21st Century Common Sense

10 Things Smart People Do To Mess Up Their Taxes

noreply@blogger.com (Don Fuener) — Wed, 05 Jan 2022 02:10:00 +0000

Back in 2017 we couldn't help but notice that our really smart clients sometimes do things that really mess up their taxes. In 2022, five years later, things really haven't changed. that much. So we thought it would be a good thing to publish our list again and help you avoid mistakes with your taxes.

10 Things Smart People Do To Mess Up Their Taxes

Each year after tax season we stop, take a deep breath, and wonder why our very smart clients sometimes do very stupid stuff with their taxes. Each year we make a list, compiling the knuckle headed stuff that some clients did causing a painful April 15th, with a hope that this list will help you avoid their mistakes. Please note that references to links at our web site 1taxes.com on all found on the resources page.

Making too much money and not paying in their taxes. We call it putting your big boy pants on. Taxes are a real life part of your families’ budget. Experts tell us that the combined federal and state tax liabilities are in fact the largest single part of your budget. Yet some clients seem to be in denial. In fact some clients have told us that despite their six figure income, they are barely making ends meet, let alone have the money to pay their taxes. All the deductions and credits in the world still can’t change the fact that paying some taxes are going to be part of your life. The IRS is the worst creditor in the world. The largest collection agency in the world, the IRS, can make your life miserable. We live to figure the correct amount of withholding to avoid that very unpleasant scene on April 15th. Call us we can help.

A lot of jobs with little or no withholding. Or spouses income pushes clients into a higher tax bracket yet they are not recognizing this fact that by not withholding enough you are not paying the correct tax liability. There is no other way to describe it: The IRS does a lousy job helping us figure out the correct amount of withholding from our paycheck. The assumption that the amount of withholding is based upon our dependents has gone the way of the dinosaur. In fact form W-4 is a fairly complicated calculation requiring you to take in account your marital status, whether you itemize deductions, and whether you have more than one job or if you have two spouses working. By our calculation the form requires answering 17 questions, and a good number of calculations. Five in fact. Two solutions to the problem. Call us. Our computer program can make the calculation fairly simply, or check out the link on web site 1taxes.com to the IRS interactive W4 calculator.

Take money out of their IRA or pension plan and don’t have any money withheld for taxes. Still the number one offender and the cause of more heartache is an early distributions from tax sheltered plans. If you have to take money out of your tax sheltered plan don’t forget that there is a 10 percent penalty in addition to Federal tax owed on the distribution if you are under age 59 1/2. Don’t ever take money out of these plans without having the most Federal tax withheld from the distribution. Call our office. We can help.

Take money out of their IRA or pension plan or 401 K and not roll it over to another tax deferred plan. Back on this subject again. Leaving your job usually means cashing in a pension plan or 401 K. We understand that sometimes the money is needed to pay for day to day bills until you can find a new job. But if you don’t need the money don’t spend it, roll it over. We can help you if you don’t know what to do. We can refer you to very competent people that can help with the rollover. Taking the money if you don’t need it means additional tax liability.

Don’t keep any records. Records are very important in our imaginary tax world, a place nobody really lives in, yet we all step in it come April 15th. Recordkeeping is very important. Especially for business tax deductions like car expenses. Jotting down on a daily basis in a daily planner, online, or a pocket calendar is all you need. Keep a file nearby for tax deductible receipts. Better yet get a credit card that you use only business tax deductions. That way you all the receipts organized for you. Your credit card along with your milage calendar is all you need to make April 15th very less taxing.

Give charitable deductions, especially non cash and don’t make any attempt to value the donation. Each year clients drop off blank receipts from the charitable organization you donated your items to. The receipt is incomplete unless you write a note about the date and time of your deduction and a short list of the description of the deduction in your tax deduction file is all you need. The million dollar question is how much should I value that deduction I just made. The internet has made it simpler. We have linked on our website, 1taxes.com, several websites maintained by various charitable organizations to help you value that deduction. It is good stuff and helps you increase your refund.

Not filing your taxes because you don’t have the money to pay. This is a very fatal mistake. Always file, even if you do not have the money to pay the taxes you owe. The IRS considers not paying on time and not filing as two separate issues, and a penalty is involved for each. Those penalties are rather steep It can be as high as 25% of your unpaid tax liability. When you file your tax return, you have several options. You can apply for an "offer in compromise," make monthly payments through an IRS installment agreement, or temporarily delay paying. Whichever is best for you, we will help you contact the IRS right away to let them know you cannot pay. You should pay as much as you can when you file because the IRS assesses penalties and interest on the amount not paid.

Ignore those letters from the IRS. Do not ignore mail from the IRS. If you owe taxes, the IRS will collect. Persons who do not communicate with the IRS about inability to pay can expect a "Notice of Federal Tax Lien" to be filed against their property. In lien terms, this is a lien about the size of Alaska. Few carry more weight. The lien attaches all your property, including your house, car and any future property you might obtain. A levy, which is a legal seizure of property to satisfy a tax debt, is another legal means the IRS can use to collect taxes. This means the IRS can seize your car, boat or home and sell it to satisfy your tax debt or it can place a levy on your wages. More good news is that these liens often stay on your records long after the issue has been resolved or until the IRS gets around to removing it. So it's also the gift that keeps on giving! We have spent significant time and energy in our tax resolution service. If you are in trouble, it really pays to hire us to help.

Home office expenses are often an overlooked source of valuable business deductions. Many business owners don't claim them because they fear (incorrectly) that home offices are an audit "red flag," or because the recordkeeping is a pain. (Form 8829, which helps calculate the deduction, includes 43 lines and asks you to "see instructions" 17 times.) But now the IRS has released a "safe harbor" method that may make home office deductions more accessible. It is a simpler per diem rate. We used it for many taxes we prepared this year. It works and saves your money. Do you have a space, not just a room, just a space, in your home that you use "regularly and exclusively" for business? But don't specifically deduct it as such? To see if the new safe harbor makes sense for you, call us.

Big refunds. Isn’t that the point of filing? Big refunds. In fact some clients rate the expertise of their tax preparer with the size of their refund. The bigger the refund the better the tax preparer. Nothing can be farther from the truth. Refunds are nothing more than interest free loans of your money to the government. Then you have to go through the expense and the wait of getting your refund when you file your taxes. Extra withholding doesn’t benefit you, only the government. Don’t stand for big refunds. Stand for bigger paychecks. Your goal should be break even on April 15th.

Assuming the wrong filing status. Single taxpayers are probably the most guilty for assuming that they should file as single taxpayers when in fact they qualify for the much-more-favorable head-of-household (HOH) filing status. Say you're single and your non-adult child lives with you and pays for less than half of his or her own support. If you pay more than half the household's costs, you qualify. You may also qualify if you are still married and lived with your child but apart from your spouse for at least the last half of the year. Finally, if you are single and can claim your parent as a dependent, you can probably file as HOH. This is true even if your parent has his or her own place. You are the HOH if you pay more than half the cost of your dependent parent's home. This year we also had a number of clients for whatever reason, decided to file separately from their spouse. Married filing separately is the highest tax rate, period. You lose certain deductions and credits when you file separately. All too often one spouse will itemize deductions, taking all the mortgage interest and real estate taxes, leaving the other spouse who is forced to itemize with no deductions. Don’t settle for separate. File with your spouse. Or if you are in the middle of a divorce you may in fact qualify for the single filing status, even though you are not officially divorced. IRS rules concerning whether you are in fact single are quite favorable. Much more than state law. Something that you should discuss with us when you file your taxes next year.

Important, no-make-that-very-important changes to the Employee Retention Credit. You, the business owner, probably will no longer be eligible for the credit.

noreply@blogger.com (Don Fuener) — Wed, 17 Nov 2021 01:19:00 +0000

On August 4th, the IRS issued guidance on the Employee Retention Credit (ERC) –

a refundable tax credit that has helped thousands of businesses avoid laying off employees

since the start of the pandemic. Unfortunately, the recent IRS guidance makes it so

that wages to business owners or their spouses only qualify for the ERC if the

business owner doesn’t have any living siblings, parents, or children.

I highly disagree with the IRS guidance. And apparently so does Congress.

Michigan Congressman Jack Bergman wrote to IRS Commissioner Charles P Rettig:

“I write to express my concerns with the recent IRS Guidance on the Employee Retention Credit under Section 3134 of the Code and on Miscellaneous Issues Related to the Employee Retention Credit (Notice 2021-49). Specifically, I object to language that prevents wages paid to a majority owner

of a corporation from qualifying under the Employee Retention Credit (ERC) solely if the owner

has a direct family member.

Section IV, Subsection D of Notice 2021-49 addresses whether wages paid to an employee who is a majority owner of a corporation, or to their spouse, may be treated as qualifying wages under the ERC. As written, this guidance excludes wages to majority owners or spouses only if “the majority owner has a brother or sister (whether by whole or half-blood), ancestor, or lineal descendant.” As a result, the only business owners that can take advantage of this credit are those who are orphaned and have no children or siblings. Meanwhile, those with families are cut off from this support, despite having

an equal or greater need for financial relief through the ERC.

The distinction made in your guidance is entirely illogical, goes against the intent of Congress, and arbitrarily punishes Americans with families. I, therefore, request further explanation as to the statutory rationale for this decision and urge you to take action as needed to correct this absurd bureaucratic move.”

The tax practitioner community is recommending that we hold off doing anything for

past 941 filings.

We were operating under the law.

And the probability of this decision being reversed is highly likely.

We have three years to amend any returns.

However, looking forward, we will no longer be calculating the ERC for any wages paid to the

majority owner, or family members.

Please feel free to call us with questions.

Tax Partners 2021 Tax Guide is now available.

noreply@blogger.com (Don Fuener) — Wed, 13 Jan 2021 02:03:00 +0000

It's here. Tax Partners 2021 Tax Guide is hot off the presses.

Our fees. We have not increased them from last year.

What we can do to recover lost stimulus payments. It's a little complicated.

A discussion of last minute changes in the tax laws. And there are many.

How to use our new client file transfer portal. Send your information to us without visiting our office.

List of items needed to prepare your taxes. Did you know that you can now deduct charitable contributions whether or not you itemize deductions.

Please click on this link to read Tax Partners 2021 Tax Guide.

Last minute tax savings tips for small business owners. Our December 2020 Client Newsletter

noreply@blogger.com (Don Fuener) — Thu, 10 Dec 2020 01:35:00 +0000

On January 1, 2021 the minimum wage in Illinois will increase to $11.00 an hour for employees and $6.00 an hour for tipped employees.

We will see what the effects of the increased minimum wage has with the now shaky Illinois economy.

The experts say that an increased minimum wage will reduce employment in the long run, and less employment opportunities for low-skilled workers.

How are you going to handle your increased labor costs? I don’t see any other option but to consider yet again a price increase and considering limiting your employees hours.

Don’t forget we will be calling you asking about your health insurance premiums this month.

We know your thoughts are on the holiday and not tax savings ... but taking actions in the next few weeks specifically designed to reduce your 2020 tax liability will prove to be rewarding when you file your taxes next year.

Earlier this month I attended two days of virtual tax school. Taught by a former IRS agent, Chris Bird, Chris teaches from a much different approach than the virtual IRS Nationwide Tax Forum I attended for four weeks this summer. Chris looks at everything from the practitioner perspective, not from a we make the rules perspective. Specifically how we can help you save taxes.

