Seven Mid-Year Tax Moves

Seven Mid-Year Tax Moves

After April 15, most of us are happy to ban all thoughts of income tax until next April’s deadline looms. But taking a little time to do a mid-year check-in and tune up can really be worth it – saving you last-minute panic and big bucks. Summer is a good time to make sure you’re on track because, for a lot of people, the pace is a little slower.  If you wait until year-end to check on your tax status, you’ll be right in the middle of holiday season. And summer is your tax advisor’s slow time, too. Here are some points experts recommend you cover in a mid-year checkup.

1. If you have an extension to file your 2016 tax return, do it now.

Why wait until Oct. 15, when the return is due? If you’re expecting a refund, the money should be earning interest for you, not the government. And if by some chance you’ve miscalculated (and underpaid) the tax you owe, the sooner you pay up the better. Penalties and interest start to accrue the day after the April tax deadline, even if you have filed for an extension.  And if the reason you’ve been procrastinating about filing is because you can’t pay what you owe, “don’t let that stop you ….. File the return – you can always ask for an installment plan to pay.”

2. Are you on track with tax payments so far?

If you’ve had, or expect to have, any life-changing events during the year – marriage, divorce, having a child, buying a house, a spouse taking or leaving a job – you may need to adjust the amount of tax that’s being withheld from your paycheck. You don’t want to give Uncle Sam a big interest-free loan, but you don’t want any underpayment penalties, either (although they’re only 3% right now). The IRS has a withholding calculator, so you can get it right. If you need to make any adjustments, file a new W-4 form with your employer.

If you’re self-employed and make estimated tax payments it’s helpful to closely monitor your income and expenses throughout the year, so that you know what you owe and set aside enough money to make the quarterly installments. There’s a “safe harbor” with no underpayment penalties if you pay at least 100% of the tax you owed last year (110% if your adjusted gross income last year was more than $150,000) or 90% of the current year’s tax.

But there may be surprises in store for high-income taxpayers, especially if you’re landing in that category for the first time.  It’s not so hard for a married couple to find themselves hitting the $250,000 threshold. When that happens, new tax issues come up, such as additional Medicare taxes and the phase-out of personal exemptions and itemized deductions, which you’ll need to account for in your estimated taxes and withholding.

3. Eyeball your retirement accounts.

Could you afford to bump up your contributions or even max them out? “Some companies are limiting and cutting back on their 401(k) contributions, but that doesn’t mean YOU should. Check on your investments and asset allocation.

4. Are you close to the itemize/don’t-itemize point for deductions?

If so, you may want to use a strategy called bunching, in which you push discretionary write-offs into a year when you’re going to itemize, rather than one when you take the standard deduction. Think of scenarios / examples such as the following: At mid-year, it looks like you’re almost at the point where you could itemize. You usually give $1,000 to a particular charity each year. You’re close to retirement, so next year you won’t need the deductions to offset as much income. So this year you double up on your contribution to take advantage of itemization when you need it.

5. Get organized – there’s an app for that.

Who hasn’t vowed on April 16, “Next year I’m going to stay on top of my tax receipts”.  If you still haven’t acted on that vow, avoid another marathon session of receipt logging next April by enlisting the help of an app. For instance, Shoeboxed Receipt and Mileage Tracker lets you scan receipts (valid for IRS documentation) with your iPhone, iPad or Android mobile device, making it easy to track your expenses and deductions as you go along. The DIY program is free, or you can choose a paid plan (starting at $9.95/month after a free trial) that lets you mail in your receipts. Keeping up-to-date with expenses and maximizing your tax deductions is particularly important if you have business travel and entertainment expenses, or need to track business use of your personal car.

6. Are you within tax limits for renting out your vacation home?

If you rent out your vacation home when you’re not using it, you can generally deduct expenses such as mortgage interest, real estate taxes, casualty losses, maintenance, utilities, insurance and depreciation against your rental income. But you won’t be able to take a loss if you make personal use of the home for more than 14 days a year, or 10% of the days it is rented to others at a fair rental price (whichever is greater). If you spend the day at your home making repairs, it’s not considered personal use, even if your family is there for other reasons. But if you rent the home to a close family member, even at market rate, it is.

7. Could you be taking advantage of the 25D energy credit?

The 25C energy credit expired at the end of 2013, but the 25D credit has been extended to last through Dec. 31, 2021. It covers 30% of the cost of solar water heaters, solar panels that generate electricity directly for your home, small wind turbines, “qualified fuel cell property” and geothermal heat pumps. It can be used for a primary residence or a vacation home that you own.

The Bottom Line

Take advantage of summer to lock in tax breaks and catch up with any payments you owe. It’s the slow period in the world of tax advising, and, therefore, a good time to plan ahead before the year speeds up in December.

 

New Arizona Law Provides Minimum Wage Increases And Paid Sick Time

On November 8, 2016, Arizona voters enacted the Fair Wages and Healthy Families Act (“FWHFA” or “the Act”), which amends the Arizona Minimum Wage Act (“AMWA”) to provide for incremental increases to the minimum wage for Arizona workers beginning on January 1, 2017. The Act also requires that, beginning July 1, 2017, Arizona workers shall accrue, and have the legal right to use, a minimum amount of “Paid Sick Time” benefits each year.

