "2014 Federal Tax Refunds To Be Delayed Until October 2015."

This would be a pretty big deal if true. Is it?

The short answer is: No.

It turns out that the article was published in September 2014 on a website called the National Report. Here’s a portion of the article:

"Normally when you file your taxes, whatever money is owed back to you is quickly repaid. The process of getting your money back has been made even quicker in recent years through the use of E-file and direct deposit of federal tax rebates. But starting in 2015, federal tax refunds for the 2014 fiscal year are going to take longer for Americans to receive. A lot longer.

"The deadline to have your federal taxes filed will remain April 15th, but under new directives issued to the IRS, no refunds are to be issued before October 15th, 2015. This means that early filers who normally receive their refunds around the beginning of February will have to wait an additional 7 months longer than normal to get the money owed to them.

"White House Press Secretary Josh Earnest defended the upcoming changes to IRS tax refund policy. 'It’s a minor cost saving measure initiated by the administration with bipartisan support,' said Earnest. 'The recommendation to initiate this new refund structure came out of the Committee On Ways And Means, under the leadership of Republican Congressman David Camp. Absolutely zero dollars are going to be kept that is owed to hardworking Americans. All you are seeing here is a policy change streamlining the way in which the IRS structures tax refund repayments. Americans who find this objectionable can always opt to bring their tax withholding more in line with the actual taxes they will owe in the future.' "

The article went on to quote two Republican senators critical of the move -- Rand Paul of Kentucky and John McCain of Arizona.

A lot of people appeared to believe it. The article was shared 647,000 times on Facebook since it was published. Forbes tax columnist Kelly Phillips Erb was among those who noted its wide reach.

There is one problem with the claim: It comes from a fake-news site.

The last time we checked a bogus claim from National Report, the site had a disclaimer that said "the views expressed by writers on this site are theirs alone and are not reflective of the fine journalistic and editorial integrity of National Report." This disclaimer has since been removed by the site.

Another, clearer disclaimer -- also removed -- has been archived by urban-legend investigation site The disclaimer said, "National Report is a news and political satire web publication, which may or may not use real names, often in semi-real or mostly fictitious ways. All news articles contained within National Report are fiction, and presumably fake news. Any resemblance to the truth is purely coincidental."

We reached out several times to the IRS to see if we could get an official disclaimer from the agency, but we never heard back.  

Our Ruling

A chain email has been circulating with a link to an article headlined, "2014 Federal Tax Refunds To Be Delayed Until October 2015." However, the article comes from the National Report, a satire website. It is not accurate and was never intended to be. We rate the claim Pants On Fire.

By Nai Issa for

Published: October 20, 2014

Tax Guide for Mutual Fund Distributions

The distributions of income and capital gains you get from funds are taxed according to principles that are often perplexing and sometimes unfair. This guidebook covers the basic rules.

The rules are for fund shares in taxable accounts. They are largely irrelevant to the taxation of funds held in IRAs and 401(k)s.


1. Flow-Through. Funds don’t pay corporate income tax. Instead, they flow their dividends, interest and capital gains through to their shareholders, who declare these on their own tax returns. The distributions are taxable whether or not the shareholder reinvests them in the fund.

Income comes in different tax flavors: municipal bond interest, U.S. Treasury interest, fully taxable interest, dividends that qualify for the favorable rate, dividends that don’t qualify, short-term gains, long-term gains. For the most part, the flavors flow though, just as they would in a partnership.

There are two big differences between partnerships and funds. Partnerships can flow through losses as well as gains; funds can’t. Partnerships can flow through short-term gains; in a fund, these gains decay into less-desirable ordinary income.

2. Hot Potato. A distribution—and the tax bill that sticks to it—is delivered to whoever is holding the fund when the distribution goes out. This isn’t necessarily someone who is making money.

Say you buy a fund share for $20 and a month later, with the fund still worth only $20, you get a $1 distribution. Immediately thereafter, the fund share value drops to $19.

So far, you are only breaking even, but you owe tax on the $1 distribution. You can partly or fully offset that tax by cashing out the fund share at $19, creating a $1 capital loss. But you are inconvenienced and, if you are one of the unfortunates still buying funds with sales commissions, out the commission.

Prevent this problem. Avoid buying funds near the end of the year, when lump-sum distributions are common.

3. Corporate Dividends. Dividends from corporations like ExxonMobil and Apple qualify for a reduced federal tax rate. Most people pay a 15% federal rate on dividends; a few low-income shareholders get a free ride and the wealthy pay a 20% marginal rate. (Most states, in contrast, hit dividends with their usual tax rates.)

The favorably-taxed divs flow through to fund investors, and many funds invested in stocks can boast that 100% of their income distributions qualify for favorable treatment. But at some funds, the percentage qualifying is substantially less. 

A fund can fall short of 100% purity on its dividend income several ways. Dividends from real estate investment trusts, and from many foreign corporations, don’t qualify for the low rates. The fund can mess up your taxes by trading a lot because the tax break is lost for positions held a short time.

