As people prepare to file their taxes, there are things to consider. They will want to determine if they need to file and the best way to do so.
For tax year 2018, all individual taxpayers will file using the new Form 1040. Forms 1040A and 1040EZ are no longer available. Taxpayers who previously filed these forms will now file Form 1040. The new Form 1040 uses a “building block” approach allowing individuals to add only the schedules they need to their 2018 federal tax return. Taxpayers with more complicated returns will need to complete one or more of the new Form 1040 Schedules. This group of taxpayers includes those who claim certain deductions or credits, or who owe additional taxes.
Individuals who filed their federal tax return electronically last year may not notice any changes, as the tax return preparation software will automatically use their answers to the tax questions to complete the Form 1040 and any needed schedules.
Here are three more things for people to keep in mind as they prepare to file their taxes:
Who is required to file. In most cases, income, filing status and age determine if a taxpayer must file a tax return. Other rules may apply if the taxpayer is self-employed or if they are a dependent of another person. For example, if a taxpayer is single and younger than age 65, they must file if their income was at least $12,000. There are other instances when a taxpayer must file. Taxpayers can visit IRS.gov/filing for more information.
Filing to get a refund. Even if a taxpayer doesn’t have to file, they should consider filing a tax return if they can get money back. If a taxpayer answers “yes” to any of these questions, they could be due a refund:
Taxpayers can file for free. Join the millions of Americans who safely file their taxes and save money using IRS Free File. Seventy percent of the nation’s taxpayers are eligible for IRS Free File. The IRS’s commercial partners offer free brand-name software to about 100 million individuals and families with incomes of $66,000 or less. Taxpayers who earned more can use Free File Fillable Forms. This option allows taxpayers to complete IRS forms electronically. It is best for those who are comfortable doing their own taxes.
Taxpayers can also use the Interactive Tax Assistant tool on IRS.gov to answer many tax questions.. They should look for “Do I need to file a return?” under general topics.
All taxpayers should keep a copy of their tax return. Taxpayers using a software product for the first time may need their adjusted gross income amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return
You may already know that contributions to a traditional IRA may be deductible on your personal tax return (subject to certain limits). You're allowed to deduct a contribution on your 2018 return that is made as late as April 15.
But are you aware that you can use this year's tax refund to make your IRA contribution for the 2018 tax year?
How to fund your IRA with a refund
The IRS says it's OK to use this year's tax refund to make your 2018 IRA contribution as long as you meet the April 15 deadline. If you want to use this strategy, however, you'll want to file your tax return early.
Here's how it works: You can contribute up to $5,500 to a traditional IRA for 2018 ($6,500 if you're age 50 or older). All you have to do is claim the IRA contribution on your 2018 return and then ensure the same amount is deposited in your IRA by April 15.
The ability to deduct contributions is phased out if you (or your spouse) actively participate in an employer's retirement plan, and your income exceeds a certain level. For instance, the deduction is gradually reduced for a single filer with a modified adjusted gross income (MAGI) between $63,000 and $73,000 on a 2018 return. Further calculations to determine your maximum contribution amount will be needed if your income falls inside a phaseout range.
The IRA refund strategy is especially beneficial for taxpayers who are struggling to make ends meet, but still want to save for retirement.
Extensions are not allowed for IRA contributions, so don't procrastinate! Typically you can file your tax return starting as early as late January.
Due to the lapse in appropriations, most IRS operations are closed during the shutdown. An IRS-wide furlough began on December 22, 2018, that affects many operations.
During this period, the IRS reminds taxpayers that the underlying tax laws remain in effect, and all taxpayers should continue to meet their tax obligations as normal. Individuals and businesses should keep filing their tax returns and making payments and deposits with the IRS, as they are required to do by law.
2019 Filing Season: Key Information for Taxpayers
The IRS has announced that the 2019 filing season will begin on Jan. 28, 2019, for individual taxpayers. The IRS began accepting business tax returns (non-1040 series) on Jan. 8.