However, a reality check is in order. There really isn’t anything new in our imaginary tax world this year, with the exception of Covid-19 relief legislation. New rules apply to foreclosures, and repossessions, cancellation-of debt income, and 2020 relief loans and grants such as the PPP loan you may have gotten earlier this year. By the way PPP loan forgiveness is not taxable income to you. I can assure you that the Covid-19 is an extraordinary taxpayer friendly legislation and hopefully produces even bigger refunds for 2021.

With just 31 days left in the year, now is the time to focus on some last minute tips to help you have a happier April 15th. Tis the season for tax planning and more importantly tax savings.

Whether you are filing your tax return as a partnership, corporation, or a sole proprietor, there are certain things you should be doing right now to save taxes. We hate April 15th surprises just as much as you do. Please understand that the things you do right now can make all the differences come next April.

But first a quiz. What deduction is absolutely free? Is only available if you are a small business owner or own rental property. And likely won’t survive a change in administrations. If you answered QBI, you would be correct. The Qualified Business Income (QBI) deduction is something that we have never seen in more than 40 years of tax practice. It has an extraordinary effect on your tax liability.

Why? Because the QBI deduction reduces the net income of your small business by 20 percent. That means you will pay taxes on 80 percent of business’ net income this year. The IRS has introduced a new form 8995. It is attached to your personal tax return, calculating how we made the QBI deduction.

It does require some work. Specifically looking at how to maximize this free deduction, and calculate the lowest tax liability, while preserving current and future tax deductions. Is it better to make an IRA deduction, or expense the purchase of new equipment? Does the QBI deduction outweigh the benefits of let’s say a SEP contribution? These decisions can only be made when we prepare your tax return. It is that complicated calculation. But it is a really good thing. Trust me.

Version 37 of the same story.

Sally Smith, was a smart businessperson, she knew the basics of year-end tax planning.

1. Postpone income to next year.

2. Pay as many expenses as possible this year.

3. Keep inventory level low.

4. If you are going to make a capital investment, do so before the end of the year.

5. Double check for missing deductions.

6. Invest in an IRA or a similar type account.

Sally owns a retail store and faced the year end with her eyes wide open. Sally knew that a few strategies would pay big dividends on April 15th. Here is what she did to reduce her tax liability:

Since Sally was operating her business on a cash basis and relied upon cash sales through her cash register, she did not have the opportunity to postpone much income. She followed a policy based on our firm’s standard practice for clients for many years, to close her books on December 28th, which gave her an opportunity to defer three days of sales to next year.

Sally then reviewed her bills. She started to write out checks for her expenses. She wrote checks for all expenses due, even if some expenses were due in January. She dated her checks for December 28, 2020 to be sure that the expenses were recorded for this year on December's bookkeeping. Her checks written totaled to almost $10,000. Her one simple strategy, accelerating expenses meant that Sally saved over $4,000 in income tax this year.

Since you pay taxes on your inventory at the end of the year, Sally knew that reducing her inventory to the lowest amount possible was important for her. First, she decided to review her inventory to see if she had things that have been gathering dust. She found items that in fact had been sitting around for more than three years. She decided to mark those items down and immediately started an inventory reduction sale for those items. She knew that the value of her inventory was based upon her costs of the items, not the selling price. She also knew that items that were partially used, or supplies not for resale, did not count as part of her inventory.

Sally had been debating whether to purchase a new computer for her business. The local computer store was offering a "six-months same as cash" financing offer for the purchase of new computers. Sally decided to purchase the computer now, electing to take advantage of the special financing offer. She knew that she could deduct the full purchase price of the computer on her tax return, even though she did not pay for it right away. When you purchase something using a credit card or borrow the money, as Sally did, you get to deduct the amount when you purchase the item. The $3,000 computer saved Sally $1,200 in income tax.

As part of her year-end review Sally took a minute to see if perhaps she has recorded all her business expenses as part of her monthly record keeping. She knew that the credit card that she had been using exclusively for business had some interest payments that were not included.

She made a note to record her year-end statement from her credit card company to make sure that it was included as interest paid on her year-end documents to her accountant. In addition, she decided to review her automobile mileage and other receipts for expenses that she might not have had for her business and had a chance to record in her monthly record keeping.

Surprisingly, Sally read a previous newsletter and decided to take her business accounting online. She took our advice and subscribed to Wave app accounting. She took advantage of downloading her bank account and discovered how easy it was to enter her data. She really liked it and is recommending it to other small business owners she knows.

Sally also knew that she had time to make her annual IRA contribution until April 15 of next year. She decided not to make it till next April. She also made a note to talk to us about Roth IRA accounts and analyze the different options available to her. One of her options was a self-employed Pension Plan commonly called a SEP. IRA's. SEP. IRA's do not have to be opened or funded until the due date of your return. That means that Sally doesn't have to open or make a contribution to a SEP IRA for the 2020 tax year until April 15, 2021. She can also contribute a larger amount to her SEP IRA than she could to her regular IRA. However, she was reluctant to open one because she also knew that she would have to contribute an amount to her full time employees.

She made a note to ask her tax guy what that contribution would be and what her resultant tax savings would equal. She also thought her accountant might have ideas on how to "cushion" the employee's contribution issue.Sally knew that her year end review of her tax situation saved her almost $7,000 this year.

She made a note to review her year end information before we prepared her tax return in 2021.

SAVE TAXES...REMEMBER BEFORE JANUARY 1, 2021

Postpone income to next year.

Pay as many expenses as possible this year, even if you do not send the checks off till January, be sure to write the checks for the expenses.

Keep inventory at a low level.

If you are going to make a capital investment, do so before the end of the year.

Double check for missing deductions.

Invest in an IRA or similar type account.

Here is our list of last minute individual tax strategies for 2020:

1. Increase your contributions to your 401(k) or IRA retirement investment plans. A retirement plan is an easy deduction. If your employer is not participating in your retirement plan, you should consider an IRA or participate in the self funded 401(k) if at all possible. Also, while some employers require a wait time or require employees to wait until open enrollment to start up payroll deductions, some companies will let you start at the end of the year or even on the next paycheck. It’s worth looking into, since the money contributed to a retirement account is typically not subjected to income taxes.

2. Charitable giving. Not only are donations good for your taxes, they're good for society as a whole. While there may be no large tax benefit for some donations, please consider the social benefits to making donations to charitable organizations.

Even older computers and cell phones can be useful for training or other charitable causes -- it doesn't have to be an iPad. You're entitled to fair market value for clothes and furniture, among other things, so take time right after Christmas to clean your closets and head to your favorite charity.

The little things add up too, and you can write off out-of-pocket costs incurred while doing good works. For example, ingredients for casseroles you prepare for a nonprofit organization’s soup kitchen and stamps you buy for your school’s fundraising mailing count as a charitable contribution. You can also deduct any out-of-pocket travel expenses for charitable causes, which includes everything from mileage for travel, taxis or parking expenses.

3. Choose stock donations over cash. If you're thinking about making a large cash donation, you might want to think about using stock in a company that has done well. Make a donation of those shares; if you sell the shares to make a large donation you have to pay taxes on the profit. However, if you donate the shares then you receive a tax deduction for the fair market value of the stock.

4. Paying next semester’s college costs early and counting the costs toward the American Opportunity tax credit. Simple and easy. Works best for freshmen who started college in the fall of 2019.

5. Sell losing investments. Capital losses are first used to offset capital gains, and then up to $3,000 of the net loss can be deducted against income, such as your salary. Any excess loss is carried forward to future years.

8. See if you can deduct any medical costs. You have to itemize to qualify for this deduction and expenses have to be more than 7.5% of your adjusted gross income, but if you have a lot of doctors' visits and medical procedures, it may be worth checking out. Will you need surgery in the near future? If so, try to get it in before the end of the year.

I hope this helps your planning!

Six things shut downed Illinois restaurants should be doing now.

noreply@blogger.com (Don Fuener) — Thu, 26 Nov 2020 14:45:00 +0000

Back in August 2020 I wrote in our monthly client newsletter “I have been doing a lot of thinking about this whole Covid 19 thing. If you are still in business congratulations. If you are a still open restaurant business owner, you are an extraordinary business person.

Yelp is reporting that at least 4,400 Chicago businesses have closed permanently. As we enter the fourth month of this thing (I really don’t know how to define it) I have nothing but respect and admiration for you, my valued client. ‘

So here we go again. Another shutdown aimed at the hospitality industry. Another challenge, with virtually no financial aid available. I have been thinking again. What advice can we give you? What are the things you should be doing right now?

Remember if it is going to be it is up to me. You must be your own advocate. The survival of your business depends solely on the actions you take now. Pick up the phone and call your local mayor, county board member, state legislator, state senator, governor (no comment), congressman, and senator. Tell these elected officials how the current shutdown is affecting both your business and employees lives. Ask for their assistance.

Apply for unemployment benefits. By now you know the drill. If you have an account you will have to apply online. Remember you must have paid yourself a salary to receive benefits. And yes IDES is still a mess. We continue to offer limited assistance for clients. Please call with any questions.

Update your must needed web site, google my business, yahoo and yelp review sites. Here are the links:

https://smallbusiness.yahoo.com/local

Get your free personalized report to see how your business appears online. More importantly Yahoo complies a Covid 19 Small Business Resource Listing that is the most comprehensive I have found on the web. This up to date list of the most useful COVID-19 resources from government, non-profit and private companies is updated daily to support small businesses during this time of crisis.

https://smallbusiness.yahoo.com/advisor/resource-center/covid-19-small-business-resource-center/

And finally:

https://www.google.com/intl/en_us/business/

https://www.yelp.com/

All of the above web sites are free

Start an eat local campaign. Prominently display outside of your restaurant a banner telling your customers you are still open and asking for their support. Carryout here and keep local jobs. Here is a link to https://www.bannersonthecheap.com

Call you suppliers and landlords again. Be upfront about the situation and your intentions on paying past due bills. Do not hesitate to call your vendors. They want to hear from you.

And finally consider a Business Interruption Grant. You must have been in business prior to the original March 2020 Covid shutdown. You will need bank statements from July and August of 2019 and July and August of 2020. You will need a copy of your business tax return. These items along with a copy of the owner’s drivers license and a signed W 9 and we can make an application for your business. Please note that if you did receive other Cares Act funding such as a PPP loan or an Economic Injury Disaster loan or grant, your application will be considered after others who have not received any assistance to date.

The first person you should call is your tax guy! No other person on your team has the experience, resources and contacts with other small business owners, such as yourself, to help you find the answer to that most perplexing, impossible to solve problem.

No matter the problem, we continue to offer you unlimited free telephone assistance, no matter what your client service level is, 52 weeks a year. No calling customer service call centers. No extra charge meters. No need to worry. A trained experienced professional is ready, willing, and able to offer assistance and answer your questions. We demonstrate and deliver value to our clients every day.

