Tax Reform Changes - How will they affect you?

When you file your 2018 tax returns – about a year from now – your return will look very different.  Here are a few of the biggest changes that may affect you.

 

Individual Tax

• Individual tax rates will range from 10% to 37%.
• Standard deduction increases and personal and dependent exemptions eliminated
• The Child Tax Credit increased and a new Dependent Credit created.

Disappearing deductions: Beginning with the 2018 tax year, you will no longer be able to deduct:

• State income tax and property taxes above $10,000 per year in total;
• Moving expenses (with an exception for certain military);
• Employee business expenses such as mileage, travel, entertainment, home office expenses, union dues, tax preparation fees, and investment fees, among others;
• Mortgage interest beyond interest on $750,000 of acquisition debt (if you buy a new home); and
• Mortgage interest paid on equity debt (all homeowners).

Some new benefits for individuals include:

• Medical expense Adjusted Gross Income (AGI) threshold will temporarily drop to 7.5% of AGI for 2017 and 2018;
• Alternative Minimum Tax (AMT) threshold increased;
• A deduction for qualified business income for passthrough entity owners;
• Recharacterization to an IRA cannot be used to undo a Roth conversion;
• The estate tax exclusion has increased to $10 million (adjusted for inflation); and
• Annual gift tax exclusion remains the same ($14,000 for 2017 and $15,000 for 2018), but the maximum rate on gifts is 35%.

Small Business Tax

• Corporate tax rate will be a flat 21% for 2018
• Up to 20% deduction from net business income for a sole proprietorship, LLC (excluding those taxed as a C corporation), partnership, S corporation, and rental activity. The rules are complex but there is a lot of planning that we can do to maximize this deduction for you.
• Corporate Alternative Minimum Tax (AMT) repealed;
  
• IRC §179 expensing and bonus depreciation increased;
• Deductible business interest reduced;
• The net operating loss (NOL) carryback repealed, NOL deduction amount limited;
• The domestic production activities deduction is repealed;
• IRC §1031 treatment is limited to certain real property; and
• Entertainment expenses are disallowed.

We are here if you would like to discuss how the changes apply to your unique situation >> Contact Us

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In the case of non-profit organizations one of those exceptions to the general rule of tax exemption is something called “Unrelated Business Taxable Income”. Nonprofit boards and management should be aware that it is out there and that it might be applicable to their organization depending on the kind of activities it carries out.

First, let’s get clear on a couple of acronyms that might otherwise be confusing:

UBTI = Unrelated Business Taxable Income
UBIT = Unrelated Business Income Tax

What is Unrelated Business Taxable Income?

If your non-profit is carrying on activities that are not related to the tax-exempt purpose of your organization, any income from that activity might be deemed to be UBTI and subject to income tax.

Unrelated Business Income Tax (UBIT) is applied to any income generated by commercial activities that don’t fall within the scope of your non-profit’s exempt purpose (remember, that purpose you declared you were dedicated to when you applied for your exempt status with the IRS). So if you’re bringing in revenues that don’t directly benefit your charitable cause, it’s likely that you’ll have to pay UBIT on this income.

How UBTI can impact your organization

If your non-profit hasn’t considered the potential impact of UBI, it can come as quite a shock when the IRS comes knocking and you are required to pay over an unbudgeted amount to cover tax costs and possibly penalties and interest.

How does an organization guard against this rude surprise? By finding an advisor who understands not only the exceptions to the exceptions but the exceptions to the exceptions to the exceptions.

With proper planning UBTI can be avoided or at least properly planned for. For instance:

• By restructuring an activity so that at least 85% of the labor involved in the activity was provided by unpaid volunteers, we were able to allow a client to avoid UBTI characterization even though the activity was otherwise unrelated.
• Another client involved in a profit splitting agreement with an insurance company had been reporting UBTI and paying tax for number of years. As the revenue grew, so did the tax. We assisted the client in structuring their contractual relationship with a new insurance company so that the majority of income was in the nature of royalty income, a kind of income that under most circumstances is excluded from UBTI. The result has been a tax savings of thousands of dollars.

Talk to us about your UBTI concerns

If you’re running a non-profit organization and are concerned about the potential impact of UBTI, we can help you to review your activities for UBTI potential and discuss the possible ways you can restructure the activities to place them outside the scope of UBTI or reduce any tax liability.

Contact us at Checkbox and arrange for a chat.

