tataxrelief-blog

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Tax Planning for 2018- Tax Cuts and Jobs Act-Part 1

Now that tax busy season has officially ended, it’s time to start thinking about tax planning for 2018.  The new Tax Cuts and Jobs Act has made some significant changes that will affect your taxes when you file in 2019:

 Let’s start with the standard deduction.  For tax year 2017 someone filing a single, non-itemized tax return would take the standard deduction amount of $6350, plus any qualifying exemptions.  For 2018 although there will be no personal exemptions, this amount has almost doubled to $12,000 for an individual.  For heads of household the standard deduction has increased to $18,000, an increase of $8650 from 2017.  Married filing jointly, and surviving spouses, will be able to claim a standard deduction of $24,000.

For those of you who do plan to itemize, you should know that you will be able to deduct qualifying medical expenses that exceed 7.5% for your adjusted gross income.  This percentage was 10% for the 2016 tax year. This 7.5% threshold is temporary, and will only apply to tax years 2017 and 2018.

Another significant change under the Tax Cuts and Jobs Act will be in the amount of a deduction that you can take for charitable contributions.  Previously you could deduct up to 50% of your adjusted gross income for contributions made to qualified organizations.  That amount has increased to 60% of your adjusted gross income for tax year 2018, which gives tax payers who itemize even more of an incentive to give to their favorite charities.

Be on the look out for Part 2 but until then, contact us for all of your tax preparation and planning needs!

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Tax in the News - The Government Shutdown

As you may have heard, the government shut down as of midnight on Saturday, January 20, 2018. Hopefully, the situation will be resolved soon, but if not, here is how your tax return could be affected.

CNN Money (warning - autoplay video) says that the IRS is keeping about 35,076 employees on the job (about 43.5% of its workforce) for “processing electronic returns, testing upcoming filing year programs, and computer operations to prevent the loss of data”, among other functions. What the IRS will not be doing: issuing refunds. Technically, since the tax season doesn’t start until January 29, 2018, this would only affect those filers who are filing prior year returns. But, if the government shut-down lasts longer than five business days (i.e., through Friday), things could change. 

Politico warns that the new Tax Cuts and Jobs Act could be the victim of the shutdown - the IRS has lots of work to do to implement the new law, and any delay just makes implementing the law that much more difficult. Prep work would continue on 2019 returns, as would law enforcement work and litigation. But after five days, if the government is still shut down, who knows...

The Journal of Accountancy (a favorite here at T.A. Tax Relief!) offers a great comparison to 2013, and it also points out that unlike in 2013, the IRS didn’t issue a contingency plan this time around. 

Even though the government is shut down, we haven’t stopped working here at T.A. Tax Relief, LLC! Contact us today for assistance with your taxes or tax issues!

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Tax debt could cost you your passport

Yesterday, the IRS announced that they are starting this month to implement new procedures for seriously delinquent taxpayers (taxpayers owing $51,000 or more in back taxes) as required by the  Fixing America’s Surface Transportation (FAST) Act (PDF), signed into law in December of 2015. 

What this means for you is that if you owe more than $51,000 in back taxes and you already have a passport, the State Department may revoke it or deny your ability to renew it after receiving notice from the IRS. If you don’t have a passport, but intend to apply for one, you could be denied one until the taxes are paid - or you begin an installment plan.

Do you owe back taxes? Did you know that T.A. Tax Relief, LLC can help? See a list of our services here. 

Don’t let back taxes prevent you from traveling. Contact us today!

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Home Equity Loan for 2018? Don’t plan on deducting the interest.

For tax years from 2017 through 2025, you may have heard that the amount of interest you are allowed to deduct from a mortgage used to purchase a home (termed “acquisition indebtedness”) was reduced: the mortgage amount was reduced from $1 million to $750,000. 

What you may not have heard is that Section 11043(a) of the Tax Cuts and Jobs Act also eliminated home equity loan interest from deductible interest expense (interest you deduct on your Schedule A). 

For tax year 2017, you are still able to deduct mortgage interest paid on an acquisition loan, loan refinances, and home equity loans used to improve your home. But if you plan to take out a home equity loan this year for any sort of home improvements, it appears that the interest for that loan will not be deductible for tax years beginning January 1, 2018 through December 31, 2025. 