Governor Pritzker’s “Masks on. Masks off” recent executive order for restaurant customers really doesn’t cut the science mustard.

noreply@blogger.com (Don Fuener) — Sun, 27 Sep 2020 01:48:00 +0000

According to Capitol News Business Journal, effective Wednesday, Aug. 26, 2020, all bar and restaurant patrons will be required to wear face coverings when interacting with wait staff or other employees. Masks will also be required when food or beverages are being brought to the patron’s table, when placing orders and when picking up carry-out orders. “Illinois has had a mask mandate since May 1 this year, and in most establishments people are adhering to it,” Pritzker said during a COVID-19 briefing in Joliet. “But it’s important that we treat hospitality employees just as you would in any retail store or establishment. This new requirement asks a little bit more of our residents dining out in order to protect their health and safety and that of our front-line hospitality workers.”

But I got to thinking, you have to take your mask off to eat and drink. But what if the server asks, as servers do frequently, how is it tasting? Do I stop eating my meal, and put on my mask before washing my hands? Or if the bus person stops by my table and asks if he/she can clear my dishes. Do I stop everything, and put on my mask before washing my hands? And when should I put on my mask? What if the server stays six feet away? What if the server sneaks up on me? What if the owner wants to stop by our table and thank us for coming in? What “front line hospitality workers are included in the executive order? Where do I store my mask between courses or should I replace my used mask with a new one every time an employee stops by my table? What other States are making customers take their masks on and off so many times when they are dining at a restaurant?

All these interactions can, by my count, amount to at least eight times (ordering the food, having the food served in courses, cleaning the table, having the check placed on the table, paying the check, signing the credit card receipt) I have to take my mask off and then put it back on during an average dinner at my local restaurant.

All this mask on and mask offs can’t be good. Right? So I did a little research.

Let’s consult first the WHO (which has had its ups and down lately) guidance about Masks:

“Today, World Health Organization (WHO) officials reminded the public that masks still must be worn correctly, cared for and kept clean to ensure that they are effective. "People can infect themselves if they use contaminated hands to adjust a mask or repeatedly take it on or off," explained the Director-General Dr Tedros Adhanom Ghebreyesus.”

"I cannot say this clearly enough," said the Director-General. "Masks alone will not protect you from COVID-19." Source WHO June 5, 2020 briefing.

But wait there's more. Let’s see what other experts say about repeatedly taking a mask on and off.

"Once you wear a mask once, it's contaminated by whatever. If you take the mask off and sit it on another surface, that surface is now contaminated," says Geoffrey Mount Varner, MD, MPH, FACEP, a Maryland-based emergency medicine physician.

"It's best to use one-use masks and once they are taken off, dispose of them," says Mount Varner. "If you use a cloth or hand-made mask, it needs to be washed and sanitized between wears."

"If you contaminate your mask even from the outside, you can get easily infected," says physician Dimitar Marinov, MD, Ph.D.

"Taking off your face mask and then reapplying it with contaminated hands can move the bacteria or virus directly into the breathable area," says Jared Heathman, MD, a Texas-based psychiatrist.

“Make sure your hands are clean before adjusting the mask. It's best to avoid touching your face in general.”

"A mask should be changed or disinfected as often as every 2 hours, otherwise viral particles can accumulate on it and you are more likely to breathe them in," says Marinov. Source MSN lifestyle April 2, 2020.

And finally on April 7, 2020, Forbes Magazine wrote. What’s the most important thing to do when wearing masks?

“There are actually three things. First, wash or sanitize your hands, clean your face with a warm damp face cloth, and allow your face to dry before applying your mask. Second, avoid touching your face. Third, always wash or sanitize your hands before and after applying and removing your mask.”

Sound to me Governor Pritzker, your mandate is impossible to follow at the average restaurant, by the average diner, no matter how well intended, and really doesn’t protect the user or the front line server. Unless you plan on washing your hands before each server encounter. Or of course replacing your mask after each encounter. Sometimes things look better on paper than they do in practice.

Paycheck Protection Act looks like the way to keep your business afloat.

noreply@blogger.com (Don Fuener) — Fri, 03 Apr 2020 15:38:00 +0000

The Paycheck Protection Act the cornerstone of the CARE act is finally online. I strongly encourage your to take advantage of it.

Below is a discussion from the Intuit folks about the Paycheck Protection Act that they provided me to forward to you.

One word of caution, some of the links in the article are not working. Here is the primary link to the U S Department of Treasury web site dealing with the Assistance for Small Business resource page.

This link should have everything you need to start the process.

The Paycheck Protection Program (PPP) is a cornerstone of the $2 trillion Corona virus Aid, Relief, and Economic Security (CARES) Act. The program provides $349 billion in Small Business Administration (SBA) loans for small businesses with 500 or fewer employees. The goal of this loan program is to encourage businesses to keep workers employed during the corona virus pandemic.

Typically, SBA loans are for businesses that cannot find credit through other lenders, but the CARES Act waives that requirement. And while SBA loans require borrowers to post collateral and sign a personal guarantee that they’ll repay the loan, PPP loans require neither. Instead, the federal government is providing loan guarantees to lenders.

All businesses—including nonprofits, veterans’ organizations, Tribal business concerns, sole proprietorships, self-employed individuals, and independent contractors—with 500 or fewer employees can apply. Businesses in certain industries with more than 500 employees that meet applicable SBA employee-based size standards can also apply.

Determining Paycheck Protection Program loan eligibility

Lenders must determine if a business was operating as of February 14, 2020, and if it was paying employees on that date. Proof of your payroll costs is the biggest factor in determining the size of your loan. “Employees” includes full- and part-time workers. Independent contractors paid through 1099s are also included in the payroll calculation. Criteria for loan eligibility include:

The business has 500 or fewer employees.
The owner certifies that the uncertainty of economic conditions makes the loan necessary to continue operations during the pandemic.
The loan proceeds must be used to fund payroll, rent or mortgage payments, interest on debt, and utility payments.

How much can an eligible small business borrow?

Eligible small businesses can borrow up to $10 million. The maximum loan amount is based on the business’s average total monthly payroll costs for the prior 12 months, multiplied by 2.5.

Loans will cover annual payroll, up to $100,000 per worker, but cannot exceed $10 million. If your business has operated for less than a year, your loan will be based on employee payroll between January and February 2020. The SBA is paying origination fees to lenders, so borrowers don’t receive additional fees.

What are the taxes and loan terms?

After eight weeks, borrowers must submit to lenders detailed reports on how they used funds. But to streamline the process and keep small businesses running, all PPP loans have identical terms:

Interest rates of 0.5%
Maturity of two years
First payment deferred for six months after approval
100% guarantee by the SBA
No collateral or personal guarantees from borrowers
No borrower or lender fees payable to the SBA

What can I pay for using Paycheck Protection Program funds?

Since the program is designed to help businesses keep employees on the payroll, the primary use of Paycheck Protection Program funds should be used to cover payroll-related expenses. Eligible expenses include:

Salaries
Wages
Commissions
Expenses
Vacation, sick, parental/family/medical pay
Retirement contributions
Group health coverage premiums
State and local taxes

Federal taxes are not included, nor are payroll costs for employees making over $100,000 a year. However, the program covers the first $100,000.

Paycheck Protection Program funds may also be applied to administrative costs like:

Utilities (electricity, gas, water)
Communication (phone or internet access)
Insurance premiums or other healthcare costs
Rent, provided borrowers signed their lease before February 15, 2020

If small business owners use the PPP funds to cover qualified expenses over eight weeks, they may be eligible for loan forgiveness.

How is a Paycheck Protection Program loan forgiven?

Loans may qualify for forgiveness under some circumstances:

The loan is only used to cover qualified expenses.
You pay 100% of payroll dollars to employees during the eight weeks after the loan is approved.

The amount of the loan eligible for forgiveness will be reduced if:

You reduce the number of full-time workers you employ over eight weeks.
You reduce payroll costs by 25% or more.

Forgiveness is determined by the banks that grant the loans. Banks will have 60 days to approve or deny a business’s loan forgiveness request.

Normally, when a bank approves loan forgiveness, the borrower is taxed on the dollar amount of the loan, as if the loan was business income. The CARES Act does not tax the borrower when the loan is forgiven.

What if the loan is not forgiven?

If a portion of the loan is not forgiven because at least 75% of the loan did not cover payroll costs, the remaining loan must have a maturity date of 10 years or fewer. And the interest rate will be no more than 4%. There will be no penalty for loan prepayment, and the federal government will continue to guarantee the loan.

Does the Paycheck Protection Program cover sole proprietors and independent contractors?

Yes! Sole proprietors and independent contractors meet the definition of a small business under SBA size standards. Professionals in this category must also document their income and expenses.

You can document your income using bank statements and 1099s received from clients. Contractors may not receive 1099s for smaller payments. Expenses can be supported using bank statements and credit card documentation. Much of this information should be filed with your 2019 tax return.

How to apply for the Paycheck Protection Program

On April 3, 2020, small businesses and sole proprietorships can apply for these loans. On April 10, 2020, independent contractors and self-employed individuals can apply.

Complete the SBA’s Paycheck Protection Program sample application, and submit the document to any existing SBA-approved lender. Federally insured depository institutions, federally insured credit unions, and Farm Credit System institutions may also be participating as SBA lenders. Check with your bank to find out if they’re participating in the program.

When you apply for the loan, your lender will consider both your personal credit score and your FICO score. The SBA uses the FICO business score for all business loans. Both credit scores evaluate your use of credit and if you make debt payments on time. To maintain a good business score, you must pay vendors and suppliers on time.

You will need to have the following documentation to apply:

Articles of incorporation for each borrowing entity
By-laws or operating agreement for each borrowing entity
Copies of each owner’s driver’s license
Payroll expense verification
Certification that all employees live in the United States
A detailed list of employees who do not live in the U.S., with corresponding salaries
A trailing 12-month profit and loss statement
Proof of expenses like rent or mortgage payments, interest payments on debts, and utility payments.

Potential borrowers must also provide payroll details to the lender to obtain loan approval. You’ll also need to provide payroll data during the eight weeks after the loan is finalized. If you use accounting software or a payroll processor, the payroll data will be easy to access. Otherwise, you’ll need to provide documentation for:

Gross pay. This includes gross wages as well as paid time off, vacation pay, and family medical leave pay for the last 12 months.
Tax withholdings. This includes the last 12 months of federal, state, and local income taxes withheld.
2019 FUTA taxes. This includes IRS forms 940 and 941 for federal unemployment taxes.
1099s. This includes 2019 payments to independent contractors.
Health insurance premiums. This includes company-paid premiums for group health insurance for the last 12 months.
Retirement plan funding. This includes business contributions to employee retirement plans over the last 12 months.

Your business will still have to withhold federal and state income taxes, Medicare, and Social Security. Check with a CPA to determine the dates to file payroll tax reports and submit withheld payments.

Where to go from here

Contact your bank and find out if they’re participating in the SBA lending program. If they don’t, ask for a referral for another institution. Then gather your records, complete the application, and submit the data to an SBA lender as soon as possible. A CARES Act loan can serve as a lifeline for your business. Explain the application process to your workforce, so they understand the direction you’re headed. Finally, give yourself some credit for taking action.

One additional note, we are reading that some banks may not be set up yet to start the loan application process. Chase is not up yet, but Bank of America is for example. Anything put together in a week in government inefficiency world has got to have a few bumps in the road.

