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Tax Planning and Advocacy

11/16/2017

McRuer CPAs 2017 Year-End Tax Guide

The 2017 calendar year is wrapping up quickly. While many of us have our eyes on the holiday season, this is the time to review your personal and business financial goals. Think of it as a  “checkup” to make certain you make the most effective, tax-savvy financial moves to end this year fiscally healthy.

"Timely financial planning is one of the best gifts you can give yourself as it will affect you and/or your business for years to come."

Even with significant tax reform expected for the 2018 tax season, we are still working under the federal and state tax laws that are on the books for 2017 taxes. We have compiled a quick tax tip guide to review some of the financial topics that we have determined to be the most important and relevant tax issues for most taxpayers for year-end review.

Click now to download the 2017 McRuer CPAs Year-End Tax Tips Guide.

Each individual and business is unique, so consider discussing your options with a professional in time to make any tax-saving moves that may help your particular needs. Please contact us if you have any questions or would like to schedule a year-end tax planning session with a McRuer CPAs Tax Planning Team Member.  If you are already a McRuer CPAs client, the year-end planning session is free.  Call us at: 816.741.7882.

11/03/2017

Details of House Tax Reform Bill

As you may know the House Ways and Means Committee has released the Tax Cut and Jobs Act (H.R. 1) providing some new tax reform provisions while incorporating many of the details included in the Republican-backed tax reform package submitted in September. There are a number of tax issues that may affect you, should they be approved following the budget debate process in Washington. Those details include changes, updates and protections for various business and individual tax rates, deductions and retirement plan contributions.

Tax-Reform with flagThe Journal of Accountancy has published an article with a review of the provisions of the new tax proposal draft (as submitted before debate and possible amendments) that offers a review of many of the details that we hope will be informative and helpful to you as you begin thinking of year-end tax planning.

 Note: his article has been published by the Journal of Accountancy, a professional’s resource for information regarding accounting and taxation issues.  It is the primary publication, as edited and released by the Association of International Certified Professional Accountants. It is one of many resources we use at McRuer CPAs to keep us informed about issues that affect the businesses and individuals we serve.  This particular news information article regards the consideration of a legislative proposal. Such initial legislation is subjected to debate and amendments. Therefore, this first review of the tax reform legislation draft is to be considered as a preliminary summary and first look at the new tax reform proposal and may not be the actual legislation approved by lawmakers over time.

For a look at the actual bill itself, noting that the language will likely be edited in several ways before passing, click here.

Details of Tax Reform Legislation Revealed

By Sally Schreiber, J.D.; Paul Bonner; and Alistair Nevius, J.D.

The House Ways and Means Committee released draft tax reform legislation on Thursday. The Tax Cuts and Jobs Act, H.R. 1, incorporates many of the provisions listed in the Republicans’ September tax reform framework while providing new details. Budget legislation passed in October would allow for the tax reform bill to cut federal government revenue by up to $1.5 trillion over the next 10 years and still be enacted under the Senate’s budget reconciliation rules, which would require only 51 votes in the Senate for passage. The Joint Committee on Taxation issued an estimate of the revenue effects of the bill on Thursday showing a net total revenue loss of $1.487 trillion over 10 years.

The bill features new tax rates, a lower limit on the deductibility of home mortgage interest, the repeal of most deductions for individuals, and full expensing of depreciable assets by businesses, among its many provisions.

Lawmakers had reportedly been discussing lowering the contribution limits for Sec. 401(k) plans, but the bill does not include any changes to those limits.

The Senate Finance Committee is reportedly working on its own version of tax reform legislation, which is expected to be unveiled next week. It is unclear how much that bill will differ from the House bill released on Thursday.

Individuals

Tax rates: The bill would impose four tax rates on individuals: 12%, 25%, 35%, and 39.6%, effective for tax years after 2017. The current rates are 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. The 25% bracket would start at $45,000 of taxable income for single taxpayers and at $90,000 for married taxpayers filing jointly.

The 35% bracket would start at $200,000 of taxable income for single taxpayers and at $260,000 for married taxpayers filing jointly. And the 39.6% bracket would apply to taxable income over $500,000 for single taxpayers and $1 million for joint filers.