1. Applicability

The new minimum wage increase applies to all Arizona employers, except small businesses, in keeping with the present coverage provisions of the AMWA.  Small businesses are defined as businesses that generate less than $500,000 in gross sales and that are not involved in interstate commerce.  As a result, the vast majority of Arizona’s businesses will be covered, exempting only the very smallest and most insulated of companies from this mandatory wage increase.

On the other hand, the FWHFA’s provisions mandating Paid Sick Time for employees apply to all employers, regardless of size, with exclusions only for the State of Arizona and United States federal government.

2. Minimum Wage Increase

For those Arizona workers who are not otherwise exempt from the state’s minimum wage requirements, the FWHFA implements incremental increases to the minimum wage as follows:

  • $10.00 per hour on and after January 1, 2017 ($7.00 per hour plus tips for tipped employees);
  • $10.50 per hour on or after January 1, 2018  ($7.50 per hour plus tips for tipped employees);
  • $11.00 per hour on or after January 1, 2019 ($8.00 per hour plus tips for tipped employees);
  • $12.00 per hour on or after January 1, 2020 ($9.00 per hour plus tips for tipped employees); and,
  • Continued incremental increased based on the cost of living on January 1st of each following year.
3. Mandatory Paid Sick Time (‘PST’)
  1. What Are the Act’s Requirements for Employers

Any employer that does not currently have a Paid Sick Time (“PST”) policy or practice that meets or exceeds the requirements of the FWHFA will need to revise their policy, or create a policy, to comply on or before the PST effective date of July 1, 2017.  Employers with existing policies that meet the statutory minima are not required to provide additional PST.  Nevertheless, employers should consider policy revisions that provide employees with information about their statutory rights and duties regarding the use of PST, such as: requesting PST, PST borrowing, treatment of PST upon separation of employment, if these details are not currently laid out in writing.  The practical implication of the new statute is that most employers should plan on updating their policies, and perhaps their leave practices as well, on or before July 1, 2017.

The Act also requires that employers include on employee pay statements (or in a notice provided with employee paychecks) the amount of an employee’s accrued PST, the amount of PST used by the employee, and the amount of pay an employee has received as earned PST.  Regardless of whether an employer currently maintains a compliant policy or will be implementing a new policy, an employer must post notice of employees’ PST rights on or before July 1, 2017, as described more fully below.

  1. Key Provisions

               a.  Paid Sick Time Defined

Under the FWHFA, all employees of Arizona entities covered by the Act (as described above) will now be lawfully entitled to accrue and use PST as provided by the statute.  The Act defines PST as “time that is compensated at the same hourly rate and with the same benefits, including health care benefits, as the employee normally earns during hours worked.”  In other words, employers must pay employees for their use of PST no differently than they would pay an employee for time actually worked.

               b.  Statutorily Mandated Minimum Accrual of Paid Sick Time

PST accrues at a rate of no less than one hour for every 30 hours actually worked.  For employees who are exempt from overtime and minimum wage requirements of the Fair Labor Standards Act (29 U.S.C. 213(A)(1)), the statute assumes for purposes of PST accrual that the employee works 40 hours per week.  If an exempt employee’s normal workweek is less than 40 hours, his or her PST accrues based on the actual number of hours worked in that normal workweek.

The statute gives latitude to an employer to designate a calendar year, fiscal year, or any another consecutive 12-month period as a “year” for purposes of its PST policy.  The statute is silent on how a “year” is defined by default if the employer fails to specify how it will define a “year” under its policy.

               c.  Accrual Caps

If an employer has 15 or more employees, its employees can accrue a maximum of 40 hours of PST per year, unless the employer selects a higher limit.  If an employer has fewer than 15 employees, the maximum an employee can accrue is 24 hours of PST per year, unless the employer selects a higher limit.

Employers should proceed with caution as to leave accrued under former leave policies and how such leave is treated in relation to any modifications to that policy.  Under the most conservative approach, employees should generally be permitted to retain any accrued PST in their banks as of July 1, 2017.  The statute is silent on whether an employee’s already-accrued PST as of July 1, 2017 may be counted toward his or her statutory cap of 40 (or 24, depending on the size of the employer) hours per year, though, given the Act’s purpose, it may be that such time could be counted toward the cap.  Employers should continue to monitor developments as forthcoming regulations may address the transition year issue.

               d.  Use of PST

An employee may use earned PST as it is accrued.  An employer is required to permit employees to use their accrued PST in either hourly increments or “the smallest increment that the employer’s payroll system uses to account for absences or use of other time[,]” whichever is smaller.  The statute provides for the use of PST in the event of an employee’s own illness or injury, a family member’s illness or injury, and in other situations.  Generally, these categories can be summarized as follows:

  • An employee’s own mental or physical illness, injury or health condition, or the employee’s need to seek medical diagnosis, treatment, or preventative care;
  • A family member’s mental or physical illness, injury or health condition, or the family member’s need to seek medical diagnosis, treatment, or preventative care;
  • Closure of the employee’s workplace due to a public health emergency, or an employee’s need to care for a child whose school or place of care has been closed due to a public health emergency;
  • When an employee or employee’s family member’s “presence in the community may jeopardize the health of others” due to exposure or suspected exposure to a communicable disease; and
  • Absences due to domestic violence, sexual violence, abuse, or stalking of an employee or employee’s family member, as these terms are defined in the statute, if the leave is to address the psychological, physical, or legal effects on the employee or the employee’s family member.

