TaxMamas TaxQuips: Tax Quips

  Today TaxMama® wants to help you avoid losing your passport, if you owe the IRS too much money. You need to act quickly. Dear Family, You’ve been hearing a lot in the past couple of years that the IRS will start revoking passports of Americans who owe taxes. Well, the process is now in full swing. The IRS has sent a list of over 280,000 Americans to the State Department to prevent their passports from being renewed – or to arrange to have their passports revoked. Who is affected? Folks who owe the IRS $51,000 or more (including penalties and interest) in 2018 ($52,000 in 2019) – who have not made arrangements to pay their taxes. If you owe that much or more, get your head out of the sand and get in touch with the IRS immediately to either set up an installment agreement, or an offer in compromise. If you’re really in the hole, financially, you may be able to get your balance due put on hold. BUT ONLY IF YOU COMMUNICATE. Get on the ball right now. If you’re not already on the list, you can stay off it by getting the process started. If you owe far more than the $51,000 – pay the balance down so you’re under that threshold. If you need help, you can get help from Enrolled Agents or CPAs at NAEA  and at the AICPA. Once you’re on that list (it’s called “certified”), bringing the balance below $51,000 won’t help you. And it can take months or a year or more to get your passport reinstated. Incidentally, if you’re reading this, and are not yet certified – and you need to travel very soon – there is help for you. The Taxpayer Advocate Service (TAS) has promised to help.  Call the local TAS offfice phone number  – you will find an office on this map – https://www.irs.gov/advocate/local-taxpayer-advocate  If it’s an emergency – better yet – use the fax number. Fax them a letter with PASSPORT EMERGENCY  in BIG letters at the top of the page. Give them all your contact information. They will immediately issue a Taxpayer Assistance Order (TAO), Form 911 to halt IRS certification procedures.  BUT, you must be read to cooperate. You must be prepared to pay your taxes or set up an installment agreement on the spot – AND to make the payments. (The IRS computer will monitor these taxpayers – and if you don’t make the payments, you will be certified – without mercy.) And remember, you can find answers to all kinds of questions about taxes and business issues, free. Where? Where else? At www.TaxMama.com. To make comments please drop into the TaxQuips Forum.   To help you with your 2018/2019 tax planning, please join me on December 5th for a SPECIAL Tax Cuts and Jobs Act webinar to help folks who are self-employed, and folks with large employee business expenses to restructure your tax picture and cut your taxes.  http://taxmama.com/asktaxmama/webinar-the-trump-tax-plan/

Today TaxMama® wants to give you some last minute tips on the drop-dead filing deadline – October 15th.              Dear Family, For most people – and C corporations – October 15th is the final filing deadline for the 2017 tax returns. Partnerships, S corps, trusts, all pass-through entities, were due on either September 15th (Forms 1065 and 1120) or October 1st (Form 1041). For those of you still on extension, even if you’re not ready – file IMMEDIATELY. File something, even if information is missing. Not filing will cost you a 25% late filing penalty, on top of anything you might owe, plus interest on the taxes and penalties. How do you file with missing information? Make reasonable estimates. Explain how you arrived at those estimates. You can use a Form 8275 Disclosure Statement for that purpose. Then, once you have the complete information, you can amend your tax return within 3 years. Another alert – today’s the deadline for folks who bought business or rental assets after Sept. 27, 2017 and didn’t depreciate them fully on your tax returns. You need to file an election to NOT use the 100% depreciation deduction. (What a bizarre requirement.) If you didn’t include the election with your tax return, file an amended return TODAY. “Taxpayers who elect out of the 100-percent depreciation deduction, as well as the 50-percent deduction available under prior law, must do so by attaching a statement to a timely-filed return.” More details here. Otherwise, you will have to amend your 2017 tax return and claim the entire deduction on your asset purchases. For folks in disaster areas, you have additional time. IRS announced the most recent grace period for Hurricane Michael. I’ll give you the list of grace periods in a moment. Just know that this additional time covers your income tax returns, payroll tax returns and any other returns that need to be filed. AND it covers payments – estimated taxes, payroll taxes and excise taxes – that would be due during this time frame. The disaster deadlines are as follows (follow the links for details if you are affected): November 30, 2018 CA-2018-11, Tax relief for victims of wildfires and high winds in Northern California January 31, 2019 SC-2018-01, Tax Relief for Victims of Hurricane Florence in South Carolina February 28, 2019   IR-2018-199, IRS extends Oct. 15 and other upcoming deadlines, provides expanded tax relief for victims of Hurricane Michael Additional time is also available to active duty military personnel serving outside the U.S. You generally have until 180 days after you return back to the states. https://www.irs.gov/individuals/military That’s it for today’s deadlines, more tips coming this week about year-end tax planning. To make comments please drop into the TaxQuips Forum.  And remember, you can find answers to all kinds of questions about taxes and business issues, free. Where? Where else? At www.TaxMama.com.  

