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IRS Raises Its Interest Rates on Unpaid Overpaid Taxes

The IRS has announced the interest rates it charges on unpaid, overpaid and underpaid income taxes are going up.  IRS interest rates are determined on a quarterly basis and are generally based on the federal short-term rate plus certain percentage points. IRS Interest Rates Going Up

Beginning April 1, 2018, the new interest rate the IRS will charge for underpayment of taxes will be 5% (up from 4.18% in 2017) for individual taxpayers and 7% for large corporate taxpayers.  The interest rate is charged on any unpaid tax from the original due date of the return until the date of payment.  It is compounded daily.

Also this April, the rate for overpayment of taxes will increase to 5% for individuals and 4% in the case of a corporation plus 2.5% for the portion of a corporate overpayment that exceeds $10,000.  It may be hard to imagine someone or a company paying more taxes than they owe, but this happens most often with individuals who must pay quarterly estimated taxes based on a guess of what their income may be.  Overpayments may also occur with  businesses that withhold the incorrect amount of income tax based on unrealized predictions.

If you owe tax and don’t file on time, penalties are assessed in addition to the interest on unpaid tax. The late-filing penalty is usually 5% of the tax owed for each month the return is late up to five months or no more than a total of 25% of the tax owed. If you file more than 60 days after the due date, the minimum penalty you face is $205 or 100% of your unpaid tax, whichever is less.

If you file on time, pay some of the tax you owe, but don’t pay all the tax that is owed, then you’ll generally have to pay a late-payment penalty of .5% (one-half of one percent) of the outstanding balance of tax you owe per month, until the tax is paid in full.  So, there is a benefit to paying as much as you can, if not all you owe, when you file your tax return.

If there are months in which both the late-filing and late-payment penalties apply, then the 0.5% late-payment penalty may be waived.

Interest rates on under- and over-paid taxes have ranged from a high of 9% in the 1995 and 2001 tax years, to a low of 3% from 2011 to 2016 tax years.

If you don’t pay the tax you owe when you file your tax return, you’ll receive a notice from the IRS in the form of a letter, basically a bill, for the amount you owe. The bill is the official start of the collection process.  It will include the amount of the tax, plus any penalties and interest accrued on your unpaid balance from the date the tax was due.

The IRS has the right to levy (seize) assets such as wages, bank accounts, social security benefits, and retirement income. The IRS may also seize your property (including your car, boat, or real estate) and sell the property to satisfy an outstanding tax debt. In addition, any future federal or state income tax refunds that you're due may be seized and applied to your federal tax liability.

In some cases, you may be able to work with the IRS to decrease what you owe in penalties and interest if you can prove a hardship, but your case will be subject to IRS discretion.

Because the unpaid balance is subject to interest that compounds daily and a monthly late payment penalty, it is in a taxpayer’s best interest to pay a tax liability in full as soon as possible. If you are not able to pay in full, you may qualify for an installment agreement with the IRS with several options to pay.

You may discover interest rates and any applicable fees charged by a credit card company or bank are lower than the combination of interest and penalties imposed by the Internal Revenue Code. So, you may consider exploring outside options to pay the IRS in full and make other arrangements to avoid ongoing penalties and interest.

If you have any questions about the issue of filing and paying taxes you owe on time and in full, please contact one of our tax preparation specialists at McRuer CPAS.


Identity Theft Targets Business Data

Good news. Bad news. New data shows tax-related identity theft is declining rapidly as federal and state tax and law enforcement officials seek solutions together.  Unfortunately, thieves and scammers continue to develop new schemes targeting both individuals and businesses yielding more stolen data and dollars per incident.

Identity thief eyes personal online dataA business can hardly do business without collecting and holding clients’ private and identifying information, including names and addresses, phone numbers, and email addresses.   Many businesses also collect and maintain their clients’ birth dates, credit information, Social Security numbers and more.  If a data security breach occurs, these individuals are at risk for tax-related identity theft.  Their personal information is used to file fake tax returns requesting refunds.  In other schemes, scammers posing as IRS representatives, or federal or state authorities or creditors directly demand payments for taxes that are not owed.

Businesses are warned to keep up with current scam and phishing trends as well as take the necessary steps to secure systems and fix vulnerabilities.  The Federal Trade Commission provides updated online information about securing operations against data breaches, and a new business-focused Data Breach Response Guide.