The Act defines “family member” broadly as a spouse or legally registered domestic partner, a grandparent, grandchild, sibling, or person who stood in loco parentis of an employee or his or her spouse or domestic partner, a biological child, adopted child, foster child, stepchild, of the employee or the employee’s spouse or domestic partner, regardless of age, a child to whom the employee or employee’s spouse or domestic partner stands or stood in loco parentis, regardless of age, and any other individual related by blood or affinity whose close relationship is the equivalent of a family relationship.

Employers should note that, in some ways, the Act provides for broader use of PST than would be permitted under the FMLA (such as in domestic violence situations), but in others, the Act provides narrower coverage than the FMLA.  For example, a conspicuous absence from the Act’s approved list of PST uses is for the birth of a child or care of a newly adopted child.  However, because the Act expressly states that it shall not be construed to preempt or conflict with federal statutes, there is no reason yet to believe that the Act would interfere with an employer’s right under the FMLA to require that an employee’s paid time off benefits, of which PST would be a part, run concurrently with his or her use of FMLA leave.

While all employees must begin to accrue PST under the Act on July 1, 2017 or their date of hire, whichever is later, an employer may require that employees hired after July 1, 2017 wait 90 days from their date of hire before they are permitted to use accrued PST.

               e.  Requesting PST

An employee’s request for PST “may be made orally, in writing, by electronic means or by any other means acceptable to the employer.”  If possible, an employee’s leave request must include the expected duration of the leave.  If an employee’s need to use leave is “foreseeable,” employees must make a “good faith effort” to give their employers advance notice and schedule their absences in a way that lessens the impact on the employers’ businesses, much like an employee’s obligation when using FMLA leave.  For “unforeseeable leave,” employers may require that employees give notice of the leave if the notice requirements are clearly set forth in writing and that written description is disseminated to the employee.  The statute does not appear to place restrictions on the procedures an employer may require for notice of unforeseeable leave, but an employer should be hesitant to place an unreasonably onerous burden on employees to give notice of unforeseeable leave.

Note that the statute does not define the terms “foreseeable,” “unforeseeable,” and “good faith effort,” so employers should continue to monitor further developments.  Generally, a common-sense approach in interpreting these terms should be applied.  Employers should refrain from ascribing meaning to these terms that could be viewed as unduly punitive to employees.

               f.  Requesting Verification of The Reason for PST Use

The statute permits an employer to request “reasonable documentation” that earned PST is used for a proper purpose only where an employer seeks to use three or more consecutive work days of PST. “Reasonable documentation” is defined as “documentation signed by a health care professional indicating that the earned paid sick time is necessary.”  Where three or more consecutive PST days are used in cases of domestic violence, sexual violence, abuse, or stalking, the statute provides alternative forms of reasonable documentation that may be requested, such as a police report, a protective order, or a signed statement from the employee or other individual (a list of which appears in the statute) affirming that the employee was a victim of such acts.

The inference to be drawn from this language is that an employer may not ask for verification of the reason for an employee’s use of PST if the employee uses only one or two consecutive days.  Employers who currently follow a policy of requesting a doctor’s note for any single-day absences should pay close attention to this change and modify its practices accordingly.

               g.  Carry-Over Limits

An employee must be permitted to carry over unused, accrued PST to the next year, but cannot use this carried-over amount to increase his or her maximum use caps for that year.  By way of example, an employee may carry over ten hours of unused accrued PST to a following year, accrue an additional 40 hours, but would still not be permitted to use over a total of 40 (or 24, depending on the size of the employer) hours of PST per year.  Employers should continue to monitor whether limitations on carryover are discussed in any forthcoming regulations.

               h.  End-Of-Year Payout Option

While the Act does give an employer the option to pay out unused, accrued PST to employees at the end of the year, this option is not without its drawbacks.  The Act requires that, if an employer exercises its pay-out option, it must then “provide the employee with an amount of earned paid sick time that meets or exceeds the requirements of [the Act] that is available for the employee’s immediate use at the beginning of the subsequent year.”  This perplexing requirement appears to diminish an employer’s incentive to exercise this option by accelerating the employee’s PST accrual for the subsequent year and requiring that the employer provide the employee with a “full” bank of accrued hours for the employee’s immediate use at the beginning of that year, as opposed to requiring that the employee gradually accrue these hours as usual.

               i. PST Borrowing

The statute permits an employer, in its discretion, to allow an employee to borrow PST time from a subsequent year before it is earned; however, there is no provision in the statute speaking to an employer’s ability to recover borrowed PST if the employee in question separates from employment before he or she actually accrues the borrowed PST.  While we are hopeful that this grey area will be addressed in forthcoming regulations, employers would be prudent to ensure they are complying with A.R.S. § 23-352(2) in the event they decide to recoup such borrowed PST from employees’ wages, and understand that, in the absence of legislative guidance on this issue, doing so is not without risk.