Standard deduction and personal exemption: The standard deduction would increase from $6,350 to $12,200 for single taxpayers and from $12,700 to $24,400 for married couples filing jointly, effective for tax years after 2017. Single filers with at least one qualifying child would get an $18,300 standard deduction. These amounts will be adjusted for inflation after 2019. However, the personal exemption would be eliminated.

Deductions: Most deductions would be repealed, including the medical expense deduction, the alimony deduction, and the casualty loss deduction (except for personal casualty losses associated with special disaster relief legislation). The deduction for tax preparation fees would also be eliminated.

However, the deductions for charitable contributions and for mortgage interest would be retained. The mortgage interest deduction on existing mortgages would remain the same; for newly purchased residences (that is, for debt incurred after Nov. 2, 2017), the limit on deductibility would be reduced to $500,000 of acquisition indebtedness from the current $1.1 million. The overall limitation of itemized deductions would also be repealed.

Some rules for charitable contributions would change for tax years beginning after 2017. Among those changes, the current 50% limitation would be increased to 60%.

The deduction for state and local income or sales taxes would be eliminated, except that income or sales taxes paid in carrying out a trade or business or producing income would still be deductible. State and local real property taxes would continue to be deductible, but only up to $10,000. These provisions would be effective for tax years beginning after Dec. 31, 2017.

Credits: Various credits would also be repealed by the bill, including the adoption tax credit, the credit for the elderly and the totally and permanently disabled, the credit associated with mortgage credit certificates, and the credit for plug-in electric vehicles.

The child tax credit would be increased from $1,000 to $1,600, and a $300 credit would be allowed for nonchild dependents. A new “family flexibility” credit of $300 would be allowed for other dependents. The $300 credit for nonchild dependents and the family flexibility credit would expire after 2022.

The American opportunity tax credit, the Hope scholarship credit, and the lifetime learning credit would be combined into one credit, providing a 100% tax credit on the first $2,000 of eligible higher education expenses and a 25% credit on the next $2,000, effective for tax years after 2017. Contributions to Coverdell education savings accounts (except rollover contributions) would be prohibited after 2017, but taxpayers would be allowed to roll over money in their Coverdell ESAs into a Sec. 529 plan.

The bill would also repeal the deduction for interest on education loans and the deduction for qualified tuition and related expenses, as well as the exclusion for interest on U.S. savings bonds used to pay qualified higher education expenses, the exclusion for qualified tuition reduction programs, and the exclusion for employer-provided education assistance programs.

Other taxes: The bill would repeal the alternative minimum tax (AMT).

The estate tax would be repealed after 2023 (with the step-up in basis for inherited property retained). In the meantime, the estate tax exclusion amount would double (currently it is $5,490,000, indexed for inflation). The top gift tax rate would be lowered to 35%.

Passthrough income: A portion of net income distributions from passthrough entities would be taxed at a maximum rate of 25%, instead of at ordinary individual income tax rates, effective for tax years after 2017. The bill includes provisions to prevent individuals from converting wage income into passthrough distributions. Passive activity income would always be eligible for the 25% rate.

For income from nonpassive business activities (including wages), owners and shareholders generally could elect to treat 30% of the income as eligible for the 25% rate; the other 70% would be taxed at ordinary income rates. Alternatively, owners and shareholders could apply a facts-and-circumstances formula.

However, for specified service activities, the applicable percentage that would be eligible for the 25% rate would be zero. These activities are those defined in Sec. 1202(e)(3)(A) (any trade or business involving the performance of services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its employees), including investing, trading, or dealing in securities, partnership interests, or commodities.

Business provisions

A flat corporate rate: The bill would replace the current four-tier schedule of corporate rates (15%, 25%, 34%, and 35%, with a $75,001 threshold for the 34% rate) with a flat 20% rate (25% for personal services corporations). The corporate AMT is repealed along with the individual AMT.

Higher expensing levels: The bill would provide 100% expensing of qualified property acquired and placed in service after Sept. 27, 2017, and before Jan. 1, 2023 (with an additional year for longer-production-period property). It would also increase tenfold the Sec. 179 expensing limitation ceiling and phaseout threshold to $5 million and $20 million, respectively, both indexed for inflation.