Covid 19 Tax return filing and payment relief

noreply@blogger.com (Don Fuener) — Fri, 27 Mar 2020 17:19:00 +0000

COVID-19 - Tax Return Filing & Payment Relief

Does the deadline postponement apply to return filing and payments?

Yes. Both the filing and payment deadlines have been automatically postponed from April 15, 2020 to July 15, 2020 for individuals, trusts, estates, corporations, or any type of unincorporated business entity. Interest and penalties will begin to accrue after July 15.

Do taxpayers need to file any additional forms to qualify for relief?

No, taxpayers do not need to submit any additional forms; the new July 15, 2020 deadline applies to all taxpayers with a Federal income tax return or payment formerly due on April 15, 2020. Individual taxpayers, who need additional time to file beyond July 15, can request a filing extension until October 15 by filing Form 4868 before the July 15 due date. Corporate filers use Form 7004 to request additional time.

Has the filing deadline for all state returns been postponed to July 15?

State filing and payment deadlines vary by state. Check with each state to get an accurate due date for filing and payment or visit our State Response to Covid-19 page.

I have already filed returns with a scheduled payment date of April 15, 2020. Will this payment be automatically rescheduled for July 15, 2020?

No, the payment will not automatically reschedule. The payment will be made on the date selected unless the payment is rescheduled. Follow the instructions below to reschedule or cancel a payment.

IRS Direct Pay – Use the confirmation number from scheduled payment to access the Look Up and Payment feature.
EFTPS - Access the EFTPS website, then click on Payments and login. Click on Cancel a Tax Payment from the left menu and follow the instructions.
Schedule Electronic Funds Withdrawal – Electronic withdrawal payments scheduled when tax returns are filed can be revoked by contacting the U.S. Treasury Financial Agent at 888-353-4537.
Credit/Debit Cards – Cancel scheduled payments by contacting the card processor.

Are first quarter 2020 estimated tax payments still due on April 15, 2020?

No, the April 15 estimated tax payment due date is also postponed until July 15, 2020.

Have the second quarter 2020 estimated tax payments, due on June 15, 2020, also been postponed?

No, the postponement only applies to the April 15, 2020 payment. The June 15, 2020 estimated payment due date remains the same.

Does this relief provide more time to contribute money to an IRA, HSA, or Archer MSA for 2019?
Yes. Contributions may be made for a particular year, at any time during the year or by the due date for filing a return for that year. Because the due date for filing Federal income tax returns has been postponed to July 15, the deadline for making contributions to IRA, HSA, or Archer MSA for 2019 is also extended to July 15, 2020.

I have tried calling the IRS for help, but I have been unable to reach anyone by telephone. What should I do?

Limited live telephone customer service assistance is currently available due to precautions taken to protect IRS employees from the coronavirus. High demand has created very lengthy wait times. The IRS encourages people to use IRS.gov for information.

How can I keep up with the IRS response to the Coronavirus and COVID-19 legislation?

For the most up-to-date information, visit the IRS Coronavirus page https://www.irs.gov/coronavirus. As information is released regarding stimulus payments and legislation, it will be posted to this page. More FAQs can be found at https://www.irs.gov/newsroom/filing-and-payment-deadlines-questions-and-answers.

They took on giants, and changed how you shop

noreply@blogger.com (Don Fuener) — Mon, 03 Feb 2020 00:21:00 +0000

In the February 2, 2020 I highlighted the New York Times Article, "They took on giants, and changed how you shop."

Here is a link to the article reprinted at the Chicago Tribune Website.

New episode of "Talking about your taxes" podcast talking about guess what.

noreply@blogger.com (Don Fuener) — Fri, 31 Jan 2020 20:17:00 +0000

Here is the link to our latest podcast, "Talking about your taxes."

Alice Foss and Don Fuener talk about your taxes. Guess what we talk about?

Please listen.

2020 Tax Refund Chart Can Help You Guess When You Could Receive Your Refund.

noreply@blogger.com (Don Fuener) — Thu, 30 Jan 2020 18:24:00 +0000

Forbes Magazine published this month a tax refund chart listing when you might receive your refund by filing date.

Maybe.

If you file a tax return that includes a refundable credits....eitc or child tax credit. The IRS will delay all refundable credit refunds until February 15, 2020.

Here is the link to the article.

Last minute tax strategies for 2019 and good news your corporate filing fee is going down.

noreply@blogger.com (Don Fuener) — Mon, 02 Dec 2019 01:45:00 +0000

Senate Bill 689, which was signed by Illinois’ Governor Pritzker on June 5, 2019, is more than 300 pages long.
Buried inside is some good news. Specifically it provides for the phase out of Illinois’ franchise tax on domestic
and foreign corporations. Currently, Sec. 15.35 of the Illinois Business Corporation Act imposes
a franchise tax on domestic corporations for the privilege of exercising their franchise and Sec. 15.65 imposes
a franchise tax on qualified foreign corporations for the privilege of exercising their authority to do
business in Illinois. The tax is measured by the paid-in capital – which is basically the funds raised
when a corporation issues stock. There is an initial tax, an annual tax, and a tax upon changes in paid-in capital.

Bottom line, the annual report fee to the Secretary of State is now $75. A savings of $25 for most clients.
And who says Illinois is so business unfriendly ...wait not so fast old man. On January 1, 2020 Illinois’
minimum wage increases to $9.25 per hour. On July 1, 2020 the minimum wage increases to $10.
New employees (first 90 days of employment) and employees under age 18 may be paid up to 50 cents
less per hour. Tipped employees must be paid 60% of the hourly minimum wage. That means your servers
wages starting the first of the year is $6 per hour.

We will see what the effects of the increased minimum wage has with the now shaky Illinois economy.
The experts say that an increased minimum wage will reduce employment in the long run, and less
employment opportunities for low-skilled workers.

How are you going to handle your increased labor costs? I don’t see any other option but to consider
yet again a price increase.

Don’t forget we will be calling you asking about your health insurance premiums this month.

We know your thoughts are on the holiday and not tax savings ... but taking actions in the next few weeks
specifically designed to reduce your 2019 tax liability will prove to be rewarding when you file your taxes next year.

Here is our list of last minute tax strategies for 2019:

1. Increase your contributions to your 401(k) or IRA retirement investment plans. A retirement plan is
an easy deduction. If your employer is not participating in your retirement plan, you should consider an IRA
or participate in the self funded 401(k) if at all possible. Also, while some employers require a wait time or
require employees to wait until open enrollment to start up payroll deductions, some companies will let you start
at the end of the year or even on the next paycheck. It’s worth looking into, since the money contributed to a
retirement account is typically not subjected to income taxes.

2. Charitable giving. Not only are donations good for your taxes, they're good for society as a whole. While
there may be no large tax benefit for some donations, please consider the social benefits to making donations to
charitable organizations.

Even older computers and cell phones can be useful for training or other charitable causes -- it doesn't have to
be an iPad. You're entitled to fair market value for clothes and furniture, among other things, so take time right
after Christmas to clean your closets and head to your favorite charity.

The little things add up too, and you can write off out-of-pocket costs incurred while doing good works.
For example, ingredients for casseroles you prepare for a nonprofit organization’s soup kitchen and stamps you
buy for your school’s fundraising mailing count as a charitable contribution. You can also deduct any out-of-pocket
travel expenses for charitable causes, which includes everything from mileage for travel, taxis or parking expenses.

3. Choose stock donations over cash. If you're thinking about making a large cash donation, you might want
to think about using stock in a company that has done well. Make a donation of those shares; if you sell the
shares to make a large donation you have to pay taxes on the profit. However, if you donate the shares then you
receive a tax deduction for the fair market value of the stock.

4. Paying next semester’s college costs early and counting the costs toward the American Opportunity
tax credit. Simple and easy. Works best for freshmen who started college in the fall of 2019.

5. Sell losing investments. Capital losses are first used to offset capital gains, and then up to $3,000 of the
net loss can be deducted against income, such as your salary. Any excess loss is carried forward to future years.

8. See if you can deduct any medical costs. You have to itemize to qualify for this deduction and expenses
have to be more than 7.5% of your adjusted gross income, but if you have a lot of doctors' visits and medical
procedures, it may be worth checking out. Will you need surgery in the near future? If so, try to get it in before
the end of the year.

I hope this helps your planning!

Five Myths About the IRS.

noreply@blogger.com (Don Fuener) — Tue, 05 Nov 2019 02:05:00 +0000

As we return to blogging from a very long vacation.....

The Monday October 21, 2019 Wall Street Journal Wealth Management section lead article featured “Nine Myths About Credit Scores.” I won’t list all nine myths. Frankly some myths are stating the obvious. “Credit reports are accurate” and “Selecting credit while using your debit card for a purchase is good for your credit score.” I learned something though.

From the article:

MYTH: If I pay my bills on time, that’s all I need to worry about

“For many consumers, the assumption is that on-time bill payment is all that matters when it comes to a good credit score. But that assumption forgets about the importance of credit utilization, which is the percentage of debt you owe compared with the total available credit that’s been granted to you.

Utilization is one of the most important components of your score. If your credit cards are maxed out, your score won’t look good even if you’re paying promptly. A rule of thumb is to use less than 30% of your available credit each month and ideally less than 10%.

Another key strategy to consider is calling your card issuer to ask for a higher credit limit. If successful (and 85% of the time it is, according to CreditCards.com, a credit-card comparison site), the request would instantly lower your utilization.

“This is one of the fastest, easiest, no-cost ways that anyone can help their score,” says industry analyst Ted Rossman of CreditCards.com.”

Which got me to thinking. There is no organization that strikes more fear than the IRS. After all it is the largest, most powerful collection agency in the world. The IRS has powers to take your money and / or property without a court hearing. Come to think about it, so does the Illinois Department of Revenue and the Illinois Department of Security for that matter. In my opinion no agency deserves a myth list than the IRS.

Five Myths About the IRS.