               j.  Treatment of PST Upon Conclusion of Employment

Employers are not required to pay unused, accrued PST to employees whose employment terminates for any reason, including involuntary termination, voluntary resignation, layoff, or death.  However, if an employer rehires a separated employee within nine (9) months, all PST that the employee had accrued at the time of his or her separation must be reinstated.

               k.  Notice Requirements

The Act provides that in addition to the information that must now be included with an employee’s pay statement (see Section 3(a) above), employers must give employees written notice informing them, at a minimum, of the following:

  • Employees’ entitlement to earn PST and the rate at which employees will accrue PST;
  • The terms of use of PST as provided by the Act;
  • That retaliation against employees requesting or using PST is prohibited;
  • Employees’ right to file a complaint if PST use is unlawfully denied or retaliated against; and
  • The contact information for the Commission where questions about rights and responsibilities under the Act can be answered.

Under the Act, such notices must be provided by the statute’s effective date of July 1, 2017, or the date of hire, whichever is later, and must be in English, Spanish, and “any language that is deemed appropriate by the commission.”  Civil penalties apply for failure to post such a notice.  Sample notices in each language will be provided by forthcoming regulation prior to the Act’s effective date.  It also appears that employers must also post notices, as will be specified, notifying employees of their rights under the Act.

               l.  Anti-Discrimination and Retaliation

The Act provides that it is “unlawful for an employer or any other person to interfere with, restrain, or deny the exercise of, or the attempt to exercise, any right protected” by the Act.  In sum, much like the ADA and FMLA, the FWHFA carries with it provisions against discrimination and retaliation for requesting or using PST, or any other exercise of rights provided by the Act.  Also like the FMLA, the Act prohibits employers from counting the use of PST “as an absence that may lead to or result in discipline, discharge, demotion, suspension, or any other adverse action.”  There is a presumption that any adverse employment action taken within 90 days of an employee’s exercise of rights under the Act is retaliatory, unless there is “clear and convincing” evidence that the action was taken for other lawful reasons.  This is a stark contrast to many “no fault” attendance policies that track all absences (whether paid or unpaid) and convert them into adverse points unless the absences are ADA or FMLA related.  Under this new law, any PST day counts as a protected absence and cannot be used or counted toward disciplinary action.

The Act applies the AMWA’s preexisting enforcement mechanisms to the new PST provisions.  Among other things, those enforcement mechanisms permit employees, as well as State agencies, to file lawsuits to assert their PST rights.  In addition to the prospect of defending civil lawsuits, employers may face investigations by the State of Arizona or its political subdivisions, including inspections and monitoring, and civil penalties, for violations of the Act.

Recordkeeping Requirements.  The Act requires employers to add to their existing Arizona Minimum Wage Act recordkeeping obligations details of an employee’s PST use and accrual for four (4) years.  There is a rebuttable presumption that an employer who fails to maintain such records did not pay statutorily earned PST.

New Due Date, Filing Extensions, & Penalties for Form W-2 & 1099 Misc

New Due Date, Filing Extensions, & Penalties for Form W-2

According to the 2016 General Instructions for Forms W-2 and W-3 published by the IRS:

  • New Due Date for Forms   W-2 — January 31, 2017 is now the due date for filing 2016 Forms W-2 and W-3 with the SSA, whether filing using paper forms or electronically. (Forms W-2AS, W-2CM, W-2GU, W-2VI, and W-3SS are also included.)
  • Extensions Not Automatic — Extensions of time to file Form W-2 with the SSA are no longer automatic. For filings due on or after January 1, 2017, one 30-day extension may be requested. However, the IRS will only grant the extension in extraordinary circumstances or catastrophe.
  • Higher Penalty Amounts — Higher penalty amounts apply to returns required to be filed after December 31, 2015 and are indexed for inflation.
New Due Date for Form 1099-MISC Box 7 Use

According to the 2016 General Instructions for Certain Information Returns:

  • New Due Date for Forms 1099-MISC Using Box 7 — January 31, 2017 is now the due date for filing Forms 1099-MISC when reporting nonemployee compensation payments in box 7. Otherwise, file on paper by February 28, 2017, or file electronically by March 31, 2017. (The due dates for furnishing payee statements remain the same.)
  • Electronic Filers must use the FIRE System. The IRS has included a “First Time Filers Quick Reference Guide” in Publication 1220 (page 2).
  • Extensions — A 30-day extension must be requested by the due date of the return. Under certain hardship conditions, an additional 30-day extension can be requested. For more information, go to https://www.irs.gov/pub/irs-pdf/i1099gi.pdf (page 6).

More detailed information is available at https://www.irs.gov/pub/irs-pdf/p1220.pdf

New Overtime Rules -The Small Business Owner’s Guide to Obama’s Overtime Rules

If you’ve opened the internet or a newspaper in the past week, you’ve definitely heard about the Obama Administration’s newly enacted changes to overtime rules.

Politics aside, you probably have some concerns about these changes since there’s a good chance the Department of Labor’s ruling will directly impact you and your business.

Before we get into the changes you’ll need to make in order to comply with the new rules, let’s first review precisely what those changes are (remember, they take effect Dec. 1, 2016).