Funds with European stocks and smaller U.S. stocks often lend securities to short-sellers. The shorts make payments to the funds to replace missing dividends, and those substitute payments do not get the favorable tax rates.

4. Muni Interest. A fund that owns “municipal” bonds (bonds sold by states, cities, nonprofits and so on) can flow through federally tax-exempt interest to its investors. To do so, the fund must have at least 50% of its assets invested in these bonds. No surprise that funds mixing stocks and munis stay on the safe side of the barrier. 

5. AMT Gotcha. If the muni bond finances a government or a charity, it gets the federal exemption. If the bond finances a “private activity” like an airplane hangar, it is exempt only for certain taxpayers. Taxpayers who are subject to the Alternative Minimum Tax have to include the interest on their tax returns.

Your tax-exempt bond fund might report that you got $1,000 of interest and that $150 of the amount was from private activity bonds. If you are in AMT territory—likely if your income is between $200,000 and $500,000 and you live in a high-tax state—then you’d pay federal tax on the $150.

AMT bonds, which have a whiff of crony capitalism, are often of low credit quality. So you’ll see them in junkier muni portfolios. They also populate money-market funds.

6. Out-of-State Munis. Most states exempt interest on their own municipal bonds from state income tax, while whacking the coupons from other states. And most states let you count fractional revenue streams.

Let’s say you live in New Jersey and your fund reports that you got $1,000 of tax-exempt interest, 12% from New Jersey sources. On your New Jersey tax return you’d include $880 of this interest.

Utah and Indiana use a tit-for-tat tax system that gives you a somewhat better break. (They tax another state’s bonds only if that state taxes their bonds.) Minnesota has a worse deal: The entire interest payout is taxable unless at least 95% of it came from Minnesota.

Illinois has the worst arrangement of al. That state taxes all fund payouts, even payouts entirely from Illinois bonds. You get a local tax exemption only by buying Illinois bonds directly—a hazardous undertaking, given the state’s sickly finances.

7. Treasury Interest. States exempt from tax the interest on U.S. Treasury debt. They usually pro-rate distributions from funds that own a mix of Treasury and non-Treasury securities. California, Connecticut and New York, however, permit this carve-out only if a certain percentage of the fund’s payout or assets is Treasury-flavored. In New York the hurdle is 50% of assets.

8. Foreign Tax Credit. You can claim a federal tax credit (which is better than a deduction) for foreign taxes, and you can claim the foreign taxes paid on your behalf by a fund. If your foreign tax credits total more than $600 on a joint return, you’ll need some detail, including each fund’s foreign-source income and foreign taxes paid. The fund will either give you the numbers or give you a way to calculate them.

If you hold the fund in a tax-sheltered account, you lose the credit (permanently). Try to own your international funds in a taxable account.

9. Short-Term Trouble. Short-term trading gains by your fund get converted on your tax return into less-desirable ordinary income. (Why? Years ago, Congress determined that trading by fund managers was wicked.) The only consolation is that some funds are able to shelter you from some of this damage by creative use of their corporate dividend income. How is that possible? It relates to the fact that fund expenses can be taken against the short gains rather than against the dividend income.

Suppose that, per fund share, the fund’s corporate dividend income was $5, its expenses 80 cents, and its short gains $3. It distributes $7.20, and would describe this in shareholder reports as $4.20 of income and $3 of capital gains. But on the 1099s sent out to customers it would declare $5 of dividend income eligible for the low rates and $2.20 of ordinary income.

Notwithstanding the possibility of this fancy footwork, short gains are likely to be bad news at tax time. 

10. Long-Term Trouble. If a fund sells a stock that it has held for more than a year, the gain or loss is long-term. Net long-term gains are dished out to the shareholder’s tax return, where they retain their flavor. (It doesn’t matter how long the fund investor has held the fund.) Since long gains get the same favorable rates as dividends from Exxon (0%-15%-20%), they aren’t too nasty. Still, it’s better if the fund sits on winners and doesn’t inflict gains on its customers at all.

By William Baldwin for Forbes Magazine

Published: October 17, 2014

The Biggest Tax Breaks in 2014

More than $1 trillion of the estimated $1.4 trillion in so-called tax expenditures this year will benefit individuals, according to a new analysis from the Tax Policy Center.

By contrast, just $148 billion in tax breaks will go to corporations.

That represents less than half the cost of health-related tax expenditures -- the No. 1 category, costing an estimated $383 billion.

The biggest player in this group is the exclusion for employer-sponsored health insurance, worth more than $300 billion. This is the tax-free compensation a worker enjoys when his employer pays for a portion of his health insurance policy.

Also in this group is the new premium assistance offered to low- and middle-income families under Obamacare, worth about $34 billion, according to the analysis, which was published in Tax Notes.

Housing is the next biggest category, accounting for $255 billion of the $1.4 trillion. Among the biggest players here are the mortgage interest deduction, the property tax deduction, and the tax-free treatment on the first $250,000 in capital gains ($500,000 for married couples) on the sale of a home.