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Even though only a few months remain in 2014, you still have time to act so you aren’t surprised at tax-time next year. You should take steps now to avoid owing more taxes or getting a larger refund than you expect. Here are some actions you can take to bring the taxes you pay in advance closer to what you’ll owe when you file your tax return:

Adjust your withholding.
If you’re an employee and you think that your tax withholding will fall short of your total annual tax liability, you may be able to avoid an unexpected tax bill by increasing your withholding. If you are having too much tax withheld, you may get a larger refund than you expect. In either case, you can complete a new Form W-4, Employee’s Withholding Allowance Certificate and give it to your employer. Enter the added amount you want withheld from each paycheck until the end of the year on Line 6 of the W-4 form. You usually can have less tax withheld by increasing your withholding allowances on line 5. Use the IRS Withholding Calculator tool on IRS.gov to help you fill out the form.

Report changes in circumstances.
If you purchase health insurance coverage through the Health Insurance Marketplace, you may receive advance payments of the premium tax credit in 2014. It is important that you report changes in circumstances to your Marketplace so you get the proper type and amount of premium assistance. Some of the changes that you should report include changes in your income, employment, or family size. Advance credit payments help you pay for the insurance you buy through the Marketplace. Reporting changes will help you avoid getting too much or too little premium assistance in advance.

Change taxes with life events.
You may need to change the taxes you pay when certain life events take place. A change in your marital status or the birth of a child can change the amount of taxes you owe. When they happen you can submit a new Form W-4 at work or change your estimated tax payment.

Be accurate on your W-4.
When you start a new job you fill out a Form W-4. It’s important for you to accurately complete the form. For example, special rules apply if you work two jobs or you claim tax credits on your tax return. Your employer will use the form to figure the amount of federal income tax to withhold from your pay.

Pay estimated tax if required.
If you get income that’s not subject to withholding you may need to pay estimated tax. This may include income such as self-employment, interest, or rent. If you expect to owe a thousand dollars or more in tax, and meet other conditions, you may need to pay this tax. You normally pay the tax four times a year. Use Form 1040-ES, Estimated Tax for Individuals, to figure and pay the tax.

For more see Publication 505, Tax Withholding and Estimated Tax. You can get it and IRS forms on IRS.gov, or call 800-TAX-FORM (800-829-3676) to get them by mail.

Need further assistance? Please contact us using the details below.

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Many employers outsource their payroll and related tax duties to third-party payers such as payroll service providers (PSP) and reporting agents (RA). Reputable third-party payers can help employers streamline their business operations by collecting and timely depositing payroll taxes on the employer’s behalf and filing required payroll tax returns with state and federal authorities.

Though most of these businesses provide very good service, there are, unfortunately, some who do not have their clients’ best interests at heart. Over the past few months, a number of these individuals and companies around the country have been prosecuted for stealing funds intended for the payment of payroll taxes. Examples of these successful prosecutions can be found on IRS.gov.

Like employers who handle their own payroll duties, employers who outsource this function are still legally responsible for any and all payroll taxes due. This includes any federal income taxes withheld as well as both the employer and employee’s share of social security and Medicare taxes. This is true even if the employer forwards tax amounts to a PSP or RA to make the required deposits or payments. For an overview of how the duties and obligations of agents, reporting agents and payroll service providers differ from one another, see the Third Party Arrangement Chart on IRS.gov.

Here are some steps employers can take to protect themselves from unscrupulous third-party payers.

-Enroll in the Electronic Federal Tax Payment System  and make sure the PSP or RA uses EFTPS to make tax deposits. Available free from the Treasury Department, EFTPS gives employers safe and easy online access to their payment history when deposits are made under their Employer Identification Number, enabling them to monitor whether their third-party payer is properly carrying out their tax deposit responsibilities. It also gives them the option of making any missed deposits themselves, as well as paying other individual and business taxes electronically, either online or by phone. To enroll or for more information, call toll-free 800-555-4477or visit www.eftps.gov.

-Refrain from substituting the third-party’s address for the employer’s address. Though employers are allowed to and have the option of making or agreeing to such a change, the IRS recommends that employer’s continue to use their own address as the address on record with the tax agency. Doing so ensures that the employer will continue to receive bills, notices and other account-related correspondence from the IRS. It also gives employers a way to monitor the third-party payer and easily spot any improper diversion of funds.