Proposed changes to overtime rules

The current rules, which expire Nov. 30, dictate that salaried workers making more than $455 a week, or $23,660 a year, do not qualify for required overtime pay. The new changes more than double that threshold to $913 a week, or $47,476 a year.

So how about that awesome employee you’ve been paying $40,000 who definitely pulls more than 40 hours a week? They will soon be entitled to overtime compensation at time-and-a-half for every hour after 40 hours a week. (The overtime compensation rules do provide exceptions for employees who perform duties that are mainly executive, administrative, or professional. Those employees would not be entitled to overtime and could remain exempt (i.e. salaried as opposed to hourly).

To be certain you know just how to classify any role that could be affected by the new rules, you’ll have to review their job description and subject it to the “duties test,” http://www.flsa.com/coverage.html which describes the specific duties that qualify employees for exemption from overtime pay.

In case you were wondering about a business making less than $500,000 of annual revenue, it turns out that there is no exception for small businesses, even though the Department of Labor FAQ fact sheet does say that “the proposed rule applies to employees of enterprises that have an annual gross volume of sales made or business done of $500,000 or more, and certain other businesses.”

So if your business makes less than $500,000 of annual revenue, is it exempt? Probably not! Under the Fair Labor Standards Act (FLSA), individual employees may still be “covered in any workweek when they are individually engaged in interstate commerce, the production of goods for interstate commerce, or an activity that is closely related and directly essential to the production of such goods.”

Well, that cleared it up, right?? Leave it to federal lawmakers to really make sure you’re crystal clear on the new regulations that affect your business. LOL!! Now all cynicism aside, this is a serious topic that you might want to sort out with your professional expert.

What really determines if an employee falls within one of the white collar exemptions?

 To qualify for exemption, a white collar employee generally must:

  1. be salaried, meaning that they are paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (the “salary basis test”);
  2. be paid more than a specified weekly salary level, which is $913 per week (the equivalent of $47,476 annually for a full-year worker) under this Final Rule (the “salary level test”); and
  3. primarily perform executive, administrative, or professional duties, as defined in the Department’s regulations (the “duties test”).

Certain employees are not subject to either the salary basis or salary level tests (for example, doctors, teachers, and lawyers). The Department’s regulations also provide an exemption for certain highly compensated employees (“HCE”) who earn above a higher total annual compensation level ($134,004 under this Final Rule) and satisfy a minimal duties test. 

In the end, these proposed changes are a big deal with many implications, and the confusion you may feel around them isn’t your imagination. As The L.A. Times reports:

According to the Obama administration, the new employers could cost employers between $240 million and $255 million per year in direct costs.

Business groups estimate the costs would be much higher. A recent study commissioned by the National Retail Federation estimated employers could shell out as much as $874 million to update payroll systems, convert salaried employees to hourly, and track their hours if similar regulations were imposed.

There is a little time left until December 1, 2016, so you should start planning now!

 

The Internal Revenue Service today encouraged taxpayers to consider a mid-year tax withholding checkup.

IRS Urges Taxpayers to Check Their Withholding; New Factors Increase Importance of Mid-Year Check Up

WASHINGTON — The Internal Revenue Service today encouraged taxpayers to consider a mid-year tax withholding checkup following several new factors that could affect their refunds in 2017.  Taking a closer look at the taxes being withheld can help ensure the right amount is withheld, either for tax refund purposes or to avoid an unexpected tax bill next year.

The withholding review takes on even more importance this year given a new tax law change that requires the IRS to hold refunds a few weeks for early filers in 2017 claiming the Earned Income Tax Credit and the Additional Child Tax Credit. In addition, the IRS and state tax administrators continue to strengthen identity theft and refund fraud protections, which means some tax returns could again face additional review time next year to protect against fraud.

“With these changes, it makes good sense on many different levels to check on your withholding and plan ahead for next tax season,” said IRS Commissioner John Koskinen. “It’s a personal choice if you want to have extra money withheld to get a bigger tax refund, but you have options available if you prefer to have a smaller refund next year and more take-home money now.”

So far in 2016, the IRS has issued more than 102 million tax refunds out of 140 million total individual returns processed, with the average refund well over $2,700. Historically, the refund figure has increased over time in size.

By adjusting the Form W-4, Employee’s Withholding Allowance Certificate, taxpayers can ensure that the right amount is taken out of their pay throughout the year so that they don’t pay too much tax and have to wait until they file their tax return to get any refund. Employers use the form to figure the amount of federal income tax to be withheld from pay.

Some Refunds Delayed in 2017

When considering refund issues, the IRS wants taxpayers to be aware several factors could affect the timing of their tax refunds next year.

A major change will affect some early tax filers claiming two key credits who won’t see their refunds until after Feb. 15.

Beginning in 2017, a new law requires the IRS to hold refunds on tax returns claiming the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit (ACTC) until mid-February. Under the change required by Congress in the Protecting Americans from Tax Hikes (PATH) Act, the IRS must hold the entire refund — even the portion not associated with the EITC and ACTC — until at least Feb. 15. This change helps ensure that taxpayers get the refund they are owed by giving the agency more time to help detect and prevent fraud.