Third up are the $160 billion in tax breaks offered for pensions and other types of income security, such as the deduction for 401(k) contributions and the tax-free treatment of Roth IRA withdrawals.

And fourth in line is the $117 billion tax break on investment income -- namely, capital gains and dividends, which are often taxed at a lower rate than ordinary income.

All told, the top 4 categories of tax expenditures account for more than 60% of the $1.4 trillion in forgone revenue.

And that $1.4 trillion is the equivalent of nearly half of the total federal revenue the government is likely to collect this year.

By Jeanne Sahadi for @CNNMoney

Published: October 9, 2014

What is an asset's useful life?

An asset's useful life is the period of time (or total amount of activity) for which the asset will be economically feasible for use in a business. In other words, it is the period of time that the business asset will be in service and used to earn revenues.

Because of the advances in technology, an asset's useful life is often less than its physical life. For example, a computer may be useful for only three years even though it could physically be operated for decades.

The useful life (as well as the salvage value at the end of the useful life) are estimated amounts needed in the calculation of the asset's depreciation. Depreciation is required so that the company's financial statements comply with the matching principle.

In the U.S., income tax regulations specify the useful life that must be used for income tax reporting. This is one reason that in a given year the depreciation on a company's income tax return will not agree with the depreciation reported on its financial statements. 

Published: October 8, 2014

Should I Buy a Building in the Name of My S Corporation or Set Up a Separate LLC?

When an S Corporation owner initially considers buying a building is the ideal time to set up an LLC and then to have a separate LLC own the business with their own S Corporation being the tenant and the new LLC the landlord as the LLC would ideally purchase the building. This is the most ideal time as the tax repercussions as detailed below are not in effect.

However if an S Corporation initially buys and now owns a piece of real estate and then seeks to sell it to another (even if selling/transferring it) to an LLC the S corporation owner owns 100% of the ownership of both the S Corporation and the LLC, the taxes owed can be a disaster.

If after an S Corporation owns a piece of real estate it is a fairly simple legal process  to simply transfer the real estate from an S Corporation to an LLC and filing the necessary paperwork with the county. However an S Corporation owner seeking to transfer the real estate to the LLC they also own must value the building at its FMV/Fair Market Value and then the S Corporation would sell the real estate to the LLC at its then present value. This Fair Market Value would then be compared to the   present NBV/Net Book Value which is determined by the original cost of the building less the depreciation taken on the building since its original purchase.

For example, if a building is initially purchased by an S Corporation for $400,000 eight years ago and there has been recorded $60,000 of depreciation expense the building would have a Net Book Value of $340,000 ($400,000 original cost less $60,000 of accumulated depreciation).  If the Present Fair Market Value of the building is now $450,000 then the S Corporation would sell to the LLC the real estate at this value and calculate the gain by comparing the $450,000 Fair Market Value to the $340,000 Net Book Value resulting in an $110,000 gain that tax law would require to be reported on the S Corporation return even though clearly a related party transaction (i.e., both businesses are controlled by common ownership).

This will give you a feel for the accounting and tax recognition required when selling between an S Corporation and a LLC that you wholly own each of the business just as how the gain would be reported when selling to an independent party.

If the above calculation results in a financial loss meaning the present Fair Market Value is less than the Net Book Value the tax loss is NOT deductible as IRS tax law treats the transaction as a related party transaction and the loss is not allowed as a tax loss/deduction.

From Alltop Accounting

Published: October 6, 2014

Tax-Filing and Payment Extensions Expire Oct. 15

The Internal Revenue Service today urged taxpayers whose tax-filing extension runs out on Oct. 15 to double check their returns for often-overlooked tax benefits and then file their returns electronically using IRS e-file.

More than a quarter of the nearly 13 million taxpayers who requested an automatic six-month extension this year have yet to file. Although Oct. 15 is the last day for most people, some still have more time, including members of the military and others serving in Afghanistan or other combat zone localities who typically have until at least 180 days after they leave the combat zone to both file returns and pay any taxes due.

“If you still need to file, don’t forget that you can still use IRS e-file through October 15,” said IRS Commissioner John Koskinen. “Many people may not realize they can still file their tax return for free through the IRS Free File program available on Even if you’re filing in the final days, e-file remains easy, safe and the most accurate way to file your taxes.”

Check Out Tax Benefits

Before filing, the IRS encourages taxpayers to take a moment to see if they qualify for these and other often-overlooked credits and deductions:

  • Benefits for low-and moderate-income workers and families, especially the Earned Income Tax Credit. The special 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.
  • Same-sex couples, legally married in jurisdictions that recognize their marriages, are now treated as married, regardless of where they live. This means that they generally must file their returns using either the married filing jointly or married filing separately filing status. Further details are on

E-file Now: It’s Fast, Easy and Often Free

The IRS urged taxpayers to choose the speed and convenience of electronic filing. IRS e-file is fast, accurate and secure, making it an ideal option for those rushing to meet the Oct. 15 deadline. The tax agency verifies receipt of an e-filed return, and people who file electronically make fewer mistakes too. Of the more than 143 million returns received by the IRS so far this year, 85 percent or nearly 122 million have been e-filed.