Refinanced loans are excluded, so if you use a home equity loan to refinance the first mortgage on a home, you would still be able to deduct the interest from the loan on your Schedule A. 

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Important tax filing dates - updated

Here’s a list of important tax filing and reporting deadlines for the traditional tax season: 

January 15, 2018 - estimated tax payments for fourth quarter, 2017 due.

January 29, 2018 - 2018 tax filing season begins. This is the first day that the IRS will start accepting tax returns.

January 31, 2018 - most information returns must be sent to taxpayers. This year, nearly all information returns have been moved up to the January 31 deadline due to the Equifax data breach. Examples of information returns include W-2s, 1099-MISC, as well as other 1099s (INT, DIV, e.g.), 1099-S (timber royalties), 1098 (mortgage interest), 1098-E (tuition statements), 1095-B and -C (health coverage), and 940 (FUTA taxes).

** Correction ** Right after we published this post (isn’t that always the way?), the IRS issued Notice 2018-06 extending the deadline for providing forms 1095-B and 1095-C to individuals to March 2, 2018, which is a 30-day extension. Please note that they did NOT change the February 28 deadline for reporting to the IRS.  

February 15, 2018 - 1099-B (brokerage statements) and 1099-S (real estate transactions) information returns must be sent to tax payers. 

Update 2: Per Notice 1036, employers should be using the new withholding tables for the Tax Cuts and Jobs Act by February 15, 2018. 

Mid-February, 2018 - the IRS will start issuing EITC (earned income tax credit) and ACTC (additional child tax credit) refunds. 

February 28, 2018 - All information returns due to taxpayers on January 31, 2018 or February 15, 2018 due to the IRS on this day. 

March 2, 2018 - per notice 2018-06, the deadline to provide 1095-B and 1095-C information filings to individuals has been extended to this day. 

March 15, 2018 - 1065 (partnership) returns and 1120 (C corporation) returns due for calendar year businesses. Extensions of time to file these returns is also due on this date. 

April 17, 2018 - 1040, 1040A, 1040-EZ, and 1040NR (individual tax returns) and 1120-S (S Corporation tax returns) for calendar year businesses and individuals due. Estimated tax payments are also due on this date. Extensions of time to file these returns is also due on this date.

April 30, 2018 - 941 and 944 (Social Security, Medicare, and income tax withholding) due. 

The IRS has a handy PDF chart of filing and reporting dates generally. They also offer an online and a downloadable Outlook or iCal calendar file. 

We do not recommend filing extensions this year due to the Equifax breach. 

If you need tax returns prepared, we do that! Contact us today!

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What is TIGTA?

When it comes to the IRS, everyone’s a critic, right? Well, actually, the IRS has an entire government office dedicated to overseeing (and frequently criticizing) it, and that office is known as TIGTA, or The Tax Inspector General for Tax Administration.

TIGTA was established in January 1999 by the Internal Revenue Service Restructuring and Reform Act of 1998 (known as RRA 98). Its purpose is to act as an independent overseer of the IRS to ensure that the IRS efficiently and effectively administers US tax laws. TIGTA’s other function is to prevent and detect fraud, waste, and abuse within the IRS.

TIGTA releases semiannual reports, annual audits, and provides regular testimony to Congress regarding how good of a job it thinks the IRS is doing. It also reports to the Secretary of the Treasury. You can read those reports at TIGTA’s website.

TIGTA has three main offices: the Office of Audit, the Office of Inspections and Evaluations, and the Office of Investigations. The Office of Audit is exactly what it sounds like: it audits the IRS by reviewing and recommending improvements to IRS functions and tax administration. The Office of Inspection and Evaluations focuses on IRS operations and is the initial detection unit for fraud, waste, abuse, or mismanagement. The Office of Investigations is the criminal investigation arm of TIGTA and investigates waste, fraud, and abuse of the Federal Tax system. They don’t just investigate the IRS, either – TIGTA also investigates outsiders who attempt to corrupt IRS officials or tax administration generally, and they have also investigated people attempting to impersonate the IRS, bribing IRS officials, and tax preparers who prepare false or fraudulent returns.