Today TaxMama® hears from KW who is selling his former residence. He wants to know if the residence he bought in 1991 and converted to a rental in 2007 still qualifies for the personal residence exclusion of $250,000?                                                                            Dear KW, Since you have not lived in that home for well over 5 years, the entire gain is taxable. There is no way to exclude any gain. Your basis in the home has nothing to do with the mortgage. The fact that you have such a high mortgage only means that you pulled a lot of money out, tax-free at some point. So you have already gotten some significant cash from this house. Your basis (tax cost) will be something like this: Purchase price   $43,000 Less Depreciation you’ve taken since 2007 (about) $12,000 Or approx $31,000 If you sell it for $170K after fees, your taxable profit will be $139K. You can use a tax calculator like the one TurboTax or H&R Block has to figure out your IRS taxes on the sale. They are apt to be less than $25,000 + whatever your state tax rate turns out to be. https://turbotax.intuit.com/tax-tools/calculators/taxcaster/ https://www.hrblock.com/tax-calculator/#/en/te/aboutYou You will still have plenty of money after the mortgage and taxes are paid. BUT…I am only giving you very broad information based on what you said. It might be a good idea to sit down with a tax professional immediately to see if you have any alternatives or other reductions that they can discern, OR if it is to your advantage to make it a tax-free exchange or an installment sale. To make comments please drop into the TaxQuips Forum. And remember, you can find answers to all kinds of questions about rentals, taxes and business issues, free. Where? Where else? At www.TaxMama.com. [Note: If you were subscribed to the e-mailed version of TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]

Today TaxMama® wants to tell you how disabled vets might be eligible for IRS tax refunds going back as far as 1991. Unbelievable? But true!         Dear Friends and Family, We all know that you cannot get IRS refunds if you file for them more than 3 years after the tax return was filed (or was originally due, if unfiled). So why can you suddenly go back over 25 years to get these refunds approved? Well, it turns out that the Combat-Injured Veterans Tax Fairness Act that was passed in 2016 makes all this possible. The IRS worked with the Veterans Administration to craft a letter to veterans who received a lump sum disability check when they separated from service. IRS withholding was taken from those checks – but the benefits should not have been taxable. Veterans who receive that letter need to take action immediately. You have 12 months to file an amended return to claim your refund. (It’s not clear if the IRS will also be paying interest on refunds for taxes that were withheld a decade or two ago.) There are two ways to claim your refund: 1) Find your original tax return and the information showing how much was withheld from your compensation. Then you can claim the full amount. 2) Or if you cannot find that information, the IRS has a schedule of refunds you can claim, by year: $1,750 for tax years 1991 – 2005 $2,400 for tax years 2006 – 2010 $3,200 for tax years 2011 – 2016 It is in your best interest to find the actual information. Why? Kathy A. Bylkas, an EA in Colorado just filed a claim for one of her clients this week. He had received a severance payment 2014. The refund she got him was over $10,000. That’s more than 3 times the 2011-2016 amount the IRS is willing to issue if you have no data. How do you get these refunds? Simply file a Form 1040X for the year in question and write “Disability Severance Payment” on line 15 of Form 1040X and enter on lines 15 and 22 Then follow the special instructions to mail these specific refund requests to a specific mail STOP address on the IRS campus in Kansas. What’s if you didn’t get the letter from the VA? That’s OK. But you will have to dig up two documents to prove that you were discharged for service-related disability and the payment information. You may well be able to get these docs from the the Defense Finance and Accounting Services (DFAS).  IRS spells out the details in the special instructions link – just scroll all the way down. Although this may be difficult, it will be worth the effort. By locating the actual documents, you are likely to get the higher refund amount. So, please, do it quickly! To make comments please drop into the TaxQuips Forum.   And remember, you can find answers to all kinds of questions about tax and business issues, free. Where? Where else? At www.TaxMama.com.