Anyone expecting a refund can get it sooner by choosing direct deposit. Taxpayers can choose to have their refunds deposited into as many as three accounts. See Form 8888 for details.

Quick and Easy Payment Options

The new IRS Direct Pay system now offers taxpayers the fastest and easiest way to pay what they owe. Available through the Pay Your Tax Bill  icon on, this free online system allows individuals to securely pay their tax bills or make quarterly estimated tax payments directly from checking or savings accounts without any fees or pre-registration. More than 1.1 million tax payments totaling over $2.6 billion have been received from individual taxpayers since Direct Pay debuted earlier this year.

Other e-pay options include the Electronic Federal Tax Payment System (EFTPS) electronic funds withdrawal and credit or debit cards. Those who choose 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. 15, even if they can’t pay the full amount due. Doing so will avoid the late-filing penalty, normally five percent per month, that would otherwise apply to any unpaid balance after Oct. 15. However, interest, currently at the rate of 3 percent per year compounded daily, and late-payment penalties, normally 0.5 percent per month, will continue to accrue.

Published: October 2, 2014

IRS Issues 401(k) After-Tax Rollover Rules

There are new rules for taking after-tax money out of your 401(k), and they are taxpayer-friendly. Basically, if you have after-tax money in your 401(k) retirement account, you can roll it into a Roth IRA where it will then grow tax-free (as opposed to tax-deferred). You don’t have to pay pro rata taxes on the distribution, accounting for the percentage of the pre-tax money in your 401(k).

What? Does Congress have any idea how complicated they are making things when they write these laws! Trust us, if you have after-tax money in your 401(k), you should be paying attention. The new IRS rules have opened the door to a smart planning move. You’re basically isolating basis to do a tax-free Roth conversion.

“If you can move after-tax money into a Roth and not pay tax, that is a major benefit,” says Robert Keebler, a CPA in Green Bay, Wisc.

“This is the best result we could have asked for, and it will make life easier for owners of these accounts and their advisors,” says tax lawyer Kaye Thomas who is posting a detailed analysis of the Notice on his web site, According to Aon Hewitt, 6.6% of 401(k) participants make after-tax contributions when available.

The new rules are all spelled out in Notice 2014-54. Example 4 says it all.

The employee’s 401(k) balance consists of $200,000 of pretax amounts and $50,000 of after-tax amounts (it does not include a Roth subaccount). The employee separates from service (i.e. quits, retires, or is fired) and requests a distribution of $100,000. The pretax amount of the distribution is $80,000 (four-fifths) and the after-tax amount of the distribution is $20,000 (one-fifth). The happy resolution: “The employee is permitted to allocate the $80,000 that consists entirely of pretax amounts to the traditional IRA so that the $20,000 rolled over to the Roth IRA consists entirely of after-tax amounts.”

Note:  The rules that say what portion of your distribution is pre-tax and what portion is after-tax have not changed, Thomas points out. What’s changed is that you can now direct pre-tax dollars to one place and after-tax dollars to another.

Before the new rule there was a convoluted way advisors accomplished this that required taxpayers to roll over the entire 401(k) and have outside funds on hand to counteract 20% income tax withholding. “Plan participants had a way to achieve this result before, but it required an awkward strategy and required them to pay withholding on a plan distribution even though they were intending to roll it to an IRA,” Thomas says, adding, “The new rule allows people to get the favorable result even if they don’t have cash available to replace the dollars that were withheld from the distribution.

One potential gotcha: the distributions have to be scheduled at the same time, or they’ll be treated as separate distributions, and you’re back to square one, with each having a mix of pre-tax and after-tax dollars. But the IRS gives an allowance for “reasonable” administrative delays.

The rules take effect January 1, but taxpayers can rely on them as of September 18, 2014 when they were issued. The IRS also relief for taxpayers who made this move in the past, using the roundabout method, based on a “reasonable interpretation standard.”

By Ashlea Ebeling for Forbes Magazine 

Published: September 18, 2014

The Individual Shared Responsibility Payment

Beginning in 2014, the individual shared responsibility provision of the Affordable Care Act requires each individual to:

  • Maintain a minimum level of health care coverage – known as minimum essential coverage, or
  • Qualify for an exemption, or
  • Make an individual shared responsibility payment when filing their federal income tax returns.

Minimum essential coverage generally includes government-sponsored programs, employer-provided health coverage, and coverage purchased in the individual market, including the Health Insurance Marketplace.  Most people already have health insurance coverage that qualifies as minimum essential coverage, and therefore will not need to make a payment if they maintain their qualified coverage. However, for each month that you or a member of your family is without minimum essential coverage and does not qualify for an exemption, you will need to make an individual shared responsibility payment.