As in past years, the IRS will begin accepting and processing tax returns once the filing season begins. All taxpayers should file as usual, and tax return preparers should also submit returns as they normally do. Even though the IRS cannot issue refunds for some early filers until at least Feb. 15, the IRS reminds taxpayers that most refunds will still be issued within the normal timeframe: 21 days or less, after being accepted for processing by the IRS.

”This is an important change to be aware of for some taxpayers used to getting an early refund,” Koskinen said. “We’ll be focusing on awareness of this change throughout the fall, but it’s important for taxpayers who might be affected by this to be aware of the change for their planning purposes. Although we still expect to issue most refunds within 21 days, we don’t want people caught by surprise if they get their refund a few weeks later than previous years.”

Stronger Security Filters and Tax Refund Processing

As the IRS steps up its efforts to combat identity theft and tax refund fraud through its many processing filters, legitimate refund returns sometimes get delayed. While the IRS is working diligently to stop fraudulent refunds from being issued, it is also focused on releasing legitimate refunds as quickly as possible.

The IRS, state tax agencies and the private sector tax industry continue to work together to fight fraud through their unprecedented Security Summit partnership. Additional safeguards will be set in place for the upcoming 2017 filing season.

“These increased security screenings are invisible to most taxpayers,” Koskinen said. “But we want people to be aware we are taking additional steps to protect taxpayers from identity theft, and that sometimes means the real taxpayers face a slight delay in their refunds. As we continue improving our processes and working with the states and the tax industry, we will stop more fraud while also fine-tuning our tools to reduce the number of innocent taxpayers who might see a refund delay. ”

The agency encourages taxpayers to check their tax withholding now. Whether they prefer more earned money during the year or a large refund, checking withholding can ensure people don’t receive an unexpected tax bill next year. Making these checks in the late summer or early fall can give taxpayers enough time to adjust their withholdings before the tax year ends in December.

Changes in Circumstances and Advance Premium Tax Credits

There are also some important reminders for taxpayers who receive advance payments of the Premium Tax Credit under the Affordable Care Act.

People who have advance payments of the premium tax credit made to their insurance company on their behalf should report life changes to their Marketplace. Changes in circumstances that should be reported include moving to a new address and changes to income or family size. Reporting these changes will help individuals avoid large differences between the advance credit payments and the amount of the premium tax credit allowed on their tax return, which may affect their refund or balance due.

Making a Withholding Adjustment

In many cases, a new Form W-4, Employee’s Withholding Allowance Certificate, is all that is needed to make an adjustment. Taxpayers submit it to their employer, and the employer uses the form to figure the amount of federal income tax to be withheld from pay

The IRS offers several online resources to help taxpayers bring taxes paid closer to what is owed. They are available anytime on IRS.gov. They include:

Self-employed taxpayers, including those involved in the sharing economy, can use the Form 1040-ES worksheet to correctly figure their estimated tax payments. If they also work for an employer, they can often forgo making these quarterly payments by instead having more tax taken out of their pay.

If you have any question regarding your withholding and/or need some assistance with the W-4, it might be a good idea to consider discussing your individual situation with your tax professional.

New Tax Due Dates & Extension Periods

New Tax Due Dates & Extension Periods for Most Entities for Tax Year 2016

Many bills that Congress passes contain provisions that affect items that aren’t related to the main bill. The “Surface Transportation and Veteran’s Health Care Choice Improvement Act of 2015” is one such bill. Primarily a stopgap extension of the Highway Trust Fund, this bill also includes tax provisions that impact the due dates of a number of returns and other required filings.

The due date changes with the most impact will likely be those changes for partnership tax returns (Form 1065) and C Corporation tax returns. Essentially the due dates have swapped. The significant reorganization of due dates is intended to assist individuals involved in pass-through entities in receiving information required to prepare their individual returns in a more timely fashion.

For tax returns reporting 2016 information that are due in 2017, the following due date changes will apply.  These changes are effective for tax years beginning after December 31, 2015 for calendar year filers (tax year 2016 and beyond):

Form 2016 Filing Due Date(Tax   Year 2015) 2017 Filing Due Date(Tax Year 2016)
Form 1065 – Partnerships April 15th March 15th
Form 1065 Extension September 15th September 15th
C Corporations March 15th April 15th
S Corporations March 15th March 15th
C Corporations & S Corporation Extensions September 15th September 15th
Form 1040 Individual April 15th April 15th
Form 1120 C Corporation w/June 30 Fiscal Year September 15th September 15th
C Corporation Extension w/June 30 Fiscal Year March 15th April 15th
C CorporationFiscal   Year End (other than Dec. 31 or June 30) 15th day of 3rd month after year-end 15th day of 4th month after year-end
C Corporation Extension Fiscal Year End (other than Dec. 31 or June 30) 15th day of 9th monthafter year-end 15th day of 10th month after year-end
Form 1040 Extension October 15th October 15th
Form 1041 Trust & Estate April 15th April 15th
Form 1041 Extension September 15th September 30th
Form 5500 series –   Employee Benefit Plan July15th July 15th
Form 5500 series – Employee Benefit Plan Extension October 15th October 15th
Information Returns (i.e., W-2 and 1099s) To   IRS/SSA — Feb. 28 andMarch 31 if filed electronically Forms   W-2 and certain 1099-MISC due to IRS/SSA Jan. 31. All other Forms 1099 due   Feb. 28; March 31 if filed electronically

For fiscal year filers:

  • Partnership and S Corporation tax returns will be due the 15th day of the third month after the end of their tax year. The filing date for S Corporations is unchanged.
  • C Corporation tax returns will be due the 15th day of the fourth month after the end of the tax year.  A special rule to defer the due date change for C Corporations with fiscal years that end on June 30 defers the change until December 31, 2025 – a full ten years.