If you own a business that has been a victim of a data security breach, authorities offer three important steps to take:  notify law enforcement, notify other businesses affected (such as banks, credit issuers and major credit bureaus), and notify individuals.  If Social Security numbers have been compromised, individuals should be alerted to take steps to avoid being a tax-related identity theft victim.

The most popular way to steal from individual taxpayers uses simple data including names, phone numbers, email addresses and home addresses stolen from businesses.  With this basic information, scammers send out emails and make threatening phone calls claiming to be IRS representatives, banks or credit card companies demanding payments on overdue taxes, overdrawn accounts or bills.  They even using text messages contacting innocent victims who are tricked into sharing even more private information.  Criminals will use the IRS logo and language in letters, emails or phone calls that seem legitimate.

Specifically, tax-related identity theft uses a stolen Social Security number to file a fraudulent tax return claiming a refund.  This particular type of scam is being reduced dramatically as new, more-secure information transfers between the IRS and banks track automatic taxpayer refund deposits and checks.

Businesses should also remember that their business identity may also be stolen.  A new type of business tax identity-theft is on the rise.  Cybercriminals are using stolen business information to file fraudulent Forms 1120 – U.S. Corporate Income Tax Returns to capture corporate income tax refunds.  They often obtain this private business information through the business’s website and by hacking into documents stored on unsecured computers.

Taxpayers, businesses and tax professionals should remain alert and ask more questions before sharing information.  If you have questions about tax-related identity theft as an individual or business, please contact one of our tax preparation specialists at McRuer CPAs


College Students Reap Rewards of Tax Credit

College costs tax credits piggy bankNearly 10 million taxpayers have claimed the American Opportunity Tax Credit saving an average of $2,277 per family according to new IRS statistics.  To claim this popular tax credit, the taxpayer, their spouse or their dependent must have been a student who was enrolled at least half time for one academic period. The credit is available for four years of post-secondary education and can be worth up to $2,500 per eligible student.

AOTC is a tax credit that helps pay a taxpayer back for qualified education expenses for the first four years of higher education.  While $2,500 may seem like a drop in the bucket when considering the high price of a college education, taxpayers with college expenses find this tax credit is a big help.  Also, another bonus that is unusual for tax credits, if the credit brings the amount of overall income taxes owed to zero, 40% (up to $1,000) of any remaining amount of the credit may be refunded to the taxpayer.

Families with multiple qualifying students have the right to claim up to the full AOTC tax credit amount for each student.  Newly released data show roughly 775,000 taxpayers had two children that qualified for the credit in their household, and more than 60,000 families who qualified for the tax credit had three children in college.

Students and families who want to apply, are required to have a Form 1098-T Tuition Statement from the school they attend. Then the taxpayer would fill out a Form 8863 to request the education credit and file it with their tax return.

An qualifying academic period can be a semester, quarter, trimester or summer school session which is determined by the school.  For higher education schools that do not use clock or credit hours nor academic terms, the student’s required payment period may be treated as an academic period.

Warning: make certain when you claim this tax credit that you are qualified as well as understand the guidelines and the need for accuracy.  Keep copies of your documentation.  If you are audited and the IRS finds that the AOTC claim is incorrect or you don’t have proper documentation, you may have to pay back not only the amount of the tax credit you received, but also interest and a possible fraud penalty. You may also be banned from claiming the credit again for two to ten years.

To be eligible for AOTC, the student must:

  • be pursuing a degree or another recognized education credential,
  • be enrolled at least half time for at least one academic period beginning in the tax year,
  • not have finished the first four years of higher education at the beginning of the tax year,
  • not have claimed the AOTC (or the former Hope credit) for more than four tax years, and
  • not have a felony drug conviction at the end of the tax year (this was added as part of the national effort to cut drug abuse).

There are income limits based on a taxpayer’s modified adjusted gross income (MAGI) which must be no more than $80,000 (or $160,000 for married filing jointly).  You cannot claim the credit if your MAGI is over $90,000 (or $180,000 for joint filers).

Many students complete their higher education with degrees that cost tens of thousands of dollars and have major student loan debt. This kind of tax credit is bringing some relief to millions of Americans as they seek more ways to finance their or their dependent’s college education.

If you have any questions or need more information about the AOTC, please contact one of our tax preparation specialists at McRuer CPAs online or by calling 816.7431.7882.