Today TaxMama® wants to update you on the Postcard Tax Form .         Dear Friends and Family, You’ve been hearing a lot of talk about the IRS’ new “postcard” tax return, designed for you to use in 2019. You can pick up copies of the form(s) here. Let me clear up a few myths for you – and give you the nitty-gritty about how this will affect you. It’s not a postcard – so don’t worry about your personal information being exposed to the mail carrier, your mail box handlers, your neighbors, or anyone else. It is designed to be filed electronically. Not sure if it can be paper-filed, but it probably can. The proposed Form 1040 is designed to replace the 1040,1040A, 1040EZ). (Before realizing there were two pages, I was stunned.) This is not final. The IRS is accepting comments and will issue two more versions of this before it is finalized for filing season. To make your own comments, use this email address – WI.1040.Comments@IRS.gov The basic tax return has been reduced from 78 lines to 23 lines. All of the numerical data is on page 2. They have moved qualifying information regarding the standard deduction to the first page of this “postcard” – like being claimed as dependent by someone else being age 65 or over, or blind whether the spouse itemized on a separate return, or is a dual-status alien They have added a box, right in front, about having health insurance coverage for the full year. (Of course, if you had the coverage through the Marketplace, you still have to fill out Form 8962 to see if you have to pay any of that back.) There are 6 schedules that feed into this short form (see attached) -Schedule 1 Additional Income and Adjustments to Income -Schedule 2 Tax -Schedule 3 Non-refundable credits -Schedule 4 Other Taxes -Schedule 5 Other Payments and Refundable Credits -Schedule 6 Foreign Address and Third Party Designee You may have noticed that there is no schedule for itemized deductions. That’s OK, you can still use Schedule A and enter that information on line 8 of the “postcard.” Don’t worry about not being able to report your business, farm, rentals, or partnerships, depreciation, capital gains or losses – or other types of income. All those forms and schedules remain unchanged. They will flow through to Schedule 1. You haven’t lost the right to deduct your IRA, HSA, alimony or other above-the-line deductions. They also flow to Schedule 1. Where is that new 20% Qualified Business Income Deduction? It’s on line 9, right after the standard deductions (or itemized deductions) – just before the computation of taxable income. Your withholding appears directly on the “postcard’s” line 16. But you will need Schedule 5 to report your estimated tax payments, extension payments and refundable credits. Of course, for the refundable credits, you will still need all the detailed identity and qualifying information from the specific tax forms for the credit. Overall, this will make it easier for people who have jobs, can use the standard deduction, and don’t have children who qualify for the child tax credit and earned income credit. This should cover about 30% of taxapyers. The IRS estimates that 65% of taxpayers will only need one additional schedule. Which actually makes no sense. Why? Because people with children and/or students need at least two schedules to claim the refundable and non-refundable portions of the Child Tax Credit and the American Opportunity Credit. (Schedules 3 and 8) In other words, lower income taxpayers will still be providing the same complex information as ever. For everyone else, nothing will really change. Your tax software, whether for professionals or consumers, will not change the inputs significantly. If you need to use the extra schedules or forms, your software will allow you to enter the information as you always have done it. To make comments and toss in your own ideas, please drop into the TaxQuips Forum. And remember, you can find answers to all kinds of questions about tax and business issues, free. Where? Where else? At www.TaxMama.com. [Note: If you were subscribed to the e-mailed version of TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]  

Today TaxMama® wants to update you on key tax issues that affect you this year.                                                                               Dear Friends and Family,   As you have already noticed, there have been sweeping changes to our tax system this year. There will probably be more, after the November elections. In the meantime, the IRS Tax Reform Information Office (TRIO) is frantically trying to update 450 forms and 140 information technology (IT) systems – with a diminished staff. So don’t be surprised if you encounter obstacles and errors along the way, this year.  However if you do run into problems with the IRS systems and don’t know where to report them, please post them in my TaxQuips Forum – http://iTaxMama.com/AskQuestion . I will pass them along to the right people. In the meantime, the IRS has a special page with announcements and procedures relating the Tax Reform issues here – https://www.irs.gov/newsroom/tax-reform . To reduce some of the problems, the IRS is relying on self-service technology more than ever. There are a variety of tools that taxpayers can use on your own, either online or via mobile devices – looking up refunds, paying online (with or without fees), looking up your own transcripts. The IRS App lets you do most of – and even prepare your tax return for free – in English or Spanish (check your own app services to see if you can find it – the IRS announcement doesn’t link to it). There are more electronic tools for tax professionals, including a pilot program to allow some of us to upload supporting documents for IRS correspondence audits (by mail audits) directly to our clients’ accounts. I am really looking forward to that becoming an established option. It would solve the problems of delays and lost documents that have been plaguing the system. However, due to some of the inefficiencies and complications, many tax professionals prefer to work with the IRS by phone. To avoid the long waits on hold, Andrew Valiente came up with this dynamite CallEnQ service to put us at the front of the phone queue. Alas, this is only for tax pros – not the general public. For folks with offshore funds, the IRS is closing down the Offshore Voluntary Disclosure Program (OVDP) on Sept. 28, 2018. So if you have bank accounts or financial assets outside the U.S. (or you sign on your parents’ or relatives’ accounts) and you haven’t reported them yet, you have one last opportunity to get reduced penalties within the scope of this particular amnesty program.  After that, you’re on your own. Those penalties can rise to 100% of the unreported accounts. You have been hearing that the IRS can deny passports for people who have unpaid taxes. At this time, they are not actively stopping you at borders YET (unless there is a criminal case involved). However, if you owe $51,000 or more, and you are not making an active effort to pay the balance, your passport will not be renewed. So if your job requires you to have a passport, or you must do some traveling outside the U.S., it’s time to catch up on your tax obligations – or you’re stuck in this country. So get hold of a tax professional to help you, immediately. The IRS is seriously ramping up their visits to employers who are delinquent on their payroll tax deposits – these start as “educational visits” but can turn into enforcement visits quite quickly. The states are investing more energy into identifying employers who pay their employees as freelancers. There is still a way to protect yourself and fix the employment issue. I will be offering a webinar to help employers, as well as tax professionals, to address this amnesty, before the employer gets caught, and it’s too late. That’s it for now…but I will be posting more of the IRS’s announcements and tips on the site, between emails. So drop by often. To make comments and toss in your own ideas, please drop into the TaxQuips Forum. And remember, you can find answers to all kinds of questions about tax and business issues, free. Where? Where else? At www.TaxMama.com. Photo by KJGarbutt