If you’ve ever turned to someone and said, “Someone should be watching what the IRS is doing!” – don’t worry, someone already is. You can report fraud, waste, or abuse directly to TIGTA at its website.

Here at T.A. Tax Relief, we want to bring you news you can use. Have a topic you want to hear more about? Contact us today!

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More business deductions: Meals and Entertainment

It’s a safe assumption that the more rules there are about a particular tax deduction, the more it was used and, at least in the IRS’s eyes, abused in the past. Meals and entertainment is one of those deductions. It is such an important topic to the IRS that they have dedicated an entire publication to it. Today, we’re wading into the weeds of the meals and entertainment deduction.

Unless you are in the business of providing meals (think restaurants), you are permitted to deduct only 50 percent of meals directly related to your business, AND those meals must not be lavish or extravagant. 

As for entertainment, there are five requirements in order for entertainment to be deductible, and it must meet one of three tests.

In order to deduct entertainment expenses, those expenses must be (1) ordinary and necessary for carrying on the trade or business (we’ve talked about this before), (2) incurred for an existing business (sorry, no start-ups), (3) must be normal, usual, or customary to the business involved and appropriate and helpful to the business activity when incurred (remember our dog walker? It might be awesome to take all of the owners clubbing, but that’s unusual, and probably not helpful, to a dog walking business), (4) must actually be paid or incurred (you would think this was common sense, but you’d be surprised...), and (5) can’t be lavish or extravagant. 

There are also three tests that the entertainment expenses must fall under one of: 

(1) The expense is directly related to the business. Think of a business dinner: the whole purpose of the dinner is to woo the client and get the deal. During the dinner, business is the main topic of discussion. That would be a directly-related business expense. 

(2) The expense is associated with the business. In this case, the entertainment was a part of, and either preceded or followed, the business purpose. For example, think of employee outings. The employees meet at a restaurant like Dave and Buster’s or another similar entertainment venue, start or end the day with a business meeting, and have a little fun in between.

(3) There are also exceptions created by statute (law). Those include:

a. Food and drinks provided to employees on the business premises

b. Entertainment expenses treated as employee compensation (i.e., the entertainment would show up on your paycheck with taxes withheld)

c. Reimbursed employee expenses (get those receipts!)

d. Recreational or social employee events (e.g., on-site happy hours or company holiday parties)

e. Expenses directly related to business meetings (donuts and coffee at the morning meeting, e.g.)

f. The ordinary and necessary costs of providing entertainment or recreational facilities to the general public as a means of advertising or promoting goodwill (bouncy castles!) - also, any food provided at these events is not subject to the 50 percent meal limitation

g. Entertainment sold to customers (people in the business of providing entertainment)

As always, make sure you have receipts or other paperwork to substantiate your deductions. 

Have a tax question? Contact us today!

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Tax in the news!

Why should we have all the fun? Here is a round-up of some interesting, odd, and just plain silly tax news from around the ‘Net:

10 Strange Tax Deductions the IRS Will Frown Upon. source: Accounting Web (2/22/2017) Lol!

West Virginia’s Legislative Auditor Recommends Eliminating the Film Tax Credit Program. source: WSAZ Newschannel 3 (1/7/2018) Aw. 

Trumbull County, Ohio tax foreclosures hit a record high in 2017, paving the way for more housing demolitions. source: Vindy.com (1/8/2018) If you have a tax lien, contact us! We can help!

Hurricane Harvey recovery boosts sales tax collection. source: Victoria Advocate (1/7/2018) Silver lining? 

Here’s the tax bill on the $1 billion weekend Powerball and Mega Millions jackpot wins. source: CNBC (1/7/2018) Luck comes with a tax bill, unfortunately. 

Retirement Savings Left Largely Untouched by Tax Reform. source: Tax Foundation (1/3/2018). Phew!

Have a question about your taxes? Contact us today!

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Should you become an independent contractor?

Happy Saturday!