Cash accounting method more widely available: The bill would increase to $25 million the current $5 million average gross receipts ceiling for corporations generally permitted to use the cash method of accounting and extend it to businesses with inventories. Such businesses also would be exempted from the uniform capitalization (UNICAP) rules. The exemption from the percentage-of-completion method for long-term contracts of $10 million in average gross receipts would also be increased to $25 million.

NOLs, other deductions eliminated or limited: Deductions of net operating losses (NOLs) would be limited to 90% of taxable income. NOLs would have an indefinite carryforward period, but carrybacks would no longer be available for most businesses. Carryforwards for losses arising after 2017 would be increased by an interest factor. Other deductions also would be curtailed or eliminated:

  • Instead of the current provisions under Sec. 163(j) limiting a deduction for business interest paid to a related party or basing a limitation on the taxpayer’s debt-equity ratio or a percentage of adjusted taxable income, the bill would impose a limit of 30% of adjusted taxable income for all businesses with more than $25 million in average gross receipts.
  • The Sec. 199 domestic production activities deduction would be repealed.
  • Deductions for entertainment, amusement, or recreation activities as a business expense would be generally eliminated, as would employee fringe benefits for transportation and certain other perks deemed personal in nature rather than directly related to a trade or business, except to the extent that such benefits are treated as taxable compensation to an employee (or includible in gross income of a recipient who is not an employee).

Like-kind exchanges limited to real estate: The bill would limit like-kind exchange treatment to real estate, but a transition rule would allow completion of currently pending Sec. 1031 exchanges of personal property.

Business and energy credits curtailed: Offsetting some of the revenue loss resulting from the lower top corporate tax rate, the bill would repeal a number of business credits, including:

  • The work opportunity tax credit (Sec. 51).
  • The credit for employer-provided child care (Sec. 45F).
  • The credit for rehabilitation of qualified buildings or certified historic structures (Sec. 47).
  • The Sec. 45D new markets tax credit. Credits allocated before 2018 could still be used in up to seven subsequent years.
  • The credit for providing access to disabled individuals (Sec. 44).
  • The credit for enhanced oil recovery (Sec. 43).
  • The credit for producing oil and gas from marginal wells (Sec. 45I)

Other credits would be modified, including those for a portion of employer Social Security taxes paid with respect to employee tips (Sec. 45B), for electricity produced from certain renewable resources (Sec. 45), for production from advanced nuclear power facilities (Sec. 45J), and the investment tax credit (Sec. 46) for eligible energy property. The Sec. 25D residential energy-efficient property credit, which expired for property placed in service after 2016, would be extended retroactively through 2022 but reduced beginning in 2020.

Bond provisions: Several types of tax-exempt bonds would become taxable:

  • Private activity bonds would no longer be tax-exempt. The bill would include in taxpayer income interest on such bonds issued after 2017.
  • Interest on bonds issued to finance construction of, or capital expenditures for, a professional sports stadium would be taxable.
  • Interest on advance refunding bonds would be taxable.
  • Current provisions relating to tax credit bonds would generally be repealed. Holders and issuers would continue receiving tax credits and payments for tax credit bonds already issued, but no new bonds could be issued.

Insurance provisions: The bill would introduce several revenue-raising provisions modifying special rules applicable to the insurance industry. These include bringing life insurers’ NOL carryover rules into conformity with those of other businesses.

Compensation provisions: The bill would impose new limits on the deductibility of certain highly paid employees’ pay, including, for the first time, those of tax-exempt organizations.

  • Nonqualified deferred compensation would be subject to tax in the tax year in which it is no longer subject to a substantial risk of forfeiture. Current law would apply to existing nonqualified deferred compensation arrangements until the last tax year beginning before 2026.
  • The exceptions for commissions and performance-based compensation from the Sec. 162(m) $1 million limitation on deductibility of compensation of certain top employees of publicly traded corporations would be repealed. The bill would also include more employees in the definition of “covered employee” subject to the limit.
  • The bill would impose similar rules on executives of organizations exempt from tax under Sec. 501(a), with a 20% excise tax on compensation exceeding $1 million paid to any of a tax-exempt organization’s five highest-paid employees, including “excess parachute payments.”

Foreign income and persons

Deduction for foreign-source dividends received by 10% U.S. corporate owners: The bill would add a new section to the Code, Sec. 245A, which replaces the foreign tax credit for dividends received by a U.S. corporation with a dividend-exemption system. This provision would be effective for distributions made after 2017. This provision is designed to eliminate the “lock-out” effect that encourages U.S. companies not to bring earnings back to the United States.