The IRS is an all powerful, all watching, efficient organization, watching everything you do. Nothing could be farther from the truth. Saddled with 1960s era computer systems, reduced budget, a smaller workforce, and an impossible Obamacare mandate to monitor every American’s health care coverage on a monthly basis, efficiency is not an IRS trait by any measure. I like to tell clients that patience is required when they receive an IRS notice. IRS doesn’t open their mail. Doesn’t answer their phone 30 percent of the time. No longer lets you walk in their offices without an appointment. There is no longer a revenue officer based in Springfield. It seems that IRS moves at glacial speed. Examinations take years not months to settle. And the tax court system is so clogged, if you have the nerve to wait the IRS out, you have a very high chance of a favorable settlement because the IRS does not have the means to prepare or conduct a trial for us small fish. Despite all of this, because of their lien and levy powers, IRS is an agency that remains all powerful, and requires respect. It is just not that efficient doing the stuff that they do.
If you owe the IRS a significant amount of money, the Offer in Compromise Program (OIC), so much advertised in the media, sure seems the way to go. Well not really. Any taxpayer that files for an OIC stops the clock. IRS has ten years to collect past due taxes. Every tax return has an official statute date. That statute date starts the ten year clock. (In contrast, Illinois has a much longer collection period ...25 years. This extraordinary time period to keep a debt valid, and collectible, is so bad for the Illinois taxpayer, clogging the collection bureaucracy at the Illinois Department of Revenue, and frankly, is just unfair for a non judicial ordered debt, that may or may not be correct. By the way the statute of limitations for Illinois consumer debt is either five of ten years. But I digress.) Filing the OIC stops the collection clock. Considering the chances of qualifying for an OIC are not very good. Less than 40 percent of offers are accepted by the IRS. It takes a very long time to get IRS to work your OIC. Two to three years by our experience. See number one above. You might be better off trying to make your account either uncollectible because of your financial or health situation or consider an IRS payment plan. But caveat emptor.
IRS offers a payment plan to pay past due taxes that you should take advantage of. By law if you owe $5,000 or less, IRS will have to set you up on a payment plan. In reality IRS offers payment plans for taxpayers that owe up to $100,000. See number one above. Again because it has such problems getting things done, $100,000 payment plans are easier to administer than enforced collection. Payments are based on your finances. IRS liens may be filed on balances over $50,000, or maybe not. (Liens pretty much destroys your ability to buy or sell real estate, but interestingly enough are no longer listed on consumer credit reports. Principally because liens are notoriously reported inaccurately. Like credit reports. Hear that Illinois?) If you enter into a direct debit payment agreement with the IRS, your bank account is debited automatically by the IRS. Make five payments successfully, the IRS will withdraw the tax lien they filed, and life becomes good again. Sounds great. What is the rub? Owing the IRS is not like owning any other creditor. That is because the principal increases while you are paying off the debt. Any IRS debt includes tax owed...the principal…, interest set by law, and penalty. It is the penalty or should I say penalties, that cause the problem. IRS assesses penalties, whether it is for failure to file, failure to pay, underpayment penalty, or even negligence penalties for example, on a monthly basis for as long as the tax liability remains unpaid. IRS says that the average taxpayer will pay 140 to 150 percent of the original tax owed under their payment plans. If you ever find yourself in the unfortunate situation of owing taxes, please do everything you can to find other sources to pay the IRS. It took me more than 30 years to figure it out. The system is fixed. You have to pay your taxes. If you don’t, you will pay dearly.
IF you cannot pay the IRS on April 15th you should file an extension. This tax season we filed more extensions than ever before. Some taxpayers had record keeping issues, others had personal reasons, some just can’t their things together, however the primary reason for filing an extension seems to be a lack of funds to pay current tax liability. An extension to file is not an extension to pay. Your taxes are due and payable on April 15th. Not filing creates additional penalties that you wouldn’t have to pay if you had filed on April 15th. Creating an additional liabilities when you are struggling with money right now doesn’t make a lot of sense. The IRS is the most expensive creditor you will ever borrow money from. See number four.
An office in the home deduction means instant audit. There was a time when this myth was actually pretty close to the truth. However, with home offices becoming increasingly prevalent, this one-time fact has become predominantly fiction. Back in 2013 Congress changed the law and created a safe harbor calculation for taking a home office deduction. The home office has become legit. A real victory for the taxpayer. There’s no need to be afraid of claiming a legit deduction. The one thing to be wary of is making sure your claim actually falls within the IRS definition of a home office. We have a link to the IRS discussion of the home office safe harbor discussion on our website 1taxes.com. Speaking of audits, currently the IRS audits less than one half of one percent of the taxes filed. 244 million tax returns were filed in 2015. 1.2 million returns have been or will be audited. So .6% of all returns filed in 2015 were or about to be examined by the IRS. Less than one percent. In all honesty the odds are with you.

2019 Tax Partners Tax Guide

noreply@blogger.com (Don Fuener) — Wed, 23 Jan 2019 17:03:00 +0000

Hot off the press it is here; Tax Partners 2019 Tax Guide.

We explore the brave new tax filing world with a post card 1040 view.

Click this link to read>>>>>>>>>>>>>>Tax Partners 2019 Tax Guide

Ready set go

noreply@blogger.com (Don Fuener) — Mon, 14 Jan 2019 16:51:00 +0000

IRS that they are accepting tax returns on January 28, 2019.

https://www.irs.gov/newsroom/irs-statement-on-2018-filing-season-start-date

Liberty Tax Sued for Incompentence

noreply@blogger.com (Don Fuener) — Mon, 31 Dec 2018 20:40:00 +0000

From the you can't make this up department>>>>>>>

Liberty Tax Service is being sued in Will County Court on Wednesday for mistakes made on taxes.

On December 5th 2018 Liberty Tax Service is being sued for mistakes made on a tax return. The plaintiff is suing for penalty's and interest being charged by the IRS because of the mistakes made on their 2016 taxes. The case will be herd at the Will County Court house at 9am in room 111.

Not sure if it is true....Click on this link for more information

RETROSPECTIVE ON KEY TAX DEVELOPMENTS IN 2018

noreply@blogger.com (Don Fuener) — Thu, 27 Dec 2018 18:33:00 +0000

Following is courtesy of the Thomson Reuters online newsletter “Checkpoint Newsstand”

This retrospective will address key tax developments that occurred during the 2018 calendar year to date as well as changes going into effect for 2018, including tax laws, rulings, significant case law, and other guidance that may affect 2018 returns. Many of the items listed below reflect law changes made by, and guidance issued on, the Tax Cuts and Jobs Act (TCJA; P.L. 115-97) – the sweeping tax reform law that significantly altered the tax landscape.

Tax Rates

For tax years beginning after 2017 and before 2026, seven tax rates apply for individuals: 10%, 12%, 22%, 24%, 32%, 35%, and 37%; and four tax rates apply for estates and trusts: 10%, 24%, 35%, and 37%.
The 2018 IRS Form 1040 has been significantly reduced in size and contains far fewer lines than any of its predecessors. But it also includes six new accompanying schedules to which most of those removed lines have been moved.
The Social Security wage base for 2018 is $128,400.
For tax years beginning after 2017, the corporate income tax rate is 21%, and the corporate alternative minimum tax (AMT) is repealed.
For tax years beginning after 2017, tax bracket amounts and certain other tax parameters under the Code that are adjusted for inflation under Code Sec. 1(f)(3) are adjusted by reference to chained CPI-U (Consumer Price Index for "all-urban customers").

Taxable and Exempt Income

Generally effective for stock attributable to options exercised or restricted stock units settled after 2017, a qualified employee can elect under Code Sec. 83(i) to defer, for income tax purposes, recognition of the amount of income attributable to qualified stock transferred to the employee by the employer, for up to five years after vesting.
For 2018, the optional standard mileage rate for valuing an employee's use of an employer-provided auto is 54.5¢ per mile.
For 2018, an employee can exclude up to $260 a month of employer-provided qualified parking benefits and the same amount for the combined value of transit passes and transportation in a commuter highway vehicle.
The exclusion for qualified bicycle commuting reimbursements is suspended from 2018 through 2025.
The exclusion for qualified moving expense reimbursements (except for certain members of the Armed Forces) is suspended from 2018 through 2025.
For 2018, the maximum exclusion for employer-provided adoption assistance is $13,810, and the associated AGI phase-out amounts have increased.
For 2018, an employee's contribution to a health flexible spending account (FSA) through salary reduction contributions can't exceed $2,650.
Certain exceptions to the life insurance transfer-for-value rule don't apply to life settlement transactions for transfers after 2017.
For 2018, the income threshold for the definition of a "highly compensated employee" under the employer-owned life insurance rules is $120,000.
For 2018, the per-diem dollar threshold in computing the limits for the exclusion of benefits from long-term care insurance is $360.
Certain student loans that are discharged on account of death or total and permanent disability of the student during 2018 through 2025 are excluded from gross income.

Deductions – Expenses of a Business

New definitions of "publicly held corporation", "covered employee", and "applicable employee remuneration" apply to the rules governing the deduction limit for compensation paid to top officers.
For amounts incurred or paid after 2017, employers may not deduct the expense of a qualified transportation fringe provided to an employee, and deductions are generally not allowed for transportation expenses provided to an employee for travel between the employee's residence and place of employment.
For 2018, a high deductible health plan (HDHP) for medical savings account (MSA) purposes is one with an annual deductible of at least $2,300 and not more than $3,450 for individual coverage ($4,550 and not more than $6,850 for family coverage); in addition, the maximum out-of-pocket expenses can't exceed $4,550 for individual coverage ($8,400 for family coverage).
For 2018, an HDHP for health savings account (HSA) purposes is a health plan with an annual deductible that is not less than $1,350 for individual coverage and $2,700 for family coverage. Maximum out-of-pocket expenses for 2018 can't exceed $6,650 for individual coverage and $13,300 for family coverage.
The maximum annual health saving account (HSA) deductible contribution is the sum of the monthly contribution limits, based on eligibility and health plan coverage on the first day of the month. The monthly limit is 1/12 of the indexed amount for self-only coverage ($3,450 for 2018) and for family coverage ($6,900 for 2018).
For 2018, the standard mileage rate for business travel is 54.5¢.
Business deductions for entertainment expenses are generally disallowed after 2017.
In a Notice, IRS provided transitional guidance on the deductibility of business meals that are purchased in an entertainment context.
The simplified per diem rates for post-Sept. 30, 2018 travel are $287 for high-cost areas and $195 for all other localities. For pre-Oct. 1, 2018 travel, these amounts were $284 and $191, respectively.
For amounts paid or incurred after 2017, cash, gift cards, and other intangible personal property specifically don't qualify as employee achievement awards.
Generally, for amounts paid or incurred on or after Dec. 22, 2017, no deduction is allowed for:
1. Any otherwise deductible amount paid or incurred to, or at the direction of, a government or specified nongovernmental entity in relation to the violation of any law or the investigation or inquiry by such government or entity into the potential violation of any law; or
2. Any settlement, payout, or attorney fees related to sexual harassment or sexual abuse if such payments are subject to a nondisclosure agreement.

For tax years beginning after 2017, under Code Sec. 199A, non-corporate taxpayers may deduct 20% of "qualified business income" from a partnership, S corporation, or sole proprietorship (i.e., the "pass-through" or QBI deduction).
IRS issued proposed reliance regs that explain the operation and calculation of the Code Sec. 199A passthrough deduction.
For tax years beginning after 2017, specified agricultural or horticultural cooperatives may claim a deduction for a percentage of the cooperative's qualified production activities income (QPAI), similar to the pre-2018 domestic production activities deduction (DPAD).
For amounts paid or incurred after on or after Dec. 22, 2017, the business expense deduction for lobbying local governments is repealed.
The moving expense deduction is suspended from 2018 through 2025, except for certain moves by members of the Armed Forces.
For tax years beginning after 2017, "small resellers" for purposes of the Code Sec. 263A uniform capitalization rules means taxpayers with annual gross receipts of up to $25 million.
IRS issued final regs on the simplified method uniform capitalization (UNICAP) rules for property produced or held for resale.

Interest Expense, Taxes & Losses

For tax years beginning after 2017, subject to limited exceptions, a taxpayer's deduction for business interest is limited to the sum of:
1. The taxpayer's business interest income for the year,
2. 30% of the taxpayer's adjusted taxable income for the year (but not less than zero), plus
3. The taxpayer's floor plan financing interest (i.e., certain interest paid by vehicle dealers) for the tax year.