Today TaxMama® wants to talk about things to consider now that your tax return is filed. It IS filed, isn’t it?           Dear Friends and Family, I have good news and bad news for employees with job-related expenses. The good news is Senator Casey introduced the  “Tax Fairness for Workers Act” which returns to employees the right to deduct their job related expenses (which were lost in the Tax Cuts and Jobs Act). And it would give union members the right to claim a deduction for union dues even if they don’t itemize (above the line). The bad news?  According to someone Kelly Phillips Erb interviewed, the odds of this bill getting enacted are about 1%. In other words, while we really need this legislation. It’s just not going to happen. What does this mean to you if you do have a lot of job-releated expenses you will no longer be able to deduct? Stop waiting for Congress to help you out. It’s time to talk to your employer about changing the way you are compensated, so you no longer pay your own expenses – they do. Here’s how to do it – http://taxmama.com/tax-quips/switching-from-employee-status-to-independent-contractor/ . This doesn’t affect business owners – just employees. More bad news for employers who treat workers as independent contractors, when they should be employees. The California Supreme Court just ruled that if someone looks and acts like an employee, they must be on payroll and get a W-2. No more gray areas. (The case involves drivers – but the definitions are clear. So employers, beware!) When laws are passed in California, or cases are decided here – other states take notice. Moving on to other things to do in May Do a projection of your expected tax liability for 2018 under the new tax laws. Don’t wait for surprises at the last minute. You will have higher standard deductions, but no exemptions. You will have certain tax credits, but fewer deductions. Some people will come out ahead – others will be in trouble. Folks will still be hit with Obamacare penalties in 2018 – be careful! Here are some tools to help you. https://taxfoundation.org/2018-tax-reform-calculator/ https://turbotax.intuit.com/tax-tools/calculators/taxcaster/ https://www.hrblock.com/tax-calculator/#/en/te/aboutYou Review your withholding. Now that the new withholding tables have been in place for a while, check to see if you are withholding enough to stay out of trouble when you file your tax return next April. Do a computation, based on the withholding in your current paycheck to see how much your total withholding will be for the year. Compare that to the total tax liability you computed above. Here’s the IRS withholding calculator. Are you a business? This year you’re going to lose some deductions – like all entertainment expenses and some meals, as well as the special domestic activities deduction. But you might qualify to get some benefits – like the 20% Qualified Business Income deduction and a tax credit for providing paid family leave to your full or part-time employees. Please, please, meet with a tax professional to learn the details. At the very least – watch this video to learn more – http://iTaxMama.com/TrumpTaxWebinar_1 The IRS has a series of webinars for businesses during Small Business Week – and they don’t cost a dime! https://www.irs.gov/newsroom/irs-announces-2018-national-small-business-week-webcasts This year, it’s important to do some planning. Please. Don’t get faced with surprises next year when it’s too late. To make comments and toss in your own ideas, please drop into the TaxQuips Forum. And remember, you can find answers to all kinds of questions about tax and business issues, free. Where? Where else? At www.TaxMama.com. [Note: If you were subscribed to the e-mailed version of TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!] Photo by eovemar