If you and your dependents had minimum essential coverage for each month of 2014, you will check a box indicating that when you file your 2014 federal income tax return.  If you qualify for an exemption, you will attach a form to your tax return to claim that exemption.  If you are required to make the individual shared responsibility payment, you will calculate your payment and make the payment with your return.

If you choose to make an individual shared responsibility payment instead of maintaining minimum essential coverage, this means you will not have health insurance coverage to help pay for medical expenses.

In general, the individual shared responsibility payment for 2014 is the greater of:

  • One percent of your household income above the income filing threshold for your tax filing status, or
  • A flat dollar amount of $95 per adult and $47.50 per child (under age 18) in your family, but no more than $285 per family.

The individual shared responsibility payment is also capped at the cost of the national average premium for bronze level health plans available through the Marketplace that would cover everyone in your family who does not have minimum essential coverage and does not qualify for an exemption – for example, $12,240 for a family of five.  However this maximum fee will only impact the small number of high-income taxpayers who choose to go without health insurance. The payment amount is based on each individual’s personal circumstances, and information about figuring the payment can be found on our ‘Calculating the Payment’ page on

Example of Payment Calculation

Eduardo and Julia are married and have two children under age 18. No family member has minimum essential coverage for any month during 2014, and no family member qualifies for an exemption. For 2014, their household income is $70,000 and their tax return filing threshold amount is $20,300.

  • Using the household income formula: Subtract the tax return filing threshold amount for 2014 from the 2014 household income, then multiply the answer by one percent (0.01).
     $70,000 - $20,300 = $49,700
     One percent of $49,700 equals $497.00.
  • Using the flat dollar amount formula: Add $95 per adult for Eduardo and Julia to $47.50 per child – for their two children. 
     $95.00 + $95.00 + $47.50 + $47.50 = $285.00

Eduardo and Julia’s shared responsibility payment for the year for 2014 is $497. That’s because the household income formula amount of $497 is greater than flat dollar formula amount of $285, and it is less than the $9,792 annual national average premium for bronze level coverage for a family of four in 2014.

Published: September 17, 2014

Homeowners Tax Tips

Homeowners are eligible for more tax benefits than renters, but you don’t just get these handed to you by the IRS. There are very specific deductions and paperwork that need to be filled out in order to claim these benefits. You will want to research new tax guidelines and laws each year before filing.

  • Mortgage Interest Deduction

    This is a huge one for homeowners. There is a cap of $1.1 million but this includes all mortgages, not just one. You are also able to deduct points on multiple mortgages.

  • Insurance and Taxes

    Private mortgage insurance is also deductible (as well as state and local property taxes) on your federal return. In some locations, and in some cases, you can also get special property tax benefits, usually in lower income communities.

  • Green-energy efficient deductions

    Green energy tax credits are going away, but there are credits for energy efficient doors, windows and HVAC. The cap is still only $500 but it is something. The large deduction for energy efficiency is solar installations. The requirements are that it is your primary residence, not a rental property. The credit is 30% and includes the total cost of panels, installation, wiring, and basically everything. That’s a huge credit!

  • Sale of your home

    Selling your home also offers you many deductions and credits. You can claim the title insurance, advertising and agent or broker fees as expenses of the sale. Also any many repairs you completed within 90 days of the sale with the intent of marketing the property can reduce your capital gains. If you move more than 50 miles from your old home due to job relocation, you could deduct reasonable moving costs.

  • Disaster-casualty losses

    Considering the harsh winter we had last year, this may play out well for many homeowners. If your loss or damages added up to more than 10% of your gross income, you can deduct the overage.

With everything tax and IRS related, you need to have documentation. Always file receipts, take photo inventory of personal property and keep extra copies in a safe place outside of your home. It takes a bit of effort to be able to write off deductions and qualify for credits, but they are worth it come tax filing time.

Published: September 16, 2014

How 6 Types of Retirement Income are Taxed

One of the biggest mistakes retirees make when calculating their living expenses is forgetting how big a bite state and federal taxes can take out of savings. And how you tap your accounts can make a big difference in what you ultimately pay to Uncle Sam.

Conventional wisdom has long held that you should tap taxable accounts first, followed by tax-deferred retirement accounts and then your Roth. This strategy makes sense for many retirees, but be careful if you have a lot of money in a traditional IRA or 401(k). When you turn 70 1/2, you'll have to take required minimum distributions (RMDs) from the accounts. If the accounts grow too large, mandatory withdrawals could push you into a higher tax bracket. To avoid this problem, you may want to take withdrawals from tax-deferred accounts earlier.

Here's how retirement assets are taxed.

Tax-deferred accounts. Prepare to feel pain. Withdrawals from traditional IRAs and your 401(k) will be taxed as ordinary income, which means at your top tax bracket.

