The IRS is working on implementing changes from the Tax Cuts and Jobs Act (TCJA). Here are some of the major IRS tax reform changes you can expect.

New Business Deduction Forms

One of the most exciting IRS TCJA changes is the anticipation of a new form, schedule or worksheet for taxpayers to calculate the qualified business income (QBI) deduction. Self-employed taxpayers, partners, and S corporation shareholders will use this form to claim a QBI deduction on their tax returns.

If you’re in this group, stay tuned for IRS guidance expected to come out during 2018 and work with your tax preparer to determine if you should make any changes to your estimated tax payments.

Updated IRS Tax Withholding Forms

Under the TCJA, most people will pay lower taxes, but some will pay higher taxes. This TCJA change means employers are withholding federal income taxes from paychecks at lower rates than last year.

Employees use Form W-4 to tell their employers how much to withhold from their paycheck. The IRS updated Form W-4 in 2018 to reflect the TCJA changes, but you are not required to submit a new one.

However, tax preparers recommend you use a withholding calculator to determine if you need to give your employer an updated Form W-4. H&R Block’s calculator will help you estimate your tax refund and tax reform impact. The IRS withholding calculator is another online option. Your tax preparer can also help you determine if you need to give your employer an updated Form W-4.

You are most likely to need to increase your withholding if your children are age 17 or older, you usually itemized deductions in the past, or you don’t have any children or other dependents.

New IRS Processes

When you file your 2018 taxes next year, the tax filing process will feel familiar. But you’ll notice some TCJA changes.

One IRS change is that you won’t claim a dependent exemption for your children or other dependents or a personal exemption for yourself or spouse. But you’ll still need all of the information about your dependents, because you may be able to claim a credit for them instead.

IRS Tax Reform Changes for Taxpayers Who Itemize Deductions on Schedule A

A combination of TCJA changes means that fewer taxpayers are expected to itemize deductions in the future. If you currently itemize deductions, continue to keep track of your itemized expenses so you can figure out if the standard deduction or itemized deduction is better for you.

Here are some changes for itemized deductions:

• Your total deduction for state and local taxes, including income or sales, real property, and personal property taxes, is limited to $10,000 ($5,000 if married filing separately).
• Your interest payments on a home equity loan might not be deductible.
• You can no longer deduct employee business expenses.
• In 2018, you can deduct medical expenses to the extent they exceed 7.5% of AGI.

If you’re a taxpayer who has itemized deductions in the past, you might find it more advantageous overall to claim a standard deduction.  Depending on your state, you might need to consider how itemizing or claiming a standard deduction on your federal and state returns impacts your overall tax liability.

For more information about Schedule A filing, click here.

New IRS Tax Reform Resources

The IRS dedicated a page on its website to Tax Reform. Visit the page for new developments, frequently asked questions, publications and IRS guidance on the tax reform changes.

The post IRS tax reform updates under the TCJA: Here’s what to expect appeared first on Tax Information Center.

• your filing status. That means whether you file as single, married (jointly or separately) or as head of household.
• your taxable income. Your taxable income does not equal your wages; rather it’s the total of your ordinary income sources (wages, investment interest, retirement distributions, etc.) minus any adjustments and deductions.

 2018 Tax Brackets

This table reflects the 2018 tax brackets after tax reform was enacted for all filing statuses. Note: the brackets for Qualifying Widow(ers) are the same as for Married Filing Jointly status. For 2017 tax brackets, review the table found lower on this page.

Understanding How Federal Income Tax Rates and Tax Brackets Work

Once you know your filing status and amount of taxable income, you can find your tax bracket. However, you should know that not all of your income is taxed at that rate. For example, if you fall in the 22% tax bracket, not all of your income is taxed at 22%. Why is that?

The reason is that the U.S. income tax system uses a graduated tax system, designed so that individual taxpayers pay an increasing rate as their income rises through progressive tax brackets as outlined in the table above.

Let’s look at Sarah, whose filing status is Single and who has a taxable income of $50,000. Using the 2018 information above, we can determine Sarah’s total tax.

1. Determine the amount of tax for each segment of taxable income. Sarah will pay:
   • 10% on the first $9,525 of taxable income
   • 12% on the next $29,175 ($9,525-$38,700)
   • 22% on the remaining $11,300 ($38,700-$50,000)
2. Add the taxable amounts for each segment ($952.50 + $3,501 + $2,486) = $ 6,939.50

For 2018, Sarah will pay $6,939.50 in taxable income.

Also, as mentioned earlier, these rates apply to income from ordinary sources. Other rates apply to other types of income. For instance, long-term capital gains are taxed at 0% to the extent you are in the lowest two tax brackets.

Income Tax Brackets: Important Terms

The terminology around income tax brackets and tax rates can be confusing at times. To clarify what’s meant, let’s review a few relevant terms that relate to this topic.

• Income Tax Rate – These are the various percentages at which taxes are applied.
• Income Tax Brackets – These are the ranges of income to which a tax rate applies. Currently there are seven ranges or segments.
• Marginal Tax Rate – This is the rate at which the last dollar of income is taxed. In the example above, Sarah’s marginal tax rate is 22%.
• Effective or Average Tax Rate – This is the total tax paid as a percentage of total income taxed. In Sarah’s case, her average tax rate is 13.8% ($6,939.50 / $50,000).

How Tax Reform Changed the Tax Brackets

Under the Tax Cuts and Jobs Act, the tax reform legislation passed at the end of 2017, the tax brackets shifted slightly. Below, you can see the tax brackets as they apply to your 2017 taxes.