  Today TaxMama® wants to talk about deadlines, extensions, payments and dealing with it all on a tight budget. What do you do first?!             Dear Friends and Family, I am hearing from a lot of people, tax pros as well as taxpayers, who are frantically trying to finish their tax returns by April 17th. The stress makes things worse – and people are making errors or finding themselves going around in circles, not getting their computations to work. What’s the best advice I can give you? STOP! Take a breath. If you slow down and take the time to gather all the correct information, from all the correct sources, instead of trying to estimate or make things up – it will all fall into place easily. That’s what extensions are for – to buy you some breathing space. However, there is one group that does need to get off their butts and file NOW! April 17th is the absolute deadline to file the 2014 tax return and still collect a refund from the IRS. Over a BILLION dollars of 2014 withholding and estimated payments are sitting there, unclaimed – that will never be released to taxpayers after April 17th. Back to all you folks who file annually. You want an extension. It’s easy – use Form 4868 for personal extensions. Use Form 7004 to extend C corporation, gift tax returns and trust or estate tax returns. Most states will accept the IRS extension unless you owe money to the state. But make sure your state complies when there’s no balance due. When you expect to owe money, but cannot pay it all, don’t lie on Form 4868. Enter the approximate balance you expect to owe. Pay at least $25 or $50 with the extension. (Never lie on the extension or it will be invalid.) When you use IRS’ Direct Pay to pay the extension fee, you are also filing the extension. If you absolutely cannot pay the whole balance due at this time I have some great tips for you – just read this week’s in-depth article – Last Minute Payments. To make comments and toss in your own ideas, please drop into the TaxQuips Forum. And remember, you can find answers to all kinds of questions about tax payments and other tax and business issues, free. Where? Where else? At www.TaxMama.com.

Today TaxMama® hears from C in the TaxQuips forum. She has an all-too common problem. “I have a tax return that I completed but did not mail off from 2013, I know you have to process your taxes within 3 years, is there any way to mail off this 2013 tax return and get my refund? If not will I owe the IRS money?”       Dear Friends and Family, The reason I am bringing this up today is, because the IRS is telling us that there is $1.1 billion waiting to be claimed by those who have not filed 2014 federal income tax returns. So, if you haven’t bothered because you don’t owe any money – read on! Ishaan (Ish) starts by explaining: I’m sorry, but the latest possible date to file a 2013 return for refund would have been October 15, 2017 (there are rare exceptions if you were financially incapacitated between then and now, the refund is from bad debts or worthless securities, etc. But they probably don’t apply to you.) If the return showed a refund, the IRS is not going to fine you for not filing it. The refund is gone forever, alas. TaxMama continues with: Definitely file the tax return and close the year against long-term assessments. File the state return, too. You might still be able to get the state refund. Some states give you an extra year. If you have any other old years still unfiled, please file them immediately. For instance, the refunds on 2014 will expire on April 15th of 2018. (Maybe April 17th, but don’t count on it.) If you still have not filed 2014’s tax return, consider doing this. On the 2013, have the IRS apply your refund to 2014.  It probably won’t work if you already have a refund – but it might!  And if you owe money in 2014, it just might help reduce that balance. No promises. But you lose nothing by trying. If you need help from a qualified tax professional, you can find Enrolled Agents (EAs)   here – http://taxexperts.naea.org/and Certified Public Accountants (CPAs) here – https://www.aicpa.org/forthepublic/findacpa/findacpa.html Folks also read this post to see the trouble you can cause by avoiding filing your tax return because you don’t want the IRS to take your refunds – http://taxmama.invisionzone.com/topic/8892-tax-refund/?tab=comments#comment-30721 And remember, you can find answers to all kinds of questions about the late filing problems and other tax and business issues, free. Where? Where else? At www.TaxMama.com. [Note: If you were subscribed to the e-mailed version of TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!] Please post all Comments and Replies to this post in the TaxQuips Forum. Photo by CreditDebitPro

Today TaxMama® wants to give you something to think about before switching from employee status to independent contractor.       Dear Friends and Family, As far as individual taxpayers, the biggest losers under the Tax Cuts and Jobs Act are employees who have unreimbursed out-of-pocket expenses. You won’t be able to deduct them any longer – from at least January 1, 2018 – December 31, 2025. And longer, if Congress extends this harsh rule. That’s why many employees are thinking of taking aggressive action and considering changing their status at work, to become freelancers. This will allow the former employee to deduct all their expenses, and potentially, reduce your taxes. For those who successfully negotiate a change in status, it’s important to understand the full impact of what you are doing. You will now be in business – and will have to act like a business. With all the responsibilities of a business – formation, filing, licensing, and reporting. And if you chose to set up a corporation, partnership or LLC, you might have to face the costs of an extra business tax return. What do you lose that you were getting as an employee? Sick days Vacation days Health Insurance Some reimbursed expenses Bonuses Paid holidays (remember Christmas, Thanksgiving and at least 8 – 10 other paid days off, or long weekends) Promotions and raises Employer pays half of your Social Security and Medicare (7.5% of $128,700 – nearly $10,000 and 1.3% of everything over that income level) State disability benefits State and federal unemployment benefits So, instead of taking off on your own – consider trying to negotiate with your employer. It’s time that they paid your expenses, via an accountable plan. That means you would submit your expense reports each month and they would reimburse you. That might require a slight reduction in your wages or commission percentage so everyone stays even. It’s a good idea to sit down with a skilled tax professional to sort out the numbers to determine the best path for both you and your employer. You can find Enrolled Agents (EAs)   here – http://taxexperts.naea.org/and Certified Public Accountants (CPAs) here – https://www.aicpa.org/forthepublic/findacpa/findacpa.html And remember, you can find answers to all kinds of questions about the Tax Cuts and Jobs Act and other tax and business issues, free. Where? Where else? At www.TaxMama.com. Please post all Comments and Replies to this post in the TaxQuips Forum. Photo by scriptingnews