Tax Refund Roundup

When we file our tax return and expect a tax refund, it may seem like forever before we receive the refund check or deposit.  There are ways to track the progress of your tax refund as well as receive some updated general information about how refund payments are handled.

The IRS says it processes about nine out of 10 refunds in less than three weeks.  Processing a refund check doesn’t guarantee the check will be in a taxpayer’s hands in three weeks, but does say that, generally, it takes three weeks to receive a tax return, process it and confirm a refund check.  The check should then be mailed or auto-deposited in a taxpayer’s designated account.  The simpler the tax return, the faster the processing time.

Any taxpayer may use the fast “Where’s My Refund?” online tool to monitor a refund’s status.  E-Filers may use this tool within 24 hours of filing their return.  Paper filers must wait 4 weeks after mailing their tax return before this tool will begin showing their refund status.  There is also a mobile app taxpayers may use called IRS2Go, available in both English and Spanish.

Celebrate Tax Refund Experience shows several factors may slow down the processing of any tax return and refund check.  More complicated returns containing several pages of documents such as deduction and tax credit forms, and several Forms 1099 take longer to review and confirm.  Something as simple as failing to sign the tax return will cause delay as the IRS must contact the taxpayer by mail to request any updates, changes or information before a refund check may be issued.

You may be surprised at how many refunds are delayed by simple taxpayer mistakes like a missing signature, incorrect Social Security number, or a simple math error – especially on self-prepared tax returns.  These kinds of errors are significantly reduced when professional tax preparers are used to prepare and file even simple returns.

Sometimes taxpayers are victims of identity theft, but don’t realize it until they submit their tax return and the IRS informs them someone else has already used their Social Security number to request a refund.  The IRS will contact the legitimate taxpayer by mail about the suspected fraudulent tax return.  A taxpayer must then go through what may be several months of investigation and paperwork to verify their identity and Social Security number before receiving their refund.

Electronic receiving a refund through direct deposit is the easiest, fastest and safest way to receive a tax refund.  Each year more taxpayers choose direct deposit.  In the 2016 tax year, 8 out of 10 taxpayers requested their refunds be deposited this way.  Taxpayers may also request their refund check be split and auto-deposited in up to three different bank accounts.

If you need more information or would like to discuss your options for receiving your tax refund, please contact us online or call us at McRuer CPAs at 816.741.7882.


Investors Eye Effects of New Transition Tax

International investingAs corporations determine the impact of the one-time new tax reform-mandated ‘transition tax’ on overseas earnings, it’s important for investors to consider how the tax may impact a public company’s cash flow when valuing its stock.

A Tax Cuts and Jobs Act (TCJA) provision assesses a one-time ‘transition tax’ on accumulated 2017 untaxed earnings held overseas by considering those earnings repatriated.  Generally, foreign earnings held as cash or cash equivalents are taxed at 15.5 percent.  Remaining earnings are taxed at 8 percent.

Many American corporations have held their foreign-earned profits overseas for years to escape the world’s-highest 35% U.S. corporate tax rate.  As the new tax reform package imposes this one-time tax, the U.S. will relinquish its right to tax foreign profits.  The U.S. will then switch its corporation taxation method to a “territorial tax” system.

Under a territorial tax system businesses must pay income taxes only on the income earned within the subject country’s boundaries.  The tax liability is determined by the subject country’s tax laws, and no other nation’s corporate tax may be charged.  European nations have followed this tax method for decades, and it avoids double taxation.  TCJA supporters say this tax change, coupled with the new flat 21% corporate tax rate, will return jobs and American investment dollars back home.

However, this TCJA tax payment may complicate traditional methods used to analyze a company’s financial statements and attractiveness as an investment.  Corporations may pay the new one-time tax in eight annual installments under a back-loaded schedule, with a maximum 25% tax payment expected in the 8th year.  While this TCJA provision offers corporate taxpayers a potential significant overall tax savings, The Wall Street Journal reports that huge household-name US corporations like Microsoft, McDonald’s and Johnson and Johnson may pay billions to repatriate these earnings they otherwise would not have.  Financial analysts advise investors that this change may impact these companies’ cash flow as a percentage of their earnings – which is an important measure of a stock’s market value.  Investors should consider the impact of the new lower US corporate tax rate on a subject business’s cash flow remembering that at the same time the subject company owes the final and largest one-time tax payment, which may also be partly offset by tax credits, deductions, deferred tax liabilities and more.