The bill would also repeal Sec. 902, the indirect foreign tax credit provision, and amend Sec. 960 to coordinate with the bill’s dividends-received provision. Thus, no foreign tax credit or deduction would be allowed for any taxes (including withholding taxes) paid or accrued with respect to any dividend to which the dividend exemption of the bill would apply.

Elimination of U.S. tax on reinvestments in U.S. property: Under current law, a foreign subsidiary’s undistributed earnings that are reinvested in U.S. property are subject to current U.S. tax. The bill would amend Sec. 956(a) to eliminate this tax on reinvestments in the United States for tax years of foreign corporations beginning after Dec. 31, 2017. This provision would remove the disincentive from reinvesting foreign earnings in the United States.

Limitation on loss deductions for 10%-owned foreign corporations: In a companion provision to the deduction for foreign-source dividends, the bill would amend Sec. 961 and add new Sec. 91 to require a U.S. parent to reduce the basis of its stock in a foreign subsidiary by the amount of any exempt dividends received by the U.S. parent from its foreign subsidiary, but only for determining loss, not gain. The provision also requires a U.S. corporation that transfers substantially all of the assets of a foreign branch to a foreign subsidiary to include in the U.S. corporation’s income the amount of any post-2017 losses that were incurred by the branch. The provisions would be effective for distributions or transfers made after 2017.

Repatriation provision: The bill would amend Sec. 956 to provide that U.S. shareholders owning at least 10% of a foreign subsidiary will include in income for the subsidiary’s last tax year beginning before 2018 the shareholder’s pro rata share of the net post-1986 historical earnings and profits (E&P) of the foreign subsidiary to the extent that E&P have not been previously subject to U.S. tax, determined as of Nov. 2, 2017, or Dec. 31, 2017 (whichever is higher). The portion of E&P attributable to cash or cash equivalents would be taxed at a 12% rate; the remainder would be taxed at a 5% rate. U.S. shareholders can elect to pay the tax liability over eight years in equal annual installments of 12.5% of the total tax due.

Income from production activities sourced: The bill would amend Sec. 863(b) to provide that income from the sale of inventory property produced within and sold outside the United States (or vice versa) is allocated solely on the basis of the production activities for the inventory.

Changes to Subpart F rules: The bill would repeal the foreign shipping income and foreign base company oil-related income rules. It would also add an inflation adjustment to the de minimis exception to the foreign base company income rules and make permanent the lookthrough rule, under which passive income one foreign subsidiary receives from a related foreign subsidiary generally is not includible in the taxable income of the U.S. parent, provided that income was not subject to current U.S. tax or effectively connected with a U.S. trade or business.

Under the bill, a U.S. corporation would be treated as constructively owning stock held by its foreign shareholder for purposes of determining CFC status. The bill would also eliminate the requirements that a U.S. parent corporation must control a foreign subsidiary for 30 days before Subpart F inclusions apply.

Base erosion provisions: Under the bill, a U.S. parent of one or more foreign subsidiaries would be subject to current U.S. tax on 50% of the U.S. parent’s foreign high returns—the excess of the U.S. parent’s foreign subsidiaries’ aggregate net income over a routine return (7% plus the federal short-term rate) on the foreign subsidiaries’ aggregate adjusted bases in depreciable tangible property, adjusted downward for interest expense.

The deductible net interest expense of a U.S. corporation that is a member of an international financial reporting group would be limited to the extent the U.S. corporation’s share of the group’s global net interest expense exceeds 110% of the U.S. corporation’s share of the group’s global earnings before interest, taxes, depreciation, and amortization (EBITDA).

Payments (other than interest) made by a U.S. corporation to a related foreign corporation that are deductible, includible in costs of goods sold, or includible in the basis of a depreciable or amortizable asset would be subject to a 20% excise tax, unless the related foreign corporation elected to treat the payments as income effectively connected with the conduct of a U.S. trade or business. Consequently, the foreign corporation’s net profits (or gross receipts if no election is made) with respect to those payments would be subject to full U.S. tax, eliminating the potential U.S. tax benefit otherwise achieved.