Last week, I promised you that the Legislature would pass an extender bill by spring. Well, good news! They didn’t wait that long. They included most of the provisions of  S. 2256 in today’s budget bill. Alas, Congress only extended them for the short-term. All the extenders are retroactive to January 1, 2017. But the bad news is, most of the provisions also expire on December 31, 2017 – for one year only. You can read all of the provisions in the summary that Congress provided -http://iTaxMama.com/BudgetAct2018_Extenders .   Here are the key provisions that affect you: Sec. 40201. Extension of Exclusion from Gross Income of Discharge of Qualified Principal Residence Indebtedness. Effective for debts discharged during 2017, or if a binding written agreement was in effect by December 31, 2017 for the foreclosure or short sale or other transfer or property, which would result in cancellation of debt income. Sec. 40202. Extension of Mortgage Insurance Premiums (PMI) Treated as Qualified Residence Interest. Effective for PMI paid during 2017. This deduction phases out ratably for taxpayers with adjusted gross income of $100,000 to $110,000. Sec. 40203. Extension of Above-The-Line Deduction for Qualified Tuition and Related Expenses. Effective for tuition and fees paid during 2017. The Bipartisan Budget Act of 2018 extended this deduction through December 31, 2017. The deduction limits and income phase-outs are as follows: •             The deduction is capped at $4,000 for an individual with (AGI) up to $65,000 ($130,000 for joint filers) •             or $2,000 for an individual with AGI does up to $80,000 ($160,000 for joint filers). (See Tip #216) Sec. 40304. Extension of Classification of Certain Race Horses as 3-Year Property. Effective for racehorses purchased or placed into service during 2017. This means you don’t have to use a 7-year r ecovery life for any qualified racehorses purchased in 2017. Sec. 40311. Extension of Empowerment Zone Tax Incentives. Businesses that opt to set up shop in certain designated distressed areas get a variety of incentives for taking on that risk. The incentives include higher depreciation and certain tax credits or increases to other business-related tax credits, including the right to exclude the gain from the sale of certain small business stock. Effective for certain Empowerment Zone costs paid during 2017. Sec. 40401. Extension of Credit for Nonbusiness Energy Property.  This is the $500 lifetime credit for the costs of insulating your home, replacing doors and windows and such.  If you have ever claimed this credit before, you cannot get it again. Effective for qualified home improvements made during 2017. Use Form 5695 https://www.irs.gov/pub/irs-pdf/f5695.pdf Sec. 50402. Extension and Modification of Credit for Residential Energy Property. This is the credit for 30% of the cost of solar, geothermal, wind and fuel cell installations. The Bipartisan Budget Act of 2018 extended this credit to include geothermal, wind and fuel cell installations. Prior to that, only solar electric and heating properties could still use this credit after December31, 2016. Effective for qualified home improvements made during 2017 and ending on December 31, 2021. Use Form 5695 https://www.irs.gov/pub/irs-pdf/f5695.pdf Sec. 40403. Extension of Credit for New Qualified Fuel Cell Motor Vehicles. This is the credit for hybrid vehicles, qualified fuel cell vehicles or other alternative fuel vehicles. The credit varies based on the weight, model and make of the vehicle, and how many vehicles have been sold by the manufacturer. Use Form 8910 – https://www.irs.gov/pub/irs-pdf/f8910.pdf For updated information about which vehicles qualify and the amount of allowable credit for the vehicle you bought (in 2017) or are considering buying, visit this IRS page – http://iTaxMama.com/AlternativeVehicleCredit . The provision allows a credit of between $4,000 and $40,000, depending on the weight of the vehicle. Effective for qualified vehicles purchased during 2017. Sec. 40405. Extension of Credit for 2-Wheeled Plug-In Electric Vehicles. This is the golf-cart credit. This is a 10-percent credit for two-wheeled plug-in electric vehicles (capped at $2,500). You do need to have a tax liability high enough to cover the credit. Like all the previous energy credits, this too, is not refundable.    Use Form 8936 https://www.irs.gov/pub/irs-pdf/f8936.pdf For updated information, visit the IRS site here http://iTaxMama.com/Plug-In_Vehicle . Effective for qualified vehicles purchased during 2017. Photo by H.P. Brinkmann