Tax reform and consumer confidence have lifted the stock market to record-breaking levels. Now investors and analysts following corporations with foreign profits must re-think how they value companies as they determine what to buy or sell.

If you have any questions or need more information, please contact one of our wealth accumulation experts at McRuer CPAs online, or call 816.741.7882.


New Tax Law Cuts Personal Casualty Loss Deduction

Tax reform has eliminated a taxpayer’s deduction for personal casualty losses unless the loss occurs in a federally-declared disaster area.  Many taxpayers may consider contacting their insurance provider to determine they are adequately covered in the event of a loss.

House destroyed by fireIn the past, an individual could claim as an itemized deduction certain personal casualty losses that were not compensated by insurance or other means.  These casualty and theft losses must have been related to your home, household items or vehicles; and included losses from storms, fire, theft and even shipwreck.  Total casualty losses may be deducted if they exceeded 10% of adjusted gross income, and were more than $100 for each occurrence.

The new Tax Cuts and Jobs Act has eliminated the personal casualty and theft loss deduction for tax years 2018 through 2025, except for casualty losses incurred in a federally-declared disaster area.  The deduction for declared disaster area losses are subject to the former $100-per-casualty and 10%-of-AGI limitations.  The IRS describes a casualty loss as the damage, destruction or loss of your property resulting from any sudden, unexpected, or unusual event such as a flood, hurricane, tornado, fire, earthquake or volcanic eruption.  It does not include normal wear and tear or progressive deterioration.

These tax deduction changes may motivate taxpayers to review homeowner, flood and auto insurance policies to determine whether they should add coverage knowing there will be no casualty deduction unless the precipitating event is so catastrophic and widespread that it prompts a federal declaration.  It may also be prudent to learn whether your policy pays replacement cost coverage or actual cash value.  Note that replacement cost coverage may pay only replacement value for your damaged items at their depreciated value.

If you have any questions about the ­­­changed personal casualty loss deduction, please contact one of our tax preparation experts at McRuer CPAs online or call 816.741.7882.


New Business Tax Credit for Family and Medical Leave Approved

Daugher and elderly mom walkingA new federal tax credit is available for 2018 through the end of 2019 for eligible employers  providing their employees paid family and medical leave.  The new tax credit is part of the Tax Cuts and Jobs Act that has employers hoping the first version of the business tax credit will become permanent as more employers switch to paid time off (PTO) compensation as an employee benefit.

Full guidance regarding the credit has not yet been released, but a general review indicates eligible employers may claim a tax credit equal to a percentage of wages paid to qualifying employees on leave under the Family and Medical Leave Act (FMLA).  To receive the credit, employers must provide at least two weeks of FMLA leave and pay workers at least 50 percent of their regular earnings.  Both full-time and part-time workers, if employed for at least a year, must be offered paid leave for an employer to be able to claim the tax credit.  Part-time employee qualifying for paid leave must be determined on a prorated basis.

The credit will range from 12.5% to 25% of the cost of each hour of paid leave, depending on how much of a worker's regular earnings the benefit replaces.  The government will cover 12.5% of the benefit's costs if workers receive half of their regular earnings, increasing to 25% if workers receive their entire regular earnings while on leave.  So if the leave payment rate is 100% of the normal rate, then the credit is raised to 25% of the on-leave payment rate.  The maximum leave allowed for any employee during any tax year is 12 weeks.

Employers may only apply the credit toward workers they have employed for at least a year, and who were paid no more than $72,000 for 2017.  The wage ceiling will be inflation adjusted going forward.

As they await more specific guidance, Society for Human Resource (SHRM) members debate whether most company PTO policies qualify for the tax credit, as many do not offer paid ‘family and medical leave’ as a separate provision as the new tax law requires.  Instead, they say most companies designate their PTO benefits for vacation, personal, medical or sick leave; none of which are considered as ‘family and medical leave’ under FMLA.  The human resource professionals say that employers should review their paid-time-off policies to assure they are drafted to qualify them for the tax credit.

SHRM also points out the credit does not apply to paid leave mandated under state or local law.  Further, they suggest that policies may need to include nonretaliation provisions to assure employees won’t be penalized for taking the paid leave.

For more on the effect of the new tax credit on your business, please contact one of our business tax planning experts at McRuer CPAs online or call 816.741.7882.