Taxable accounts. Profits from the sale of investments, such as stocks, bonds, mutual funds and real estate, are taxed at capital-gains rates, which vary depending on how long you've owned the investments. Long-term capital-gains rates, which apply to assets you have held longer than a year, can be quite favorable: If you're in the 10% or 15% tax bracket, you'll pay 0% on those gains. Most other taxpayers pay 15% on long-term gains. Short-term capital gains are taxed at your ordinary income tax rate.

Interest on savings accounts and CDs and dividends paid by your money market mutual funds is taxed at your ordinary income rate. Interest from municipal bonds is tax-free at the federal level.

Roth IRAs. Give yourself a high five if your retirement portfolio includes one of these accounts. As long as the Roth has been open for at least five years and you're 59 1/2 or older, all withdrawals are tax-free. In addition, you don't have to take RMDs from your Roth when you turn 70 1/2.

Social Security. Many retirees are surprised--and dismayed--to discover that a portion of their Social Security benefits could be taxable. Whether or not you're taxed depends on what's known as your provisional income: your adjusted gross income plus any tax-free interest plus 50% of your benefits. If provisional income is between $25,000 and $34,000 if you're single, or between $32,000 and $44,000 if you're married, up to 50% of your benefits is taxable. If it exceeds $34,000 if you're single or $44,000 if you're married, up to 85% of your benefits is taxable.

Pensions. Payments from private and government pensions are usually taxable at your ordinary income rate, assuming you made no after-tax contributions to the plan.

Annuities. If you purchased an annuity that provides income in retirement, the portion of the payment that represents your principal is tax-free; the rest is taxable. The insurance company that sold you the annuity is required to tell you what is taxable. Different rules apply if you bought the annuity with pretax funds (such as from a traditional IRA). In that case, 100% of your payment will be taxed as ordinary income.

By Sandra Block for Kiplinger

Published: September 15, 2014

Transferring the Title of Your House to Your Child

I want to transfer my house title to my child, what are the costs and tax consequences of doing so?

The costs associated with a deed transfer will vary by state and by how the transfer is accomplished. Filing a deed yourself may be the cheapest method, but it will require quite a bit of homework to ensure you have filled out and correctly filed the appropriate paperwork. Online legal document centers, such as LegalZoom, offer deed transfer services for around $250, plus filing fees. These services typically include title research, creation of the real estate deed and filing of the deed with the county recorder's office. You can also hire a real estate attorney to execute the deed transfer. This might be the most expensive option, but it may also be the least stressful since you would be certain the transfer was executed appropriately.

Tax consequences can end up costing your child more money than if he or she were to inherit the property. Assume you purchased your home years ago for $50,000. Over the years you put $20,000 into the home. It has a current market value of $250,000. Because you transferred the home to your child while you were still living, your cost basis, which would be $70,000, becomes your child's basis. If your child sells the home, he or she would owe capital gains taxes on the difference between the sale price and the cost basis, which would be $180,000. At a capital gains rate of 15%, that would equal $27,000 in taxes. The tax rate will be higher if you owned the home for less than one year, at which point the profit would be taxed as ordinary income.

If your child moves in and lives in the property for at least two out of five years before selling it, up to $250,000 of profit can be excluded. However, $500,000 can be excluded if filing jointly with a spouse. Your child will have to use your cost basis of $70,000, which includes the $50,000 purchase price plus the $20,000 in improvement costs.

If your child inherits the property upon your death, the child will receive the "stepped-up basis" where the value of the property on the date of your death becomes the child's basis. So, if the property has a market value of $250,000 at the time of your death, your child could sell the home for $250,000 and not be responsible for capital gains tax.

It has been suggested that the stepped-up basis rule could be modified in the future. Since tax rules do change, it is important to consult with a qualified tax specialist before making any decisions.

By Jean Folger for Investopedia

Published: September 12, 2014

Paying Tax With Art Is Legal In UK & Mexico, Why Not In US?

In the UK, you can pay your taxes with art. You even get full fair market value credit without selling it or paying tax on your gain. It’s pretty slick. Between 2009 and 2013, £124.5 million worth were handed over under arrangements that allow taxpayers to reduce their tax bill with art. It helps the UK collect too, considering that the UK Treasury is owed more than £35 billion in taxes.

The program is called Acceptance-in-Lieu and it’s becoming more and more popular. It dates all the way back to 1910. It was designed so cultural objects could be bequeathed to the nation instead of cash. You get full fair market value off your tax bill.

Once your artwork or artefact is accepted by the Government, it will be given to a public museum, archive or library. In some cases, you can even specify where you would like it to be housed and displayed. Traditionally, the program was used for paying estate taxes. But starting in March 2013, you can give during life to settle your unpaid tax bills.

All sorts of things have followed this path, including original manuscripts handwritten by John Lennon. The threshold for UK inheritance tax is very low at only £325,000. There have been proposals to increase it to £1 million per person, but that’s still proposed.

In Mexico, the tax law goes a step further, allowing painters, sculptors, and other artists to donate part of their annual production of artwork in lieu of paying taxes. In return, Mexico gains a huge collection of contemporary art. Mexico’s program dates to 1957.