IRS issued proposed reliance regs on the new business interest deduction limit, including rules for C corporations, partnerships and S corporations, the exception for small taxpayers, and various elections.
For tax years beginning after 2017, taxpayers can't deduct any "disqualified related party amount" (certain interest or royalties) paid or accrued under a hybrid transaction or by, or to, a "hybrid entity".
The aggregate amount of debt that can be treated as "acquisition indebtedness" for a qualified residence of the taxpayer is generally limited to $750,000 ($375,000 for a married individual filing a separate return) for each tax year from 2018 through 2025.
The deduction for interest on "home equity debt" has been suspended from 2018 through 2025, but interest on a home equity loan used to buy, build or improve a home may be deductible.
The safe harbor for governmental homeowner assistance payments has been extended through 2021.
From 2018 through 2025, the annual deduction for state and local property, income, etc. taxes (SALT) is limited to $10,000.
IRS issued proposed regs that would eliminate the benefit of certain "workarounds" implemented by states to avoid the $10,000 SALT limitation.
From 2018 through 2025, foreign real property tax may not be deducted, other than taxes paid or accrued in carrying on a trade or business or in an activity for the production or collection of income.
From 2018 through 2025, a noncorporate taxpayer's "excess business" loss is disallowed and treated as part of the taxpayer's net operating loss (NOL) carryforward in subsequent tax years.
For 2018 through 2025, all deductions for expenses incurred in carrying out wagering transactions, and not just gambling losses, are limited to the amount of gambling winnings.
The deduction for personal casualty and theft losses is generally suspended from 2018 through 2025, except for:
1. Personal casualty losses incurred in a Federally declared disaster; and
2. Non-disaster personal casualty losses to the extent of personal casualty gains.

For losses arising in tax years beginning after 2017, the NOL deduction is limited to 80% of taxable income and generally cannot be carried back but can be carried forward indefinitely.
IRS issued proposed reliance regs that would remove the Code Sec. 385 documentation requirements (i.e., the portion of the final Code Sec. 385 regs issued in 2016 that provide rules for the documentation necessary to determine whether certain related party interests in a corporation are treated as stock or indebtedness for tax purposes).

Depreciation, Amortization, Property Expensing & Depletion

For property placed in service after 2017, machinery and equipment used in agriculture is part of the 5-year MACRS class.
For property placed in service after 2017, the categories of qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property are no longer eligible for 15-year MACRS depreciation (39-year MACRS applies instead).
For property placed in service after 2017, depreciation under the alternate depreciation system (ADS) is required for any nonresidential real property, residential rental property and qualified improvement property held by an electing real property trade or business (generally, a real property trade or business that elects to not apply new limitations on interest deductions effective for tax years beginning after 2017). Depreciation under the ADS is also required of any MACRS property with a recovery period of 10 years or more that is held by a farm business that makes a similar election.
For property placed in service after 2017, the ADS recovery period for residential rental property is 30 years.
Generally, for property that is both
1. Acquired and placed in service after Sept. 27, 2017, and
2. Placed in service before 2027, bonus depreciation is increased to 100% (full expensing). Beginning in 2023, the 100% amount gradually phases down.
IRS issued proposed regs, on which taxpayers can rely, that clarify the post-Sept. 27, 2018 placed-in-service-and-acquisition requirement that applies to 100% bonus depreciation and to other changes in the bonus depreciation rules.
For property placed in service after Sept. 27, 2017 and before 2027, qualified film, television, and live theatrical productions are "qualified property" for bonus depreciation purposes.
For qualified property that is both
1. Acquired and placed in service after Sept. 27, 2017, and
2. Placed in service before 2027, bonus depreciation may be claimed for most used as well as new property.

IRS issued proposed regs, on which taxpayers can rely, that provide guidance as to how used property can qualify for bonus depreciation.

For tax years beginning after 2017, the election trading bonus and accelerated depreciation for otherwise-deferred AMT credits is repealed.
For tax years beginning in 2018, the Code Sec. 179 expensing limit is $1 million.
For tax years beginning in 2018, the investment-based phase-out level for Code Sec. 179 expensing is $2.5 million.
The Code Sec. 179 expensing limit for heavy SUVs is $25,000 for tax years beginning in 2018.
For property placed in service after 2017, computer or peripheral equipment has been removed from the definition of "listed property".
Regular (as opposed to bonus first-year) depreciation and expensing limits for autos, trucks and vans placed in service in 2018 and used 100% for business are: $10,000 for the year in which the vehicle is placed in service, $16,000 for the second year, $9,600 for the third year, and $5,760 for the fourth and later years in the recovery period.
The $8,000 increase for "qualified property" in the first-year depreciation cap for passenger autos was extended, effective for property both acquired and placed in service after Sept. 27, 2017 and before 2027.
IRS issued proposed regs providing guidance on the additional first-year depreciation deduction, as modified by the Tax Cuts and Jobs Act.
Autos, trucks and vans leased in 2018 are subject to revised income inclusion amounts, as provided in IRS tables.

Charitable Contributions, Medical Expenses, Alimony, & Other Nonbusiness Deductions

For cash contributions made in 2018 through 2025, the 50% limitation under Code Sec. 170(b) for an individual's cash contributions to public charities and certain private foundations is increased to 60%.
The amounts of benefits received by charitable donors that are considered to be inconsequential have increased for 2018. Items are considered "inconsequential" if:
1. The value of all benefits received isn't more than $108 or
2. The amount contributed to the charity is at least $54 and the donor receives only token benefits (bookmarks, calendars, mugs, posters, tee shirts, etc.) generally costing no more than $10.80.

For contributions made in tax years beginning after 2017, no charitable deduction is allowed for any payment to an institution of higher education in exchange for which the taxpayer receives the right to buy tickets or seating at an athletic event.
The Tax Court held that a long-term lessee of buildings couldn't contribute a facade conservation easement.
Certain charitable deduction limitations are suspended for individuals making "qualifying charitable contributions" for relief efforts in the California wildfire disaster area.
Certain charitable deduction limitations are suspended, and special carryover rules are provided, for corporations making "qualifying charitable contributions" for relief efforts in the California wildfire disaster area.
IRS issued final charitable contribution substantiation/reporting regs.
For 2018, the "floor" beneath medical expense deductions is 7.5% for all taxpayers.
For 2018, the maximum amount of premiums paid for a qualified long-term care insurance contract that are deductible as a medical expense are: for individuals age 40 or less, $420; more than 40 but not more than 50, $780; more than 50 but not more than 60, $1,560; more than 60 but not more than 70, $4,160; and more than 70, $5,200.
For 2018, the mileage rate for use of a car for qualified medical transportation is 18¢ per mile.
For any divorce or separation agreement that's executed after 2018, or executed on or before that date but modified thereafter, the alimony-paying spouse won't be able to deduct the payments, and the alimony-receiving spouse won't include them in gross income.
IRS indicated that it would issue regs clarifying that Code Sec. 682, which was repealed by the Tax Cuts and Jobs Act, will generally continue to apply with regard to trust income payable to a former spouse who was divorced or legally separated under a divorce or separation instrument executed before 2019.

Education Tax Breaks & ABLE Accounts

The Lifetime Learning credit phases out over higher levels of modified AGI for 2018.
Beginning in 2018, "qualified higher education expenses" for qualified tuition program (QTP) purposes include up to $10,000 per beneficiary per tax year for expenses for tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school.
The higher education exclusion for savings bond income phases out over higher levels of modified AGI for 2018.
The deduction for interest paid on qualified higher education loans phases out at higher levels of modified AGI for 2018.
For 2018, the maximum teachers' out-of-pocket classroom-related expenses is $250.
For 2018, the amount of aggregate contributions from all taxpayers that a qualified ABLE account may receive is $15,000.
For 2018 through 2025, after the general dollar limit for ABLE account contributions is reached, an ABLE account's designated beneficiary may contribute, subject to a number of limitations, an additional amount, up to the lesser of
1. The beneficiary's compensation for the tax year, or
2. The federal poverty line for a one-person household.

In a Notice, IRS provided guidance on the new contribution limits for ABLE accounts and announced its intent to issue proposed regs.

Affordable Care Act Provisions

The 2.3% medical device excise tax doesn't apply to sales during 2018 or 2019.

The annual fee on health insurance providers remains in effect for 2018 (but is suspended for calendar year 2019).
IRS, together with the Departments of Labor and Health and Human Services, issued proposed regs that would, for plan years beginning on or after Jan. 1, 2020, allow integrating health reimbursement accounts (HRAs) and other account-based group health plans with individual health insurance coverage, if certain conditions are met. IRS then issued a Notice that set out potential approaches to issues raised by these regs.
IRS, together with the Departments of Labor and Health and Human Services, issued final regs on the coverage of certain preventive services under the Affordable Care Act, including services relating to the so-called "contraceptive mandate".
IRS, together with the Departments of Labor and Health and Human Services, issued final regs expanding the coverage period for short-term, limited duration insurance (STLDI).
For policy and plan years that end after Oct. 1, 2018 and before Oct. 1, 2019, the adjusted dollar amount for the Patient-Centered Outcomes Research Institute fee is $2.45. For policy and plan years ending on or after Oct. 1, 2017 and before Oct. 1, 2018, the amount was $2.39.
In a Notice, IRS clarified the effect of the suspension of personal exemption deductions on certain health care provision.

Tax Credits

The general business credit limitation for a corporation is applied by treating the corporation as having a minimum tax of zero, negating the corporate AMT (repealed after 2017) as a limit on allowable business credits for corporations.
For amounts paid or incurred after 2017, the rehabilitation credit is no longer two- tiered. A single 20% credit for rehabilitating certified historic structures is allowed over a 5-year period.
The carbon sequestration credit has been restructured to account for both carbon dioxide and carbon oxide, with the amount of credit based, in part, on whether carbon oxide was captured before or after Feb. 9, 2018.
For 2018, a low-income housing credit for rehabilitation expenditures is allowed only if, during any 24- month period, the expenditures are not less than the greater of:
1. 20% of the building's adjusted basis, or
2. $6,800.

For 2018, the refined coal credit is $7.03 per ton of refined credit coal, with no phaseout.
The orphan drug credit is reduced to 25% of qualified clinical expenses, and taxpayers may elect to take a reduced credit in lieu of reducing otherwise allowable deductions.
For 2018, the small employer health insurance credit is reduced if the average annual full-time wages per employee were more than $26,800.
The new employer-paid family and medical leave credit for 2018 and 2019 is 12.5% of the amount of wages paid to qualifying employees during any period they're on family and medical leave if the rate of payment is at least 50% of the wages normally paid to an employee, up to maximum of 12 weeks of leave for any employee during the tax year. The credit is increased by 0.25 percentage points (but not above 25%) for each percentage point by which the rate of payment exceeds 50%.
The maximum amount of the earned income tax credit (EITC) and the credit's AGI-based phaseout thresholds have increased for 2018.
For 2018, the maximum amount of investment income that a taxpayer can receive and still qualify for the EITC is $3,500.
For the premium tax credit available to certain purchasers of health insurance, an eligible employer-sponsored plan is "affordable" if the part of the annual premium that an employee must pay for self-only coverage is 9.56% or less of the taxpayer's household income for the 2018 plan year.
For 2018, the adoption expense credit is $13,810.
For 2018 through 2025, a $500 credit is available for each dependent of the taxpayer who is a U.S. citizen, national or resident, other than a qualifying child.
For 2018 through 2025, the child tax credit is increased to $2,000, and the credit phaseout thresholds are increased.
For 2018 through 2025, the refundable portion of the child tax credit for any qualifying child is limited to $1,400.
The AGI amounts used in computing the "saver's" credit for elective deferrals and IRA contributions have increased for 2018.
For amounts contributed in tax years beginning after Dec. 22, 2017 and before 2026, amounts contributed to an ABLE account by the account's designated beneficiary are eligible for the saver's credit.
For tax years beginning after 2017 and before 2022, a corporation's minimum tax credit (MTC)
1. May offset regular tax liability for any tax year, and
2. Is refundable for any tax year beginning after 2017 and before 2022 in an amount equal to 50% (100% for tax years beginning in 2021) of the excess MTC for the tax year, over the amount of the credit allowable for the year against regular tax liability.