Exempt organizations

Clarification that state and local entities are subject to unrelated business income tax (UBIT): The bill would amend Sec. 511 to clarify that all state and local entities including pension plans are subject to the Sec. 511 tax on unrelated business income (UBI).

Exclusion from UBIT for research income: The act would amend the Code to provide that income from research is exempt from UBI only if the results are freely made available to the public.

Reduction in excise tax paid by private foundations: The bill would repeal the current rules that apply either a 1% or 2% tax on private foundations’ net investment income with a 1.4% rate for tax years beginning after 2017.

Modification of the Johnson Amendment: Effective on the date of enactment, the bill would amend Sec. 501 to permit statements about political campaigns to be made by religious organizations.

Sally P. Schreiber (Sally.Schreiber@aicpa-cima.com) and Paul Bonner (Paul.Bonner@aicpa-cima.com) are JofA senior editors, and Alistair M. Nevius (Alistair.Nevius@aicpa-cima.com) is the JofA’s editor-in-chief, tax.

04/13/2017

Taxes on Tips

While tips are discretionary and reflect a happy customer, taxes on tips are not optional and, if overlooked, can cause unhappy headaches for both taxpayers and their employers.

Tip jar picAll cash and non-cash tips are considered income and are subject to Federal income taxes. Tips include cash left by a customer, tips added to debit or credit card charges, and tips received from other employees or employer through tip sharing, tip pooling or other arrangements.

Employees who receive tips regularly are responsible for keeping a daily tip record and reporting all tips on their individual income tax return.  They must report tips that total $20 or more in any month by the 10th of the following month regardless of total wages and tips for the year.

If an employee doesn’t have or isn’t assigned a tip-tracking and reporting tool, the IRS provides a Daily Record of Tips (Form 4070) that an employee may use to document tips in the manner which is considered sufficient proof of tips received. Reliable proof of tip income would include copies of restaurant bills and credit card charges that show the amounts customers added as tips.

Automatic service charges that are often added onto bills are not considered tips, but rather are treated as regular wages so any taxes owed would be withheld by an employer on an employee’s next paycheck. Examples of service charges include things like bottle service charges, gratuity that is automatically added to a bill for large parties, delivery charges, and room service charges.

Employers must withhold income, social security and Medicare taxes on tips just as they would on other income earned by their employee.  If tips are not reported to an employer as required, an employee may face a penalty of 50% of the unpaid social security and Medicare taxes due.

If there are any unreported tips, a taxpayer must file a report of the income through another Form 4137 "Social Security and Medicare Tax on Unreported Tip Income" which helps the employee figure the amount that is subject to tax and how much is owed.

It can be a tedious process especially for workers who make money through a predetermined hourly wage with unpredictable tip income added to the total.  Workers who receive their tips at the end of each shift must make certain they record the tip amounts on their monthly tip report to their employers.  The taxes owed would then be deducted from their next paycheck. It’s possible that hourly wages may not cover the taxes owed. When this happens, any remaining taxes owed can paid out of the next paycheck through an employer agreement. This is the area where most problems occur as tax obligations on tips for one month may impact several paychecks.  It’s up to the employee to keep track of required tax payments so that there are no outstanding payroll taxes owed at year’s end.

If you need more help understanding how to record and report tip income, please contact one of our tax preparation experts at McRuer CPAs.

04/12/2017

Tax Reform Timeline

Although Republicans appear to have more agreement on the specifics of tax reform than health care reform, experts predict we’ll be hearing more debate in committees and in the media before an actual tax reform bill makes it to the House or Senate floor.  Now many experts predict a tax reform or reduction bill will pass, but it may not happen in 2017.

Capitol-hill-washington-d_cThe White House and Republican lawmakers know they need a more unified front to sustain a push for major tax reform, especially in the wake of continued angst and division over health care reform. Treasury Secretary Steven Mnuchin is a key player in drafting and negotiating a tax reform proposal.  He says he is optimistic that a comprehensive plan should win approval by the Congressional recess this August. But President Donald Trump has been less specific. When asked recently whether he could “cut a deal on tax reform this year” by a Financial Times editor, Trump responded he did not want to talk about timing saying, “We will have a massive and very strong tax reform. But I am not going to talk about when.”