Taxpayers should keep several things in mind during this challenging period:
Additional information related to the 2019 filing season will be available in coming days on IRS.gov.
Limited Operations During the Appropriations Lapse
Automated applications. IRS.gov and many automated applications remain available, including such things as Where's My Refund, the IRS2go phone app and online payment agreements.
Telephones. No live telephone customer service assistance is currently available, although the IRS will be adding staff to answer some of the telephone lines in the coming days. Due to the heavier call volume, taxpayers should be prepared for longer wait times. Most automated toll-free telephone applications will remain operational. The IRS encourages people to use IRS.gov for information.
In-person service. IRS walk-in taxpayer assistance centers (TACs) are closed. That means those offices are unable to handle large cash payments or assist identity theft victims required to visit an IRS office to establish their identity. In-person assistance will not be available for taxpayers experiencing a hardship.
Taxpayer appointments. While the government is closed, people with appointments related to examinations (audits), collection, Appeals or Taxpayer Advocate cases should assume their meetings are cancelled. IRS personnel will reschedule those meetings at a later date, when the IRS reopens.
Taxpayer correspondence. While able to receive mail, the IRS will be responding to paper correspondence to only a very limited degree during this lapse period. Taxpayers who mail in correspondence to the IRS during this period should expect a lengthy delay for a response after the IRS reopens due to a growing correspondence backlog.
Tax-exempt groups. The IRS will not be processing applications or determinations for tax-exempt status or pension plans.
Enforcement activity. During this period, the IRS will not be conducting audits, but automated initial contact letters will continue to be mailed. No collection activity will generally occur except for automated collection activity. For example, automated IRS collection notices will continue to be mailed. Criminal Investigation work, however, continues during this period.
Passports. The IRS will not be certifying for the State Department any individuals for passport eligibility.
For tax professionals and others interested in a more detailed view of IRS operations during the shutdown, there is an extensive listing available in the https://home.treasury.gov/system/files/266/IRS-Lapse-in-Appropriations-Contingency-Plan_Filing-Season_2019-01-15.pdf
How can you motivate employees? One way is to set up an achievement award plan that rewards length of service or safety measures. If certain requirements are met, both your company and the recipients can collect tax breaks.
Achievement awards 101
Generally, employees aren't taxed on tangible personal property given under an achievement award plan.
Recent tax legislation clarifies that "tangible personal property" does not include cash, cash equivalents, gifts cards, gift coupons, gift certificates (other than those where from the employer pre-selected or pre-approved a limited selection) vacations, meals, lodging, tickets for theatre or sporting events, securities and other non-tangible personal property.
However, items like electronic devices, watches, golf clubs and jewelry do qualify. The cost of these items is deductible by the company and tax-free to the employees.
To qualify for this favorable tax treatment, these requirements must be met:
If a company uses an award plan that doesn't meet these qualifications, an employee may receive only up to $400 in awards without owing any tax. The limit is raised to $1,600 for awards through a qualified plan. (Any excess is taxable to the employee and can't be deducted by the employer.)
There are two additional requirements for qualified plans:
Please give us a call if you have questions about setting up a tax-friendly achievement award plan for your employees.
Treasury, IRS issue final regulations, other guidance on new qualified business income deduction; Safe harbor enables many rental real estate owners to claim deduction
WASHINGTON - Today the Treasury Department and the Internal Revenue Service issued final regulations and three related pieces of guidance, implementing the new qualified business income (QBI) deduction (section 199A deduction).
The new QBI deduction, created by the 2017 Tax Cuts and Jobs Act (TCJA) allows many owners of sole proprietorships, partnerships, S corporations, trusts, or estates to deduct up to 20 percent of their qualified business income. Eligible taxpayers can also deduct up to 20 percent of their qualified real estate investment trust (REIT) dividends and publicly traded partnership income.
The QBI deduction is available in tax years beginning after Dec. 31, 2017, meaning eligible taxpayers will be able to claim it for the first time on their 2018 Form 1040.