  Today TaxMama® realizes that this is the last day of January. There are some important things for you to know today.           Dear Friends and Family, Let’s start with today’s deadline – January 31st. That’s the deadline for W-2s and 1099-MISC forms to be filed. Employers already know and are meeting the deadline. But small businesses without employees…if you want to claim a deduction for $600 or more that you paid to someone for services – that deadline is today. What, you didn’t know? Or you’re still trying to get them to give you their Social Security Number? Don’t panic. You can get a 30 day extension using Form 8909. https://www.irs.gov/pub/irs-pdf/f8809.pdf The IRS opened their electronic filing system on January 29th. But please, don’t be in a hurry to file.  In fact, you just might want to put your tax return on extension. I’ll tell you why in a moment. These tax provisions that might affect your tax return, have expired, effective 12/31/2016: Exclusion from Gross Income of Discharge of Qualified Principal Residence Indebtedness. Mortgage Insurance Premiums Treated as Qualified Residence Interest. Above-The-Line Deduction for Qualified Tuition and Related Expenses Empowerment Zone Tax Incentives. $500 Lifetime Credit for Nonbusiness Energy Property 30% Credit for Residential Energy Property Credit for New Qualified Fuel Cell Motor Vehicles Credit for 2-Wheeled Plug-In Electric Vehicles As I told you earlier there is a Tax Extender Bill introduced by Senator Orrin Hatch on December 20, 2017. Nothing has happened to it yet. But I am confident that it will be acted on by spring. But when passed, it will restore everything I’ve just listed, retroactively to January 1, 2017. It’s often better to file for all these tax breaks on an original tax return. Amended returns get more closely scrutinized. So, unless you’re in a real hurry for your money – or don’t fear an audit, put your tax return on extension. Incidentally, you don’t have to wait until April 17th to do that. You can file Form 4868 as early as you like.  https://www.irs.gov/pub/irs-pdf/f4868.pdf  So don’t wait until the last minute. To make comments and tell us about how the Trump Tax plan affects you, please drop into the TaxQuips Forum. And remember, you can find answers to all kinds of questions about the Tax Cuts and Jobs Act and other tax and business issues, free. Where? Where else? At www.TaxMama.com. [Note: If you were subscribed to the e-mailed version of TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!] Please post all Comments and Replies to this post in the TaxQuips Forum.

Today TaxMama® wishes you a Happy New Year, and brings you some basics about how the Trump Tax Plan will affect this filing season.       Dear Friends and Family, Happy 2018! 2017 ended with quite a bit of turmoil, as Congress scrambled to pass a sweeping new tax law. It’s massive, increasing the size of the U.S. Internal Revenue Code by several hundred thousand words. Too big to handle here. Enough to fill a book – which, as it happens, I am in the process of writing. My publisher, Humanix, hopes to release it by the end of next month. So stand by. Meanwhile, the good news is, very little in the Tax Cuts and Jobs Act (TCJA) affects your 2017 tax returns. Here are a few things that do affect 2017: Charitable contributions – you absolutely must have a receipt for all donations of $250 or more to any organization. You must have it in your hands before you file your tax return. In the past, in some instances, if the organization filed a report showing that you paid them, the IRS would let it slide. No longer. So chase after those receipts immediately. Medical expenses – You can reduce your medical expenses by only 7.5% of your adjusted gross income. Why “only?” Because this year, everyone, including seniors, were on track to reduce our medical expenses by 10% of AGI. For a tax return with an AGI of $50,000, that increases your potential medical deductions by $1,250. Aircraft Transportation Fees – When aircraft owners turn their aircraft over to a management company to lease out for them, they no longer have to pay the federal transportation tax when they use their own aircraft. This affects all owners’ flights made after December 22, 2017. (The IRS decided owners had to pay these fees for flights back in 2012.) Naturally, there are a LOT of things that will affect you for 2018. Don’t worry, I will be posting articles about the changes over the next couple of weeks. One major 2018 issue that really needs to change is the loss of the deduction for casualty and theft losses. For instance, if you have a fire in your home, or if someone steals your identity and wipes out your bank accounts, or you fall for a Ponzi scheme – none of that is deductible any longer. This is definitely one of those deductions you want to put pressure on Congress to restore. You can reach your legislatures here – http://taxmama.com/special-reports/call-to-action/ . Incidentally, there are many provisions that have been part of the tax law in the past that expired for 2016 or 2017. Congress normally extends them. They didn’t do that in the TCJA. However, there is a Tax Extender Bill introduced by Senator Orrin Hatch. Nothing’s happening to it yet. But when passed, it will restore several expired tax breaks – including relief from cancellation of debt income on foreclosed homes (expired 12/31/16). In the meantime, if you want to see the effect on your taxes, MarketWatch has a nifty calculator for you to play with. Just scroll down and enter your numbers. (It doesn’t look like a tool, just like part of the article.) https://www.marketwatch.com/story/the-new-trump-tax-calculator-what-do-you-owe-2017-10-26   To make comments and tell us about how the Trump Tax plan affects you, please drop into the TaxQuips Forum. And remember, you can find answers to all kinds of questions about the Tax Cuts and Jobs Act and other tax and business issues, free. Where? Where else? At www.TaxMama.com. [Note: If you were subscribed to the e-mailed version of TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!] Please post all Comments and Replies to this post in the TaxQuips Forum. For those interested in earlier information – drop by here – http://taxmama.invisionzone.com/topic/8527-tax-cuts-and-jobs-act/