Here at T.A. Tax Relief, we’ve been following the news of the new tax law closely, and we aren’t the only ones. New tax laws send the otherwise sleepy industries of accounting and tax preparation into a tizzy as everyone looks at the best ways to take advantage of (i.e., save money with) the new laws. However, we must be careful not to let the tax tail wag the dog. The most recent recommendation we’ve seen here at T.A. Tax Relief is that employees should consider becoming independent contractors instead (receive 1099-MISC forms instead of W2s) to take advantage of the new 20 percent tax break on qualified business income. It’s quite tempting! But before you go to your employer and ask to become an independent contractor, there are some factors to consider, many of them not tax-related. 

Factor: Are you disciplined with money?

As an employee, your income tax is already withheld by your employer. Social Security tax and Medicare tax, known as Federal Insurance Contribution Act or FICA taxes, are withheld from your paycheck at a rate of 6.2 percent and 1.45 percent, respectively. If you become an independent contractor, you are responsible for paying those taxes under the Self Employed Contributions Act, or SECA. But there’s a catch - when you’re self employed, those tax rates double to 12.4 percent for Social Security and 2.9 percent for Medicare. That’s because when you’re employed, your employer is required to pay an equal amount of FICA taxes on your behalf - and when you’re an independent contractor, you become responsible for both halves. Combined, that’s a tax rate of 15.4 percent - and there are no credits against self-employment taxes. These taxes, we should add, are in addition to the income tax. The lowest income tax rate (or bracket) as of 2018 is 10 percent, which means that you need to set aside at least 25.4 percent of every check you receive - and we recommend closer to 30 or 35 percent, which can be over a third of every paycheck. You should also make quarterly estimated payments of your taxes to the IRS, which means more paperwork. As an independent contractor, you need to be able to set aside at least a third of every check and not touch it until it’s time to send that money to the IRS. And don’t forget state and local income taxes! You need to pay those, too. 

Factor: What are your benefits? 

As an employee, you may receive certain benefits: medical benefits, the opportunity to participate in a retirement plan, vacation or holiday pay, etc. As an independent contractor, you wouldn’t receive any of those benefits - you would be responsible for providing those items for yourself. It’s important that you determine how much it would cost to replace your benefits at your own cost, too. If you ask to become an independent contractor at your current salary, you’re taking a potentially huge pay cut due to the lost benefits and your increased tax burden. 

Factor: Health Insurance

We mentioned medical benefits before, but it bears mentioning again here. Your employer may have access to pricing power that you as an independent contractor wouldn’t - which means you may pay a lot more than your employer did for the same or similar coverage. Unfortunately, Congress’ continued fight over the Affordable Care Act has created uncertainty in the insurance marketplace, and when insurers are uncertain about the future, they raise prices. So before you ask to become an independent contractor, be sure to shop for health insurance coverage so you know what you might be expected to pay.

Factor: Paperwork! 

If you’ve never been an independent contractor before, you are going to want to learn a little more about the deductions available to you before you start. The IRS has the right at any time to demand to see receipts of your deductions, and if you don’t have them, you may be denied the deduction. This is particularly true if you take a large deduction that is out of pattern for prior tax years - the IRS may flag your return for further review and request documentation of your deduction. Now, we’re not trying to make this into a bigger deal than it is - just be prepared to start collecting receipts (or using apps that allow you to document and print your records) to prove that you incurred deductible expenses. 

Factor: Can you qualify as an independent contractor? 

This is a tax-related factor, and a big one at that. The IRS has rules about whether someone is an employee or an independent contractor, and employers who misclassify employees will become liable for employment taxes, as well as interest and penalties for failing to remit those taxes. You may find this to be the biggest stumbling block in switching from employee to independent contractor - without a change in your job description that gives you greater freedom in how you accomplish your work, you may still be considered an employee. Your employer would be taking a big and potentially expensive risk in re-classifying you without changing your job duties or description.

Here at T.A. Tax Relief, we’re here to help you with tax planning for your next job, whether that job is as an employee or an independent contractor. Contact us today! 

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Starting your own side gig, part 2 - what’s a deductible business expense?

Starting up any new business is exciting, but if you’ve never done it before, there can be a lot of paperwork involved - specifically, expenses and substantiation (fancy word for receipts) of those expenses. Previously, we talked about one of the most popular deductions - mileage. Today, we’re going to talk about what the IRS considers to be a business deduction. 