You have to admire the simplicity of it too. Say an artist sells one to five pieces of art in one year. He then donates a work of equal value to the state. The more you sell, the more you hand over for taxes, until an artist gives a maximum of six pieces.

The government likes to think it’s encouraging artists. In effect, the government says, ‘Pay your taxes in artwork. Keep on painting.’  Hundreds of artists take part, and it’s hard to find one with even the faintest hesitation. Many hail the program as unique in the world.

The program supposedly grey out of a 1957 encounter between a tax official and David Alfaro Siqueiros, a muralist and painter of social realism. Hey, paying taxes in paintings would be much better than going to jail!. But regardless of its genesis, the program has been in operation since 1957, garnering 4,394 works of art.

A rotating committee of seven artists and curators evaluates proposed donations to see whether they fairly represent the body of work of a given artist. So it’s not just about money. Apart from the value of the art, experts decide if the work is fairly represents the artist.

More than anyone else, it is artists who like Mexico’s program. It has generated good will among artists, and helps to amass an impressive collection of some of Mexico’s most renowned artists. The program also has beautified the walls and open spaces of public buildings.

By Ron I. Wood for Forbes Magazine

Published: September 11, 2014

Will The New Tax Laws Impact Your Divorce Settlement?

Congress passed the American Taxpayer Relief Act (ATRA) on January 1, to stave off federal tax increases on the middle-class and across-the-board spending cuts that were set to occur automatically if no action were taken, and prevent our economy from plummeting over that “fiscal cliff” we’d been hearing about for weeks.

Unfortunately though, if you’re in the middle of negotiating a divorce settlement agreement, some of the provisions of the new tax law could send you over a fiscal cliff of a different kind – not nationally important, of course, but critical to your own financial future nonetheless.

Taking the time to learn how new tax laws might impact your settlement agreement, and negotiating accordingly, could save you tremendously in the long run.

Two major areas require special attention: changes to income and division of assets.

Income from alimony could bump you into a higher tax bracket.

A major provision of ATRA was to raise tax rates on high incomes. Specifically, if you’re a single filer with an annual income greater than $400,000, you will now pay the new 39.6% tax rate (increased from 35%) on income in excess of that $400,000 threshold.

Divorce will mean significant change to your income structure, possibly including alimony. Alimony (also known as spousal support or maintenance) refers to payments made by the “moneyed” spouse to the “non-moneyed” spouse after a divorce is finalized. It is paid in established intervals (typically monthly), for a time period specified in the divorce agreement.

If your proposed divorce settlement agreement includes alimony payments, in most cases, you will have to declare those payments as taxable income. (Although not commonly done, alimony can be structured as non-taxable income to the recipient and a non-deductible expense to the payor). Be sure you know how your tax situation will play out as a result. You want to make sure the settlement you’re agreeing to is the one that makes the most financial sense for the long term. After all, there may be better ways to assure your post-divorce financial stability.

For example, I often encourage clients to consider an upfront lump sum payment – a one-time payment of a fixed amount – in lieu of alimony. These lump sum payments are neither taxable to the recipient nor deductible to the payor, but the paying spouse will typically try to negotiate a lump sum amount that takes into account the loss of deductibility.

There are several reasons a lump-sum payment can be preferable to traditional alimony payments; however, a lump sum payment is not right for everyone. It requires very careful, deliberate financial management if it is to sustain your lifestyle in the long term.

If income from alimony is a tax concern, you may also want to revisit the balance between child support and alimony payments in your settlement. Child support is neither a deductible expense for your husband, nor taxable income for you. Alimony is usually both. (Payors need to be mindful of complicated IRS rules concerning frontloading and recapture of alimony as it relates to alimony vs child support.)

Remember, too, that alimony can be modified, up or down. The fundamental purpose of alimony is to allow the “non-moneyed” spouse to maintain a standard of living somewhat comparable to what she enjoyed during the marriage.  Yes, even today, the “non-moneyed” spouse is typically the woman, and yes, I think alimony, in many cases, remains just as relevant today as it ever was. Why?

Because the non-moneyed spouse often gave up her potential career and earning power and invested her time and labor into the family.

She also directly or indirectly aided her husband’s career by taking care of the home front which allowed him to invest in his career and increase his earning power. Many women have given up educational and employment opportunities and many women have also helped their husbands (financially or otherwise) go through law or med school or to get other professional training.

Then, after several decades he is at the peak of his earning potential (thanks in part to her), and yet she is relatively unemployable, especially if she is in her 50s and has been out of the work force for all those years.

And even though they may be dividing assets 50-50, he, because of his earning power will replace some or all of those assets over time while she, because of her lack of earning power, will be liquidating assets from day one and will ultimately go broke if she lives long enough.

Therefore, in my opinion, the purpose of alimony is to somewhat equalize this disparity.  (And of course, the same could apply to a man, if he were the non-moneyed spouse.)