The guidance, released today includes:
The QBI deduction is generally available to eligible taxpayers with 2018 taxable income at or below $315,000 for joint returns and $157,500 for other filers. Those with incomes above these levels, are still eligible for the deduction but are subject to limitations, such as the type of trade or business, the amount of W-2 wages paid in the trade or business and the unadjusted basis immediately after acquisition of qualified property. These limitations are fully described in the final regulations.
The QBI deduction is not available for wage income or for business income earned by a C corporation.
For details on this deduction, including answers to frequently-asked questions, as well as information on other TCJA provisions, visit IRS.gov/taxreform.
WASHINGTON - The Internal Revenue Service announced today 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. The IRS and partner groups conducted an extensive outreach and education campaign throughout 2018 to encourage taxpayers to do a "Paycheck Checkup" to avoid a situation where they had too much or too little tax withheld when they file their tax returns.
Although most 2018 tax filers are still expected to get refunds, some taxpayers will unexpectedly owe additional tax when they file their returns.
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:
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. For further details, see Notice 2019-11, posted today on IRS.gov.
Like last year, the IRS urges everyone 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.
To help taxpayers get their withholding right in 2019, an updated version of the agency's online Withholding Calculator is now available on IRS.gov. With tax season starting Jan. 28, the IRS reminds taxpayers it's never too early to get ready for the tax-filing season ahead. While it's a good idea any year, starting early in 2019 is particularly important as most tax filers adjust to the revised tax rates, deductions and credits.
Although the IRS won't begin processing 2018 returns until Jan. 28, software companies and tax professionals will be accepting and preparing returns before that date. Free File is also now available.
The IRS also reminds taxpayers there are two useful resources for anyone interested in learning more about tax reform. They are Publication 5307, Tax Reform: Basics for Individuals and Families, and Publication 5318, Tax Reform What's New for Your Business. For other tips and resources, visit IRS.gov/taxreform or check out the Get Ready page on IRS.gov.
Under recent tax legislation, the deduction for miscellaneous expenses has been eliminated, effective for 2018 through 2025. This wipes out any write-off for employee business expenses you pay out of your own pocket.
However, employers will often agree to authorize a plan that reimburses business expenses, like those involving travel. As a result, reimbursements you get from your employer may be tax-free to you, while the payments remain deductible by the company.
Your employer's accountable plan
Your employer may authorize a plan that reimburses travel expenses by using an accountable plan, which helps ensure that expenses qualify for favorable tax treatment. The plan complies with tough IRS rules requiring substantiation for the date, time, place, amount and business purpose of business travel. Similarly, an accountable plan may be used to reimburse employees for the cost of tools, uniforms or other expenses.
In order for an accountable plan to qualify for tax breaks, it must meet the following requirements (and you can help):
If the accountable plan doesn't comply with these rules, payments won't be deductible by your company. Even worse, you and other employees will be taxed on the reimbursements - even though you incurred the costs doing your job! Give us a call to make ensure the requirements are met!
Tax filing season kicks off in a few weeks. What records should you assemble? Due to recent tax law changes, you may not need all the records you've kept before. Here are several key areas to focus on:
Under the new legislation, you may not need records this year for miscellaneous expenses, many casualty and theft losses, moving expenses and home equity debts. Call if you have tax record questions about your particular situation.
Last year's Tax Cuts and Jobs Act made significant changes to the tax law that affect small businesses. The IRS posted two new resources on IRS.gov to help taxpayers understand how these changes affect their bottom line.
Here are some details about these resources:
New publication: Tax reform: What's new for your business
This electronic publication covers many of the TCJA provisions that are important for small and medium-sized businesses, their owners, and tax professionals to understand.
This concise publication includes sections about:
New webpage: Tax Reform for Small Business
This one-stop shop highlights important tax reform topics for small businesses.
Users can link to several resources, which are grouped by topic:
To better serve our clients and friends, to keep you up-to-date and informed, our blog is a resource for tax tips and overall accounting related articles. We hope you find this useful!