Other changes include:

  • Filers of U.S. Return of Partnership Income (Form 1065) will have a longer extension period, a maximum of six months, rather than the current five month extension, leaving the current (2015 and prior years) extended due date in place (September 15th for calendar year taxpayers.)
  • U.S. Income Tax Return for Estates and Trusts (Form 1041) will have a maximum extension of five and a half months, two weeks longer than the current (2015 and prior years) five month extension.
  • Annual Return/Report of Employee Benefit Plans will have a maximum automatic extension of three and a half months.
  • The Foreign Bank and Financial Accounts Report (FinCEN Report 114, FBAR) will be due on April 15th and permitted to extend for six months, thus aligning the FBAR reporting with the individual tax return reporting. Additionally, the IRS may waive the penalty for failure to file a timely extension request for any taxpayer required to file for the first time.

If you have any questions about these new due dates and/or the impact on your tax filings, please contact Alice, our qualified tax professional at (928)680-1300

 

2016 Standard Mileage Rates for Business, Medical and Moving Announced

2016 Standard Mileage Rates for Business, Medical and Moving Announced 

WASHINGTON — The Internal Revenue Service today issued the 2016 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2016, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

  • 54 cents per mile for business miles driven, down from 57.5 cents for 2015
  • 19 cents per mile driven for medical or moving purposes, down from 23 cents for 2015
  • 14 cents per mile driven in service of charitable organizations

The business mileage rate decreased 3.5 cents per mile and the medical, and moving expense rates decrease 4 cents per mile from the 2015 rates. The charitable rate is based on statute.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.

These and other requirements for a taxpayer to use a standard mileage rate to calculate the amount of a deductible business, moving, medical or charitable expense are in Rev. Proc. 2010-51Notice 2016-01 contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan

Don’t Fall for New Tax Scam Tricks by IRS Posers

copied and posted directly from the IRS Summertime Tax Tip 2015


Don’t Fall for New Tax Scam Tricks by IRS Posers

Though the tax season is over, tax scammers work year-round. The IRS advises you to stay alert to protect yourself against new ways criminals pose as the IRS to trick you out of your money or personal information. These scams first tried to sting older Americans, newly arrived immigrants and those who speak English as a second language. The crooks have expanded their net, and now try to swindle virtually anyone. Here are several tips from the IRS to help you avoid being a victim of these scams:

  • Scams use scare tactics.  These aggressive and sophisticated scams try to scare people into making a false tax payment that ends up with the criminal. Many phone scams use threats to try to intimidate you so you will pay them your money. They often threaten arrest or deportation, or that they will revoke your license if you don’t pay. They may also leave “urgent” callback requests, sometimes through “robo-calls,” via phone or email. The emails will often contain a fake IRS document with a phone number or an email address for you to reply.
  • Scams use caller ID spoofing.  Scammers often alter caller ID to make it look like the IRS or another agency is calling. The callers use IRS titles and fake badge numbers to appear legit. They may use online resources to get your name, address and other details about your life to make the call sound official.
  • Scams use phishing email and regular mail.  Scammers copy official IRS letterhead to use in email or regular mail they send to victims. In another new variation, schemers provide an actual IRS address where they tell the victim to mail a receipt for the payment they make. All in an attempt to make the scheme look official.
  • Scams cost victims over $20 million.  The Treasury Inspector General for Tax Administration, or TIGTA, has received reports of about 600,000 contacts since October 2013. TIGTA is also aware of nearly 4,000 victims who have collectively reported over $20 million in financial losses as a result of tax scams.

The real IRS will not:

  • Call you to demand immediate payment. The IRS will not call you if you owe taxes without first sending you a bill in the mail.
  • Demand that you pay taxes and not allow you to question or appeal the amount that you owe.
  • Require that you pay your taxes a certain way. For instance, require that you pay with a prepaid debit card.
  • Ask for credit or debit card numbers over the phone.
  • Threaten to bring in police or other agencies to arrest you for not paying.

If you don’t owe taxes or have no reason to think that you do:

  • Do not provide any information to the caller. Hang up immediately.
  • Contact the Treasury Inspector General for Tax Administration. Use TIGTA’s “IRS Impersonation Scam Reporting” web page to report the incident.
  • You should also report it to the Federal Trade Commission. Use the “FTC      Complaint Assistant” on FTC.gov. Please add “IRS Telephone Scam” in the notes.

If you know you owe, or think you may owe taxes:

  • Call the IRS at 800-829-1040. IRS workers can help you if you do owe taxes.

Stay alert to scams that use the IRS as a lure. For more, visit “Tax Scams and Consumer Alerts” on IRS.gov.