One thing you’ll notice the IRS saying a lot is that expenses must be ordinary, necessary, and directly related to the business. It’s a facts and circumstances test and generally based on common sense. 

An ordinary expense is one that you would expect a business to incur. For example, let’s say you’re starting a dog-walking business. For the average dog walker, ordinary expenses would include flyers to advertise the business, leashes, poop bags, and probably some dog treats. A Maserati GranTurismo is not an ordinary expense for a dog walker. Now, you may have a very specialized idea for dog-walking that involves driving dogs around in a Maserati, but that’s the point - it’s specialized, and you should be ready to make an argument to the IRS as to why you need that (gorgeous) car for your dog-walking business. 

Necessary expenses are expenses that you must incur in running your business. Let’s take the average dog-walking business again - you’re probably going to need leashes, but how many leashes do you need? How many dogs are you planning on walking at a time? Again, common sense is (usually) your guide here. The average dog walker probably needs somewhere between five and ten leashes (or more - you could be a really successful dog-walker). But 100 leashes? 1,000 leashes? That’s probably overkill. The average dog-walker doesn’t need 1,000 leashes to walk dogs, so anything over a reasonable number of leashes would be non-deductible as unnecessary expenses. 

Finally, the expenses must be directly related to the business. For our dog-walking business, leashes are necessary to keep the dogs under your control. Poop bags are necessary because, well, you’re a conscientious dog walker. Expenses that aren’t directly related to the dog-walking business include things such as personal expenses, such as the leash or the poop bags you buy for your own dog. 

As you can see, all of these tests are facts and circumstances tests - for many business expenses, there aren’t a lot of hard and fast rules regarding what is and what is not deductible. That’s why these posts are meant to be informative, but are not tailored to your particular situation. If you want to talk about your great new business idea, give us a call!

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Tax Scams: is the IRS calling me?

Unless you work in the tax world, no one looks forward to phone calls from the IRS. Unfortunately, scammers pretending to be IRS agents are calling, informing people that they owe taxes, and demanding payment over the phone. The IRS states that thousands of people have lost millions of dollars to these scams. Phone scams are number two in the IRS’s annual list of the “Dirty Dozen” tax scams preying on consumers. So how can you tell if it’s really the IRS calling you?

Simple. Have you received a letter (really, more like an avalanche of paperwork) from the IRS notifying you that you owe taxes? If the answer is no, that’s not the IRS on the phone. 

Of course, there are facts and circumstances specific to you (you don’t check your mail, for example), but here is a list of things that we can confidently say the IRS will NOT do:

The IRS will NOT initiate contact with you over the phone. Even if they wanted to (they don’t), staffing shortages and budget cuts over the years make that darn near impossible.

The IRS will NOT initiate contact with you via email. 

The IRS does NOT call and demand payment via prepaid debit cards. The IRS prefers good old fashioned checks, although there are other options if you want to pay using your debit or credit card. 

The IRS will NOT call you out of the blue and threaten you with jail or deportation. 

The IRS contacts people via letters: boring old snail mail letters, usually at least two pages’ worth with text on both sides. So remember: if you haven’t gotten letters from the IRS, that’s not them on the phone. 

If you owe taxes, we can help! Give us a call. 

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So You Want to Start a Side Hustle (part 1 - mileage deduction)

That’s great! You don’t even have to start from scratch. There are lots of websites out there (Fiverr, Amazon, or even good old Craigslist) that have simplified the process for you. As we mentioned yesterday, this is a great year to start a side gig.

Let’s talk expenses - or in the tax world, deductions. Assuming you intend to start simply (i.e., you aren’t creating a separate business entity), at the end of the year, you will be reporting income and expenses on a Schedule C of your 1040. It’s important that you have written records of your expenses. With the ubiquity of smartphones, there’s an app for every type of tax expense these days, but make sure that whatever app  you use, at the end of the year, you can export that information and print it out for your records. We’re going to be reviewing some of those expenses and record-keeping requirements over the coming weeks. Today, let’s start with everyone’s favorite deduction: mileage. 

For 2018 (it changes annually), business mileage is deductible at 54.5 cents per mile (up one cent from 2017). However, there are some caveats: 

You must have written records of business mileage. And while we’re on the subject, map print outs are a good start, but the IRS is going to want to see information specific to your car, including the starting and ending odometer readings from your trip. If you’re an employee, the record-keeping requirements are a little less stringent, but hey - with great freedom comes great responsibility. 