For purposes of the foreign tax credit limitation, for tax years beginning after 2017, there are now additional separate categories for "global intangible low-taxed income" and "foreign branch income".
IRS issued proposed regs explaining the new foreign tax credit limitation categories and providing transition rules.
For purposes of the foreign tax credit, for tax years beginning after 2017, an 80% "deemed paid" foreign tax credit is available for amounts included in the U.S. shareholder's income as global intangible low-taxed income (GILTI).
IRS issued proposed regs explaining how deemed paid credits are determined.
For tax years beginning after 2017 and before 2028, a taxpayer may, with respect to pre-2018 unused overall domestic loss, elect to recapture up to 100% of its U.S. source income for the tax year.
For distributions made after 2017, a 10% corporate U.S. shareholder of a "specified 10% owned foreign corporation" may generally deduct 100% of the foreign-source portion of a dividend received from the specified 10% owned foreign corporation, and the deemed-paid credit under Code Sec. 902 no longer applies. A domestic corporation that is a U.S. shareholder of a controlled foreign corporation (CFC) may still claim a deemed-paid credit, but this credit is limited to 80% of foreign taxes paid with respect to global intangible low-taxed income.
In a Notice, IRS announced its intent to amend certain dividend equivalent regs and to delay their effective date, and also extended their phase-in period.

Sales & Exchanges

Generally, for tax years beginning after 2017, an accrual basis seller reports gain or loss not later than the year in which the income is taken into account for financial reporting purposes.
For exchanges completed after 2017 (subject to transition rules), like-kind exchange treatment is limited to exchanges of real property that is not held primarily for sale.
Generally effective on Dec. 22, 2017, gains invested in a "Qualified Opportunity Fund" can be temporarily deferred and, if the investment in the Fund is held for 10 years, permanently excluded. IRS issued proposed regs explaining the mechanics of the deferral.
IRS issued a complete list of all population census tracts it has designated as Qualified Opportunity Zones.
For business autos for which the optional business standard mileage rate is used, depreciation is considered to have been allowed at a rate of 25¢ for 2018.

Capital Gains and Losses

For 2018, new statutory breakpoints apply for the imposition of 0%, 15% and 20% capital gains/qualified dividend rates for noncorporate taxpayers.
For dispositions after 2017, patents, inventions, models or designs (whether or not patented), secret formulas or processes are excluded from the definition of "capital assets".
For tax years beginning after 2017, partnership interests ("carried interests") received for the performance of substantial services in certain specified trades or businesses must be held for more than three years to qualify for long-term capital gains rates.

Tax Accounting & Inventories

For 2018, a business is excepted from the general limitation on use of the cash method if its three-year-average gross receipts are $25 million or less.
Generally, for tax years beginning after 2017, the all-events test for any item of gross income isn't be treated as met any later than when the item is taken into account as revenue in an applicable financial statement (if the taxpayer has one for a tax year) or other financial statement specified by IRS.
For tax years beginning after 2017, the deferral method of accounting for advance payments for goods and services has been codified.
In a Notice, IRS clarified that accrual-method taxpayers may rely on prior guidance on deferral of advance payments until guidance on newly codified deferral rules is issued and becomes effective.
During the 2-year period beginning Dec. 22, 2017, Code Sec. 481 adjustments that are attributable to S elections revoked by certain corporations are taken into account ratably over a 6-tax year period beginning with the year of change.
IRS has updated automatic consent procedures for accounting method changes, including many occasioned by the Tax Cuts and Jobs Act provisions.
IRS has updated automatic consent procedures for accounting method changes made to conform with FASB and IASB contract revenue recognition standards.
For 2018, a business is exempted from use of the percentage-of-completion long-term contract method if its three-year-average annual gross receipts are $25 million or less.
For 2018, a business is exempt from mandatory inventory accounting if its three-year-average annual gross receipts are $25 million or less.

Tax Withholding

For stock attributable to options exercised, or restricted stock units settled, after 2017, withholding is required at the highest individual rate when the value of stock subject to a Code Sec. 83(i) deferral election is included in income.
For 2018 through 2025, when the exemption amount is zero, employees are entitled to a "withholding allowance" instead of an "exemption" for each item under Code Sec. 3402(f)(1).
For 2018, an employee who can be claimed as a dependent on someone else's return can't claim an exemption from withholding if his or her income exceeded $1,050 and includes more than $350 of unearned income.
For 2018, the threshold amount subjecting cash payments to domestic service employees (e.g., nannies) to FICA is $2,100.

Individual Tax Computation

For tax years beginning after 2017, an above-the-line deduction is allowed (with limits) for attorneys' fees and court costs relating to awards under SEC Act of '34 § 21F, a state law false or fraudulent claim meeting the requirements of Social Security Act, §1909(b) or Commodity Exchange Act § 23.
Miscellaneous itemized deductions subject to the 2%-of-AGI floor are suspended from 2018 to 2025.
The limitation on itemized deductions (the "Pease" limitation) is suspended from 2018 through 2025.
The basic standard deduction amounts for 2018 are: $12,000 for single or married filing separate taxpayers, $24,000 for married filing joint and surviving spouses, and $18,000 for heads of household.

...

The new postcard 1040 makes a debut and a discussion of the new child tax credit

noreply@blogger.com (Don Fuener) — Wed, 05 Sep 2018 00:17:00 +0000

Dear Valued Client,

Picture 1800 plus tax geek preparers gathered together to hear the latest “areas of focus” at the
IRS Nationwide Tax Forum at the Hyatt Regency Chicago eleven days ago.
We just settled in to listen to the IRS presenter talk about the new “postcard” tax return. Exciting stuff.

Time to say goodbye to form 1040EZ and 1040A. We now have one tax form….1040.
The “postcard” tax return has arrived. Here are picture of a draft 1040 page one and page two.
Page one has all the personal stuff. And Page two has all the financial stuff. In a nutshell
the two page “postcard” 1040 is actually seven pages. A very condensed summary form on
two pages and six separate schedules to reach the entries on the 1040 page two.

Notice that there are only two entries for dependents on this draft form.
IRS says it has added two additional lines for dependents on the current draft.
A new check box for Standard deduction has been added as well as additional tax benefits.
No check box for married filing jointly. It is assumed.
The January 2, 1954 date reference is to Social Security retirement age, as well as,
an increase in the amount of standard deduction.

Page two is where the magic happens. With just 22 lines you will see the need for an additional
six schedules to support the filing of your tax return. Note the missing personal exemption line.
It is now replaced by increased credits.

Here is proposed 6 schedules I found on the New York Times website. It is the best available I could find.
Schedule 1 deals with income. Look it’s 37 lines long.

See hello to the new Other Dependent Credit.

Big changes with the Child Tax Credit. It has been increased to $2,000 from $1,000.
$1,400 of this credit is refundable. We love credits far more than deductions.
Credits are actual money applied to your tax liability or refundable.
Deductions reduce income subject to taxes. Credits offer more bang for the buck.

In order to receive the Child Tax Credit we have to answer questions……

Are they a dependent?

What is their relationship to the taxpayer?

What is the dependent’s age? Is the dependent under 17 at the end of the year?

Did the taxpayer pay more than 50% of the support of the dependent?

Is the dependent’s social security card/social security number valid for employment?

For those dependents that do not meet the above listed requirements, the Other Dependent Credit is now available. The Other Dependent Credit would apply to aging parents and other qualifying dependents, as well as, children 17 years and older. The amount of the credit is $500. And it is not refundable.

Head of Household filing status has new qualifiers. Specifically dependents must
have social security number issued that qualifies the dependent for employment.
No itins work as qualifiers. IRS now requires additional due diligence for tax preparers filing tax returns
for those taxpayers filing the head of household status.

The new postcard 1040 is smaller that’s for sure, but more complicated than ever.

We will writing more as the IRS releases additional forms and schedules.

The Home Office Red Flag Myth

noreply@blogger.com (Don Fuener) — Fri, 18 May 2018 15:01:00 +0000

From our friends at Tax Coach:

What do you get when a technical tax discussion meets a rant and they fall madly in love? Today’s Briefs, that’s what!

Ours is a culture that takes comfort in accumulated wisdom from generations past. Why reinvent new wheels when we can reach back to familiar lessons? Yes, “experience is the best teacher” – but the tuition can be awfully high!

In the tax world, there’s one lesson that looms large above all others. “Don’t take the home office deduction! It’s an audit red flag!”

It’s been repeated so much that it’s almost unquestioned.

Google “home office audit red flag” and you’ll get 526,000 results. (Probably more by the time you read this.)

Check out nearly any magazine or newspaper article on audit triggers, and you’ll see the home office. The first page of those 526,000 results links to such respected sources as Kiplingers, Forbes, and Money magazines.

There’s just one problem with this overwhelming mountain of conventional wisdom.

It’s not true!

And it drives me nuts when I see it or hear it. It’s not just because I like to prove myself right when everyone else is wrong (although, if I’m being honest with myself, that’s part of it). It’s because so many well-meaning business owners leave so much money on the table when they follow the advice of people – whether they’re lazy, timid tax professionals or simply credulous reporters – who perpetuate that myth.

Maybe the home office was an audit red flag, back in the mist-shrouded days when business owners and professionals guzzled martinis at lunch. But no longer.

In 1993, the Supreme Court ruled in Soliman v. Commissioner that an anesthesiologist, whose actual “deliverable” consisted of gassing patients at several different local hospitals, could take the deduction for the space he used to perform administrative and managerial services in the spare bedroom of his Maryland condo. That opened the deduction to a whole new category of business owners.

In 1997, Congress expanded the deduction to include home office expenses when a specific portion of the home is used regularly and exclusively as a taxpayer’s principal place of business.

In 2013, the IRS introduced a simplified “safe harbor” method for calculating the home office deduction.

And earlier this month, the IRS published a notice titled “For Small Business Week, IRS offers tips to small business owners about the overlooked home office deduction.”

That’s right . . . the IRS itself, the agency that so many people are afraid is targeting home office deductions, is actually making it easier to claim and telling taxpayers not to overlook it! (Seriously, go read that article – it’s short.)

Does that really sound like a red flag? (Announcer voice: it’s not a red flag.)

Why do so many people persist in repeating the myth? Beats me. But three things are sure.