Leading House Republicans, including House Speaker Paul Ryan, have proposed tax code changes that include a much-debated border adjustment tax. CEOs of 16 U.S. companies including General Electric and Boeing support the proposal that would reduce corporate income tax from 35% to 20%.  It would also impose a 20% tax on imported goods while removing taxes on exported goods.  Critics claim such a tax structure would cause consumer prices to rise and unfairly burden retail and automotive manufacturing industries that purchase low-cost parts and supplies from overseas.

Trump has also expressed an interest in pushing simplified personal income and corporate tax reform through at the same time and may also include an infrastructure investment package in a comprehensive tax plan. Tackling big issues with a massive all-encompassing bill may provide opportunities to please all parties, but may also result in the same kind of partisan and intraparty fractures suffered by health care reform efforts.  

Democrats are also unlikely to support major income tax cuts at either the corporate or personal level.

Based on their recent disappointment over a failed attempt to repeal the Affordable Care Act, Republicans know they need to build and confirm support for significant tax reform.  Many financial experts say that means an agreement may not be reached until late 2017 or early 2018.

03/20/2017

April 1 Deadline For Required IRA Distributions

Taxpayers who reached age 70½ during 2016 have until April 1st to apply for and begin receiving required minimum distributions (RMDs) from an Individual Retirement Account (IRA) and/or workplace retirement plan.

Deadline approaches picThe April 1st deadline applies to owners of traditional IRAs, such as SEP and SIMPLE IRAS, but not Roth IRAs.  It also generally applies to participants in various workplace retirement plans, including 401(k), 403(b) and 457(b) plans.  Some employees who are still working may wait to receive distributions, if their plan allows, until April 1st of the year after they retire.

The April 1st deadline only applies to the required distribution for the first year.  For all subsequent years, the RMD must be made by December 31st of each year.  So, a taxpayer who turned age 70½ in 2016 and has received the first required distribution by April 1, 2017, must still receive the second RMD by December 31, 2017.

The amount of the distribution is calculated using life expectancy tables matched to the year-end IRA account value of the IRA.  Worksheets and life expectancy tables are available in in IRS Publication 590-B “Distributions From Individual Retirement Arrangements”.

It can be costly to miss the deadline for receiving a distribution, as the taxpayer faces a 50 percent tax that would be applied to any required amount not received by the April 1st deadline.

For more information, click here to read through frequently asked questions or contact one of our tax experts at McRuer CPAs.

01/06/2017

2017 Tax Rates (If Nothing Changes)

Income tax graphicPending any immediate changes under a new administration, tax officials say low inflation rates will ensure that current tax brackets and most other tax system features will change only slightly in 2017 with the exception of effects of health coverage mandates.

The standard deduction will rise $50 for individuals to $6,350 from $6,300.  The personal exemption increased $4,050 in 2016 and will remain the same in 2017. The standard deduction for married filing jointly rises $100 to $12,700.

The personal exemption for tax year 2017 remains at $4,050.  However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $261,500 ($313,800 for married couples filing jointly). It phases out completely at $384,000 ($436,300 for married couples filing jointly).

But for those taxpayers who do not maintain the minimum essential health coverage in 2017, the penalty which is collected by the IRS will increase significantly. The charge for failing to have qualified health insurance coverage will be $695 or 2.5% of income for individuals and $2,085 or 2.5% of income for families.  The penalty was $325 for individuals and $975 for families in 2015. That was an increase from the penalty of $95 for individuals or $285 for families in 2014.

The 2017 top individual tax rate of 39.6% will apply to income above $470,000 for married couples, up
from $466,950.  The Affordable Care Act (ACA) or ‘Obamacare’ mandates that high-income taxpayers pay another 3.8% surtax on net investment income, so the top federal income tax rate for individuals is actually 43.4% and will remain at that level pending a possible ACA repeal.

Qualified dividends and long-term capital gains are also taxed an additional 15% or 20% depending upon income and are subject to another 3.8% net investment income tax.

Estates of decedents who die during 2017 have a basic exclusion amount of $5,490,000, up from a total of $5,450,000 for estates of decedents who died in 2016.

These rates are set to apply to 2017 taxes which will be filed in early 2018.

Call us at McRuer CPAs if you have any questions: 816.741.7882 or contact us online by clicking here.