Child Tax Credit Doubles Under New Tax Law

Beginning in the 2018 tax year, under the Tax Cuts and Jobs Act, the tax credit available per qualifying child for taxpayers with children under age 17 will double.

Picture of mom with son in kitchenPreviously (including for 2017 tax returns), the child tax credit was $1,000 per qualifying child, but was subject to rules that made it complicated to figure.  For example, for married couples filing jointly the credit was reduced by $50 for every $1,000 by which their adjusted gross income (AGI) exceeded $110,000.  The threshold was $55,000 for married couples filing separately, and $75,000 for unmarried taxpayers.  To the extent the $1,000-per-child credit exceeded their tax liability, taxpayers received a refund of up to 15% of earned their income above $3,000.  An additional complication; for taxpayers with three or more qualifying children, the excess of the taxpayer's yearly social security taxes over the taxpayer's yearly earned income credit was refundable.  In all cases the refund was limited to $1,000 per qualifying child.

Starting in 2018, the child tax credit increases to $2,000 per qualifying child under 17.

There are six IRS tests that must be met to qualify for the child tax credit:

  1. Age Test:  The child claimed as your dependent must be under age 17 at the end of the tax year.
  2. Relationship Test:  The child must be your daughter, son, foster child or adopted child. The child may also be a grandchild or a descendant of one of your siblings and must meet the 5 other criteria to qualify.
  3. Support Test: The child must not have provided more than half of their own “support,” meaning the money they use for living expenses.
  4. Dependent Test: You must claim the child as your dependent on your federal income tax return.
  5. Citizenship Test: The child must be a U.S. citizen, a U.S. national or a U.S. resident alien.
  6. Resident Test: The child must have lived with you for more than half of the tax year.

Under the Tax Cuts and Jobs Act, the refundable portion of the credit is increased to a maximum of $1,400 per qualifying child.  In addition, the earned income threshold is decreased to $2,500 (from $3,000 under pre-Act law), which has the potential to result in a larger refund. The $500 credit for dependents other than qualifying children is nonrefundable.

The Act also substantially increases the credit’s "phase-out" thresholds.  Starting in 2018, the total credit amount allowed for a married couple filing jointly is reduced by $50 for every $1,000 (or part of a $1,000) by which their AGI exceeds $400,000.  The threshold is $200,000 for all other taxpayers.  So, if you were previously prohibited from taking the credit because your AGI was too high, you may now be eligible to claim the credit.

In order to claim the credit for a qualifying child, you must include that child's Social Security number (SSN) on your tax return.  Under pre-Act law you could also use an individual taxpayer identification number (ITIN) or adoption taxpayer identification number (ATIN).  If a qualifying child does not have an SSN, you will not be able to claim the $2,000 credit, but you can claim the $500 credit for that child using an ITIN or an ATIN.  The SSN requirement does not apply for non-qualifying-child dependents, but you must provide an ITIN or ATIN for each dependent for whom you are claiming a $500 credit.

Tax reform also allows a new $500 credit (per dependent) for any dependents who are not qualifying children under 17 beginning this year (2018).  There is no age limit for the $500 credit, but the tax tests for dependency must be met.

The changes made by the Act should make these credits more valuable and more widely available to many taxpayers.  If you have children or other qualifying dependents under age 17, and would like to learn if these changes can benefit you, please contact one of our tax preparation experts at McRuer CPAs online or call 816.741.7882.


Online Sales Tax Debate Advances to Supreme Court

Interent Sales TaxThe U.S. Supreme Court has agreed to hear a case that may change the standard for how sales taxes are applied to online purchases.  In the case of South Dakota v. Wayfair Inc., the state will argue that all online sellers should be required to collect state sales taxes from South Dakota customers. It is one of only a few states that imposes taxes on all finished goods and services.  The case could set a precedent affecting all states and the District of Columbia.

Since 1992, a Supreme Court ruling (Quill v. North Dakota) has prevented states from collecting any sales tax from internet-related retail purchases unless the seller had a physical presence in the state where the sale transaction was conducted.  The case finding was based upon the idea that states should not interfere with interstate commerce.

The Tax Foundation’s Joe Bishop-Henchman writes that local businesses and states argue that they are unfairly losing revenues to retailers outside their jurisdiction.  He explains, “Traditional brick-and-mortar retailers that have to collect sales taxes feel they’re at a competitive disadvantage, and states are potentially losing out on billions of dollars in revenue annually.” 