First, they’re wrong. Second, when a reporter, even from a respected publication like Forbes, writes that the home office is an audit risk, you should probably just ignore everything they say. (Sad to see fake news invading our corner of the world!) And third, when an actual tax “professional” repeats the myth, ask them if they have any evidence to back up that claim. Start by asking them if any of their own clients have ever been audited for home office expenses. (Spoiler alert: they haven’t.)

I don’t bother sugarcoating it anymore. When someone tells me, “I don’t take the home office deduction because my accountant tells me it’s an IRS red flag,” I just say, “You need a new accountant.” And I say it in a pretty snide and scoffing tone.

I’ve spent the last 13 years of my career helping business owners pay the least amount of tax legally allowed. The home office deduction is an important part of achieving that goal. Yet the “home-office-as-audit-bait” myth is like a vampire. It just refuses to die. Time to put a stake through its heart for good!

What is the worst part of owing a business?

noreply@blogger.com (Don Fuener) — Thu, 01 Mar 2018 17:06:00 +0000

Three years ago I wrote, what is the worst part of owning a business? If you guessed employees you would be wrong. According to the small business owners polled by the Service Corps of Retired Executives, 40 percent said bookkeeping and taxes are the worst part of owning a business. It is still true.

Want to save money on taxes? Keep better records. Want to make more money, become more profitable? Keep better records. Want to breeze through an IRS examination? Keep better records.

We call it the very exciting world of record keeping for business. Unfortunately us small business owners are doing it every day. You know the things that your small business does. The production end. Recordkeeping is often put off or not completed at all. As most businesses grow, eventually the light bulb goes on, usually at tax time, and the realization that some record keeping needs to be done.

What can you do?

In the old days we built our business on bookkeeping....an era before desktop computers and the internet. Nowadays the computer has revolutionized your small business record keeping. Here are three options you can try to make things a little easier. Don’t struggle. Don’t miss out valuable deductions. Make record keeping part of your daily routine.

1. Go online. Free advertiser supported online accounting software is available. Probably the most popular free software online is Wave.

Here is a link to their website: https://www.waveapps.com/.

It is easy. Fairly comprehensive. Working with your tax guy is easy, too. Just invite us as a Guest Collaborator and we can both see your data, securely, in real time. Perhaps the best part is the automatic download your bank account into your accounting records limiting the amount of data input you have to do. Advantages? It is free. It is intuitive. No need to change the way you are doing business today. We like wave accounting so much we became a Wave accounting pro advisor.

2. Consider a stand alone accounting software. We recommend the Quickbooks clone Avanquest Bookkeeper. This program offers more bang for the bucks than the 800 pound elephant Quickbooks. It is $39.95. What do you get for your money? A fully functioning accounting software that includes credit card processing for no additional charge.

3. The ubiquitous Quickbooks. It is expensive. Requires yearly updates. Currently the payroll update alone is $400.00. Our payroll service is cheaper. And it seems that you are constantly bombarded with additional add-ons to buy. However, the accounting community has embraced it as the defacto standard that our client’s are using to keep track of their records. We work every day with Quickbooks.

I know that there are other methods and systems. I have always taken the position that what works for you works for me. However, I suggest that you give the Wave accounting folks a try first and help you not miss all those deductions next year.

7 reasons the new tax law is good for real estate investors

noreply@blogger.com (Don Fuener) — Thu, 01 Feb 2018 16:40:00 +0000

My buddy Bruce Theobald shared this article with me.

It is worth reading.

However, you do have to click on this link to read the pdf version of the article.

Three things you should know about filing your taxes this year.

noreply@blogger.com (Don Fuener) — Tue, 23 Jan 2018 00:58:00 +0000

It is that time again. Time to make our annual accounting to our Uncle Sam. In other words filing your tax return.

Here are three things that you should know about filing your tax return this year:

1. We are still operating basically under the old law. That means that certain deductions will be returning for their final appearance. Deductions such as personal exemptions, moving expenses, miscellaneous itemized deductions, and in reality the need to itemize deductions for most taxpayers will disappear after this year. So our very popular list of overlooked deductions published for the last 20 plus years is now retiring. What has not disappeared is the penalty for not having health insurance. If you did not have health insurance in 2017 or do not have health insurance in 2018, you will be penalized. For tax year 2017 the penalty is 2.5% of your total household adjusted gross income, or $695 per adult and $347.50 per child, up to a maximum of $2,085. The repeal of the penalty does not apply until 2019.

2. Even though IRS is not accepting returns until ten days from now, if you have all the information you need to file your tax return, you should do it now. IRS processes refunds on a first come first basis. Early filers will get processed earlier and receive their refund sooner. The Motley Fool writes “there are several benefits to preparing your taxes ahead of schedule. If you're due a refund, you'll get your hands on that money sooner than you would by waiting until April. And on the flip side, if you end up owing money to the IRS, you'll have two-and-a-half months to figure out how to pay your tax bill. If you wait till April, you'll have fewer options if you find that you've underpaid your taxes.”

One caveat about refunds and early filing. Again the Motley Fool writes “most refunds will be issued within 21 days of filing -- but some will be delayed. If you're expecting a refund this year, here's something positive to chew on: The IRS expects most refunds to go out within three weeks of when returns are submitted. That said, if you're claiming certain tax credits, you can bank on your refund getting delayed. Specifically, the IRS must withhold refunds for the Earned Income Tax Credit and the Additional Child Tax Credit until Feb. 15 due to high levels of fraud associated with both. If you're claiming one of these credits, expect your entire refund to be delayed -- even the portion not associated with the credit you're taking.”

3. Most tax forms are due to be mailed to you no later than January 31, 2018. However, there are some exceptions. Specifically forms K-1 and 1099 brokerage statements. If you have a brokerage account, the due date to mail those 1099 forms to you is February 15, 2018. Many clients have received multiple forms for the same tax year from their brokerage companies during last tax seasons. These so called “amended” forms 1099 cost brokerage companies millions of dollars of IRS penalties. I found out about the penalty assessment for amending form 1099, with no end in sight, this year at one of the tax workshops I attended. It is a real issue in our tax preparation world.

If you have ownership interest in a partnership, or S corporation, or are a beneficiary of an estate or trust, you will be receiving a form K-1. The due date to mail the form is the due date of the tax return for the entity. In most cases it is March 15, 2018. However, if the entity files for an automatic six month extension, you may not receive the form until September 15, 2018. Not to worry. We know what to do. By the way this year we have instituted a new policy to help clients make sure that they have all the correct income documents before filing their tax return.

As we face the largest change in tax laws in 31 years, I have only one thing to say…..Wow. So much for the promise of a postcard tax return. The new tax law is complicated. Very complicated. It looks like your tax guys are going to be around for a while. The new tax laws contains some very good things for small business owners and individual taxpayers. Getting to the tax savings just got a lot more complicated.

We will talking to you about the new tax laws all this year as we sort through the analysis and pass on things that will help you save money. So stay tuned for the good stuff.

2018 Tax Partners Tax Guide

noreply@blogger.com (Don Fuener) — Tue, 16 Jan 2018 01:39:00 +0000

Hot off the press, we have just published our 2018 Tax Guide. It is chock full of help. Including 72 overlooked tax deductions, our fee schedule, answers to commonly asked questions, and suggestions on how to get started.

Click this link to read the pdf version of 2018 Tax Guide.

noreply@blogger.com (Don Fuener) — Thu, 28 Dec 2017 18:37:00 +0000

What Does the Tax Reform Bill Mean for Low-Income Earners?

Aside from lowering the statutory corporate tax rate from 35% to 21%—perhaps the most well-known facet of the tax plan—this bill lowers several individual rates and makes key changes to the tax code that affect low-income earners.

The tax reform bill does not reduce the number of individual brackets, but it does lower the rates for five of the seven:

Old Tax Brackets

Single Filers		Tax	Filing Jointly		Tax
Over	But not over	%	Over	But not over	%
$0	$9,325	10%	$0	$18,650	10%
$9,325	$37,950	15%	$18,650	$75,900	15%
$37,950	$91,900	25%	$75,900	$153,100	25%
$91,900	$191,650	28%	$153,100	$233,350	28%
$191,650	$416,700	33%	$233,350	$416,700	33%
$416,700	$418,400	35%	$416,700	$470,700	35%
$418,400	–	39.6%	$470,700	–	39.6%

New Tax Brackets

Single Filers		Tax	Filing Jointly		Tax
Over	But not over	%	Over	But not over	%
$0	$9,525	10%	$0	$19,050	10%
$9,525	$38,700	12%	$19,050	$77,400	12%
$38,700	$82,500	22%	$77,400	$165,000	22%
$82,500	$157,500	24%	$165,000	$315,000	24%
$157,500	$200,000	32%	$315,000	$400,000	32%
$200,000	$500,000	35%	$400,000	$600,000	35%
$500,000	–	37%	$600,000	–	37%

Other Important Tax Changes

While personal exemptions are eliminated, the standard deduction is increased from $6,350 to $12,000 for single filers and from $12,700 to $24,000 for married filing joint filers. Another change that’s likely to impact low-income taxpayers is the adjustment to family tax credits.
The Child Tax Credit (CTC) is being doubled from $1,000 to $2,000, and the refundable portion will be increased from $1,100 to $1,400, which will likely result in lower-income families seeing CTC-related refund dollars.

Source Drake Taxing Subjects

TAX CUTS AND JOBS ACT – A LOOK AT SOME PROVISIONS:

noreply@blogger.com (Don Fuener) — Wed, 27 Dec 2017 17:56:00 +0000

Following are some of the provisions of the Tax Cuts and Jobs Act. For a complete report of the Conference Committee final tax provisions click here.

Corporate Tax Rate: the Conference Committee settled on a corporate tax rate of 21%, considerably lower than the current maximum rate of 35%. The rate would take effect in 2018.
Individual Tax Rates: the highest rate would drop from the current 39.6% to 37%, however, they retained the seven tax brackets.
Higher standard deduction but personal exemption eliminated: the bill would double the standard deduction from $6,350 (single) and $12,799 (joint) to $12,000 and $24,000 which is expected to lower the number of taxpayers who itemize. At the same time, the bill would eliminate the personal exemption, but some credits were also increased.
State and local taxes: taxpayers would be able to deduct up to $10,000 of all taxes combined for state and local taxes, real estate taxes, and income and sales taxes.
Mortgages indebtedness: interest can be deducted on loans up to $750,000.
Resolution on pass-through entities: owners of pass-through entities such as S corporations and partnerships would be able to apply a 20% deduction to their business income, with limits starting at around $157,000 for single taxpayers and $315.000 for joint returns.
Alternative minimum tax: the AMT was rescinded for businesses but remains for individuals. However, it would apply affect fewer taxpayers.
Estate tax: the exclusion amount has been doubled to approximately $11 million but is scheduled to sunset in 2026.
Child tax credit: the legislation increases the child tax credit to $2,000 per child (up from $1,000) and raised the phase out amounts. The refundable portion of the credit was raised from $1,100 to $1,400.
Medical expense deduction: for 2017 and 2018 the threshold would drop back to 7.5% of AGI, increasing back to 10% in 2019 (yes, this provision is retroactive to 1/1/2017).
Affordable Care Act: the bill rescinds the individual mandate for insurance
Credits preserved include: Child and Dependent Care Credit and the Adoption Credit.
Student Loan Interest: has been retained which had been eliminated under prior proposals.