-Contact the IRS about any bills or notices and do so as soon as possible. This is especially important if it involves a payment that the employer believes was made or should have been made by a third-party payer. Call the number on the bill, write to the IRS office that sent the bill, contact the IRS business tax hotline at 800-829-4933 or visit a local IRS office. See Receiving a Bill from the IRS on IRS.gov for more information.

-For employers who choose to use a reporting agent, be aware of the special rules that apply to RAs. Among other things, reporting agents are generally required to use EFTPS and file payroll tax returns electronically. They are also required to provide employers with a written statement detailing the employer’s responsibilities including a reminder that the employer, not the reporting agent, is still legally required to timely file returns and pay any tax due. This statement must be provided upon entering into a contract with the employer and at least quarterly after that. See Reporting Agents File on IRS.gov for more information.

Become familiar with the tax due dates that apply to employers, and use the Small Business Tax Calendar to keep track of these key dates.

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WASHINGTON ― The Internal Revenue Service today announced the adoption of a “Taxpayer Bill of Rights” that will become a cornerstone document to provide the nation’s taxpayers with a better understanding of their rights.

The Taxpayer Bill of Rights takes the multiple existing rights embedded in the tax code and groups them into 10 broad categories, making them more visible and easier for taxpayers to find on IRS.gov.

Publication 1, “Your Rights as a Taxpayer,” has been updated with the 10 rights and will be sent to millions of taxpayers this year when they receive IRS notices on issues ranging from audits to collection. The rights will also be publicly visible in all IRS facilities for taxpayers and employees to see.

“The Taxpayer Bill of Rights contains fundamental information to help taxpayers,” said IRS Commissioner John A. Koskinen. “These are core concepts about which taxpayers should be aware. Respecting taxpayer rights continues to be a top priority for IRS employees, and the new Taxpayer Bill of Rights summarizes these important protections in a clearer, more understandable format than ever before.”

The IRS released the Taxpayer Bill of Rights following extensive discussions with the Taxpayer Advocate Service, an independent office inside the IRS that represents the interests of U.S. taxpayers. Since 2007, adopting a Taxpayer Bill of Rights has been a goal of National Taxpayer Advocate Nina E. Olson, and it was listed as the Advocate’s top priority in her most recent Annual Report to Congress.

“Congress has passed multiple pieces of legislation with the title of ‘Taxpayer Bill of Rights,’” Olson said. “However, taxpayer surveys conducted by my office have found that most taxpayers do not believe they have rights before the IRS and even fewer can name their rights. I believe the list of core taxpayer rights the IRS is announcing today will help taxpayers better understand their rights in dealing with the tax system.”

The tax code includes numerous taxpayer rights, but they are scattered throughout the code, making it difficult for people to track and understand. Similar to the U.S. Constitution’s Bill of Rights, the Taxpayer Bill of Rights contains 10 provisions. They are:

1. The Right to Be Informed

2. The Right to Quality Service

3. The Right to Pay No More than the Correct Amount of Tax

4. The Right to Challenge the IRS’s Position and Be Heard

5. The Right to Appeal an IRS Decision in an Independent Forum

6. The Right to Finality

7. The Right to Privacy

8. The Right to Confidentiality

9. The Right to Retain Representation

10. The Right to a Fair and Just Tax System

The rights have been incorporated into a redesigned version of Publication 1, a document that is routinely included in IRS correspondence with taxpayers. Millions of these mailings go out each year. The new version has been added to IRS.gov, and print copies will start being included in IRS correspondence in the near future.

The timing of the updated Publication 1 with the Taxpayer Bill of Rights is critical because the IRS is in the peak of its correspondence mailing season as taxpayers start to receive follow-up correspondence from the 2014 filing season. The publication initially will be available in English and Spanish, and updated versions will soon be available in Chinese, Korean, Russian and Vietnamese.

The IRS has also created a special section of IRS.gov to highlight the 10 rights. The web site will continue to be updated with information as it becomes available, and taxpayers will be able to easily find the Bill of Rights from the front page. The IRS internal web site for employees is adding a special section so people inside the IRS have easy access as well.

As part of this effort, the IRS will add posters and signs in coming months to its public offices so taxpayers visiting the IRS can easily see and read the information.

“This information is critically important for taxpayers to read and understand,” Koskinen said. “We encourage people to take a moment to read the Taxpayer Bill of Rights, especially when they are interacting with the IRS. While these rights have always been there for taxpayers, we think the time is right to highlight and showcase these rights for people to plainly see.”