There are new tax implications for division of investments and other assets.

I’ve written before about how division of assets can be an exceedingly complex part of the divorce process. Tax considerations account for a lot of that complexity, and the new law adds even more factors to evaluate.

For example, ATRA now sets a 3.8% Medicare surtax on capital gains, dividends and other investment income above $200,000 for a single filer. You’ll want to keep the new tax in mind as you are negotiating the division of stock portfolios and other income-producing investments.

Additionally, for filers who fall in that new 39.6% income tax bracket, the federal capital gains tax rate has been increased from 15% to 20% (plus the aforementioned additional 3.8%, which brings the total to almost 24%, not including your state’s capital gains taxes). This can put a significant dent in the amount you hope to realize from selling assets. The capital gains tax hit should be calculated and weighed carefully before agreeing on how your assets should be divided.

Depending on how much the tax burden would lessen the value of a particular asset to you, it may be more sensible to negotiate for something else, instead. For instance, you may want to consider cash or retirement funds (which have no capital gains tax exposure and, except for Roth accounts, will be taxed only when you withdraw the money) instead of stock or real estate. However, note that capital gains tax can take just as big a bite of proceeds from sale of real estate (once you’ve taken into account the $250,000 exclusion on your primary residence) as of stocks. Make sure you have properties expertly appraised.

A qualified divorce financial advisor can help you navigate the potential pitfalls presented by ATRA and other tax laws, with all their subtleties. You’ll need thorough, expert analysis of all your options before you agree to any settlement –and since this is not your attorney’s primary field of expertise, be sure to have a divorce financial professional on your team to assure you the best possible financial outcome of your divorce.

By Jeff Landers for Forbes Magazine

Published: September 8, 2014

Many Reasons to Offer 401(k)s (Including Owner’s Retirement)

Soon after Sabina Gault got her public relations firm up and running in 2008, she asked for a show of hands from employees interested in having a company 401(k) plan. The consensus? “Nobody wanted it,” said Ms. Gault, whose firm, Konnect Public Relations, based in Los Angeles, had just a few employees at the time.

Two years later, with eight people on her payroll, she raised the question a second time. Again, the response was lukewarm. So she waited.

Finally, in 2013, she made an executive decision about the 401(k): “I said, ‘We’re going to do it no matter what, even if it’s just a few of us.’ ”

While the share of small businesses offering 401(k) plans has picked up since 2008 — when just 10 percent offered the benefit — 401(k) plans are still the exception at small companies. Just one in four firms with 50 or fewer employees has such a plan in place, according to Capital One’s ShareBuilder 401k.

Employers point to a lack of interest among employees coupled with the costs of setting up and administering the plans. That is one reason Ms. Gault waited as long as she did. “It didn’t make sense to pay for something people wouldn’t use,” she said, noting that most of her employees are in their early 20s. Had they been a little older, she said, it might have been more of a priority.

Retirement plans typically take a back seat to salary, benefits like health insurance and other more immediate perks, said Sabrina Parsons, chief executive of Palo Alto Software, a 55-employee business planning software company based in Eugene, Ore. Yet when it comes to recruiting and retaining employees over the long term, “not having a retirement plan is a glaring hole,” she said. “It’s like restrooms in the office; you can’t not have them.”

What’s more, a company-sponsored plan is also the most effective way for small-business owners to save for their own retirements, said Leon LaBrecque, chief strategist and founder of LJPR, a wealth management firm in Troy, Mich. Owners can contribute to individual retirement accounts or to a Roth I.R.A., but the contribution limit for these plans is just $5,500 a year ($6,500 for anyone 50 and older). That is one third the maximum allowed for a 401(k) plan. SEP I.R.A.s, while popular among the self-employed and very small businesses, are generally not a good bet for growing companies; they can be costly, and they require owners to contribute the same percentage to employee plans that they contribute to their own plans.

Fortunately, setting up a 401(k) plan is considerably easier and cheaper than it was just a decade ago. Setup and administrative costs vary from one provider to the next — and increase if the plan offers more customized investment options, hands-on advice and other bells and whistles. Many 401(k) providers, including Sharebuilder 401k, offer basic plans that start around $1,000 a year. And there are tax incentives. Companies with fewer than 100 employees can claim up to $500 in tax credits to offset administrative costs for each of the first three years of a first-time plan.

Owners shopping for a plan will want to balance investment options and services with costs paid by the company and fees paid by the employee. Many providers charge a management fee — to employers or employees — on top of fixed administrative fees. Employers should be wary if fees creep above 1 percent of employee assets. (Additional management fees are charged by the mutual funds or other exchange-traded funds used in 401(k) plans.)

One exception, according to Ms. Parsons: It may be worth paying more to bring in a financial adviser to help select investment options and to give employees hands-on investment advice. “Our thinking is, if you take the time to set up a plan, you want to make sure employees are getting the most out of it,” she said. “We work with a planner who does an informational meeting with the company every quarter and also meets with employees individually.”