  Today TaxMama® hears from Bob with this question. “In order to rent my residence (house) as “unfurnished”, I had to move my furniture and other belongings to a storage facility (like Public Storage). Can I deduct the expense of this storage against my rental income?”                                                                          Dear Friends and Family, Your personal furniture is just that – personal.  It has nothing whatsoever to do with your rental.  About the costs, may I make a suggestion? Look at the value of your belongings. Compare that value to how long they will remain stored – and the related cost. Is it really worthwhile to store ALL those things? Consider selling the furniture and other items that can be replaced.  (Naturally, keep the highly personal things like family pictures and artifacts.) Frankly, I have seen people store things for years, with the storage costs exceeding the value of their furnishings. Meanwhile, the items were deteriorating or becoming worth less, all the while. In fact, my office manager, Lulu, just told me about her friends. They are storing personal belongings in storage units and paying about $500 per month. Just for one year costs $6,000. Imagine just leaving those things lingering there for a few years. 5 years passes quickly. The costs can easily escalate to $30,000 in that time. Can’t you think of a much better use for $30,000? I certainly can! To make comments and tell us about your storage shame, please drop into the TaxQuips Forum. And remember, you can find answers to all kinds of questions about deductions and other tax and business issues, free. Where? Where else? At www.TaxMama.com.  [Note: If you were subscribed to the e-mailed version of TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]  Please post all Comments and Replies to this post in the TaxQuips Forum. Photo by jm3

    Today TaxMama® wants to talk to you about the latest con games affecting people you know – especially seniors.     Dear Friends and Family, I just heard the most frightening story. Unfortunately, it’s true. An elderly woman is trying to figure out how to pay taxes on a major withdrawal of funds from her retirement account. Although this starts out as a tax problem, that’s just the symptom of the problem. The disease goes much deeper. This woman met someone on the Internet who became her really good “friend.” He convinced her that he was a millionaire and after a while, told her a story about someone being hospitalized, and needing funds – that he would pay her back. He was able to “prove” to her that he had a million dollars in a bank account. (By giving her an account number and phone number to call. Uh huh.) She agreed to help him. How? By wiping out her total 401(k) account. Then, since it wasn’t enough, she borrowed money from a friend. How much in total? $250,000! When her daughter started seeing these funds going out, she tried to get her mother to file a police report. But Mom was adamant. “This is a close friend that I’ve known for a long time.”    But the daughter had never heard of this fellow.     (Apparently, that’s what the victims are told to say.) This is absolutely powerful stuff! These overseas con artists must be incredibly smart and smooth to convince someone who was otherwise business savvy enough to generate this much in a retirement account. In fact, they are well-trained. And they gain your confidence – which is why they are called “con” men. We have long known about the Grandparent scam, where they call pretending to be a grandchild in trouble – and they get a few thousand dollars. But this is a new one to me. It’s not new to the FBI. They call it the Romance Scam. $250,000 this woman gave him!!! How lonely does a person have to be to fall for this kind of persuasion? Even after her daughter tried to intervene, this woman trusted some total stranger instead of her daughter! Friends, please, please, stand firm. When your parent or friend is sending money to anyone you don’t know, STOP IT! Even if they get angry with you. And if it’s you! And you are believing someone you’ve never even met, about how much they care about you, and rely on you, and how they will pay you back…Even when they give you ways to “verify” who they are or how much money they have. None of it is true. Get advice from someone you DO know and trust before releasing a dime. And never, never, ever use money from your retirement savings or borrow funds. If you don’t actually have the cash on hand – just say “NO!” Block them, or hang up on them. And, if you’re really smart, you will report them to the authorities. There is no way to find or stop these people if you don’t tell the cops. Sure, it’s embarrassing. Especially if you already gave them some money. And no, you won’t get the money back. But you might prevent someone else from getting scammed. And, by filing a police report, you will be able to write off the theft loss. This nice lady refused to report it…so it’s not theft. She gave away $250,000 willingly. And still owes about $50,000 to a friend – and taxes on $200,000 of income – that SHE never got to spend on herself. To make comments and toss in your own ideas, please drop into the TaxQuips Forum. And remember, you can find answers to all kinds of questions about scams and other tax and business issues, free. Where? Where else? At www.TaxMama.com.   Photo by jaingolfsland