“I also want to emphasize that the concept of taxpayer rights is not a new one for IRS employees; they embrace it in their work every day,” Koskinen added. “But our establishment of the Taxpayer Bill of Rights is also a clear reminder that all of the IRS takes seriously our responsibility to treat taxpayers fairly.

Koskinen added, “The Taxpayer Bill of Rights will serve as an important education tool, and we plan to highlight it in many different forums and venues.”

Here at CPA Corporation we strive to keep you informed!

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The fake emails may include the following message: “Your reported 2013 income is flagged for review due to a document processing error. Your case has been forwarded to the Taxpayer Advocate Service for resolution assistance. To avoid delays processing your 2013 filing contact the Taxpayer Advocate Service for resolution assistance.”

Recipients are directed to click on links that supposedly provide information about the “advocate” assigned to their case or that let them “review reported income.” The links lead to web pages that solicit personal information.

Taxpayers who get these messages should not respond to the email or click on the links. Instead, they should forward the scam emails to the IRS at phishing@irs.gov. For more information, visit the IRS’s Report Phishing web page.

The Taxpayer Advocate Service is a legitimate IRS organization that helps taxpayers resolve federal tax issues that have not been resolved through the normal IRS channels. The IRS, including TAS, does not initiate contact with taxpayers by email, texting or any social media.

For more on scams to guard against see the “Dirty Dozen” list on IRS.gov.

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The IRS does not initiate contact with taxpayers by e-mail or social media channels to request personal or financial information. Never share confidential information via e-mail with someone alleging to be the IRS. If you receive a suspicious e-mail claiming to be from the IRS, or directing you to an IRS site, do not reply, do not open any attachments, and do not click on any links.

For more information on these scams and what to watch for, go to:

www.irs.gov/uac/Newsroom/Beware-of-Bogus-IRS-Emails

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This is important because the name on your tax return must match SSA records. If they don’t, you’re likely to get a letter from the IRS about the mismatch. And if you expect a refund, this may delay when you’ll get it.

Be sure to contact SSA if:
– You got married or divorced and you changed your name.
– A dependent you claim had a name change. For example, this would apply if you adopted a child and that child’s last name changed.

File Form SS-5, Application for a Social Security Card, with the SSA to let them know about a name change. You can get the form on SSA.gov by calling 800-772-1213 or at an SSA office.

You can file Form SS-5 at an SSA office or by mail. Your new card will have the same SSN as before but will show your new name.

If you have an adopted child who does not have a SSN, use a temporary Adoption Taxpayer Identification Number on your tax form. You can apply for an ATIN by filing Form W-7A, Application for Taxpayer Identification Number for Pending U.S. Adoptions, with the IRS. Get the form on IRS.gov or by calling 800-TAX-FORM (800-829-3676).

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This can be a serious issue if you don’t use great care in your bookkeeping.  Many of the businesses that receive these notifications are able to go back through their books and provide explanations as to why the ratios are off.  Internet sales, for example, would result in higher numbers of credit card transactions versus cash.  A change in tax ID number may also set off alarms.  There are a number of perfectly valid reasons that the ratios could differ.  The IRS allows businesses to explain and fix errors in their reporting.  Because of this, small business owners need to be particularly careful in their documentation.  If your numbers are different than industry averages, you need to be able to explain why.

While some argue that cracking down on small businesses – the backbone of America’s industry – is not the answer, statistics are speaking otherwise.  The IRS has found that more than $450 billion in taxes goes uncollected.  Of this, nearly a third of that can be accounted for by under-reporting in small businesses.  The IRS wrote that the goal is to “ensure that people who are non-compliant don’t get an unfair advantage over those that play by the rules and follow the law.”  As long as they are careful in their bookkeeping, this crackdown can actually be a benefit to small businesses around the country.

 Sometimes a second pair of eyes reviewing your bookkeeper’s work can reduce the crackdown you see above. We can schedule a free business consultation with you to review your current methods and develop a lasting partnership.

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The IRS deputy commissioner for services and enforcement, Steven T. Miller, said in a written memo to the National Federation of Independent Business that no reconciliation will be required on 2012 or future business tax returns. The IRS previously said in October of last year that no return entry would be required for 2011 tax returns, although they left a line on the returns saying “For 2011, enter 0.”

We previously advised our business clients to separately track their cash receipts from merchant card payments beginning in 2012. Please be advised that you are now no longer required to do this reconciliation.

If you have any questions regarding this alert please feel free to contact us.

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