11/15/2016

Tax-Related ID Theft Drops

The IRS and its Security Summit partners say collective efforts to stop tax-related identity theft appear to be working.  New statistics show that the number of new people filing affidavits with the IRS claiming they have been victims of identity theft regarding their federal tax returns has dropped more than 50 percent compared to 2015.

Identity thieves typically file fake tax returns seeking refunds.  A taxpayer doesn’t know their personal information has been stolen until they file a tax return and are alerted that a refund was already issued.  So far in 2016, nearly 238,000 claims of tax-related identity theft have been filed compared to more than 512,000 in the same time period of 2015.  Overall, more than 74.5 million individual tax returns were filed in the 2015 tax year. 2016 totals are not yet available.

Identity theftThe IRS credits new systems checks with catching fraudulent returns before they are processed.  Through September of this year, the IRS stopped 787,000 confirmed identity theft returns, preventing more than $4 billion in losses from fake refunds.

More banks are also joining the tax fraud fight by using internet-related signals to stop suspect refunds from being auto-deposited, especially refunds with an unusually high dollar amounts.  Shared information between state and regional tax offices has improved fraud filters and alerts.  New hidden data elements on tax returns filed by professional preparers has also helped detect suspicious returns.

04/15/2016

Filing For a Tax Extension to Meet Deadline Time

Paying-taxesAlthough taxpayers have an extra weekend to prepare and file individual income tax returns due to the Friday April 15th federal holiday, the Monday April 18th deadline arrives with the same rules.  You must file your 2015 individual income tax return by the deadline or face penalties as well as additional penalties and interest charges on any unpaid taxes owed.

Even if you’re filing an extension allowing up to six months more time to complete and file your final return, you are still required to pay the estimated taxes you owe by the April 18th deadline.

Filing an Extension

At this point, there are only a few more days to complete your tax return on or before the deadline.  If you have a complicated return and have not yet submitted tax information to your tax preparation professional, requesting an extension of time to file may be your best option.

Form 4868 is the application you need for an automatic extension of time to file your federal individual income taxes.  The IRS will give you up to October 17, 2016 to file your 2015 individual income tax return before new late filing penalties will be assessed. You may file it any time before the extension expires.  Qualifying taxpayers who are out of the country are allowed two extra months to file and pay taxes owed without facing a penalty.  Those taxpayers include citizens who are in the military serving outside the country or live and/or work outside the United States and Puerto Rico. (Read more about military service tax benefits by clicking here.)

If you request an extension, you will still owe interest on any tax that was not paid by the regular due date, even if you qualify for the two-month extension to file your return. (Find out more about the penalties you may face by clicking here to read The Price of Missed Tax Deadlines.)

One way to escape having to file the extension request tax form is to pay the taxes you owe through an IRS venue such as Direct Pay, EFTPS or using your own credit card on irs.gov.  When you pay all that you owe online by the deadline through these venues you will receive a confirmation number for your records and do not have to file the Form 4868.  However, you will need to file your tax return as soon as you can.  On that return you will be asked to share your confirmation of paying your taxes by the deadline.  You still face a late filing penalty, but will not have to pay penalty and interest on the taxes owed. (For information about ways to pay the tax you owe, click here to read Tax Payment Options to Meet Deadline Date.)

Businesses may also apply for an extension of time to file tax returns under certain circumstances, such as being in the middle of declaring bankruptcy. Form 7004 provides a tool to request a 5-month or 6-month extension of time without paying a late filing penalty. Form 1138 allows certain corporations an extension of time to file if the entity is expecting a net operating loss carryback that cannot be calculated by the designated tax deadline date.

If you have any questions about filing an extension or meeting your tax deadline obligation, please contact us at McRuer CPAs for more information.

04/08/2016

Tax Payment Options to Meet Deadline Date

The IRS says more than 70 percent of taxpayers will receive tax refunds this year due to tax credits and having too much of their income withheld.  Last year’s average tax refund was $2,797 and it’s expected to be close to the same average for this year’s tax season.

Meanwhile, for the rest of taxpayers who owe taxes there are new and faster ways to pay.  The IRS offers several online or direct-call opportunities to pay taxes even without filing on time. 

Paying-moneyThe Direct Pay option allows individuals to pay their outstanding taxes or estimated taxes directly from a checking or savings account.  A taxpayer receives an immediate confirmation of payment if making an instant payment or can schedule a payment to be made at a later time or at future intervals.  The IRS system does not store the payment information after the transaction to avoid online hackers.  See a previous ReSource article Another Cyberattack on Taxpayer Information for more information about tax-related identity theft occurring through IRS systems.