On the other side of the issue, online retailers argue that each state may have different sales tax collection mandates that are often confusing, inefficiency in tracking collections, and expensive to comply with.

In this case, South Dakota is one of nearly two dozen states who are working together under the Streamlined Sales and Use Tax Agreement.  It is a voluntary governing board working to simplify and standardize sales tax rules.  At McRuer CPAs we have been helping clients navigate these issues since the advent of internet sales.  Unfortunately, their resolutions often reflect the one size fits all sales and use tax law requirements adopted years ago for a different time.

Arguments in the South Dakota v. Wayfair Inc. case are now set to be heard in April and may provide clarity on the constitutional limits of state taxing authorities and the scope and reach of the physical presence rule. 

8 Ways Tax Reform Affects You in 2018

Tax-ChangesAs we launch into the 2017 tax filing season we are receiving as many questions about the new Tax Cuts and Jobs Act and how it affects 2018 individual and business income taxes as we are about the best planning to file 2017 returns.  To that end, here we are highlighting the 8 most significant ways tax reform may affect you in 2018.  We will continue presenting additional information in the weeks ahead to help you best navigate your income tax planning.

Here are the eight tax change topics we receive the most questions about from both individual and business taxpayers:

  1. Individual income tax rates
  2. Personal exemptions
  3. Standard versus itemized deductions
  4. Child tax credits
  5. Mortgage interest
  6. Deducting state and local property taxes
  7. Estate tax
  8. Corporate income tax rate

Here is a short assessment of how tax reform has affected the eight tax topics compared to 2017 tax law.  These are generalized overviews of the tax law changes, so please keep in mind how they may apply your individual and/or business tax strategy may be different.

Individual income tax rates:  There were seven 2017 tax brackets: 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%.  Though President Donald Trump had hoped for three tax brackets, the final 2018 tax reform law was passed with seven tax brackets:  10%, 12%, 22%, 24%, 32%, 35%, and 37%.  Businesses have received the new employee income tax withholding tables and the IRS is working on updating its online calculator for businesses and employees to estimate their income tax liability and how these changes affect their annual tax bill.

Personal exemptions:  The prior law allowed most taxpayers a $4,050 exemption for each household member.  Under the 2018 tax law, personal exemptions are eliminated.

Standard deduction:  The prior tax law allowed a standard deduction of up to $6,350 for single taxpayers and married couples filing separately, $12,700 for married couples filing jointly, and $9,350 for heads of households.  The new law increase the standard deduction to $12,000 for single taxpayers, $24,000 for married couples filing jointly, and $18,000 for heads of households.

Child tax credits:  The 2017 tax law allowed a $1,000 tax credit for each qualifying child under age 17.  Now that credit is increased to $2,000 per qualifying child, and up to $1,400 is refundable.  A $500 credit has been added temporarily for other qualifying dependents.

Mortgage interest:  The mortgage interest deduction formerly allowed homeowners to deduct interest on mortgages up to $1 million and home equity borrowing up to $100,000.  Under the new law, the borrowing threshold is $750,000 for mortgage borrowing after December 14, 2017.  Mortgages closed prior to that date still qualify for the $1 million limit.  Beginning in 2026 the $1 million limit will return, while the home equity borrowing interest deduction has been eliminated until 2026.

State and local property taxes:  Under the old law Taxpayers itemizing their deductions could deduct state and local real and personal property taxes, and either state and local income taxes or state and local sales taxes.  Under the new law, state and local taxes remain deductible but the combination of all state and local taxes are now capped at $10,000.

Estate tax:   Under the former rules, a 40% tax was levied on qualifying estates of more than $5.49 million per person, or nearly $11 million per married couple transferred upon their death.  The 2018 law increases the overall estate tax exemption to nearly $11 million per taxpayer.

Corporate tax rate:  Previously the tax rate charged on corporate income varied between 15% to 35% depending on the amount of annual taxable income for a flat rate of 35% on all corporate income beyond a certain income amount.  The new tax law simplifies the rate by reducing the maximum corporate income tax rate on all corporate income to 21%.

Though many taxpayers were disappointed that the tax code was not more significantly simplified, the Tax Cut and Jobs Act is the most significant tax reform this country has experienced in more than 30 years.