Distances driven from your home to your job are not deductible. The IRS considers those miles to be commuting miles, and therefore non-deductible personal expenses. Speaking of personal mileage, if you use one car for both personal and business driving, you’re going to want to sum up all of your business and personal mileage at the end of the year so that you can determine the amount or percentage of time you used your car for business purposes.  

Then again, there’s always an exception to an exception. If you are starting a side hustle, and your home is the base of operations (defined by the IRS as your “principal place of business”), then you can deduct miles driven from one job (your home) to your other job (your full-time work). Also, any errands or other driving from your home for the purpose of your side hustle would be deductible. Just remember to track those miles. 

If you depreciate your car, or expense your car under Section 179, you cannot also take the mileage deduction - it’s one or the other. More on that in a future post, because there are a lot of rules around depreciating or taking a 179 deduction for a car. 

If you take the standard mileage rate deduction, you can also deduct parking lot fees, tolls, interest, and taxes as a separate expense. Get receipts!

The IRS limits the business mileage deduction to four cars. If you have more than four cars (the IRS defines five or more cars as fleet vehicles), you should be depreciating. 

You can use the standard mileage rate, depreciate your car using the Modified Accelerated Cost Recovery System (MACRS), or use actual expenses that you incurred during the year related to your business - think oil changes, repairs, and the like. As a general rule, the standard mileage rate provides the largest deduction, but keep track of your actual expenses, too, to see which yields the largest deduction. Even the IRS agrees that you should pay the least amount of tax you are legally obligated to pay. 

Phew! This is a long post. Of course, when it comes to tax, nothing is ever simple. Tune in for more deductions tomorrow!

Standard disclaimer: this post is for information purposes only. For advice specifically tailored to your facts and circumstances, give us a call!

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2018: The Year of the Side Gig

Happy New Year! Here at the T.A. Tax Relief blog, we resolve to provide you with tax news you can use!

This year, as you are making your resolutions, here's one we suggest to take advantage of the new Tax Cuts and Jobs Act of 2017: start your own side gig!

The Tax Cuts and Jobs Act made changes that we'll be talking about here for weeks, but one of the biggest changes you can take advantage of right now is the new 20 percent deduction of qualified business income for pass-through entities. The exact definition of "qualified business income" is going to be something that the IRS is going to be ironing out in the weeks and months ahead, but is defined by statute generally as "items of income, gain, deduction, and loss to the extent that such items are effectively connected with the conduct of a trade or business within the United States." 26 U.S.C. sec. 199A('c)(3)(A)(i). It does not include short and long-term capital gains or losses (sorry, day traders), dividends, interest that isn't trade or business interest, foreign income, annuities that aren't trade or business annuities, and of course, the all-encompassing "other" items. 26 U.S.C. sec. 199A('c)(3)(B)(i)-(vii). There's a lot to unpack here, so stay tuned for more information.

The definition of a pass-through entity is more straightforward and established in tax law: a pass-through entity can be a sole proprietorship, an S-Corporation, an LLC, or a partnership, and is a business entity that isn't directly subject to tax on its earnings; the gains, losses, additions, and deductions are reported on the owner's individual tax return. (The link provides a good definition of pass-through entities, but the Federal Income tax bracket information is old.) While setting up an LLC, S-Corp, or partnership takes a few extra steps, a sole proprietorship is the simplest, easiest way to start a side business. All you have to do is decide to start a business! Of course, if you want to set up an LLC, S-Corp, or partnership, we're happy to help!

With the exceptions listed above, starting your own side business is limited to your abilities and your imagination. So consider adding a side gig to your New Year's resolutions, and stay tuned for more information here as we continue to post about how you can take advantage of the new tax law.

Disclaimer: this blog post is for information purposes only. For tax advice tailored specifically to your facts and circumstances, contact us here. This post is not intended to serve as legal advice.

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Our tax experts are working hard to bring you the most up to date information from the I.R.S.!

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Valuable tax information coming to a computer near you...

Check back regularly for updates to our monthly tax blog!