IRS YouTube Videos:

IRS Podcasts:

There is still time – Last-Minute Tax Tips

Last-Minute Tax Tips

It’s that time of year again–tax filing season. And while many taxpayers like to get a head start on filing their returns, there are those of us who always find ourselves scrambling at the last minute to get our tax returns filed on time. Fortunately, even for us procrastinators, there is still time to take advantage of some last-minute tax tips.

If you need more time, get an extension

Failing to file your federal tax return on time could result in a failure-to-file penalty. If you don’t think you’ll be able to file your tax return on time, you can file for and obtain an automatic six-month extension by using IRS Form 4868. You must file for an extension by the original due date for your return. Individuals whose due date is April 15 would then have until October 15 to file their returns.

In most cases, this six-month extension is an extension to file your tax return and not an extension to pay any federal income tax that is due. You should estimate and pay any federal income tax that is due by the original due date of the return without regard to the extension, since any taxes that are not paid by the regular due date will be subject to interest and possibly penalties.

Try to lower your tax bill

While most tax-saving strategies require action prior to the end of the tax year, it’s still not too late to try to lower your tax bill by making deductible contributions to a traditional IRA and/or pre-tax contributions to an existing qualified Health Savings Account (HSA). If you’re eligible, you can make contributions to these tax-saving vehicles at any time before your tax return becomes due, not including extensions (for most individuals, by April 15 of the year following the year for which contributions are being made).

For tax year 2014, you may be eligible to contribute up to $5,500 to a traditional IRA as long as you’re under age 70½ and have earned income. In addition, if you’re age 50 or older, you may be able to make an extra “catch-up” contribution of $1,000. You can make deductible contributions to a traditional IRA if neither you nor your spouse is covered by an employer retirement plan; however, if one of you is covered by an employer plan, eligibility to deduct contributions phases out at higher modified adjusted gross income limits. For existing qualified HSAs, you can contribute up to $3,300 for individual coverage or $6,550 for family coverage.

Use your tax refund wisely

It’s easy to get excited at tax time when you find out you’ll be getting a refund from the IRS–especially if it’s a large sum of money. But instead of purchasing that 60-inch LCD television you’ve had your eye on, you may want to use your tax refund in a more practical way. Consider the following options:

  • Deposit your refund into a tax-savings vehicle (if you’re eligible), such as a retirement or education savings plan–the IRS even allows direct deposit of refunds into certain types of accounts, such as IRAs and Coverdell education savings accounts.
  • Use your refund to pay down any existing debt you may have, especially if it is in the form of credit-card balances that carry high interest rates.
  • Put your refund toward increasing your cash reserve–it’s a good idea to always have at least three to six months worth of living expenses available in case of an emergency.

Finally, a tax refund is essentially an interest-free loan from you to the IRS. If you find that you always end up receiving a large income tax refund, it may be time to adjust your withholding.

Beware of possible tax scams

Though tax scams can occur throughout the year, they are especially prevalent during tax season. Some of the more common scams include:

  • Identity thieves who use your identity to fraudulently file a tax return and claim a refund.
  • Callers who claim they’re from the IRS insisting that you owe money to the IRS or that you’re entitled to a large refund.
  • Unsolicited e-mails or fake websites, often referred to as “phishing,” that pose as legitimate IRS sites to convince you to disclose personal or financial information.
  • Scam artists who pose as tax preparers and promise unreasonably large or inflated refunds in order to commit refund fraud or identity theft.

The IRS will never call you about taxes owed without sending you a bill in the mail. If you think you may owe taxes, contact the IRS directly at www.irs.gov. In addition, the IRS will never initiate contact with you by e-mail to request personal or financial information. If you believe that you’ve been the victim of a tax scam, or would like to report a tax scammer, contact the Treasury Inspector General for Tax Administration at www.treasury.gov/tigta.

IRS Releases Draft of Form 8960 Net Investment Income Tax, the 3.8% Medicare Tax for 2013

Posted on August 13 2013 by Alice

On August 7, 2013 the IRS released the first draft of thehttp://www.irs.gov/pub/irs-dft/f8960–dft.pdf. Form 8960 will report the new 3.8% Medicare tax on net investment income and will be filed with the 2013 Form 1040 U.S. Individual Income Tax Return and 2013 Form 1041 U.S. Income Tax Return for Estates and Trusts.

Beginning this year, individuals, estates and trusts whose modified AGI (adjusted gross income) exceed the threshold amount will be subject to the new 3.8% Net Investment Income Tax (NIIT). The threshold amounts are:

Married Filing Joint – $250,000
Married Filing Separate – $125,000
Single/Head of Household – $200,000
Estates/Trusts – $11,650

Net investment income for purposes of the NIIT calculation includes dividends, interest, rent, royalties, commercial annuities, net capital gains on assets that produce net investment income and passive trade or business income as well as income from financial instrument trading.  Net investment income is the income after deductions for expenses that are “properly allocable” to the income.

Investment income does not include wages, active business income, pension/IRA distributions, or tax-exempt income.

The IRS is accepting comments on Form 8960 until September 27th.  The instructions for Form 8960 will be released later this year