While these tax changes do NOT affect your current 2017 tax return, they will affect your 2018 tax plan.  Connecting with one of our experienced tax planning professionals will help you make the adjustments that may be needed in your overall tax strategy.  Contact us to learn more about how to make certain you pay only what you owe, no matter how tax reform may affect your bottom line.

Passports at Risk if Back Taxes Are Owed

American passport 2The IRS has announced it is implementing new procedures that link seriously delinquent tax debt to a taxpayer’s ability to apply for a new passport or request a renewal.  The new rule is part of the Fixing America’s Surface Transportation Act or FAST.  The FAST Act is a funding bill designed to find more tax revenue to pay for upgrading America’s roads, bridges and more.  The tax debt-related provision requires the Department of Treasury to notify the State Department of individual taxpayers who owe a major tax debt if that taxpayer has not attempted to pay what they owe.

A taxpayer with seriously delinquent tax debts is defined as a person who owes the IRS more than $51,000 in back taxes, including penalties and interest.  Taxpayers in the affected category should have already received a Notice of Federal Tax Lien from the IRS and have missed the deadline to challenge the notice, or enter into a payment agreement.

Under the law, if the State Department receives a notice about a seriously indebted taxpayer, it may only take action regarding the taxpayer’s passport application or deny a passport renewal.  Importantly, the new law does not require the Department of Homeland Security or any other agency to confiscate the taxpayer’s passport, should they be traveling.  Opponents of the new rule fear that it could lead to that action and, in time, the provision could be expanded to include taxpayers with less tax debt.

Affected taxpayers may avoid these passport issues if they take steps to resolve their tax liability either through an approved installment agreement, an accepted offer in compromise, a tax court settlement agreement, or if they are undergoing IRS due process.  Taxpayers with a large back taxes amount, but who are not affected by the new rule include taxpayers who:

  • are undergoing bankruptcy,
  • have proven they have a qualifying financial hardship,
  • live in a federally declared disaster area,
  • qualify as someone who is a victim of tax-related identity theft, or
  • have qualified for an innocent spouse election.

The IRS says it will postpone notifying the State Department about affected taxpayers who are serving in a military combat zone, so the individual’s passport renewal request is not subject to denial until they return to the United States.

Privacy advocates are concerned that the new rule allows too much information sharing between government agencies with different security controls over private individual information.  They fear it increases the risk of identity theft and fraud.  They also predict there may be long delays in passport renewals because of slow and sometimes inaccurate information-sharing practices between government agencies.

More IRS tools to collect back taxes from taxpayers are expected to emerge in the years ahead.  The best protection is for affected taxpayers to work out an agreement to pay as much as they can as soon as they can to avoid greater costs that stretch beyond their pocketbooks.

If you need more information, please contact us at McRuer CPAs.


2018 Income Tax Withholding Tables Now Confirmed

The IRS has released the updated 2018 federal income tax withholding tables reflecting the recent tax reform.  This is the first of several updates that will be released in the next few weeks.

The updated withholding information, now posted online (click here to view the new tables), shows the new rates for employers to use for computing employee withholding amounts.  Employers are requested to begin using the 2018 withholding tables as soon as possible, but not later than February 15, 2018. They should continue using the 2017 withholding tables until they have fully implemented the new 2018 withholding rules. Calculating pay and taxes

When employees will see the changes in their paychecks will vary depending on how quickly their employers implement the new tables, and how often they are paid — generally weekly, biweekly or monthly.  Most employees will begin seeing paycheck increases in February.

The new withholding tables are designed to work with the Forms W-4 that workers should have already filed with their employers to claim withholding allowances.  Employees do not have to do anything at this time.

Acting IRS Commissioner David Kautter says the IRS will be providing more information in the next several weeks to help employers and individuals understand and review the withholding changes and the other tax reform affecting payrolls and paychecks.  Kautter explains the new tax withholding tables are designed to produce the correct tax withholding amount for taxpayers with simpler tax situations.  He says the revisions are also aimed at avoiding income tax over- and under-withholding as much as possible.  Soon the IRS will release additional updated information for taxpayers with more complicated tax plans.

Meanwhile, the IRS is working on revising its online withholding tax calculator to reflect the new tax law data and expects the calculator will be available by the end of February.  A revised Form W-4  is also being developed.  Both the Form W-4 and the online calculator will estimate the effect of changes such as itemized deductions, child tax credit increases, the new dependent credit and the repeal of dependent exemptions. These tools may be used by employees wishing to update their withholding in response to new tax reform law, to reflect changes in their personal circumstances in 2018, and by workers starting a new job.