For the first time there’s a new cash payment option for taxpayers in partnership with two online payment processing companies including OfficialPayments.com and PayNearMe.  Individuals may now use up to $1,000 cash per day to pay outstanding taxes if they do not have or do not want to use a bank account or credit card.  Payments can be made at more than 7,000 participating 7-Eleven convenience stores across the country.

The IRS still promotes that the easiest way to pay individual and business taxes is through the Department of Treasury’s Electronic Federal Tax Payment System or EFTPS.  A relatively new feature to this online registration payment method is the EFTPS Voice Response System.  Both services are offered for free with no extra fees charged for processing and scheduling regular payments.

Through EFTPS a taxpayer can use the internet, phone or mobile device to make, schedule and review tax payments any time of day.  Businesses and individuals can schedule payments up to a year in advance. Payments can be changed or cancelled up to two days before the scheduled transaction date. This method provides a way to pay all types of federal taxes from individual to business federal income taxes, employment taxes, estimated taxes and excise taxes.

Should a taxpayer prefer to use a credit or debit card to pay taxes, the IRS accepts payments from Visa, MasterCard, American Express and other card vendors.  The taxpayer must submit the payment information through IRS-approved secure credit card processing companies.  Each processing company charges a fee for the transaction.  The system is not designed to accept high balance tax payments nor federal tax deposits. Generally, the payments are limited to 2 per year for individuals and 2 per quarter for estimated tax payments.  The providers are Pay1040.com, PayUSATax.com and OfficialPayments. You can review the the IRS-approved options by clicking here.

We’ve explained a lot about federal income taxes, but don’t forget that you also have state and local tax obligations and deadlines.  Each state, county and municipality has different ways of accepting tax filings and payments.  Most have online payment programs in place.  Check with your state and local tax collector’s office online or by phone if you have questions about how, when and where to file your tax return and make tax payments as needed.

If you continually receive tax refunds, it may be a sign that you’re having too much withheld.  The money could be put to better use than loaning it to the government for free.  On the other hand, if you owe taxes every year that you did not expect, you may benefit from strategic tax planning that could lessen your tax burden or provide a more consistent tax payment structure that could ease tax deadline pressures. 

At McRuer CPAs it is our goal to make certain you pay only the taxes you owe. Contact us to set up a tax review session with one of our tax preparation experts.

04/04/2016

Tax Freedom Day Federal and State

The Tax Foundation has released its summary on Tax Freedom Day. It reveals that April 24th is the day this year that marks theoretically how long all Americans must work to earn enough income to pay the nation’s total tax bill.

A Wikipedia entry describes how Tax Freedom Day is calculated; “Every dollar that is officially considered income by the government is counted, and every payment to the government that is officially considered a tax is counted.” The specific date is determined by adding up all federal, state, and local taxes and then dividing that number by the nation’s income.

The Tax Foundation summary reports Americans will pay $3.3 trillion in federal taxes and $1.6 trillion in state and local taxes. That’s a total tax bill of nearly $5 trillion adding up to 31% of the nation’s income. The reports says, "Americans will collectively spend more on taxes in 2016 than they will on food, clothing, and housing combined.”

This year’s April 24th Tax Freedom Day is 114 days into the year (excluding Leap Day). It is one day earlier than last year, due to slightly lower federal tax collections.

If you add annual federal borrowing into the mix, that is, future taxes owed, Tax Freedom Day would occur 16 days later on May 10.

FreedomStates have different State Tax Freedom Days because they each have different tax policies. The taxation and income variances translate into higher-income and higher-tax states celebrating the date later while lower-income and lower-tax states hit the mark sooner. For example, Mississippi has the lowest average tax burden and the tax freedom day for its residents is April 5th this year. Connecticut and New Jersey’s tax freedom days are much later on May 21 and May 12, respectively.

McRuer CPAs clients in the central Midwest see the following State Tax Freedom Days: April 12 for Missouri, April 14 for Iowa and Nebraska, April 13 for Arkansas, and April 19 for Kansas.

To find out more about Tax Freedom Day click here to read the Tax Foundation’s Summary Report.

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