If you have any questions, please don’t hesitate to contact us at McRuer CPAs online or call us at 816.741.7882.

Premium Tax Credit Forms Deadline Extended for Employers and Insurance Providers

If you're an individual who qualifies for the Premium Tax Credit you are required to file information on your tax return about your coverage in order to claim the credit. The Premium Tax Credit is a refundable credit that helps eligible individuals and families cover the premiums for their health insurance purchased through the Health Insurance Marketplace. To get this credit, you must meet certain requirements and file a tax return. Health coverage tax credit

This year, employers and health coverage providers have been given an additional 30 days to send you health coverage information forms.  You do not have to submit these forms with your tax return, but you do need to make certain that the numbers you claim on your return match the numbers submitted by your employer and health coverage provider should your filing be questioned by the IRS.

The IRS has extended the 2018 due date for certain employers and health coverage providers to furnish 2017 health coverage information forms to individuals. The following organizations now have until March 2, 2018, to provide Forms 1095-B or 1095-C to individuals:

  • Insurers
  • Self-insuring employers
  • Other coverage providers
  • Applicable large employers

The March 2nd date is a 30-day extension from the original due date of January 31st. These organizations must furnish statements to employees or covered individuals. The statements have information about the health care coverage offered or provided to the employees or covered individuals. The recipients may use this information to determine if they can claim the Premium Tax Credit on their individual income tax returns.

This 30-day extension is automatic. Employers and providers don’t have to request it. The due dates for filing 2017 information returns with the IRS are not extended. For 2018, the due dates to file information returns with the IRS are:

  • February 28 for paper filers
  • April 2 for electronic filers

Because of these extensions, individuals may not receive their Forms 1095-B or 1095-C by the time they are ready to file their 2017 individual income tax return. To be clear, while information on these forms may assist in preparing a return, taxpayers who wish to claim the Premium Tax Credit are not required to have these forms to file. Taxpayers can prepare and file their returns using other information resources about their health coverage. So, taxpayers do not have to wait for Forms 1095-B or 1095-C to file.

If you have any questions about how the updated deadline may affect you or your business, please don't hesitate to contact one of tax preparation specialists at McRuer CPAs online or by calling 816.741.7882. 


Tax Filing Season Starts January 29 for 2017 Tax Returns

Tax-DayThe IRS has announced that this year’s filing season will officially begin January 29th.  That is the first date that completed tax returns will be accepted by the IRS, though tax preparation may be completed before then so returns may be ready to submit on the first available day for processing.  The date is a bit later than the launch of the 2016 filing season, which began January 23rd.

The agency has been updating its systems since November to accommodate tax law changes for 2017.  Going forward, it's not yet clear how long it will take the IRS to adjust to the newly passed tax reform law that will implement major changes affecting individual and business income and other taxes in 2018.  Those tax reform changes do not affect your individual 2017 tax return.

The deadline to submit your 2017 individual federal and state income tax returns is April 17th this year.  The date is on the 17th of April because April 15th is a Sunday and April 16th is a holiday in the District of Columbia.

The IRS will not begin accepting federal income tax returns until January 29th.  It also reminds taxpayers that, by law, it cannot issue refunds related to claims for the earned income tax credit or the additional child tax credit until mid-February.

If you have any questions or need help with the preparation of your individual or business income tax returns, please contact us at McRuer CPAs online (click here) or by calling 816.741.7882.


Withholding Guidance for Small Business Coming Soon

Hand and calculatorThe IRS has released a short update to answer questions from small businesses about how soon they should implement changes from the newly approved tax reform bill.

Currently, the IRS says it plans to "issue the withholding guidance some time in January, and employers and payroll service providers will be encouraged to implement the changes in February."  The updated information is supposed to be designed to work with the existing Forms W-4 that employees have already filed.  This is to make certain no additional action by taxpaying employees will be needed regarding the amount of taxes that should be withheld for each individual.

The 2018 withholding guidelines should enable taxpayers to see changes from the tax reform bill reflected in their paychecks as early as February.  Until the new tables are released, employers and payroll service providers are asked to continue to use the 2017 withholding tables and systems.

If you have any questions, please don't hesitate to contact McRuer CPAs online or call us at 816.741.7882. 

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