Tax Bracket Questions?

Want to understand how the changes to the tax brackets affect you? Or learn how you may be able to lower your taxable income? The knowledgeable Tax Pros at H&R Block can help.

The post What Are the Tax Brackets? appeared first on Tax Information Center.

Why is it a problem to file and owe? Because our tax system is “pay as you go.” That means you should be making tax payments on your income as you earn it throughout the year. And if you don’t (because you didn’t withhold enough from your paycheck, or you didn’t make enough in estimated tax payments), the IRS will charge you an estimated tax penalty.

This penalty is especially common among people who are self-employed, retired, or who have investments, because they must proactively make estimated payments each quarter. It’s also common among people who don’t withhold enough taxes from their paycheck. Many of them don’t know about the responsibility until they get hit with a tax bill and a penalty.

The good news is that the estimated tax penalty is pretty mild. It equates to a reasonable interest rate (the IRS interest rate as of April 2018 is 5%), charged for “borrowing” your underpaid funds from the government.

Best course: request a waiver when you file

It’s always best to request an estimated tax penalty waiver when you file your return, rather than waiting until the IRS has assessed the penalty.

You may have a couple options:

First, you may be able to use a different method to calculate the penalty if your income was unevenly distributed throughout the year.

Second, you may qualify for a waiver that will remove all or part of the penalty, if:

• In 2016 or 2017, you retired after age 62 or became disabled and your underpayment was due to reasonable cause
• Your underpayment was due to a casualty, disaster, or other unusual circumstance

People in federally declared disasters automatically qualify for the waiver and don’t have to request it.

Complete Form 2210 to request a waiver when you file

To request a waiver when you file, complete IRS Form 2210 and submit it with your tax return.
With the form, attach an explanation for why you didn’t pay estimated taxes in the specific time period that you’re requesting a waiver for. Also attach documentation that supports your statement. Examples are records from the hospital, police, insurance, etc., or disability or retirement documentation.

Already filed? It’s not too late to ask for penalty abatement

As with most penalties, one way to reduce or eliminate the penalty is to reduce the underlying tax bill. It’s a good idea to take a second look at your return (or get a tax pro to do it) to see if you can lower your tax bill by filing an amended return that claims credits or deductions that you’re legally entitled to but didn’t claim the first time.

Assuming your original return was correct, you can ask the IRS for penalty abatement. Review the Form 2210 instructions for the year you have an estimated tax penalty. If you qualify for a waiver, send Form 843 or a letter with a full explanation about why the IRS should remove your estimated tax penalty, and attach any supporting documentation.

You must sign and send in a written request to the IRS. If you got an IRS notice informing you of the estimated tax penalty, send your abatement request to the address on the notice. Otherwise, send it to the same address where you filed your original return.

Tax professionals can deal with the IRS for you

If you have questions about your estimated tax penalty or need help explaining your circumstances to the IRS to ask for a waiver or abatement, an experienced tax professional can help – and can even deal with the IRS for you. Learn more about H&R Block’s Tax Audit & Notice Services. Or make an appointment for a free consultation with a local tax professional by calling 855-536-6504 or finding a local tax pro.

The post What To Do When You Have an Estimated Tax Penalty appeared first on Tax Information Center.

One of the most significant changes is the elimination of personal and dependent exemptions, as well as increased standard deductions and child tax credits.
 

The Employee Perspective

If you are an employee, you receive a W-2 from your employer each January which shows your income and withholding for the previous year. The withholding amounts are intended to be an estimated amount of income tax that a taxpayer would owe on their income for the year, and allows them to have income tax paid over the year, rather than owed all in April. The withholding amounts are determined by the W-4 that the taxpayer completes and gives to their employer. Because the tax code has changed significantly for 2018, you may feel the need to update your changes to your W-4.

Form W-4, Employee’s Withholding Allowance Certificate, is generally completed at the start of any new job. This form tells your employer how much Federal income tax withholding to withhold from each of your paychecks. This form is extremely crucial in determining your tax liability or refund each tax season. If you withhold too much, you can end up with a large refund, and if you withhold too little you can create a tax liability and possibly an underpayment penalty.
 

Selecting Your Allowances

The more allowances you claim on your W-4, the lower your withholding will be, and vice versa. Therefore, it can be a tricky balance in determining how many allowances you should claim.

The allowance worksheet on the W-4 will help you determine the number of allowances you can take. Generally, you can take an allowance for:

• Yourself, so long as you are not a dependent claimed on someone else’s return
• Your spouse, unless that spouse has a job and claims a regular exemption
• Each dependent

If you are married and have children, and both you and your spouse work, it is extremely important that you coordinate your W-4 allowances. You want to make sure that only one of you claims each child. If any of your children are claimed twice, this will likely result in not enough withholding overall and a liability at the end of the year, which could have been easily avoided with the proper allowances.
 

The Withholding Tables

With the above in mind, and the fact that personal exemptions have been eliminated, it may seem necessary to adjust to the tax reform w4 changes and to possibly eliminate allowances. However, the IRS has created new withholding tables which are intended to take the tax changes into effect. Additionally, the IRS is encouraging employers to implement the changes as soon as possible, and no later than February 15, 2018.

Employees will not be required to complete a new W-4 in accordance with the new TCJA. However, this would be a good opportunity to review your W-4, to take into consideration any changes in your life that have taken place since the last time you completed your W-4. Although personal exemptions have been eliminated, your filing status and any dependents you have will still play a major factor in the amount of tax you will owe, and are still relevant in determining your withholding amounts.

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Determining the allowances to claim on your W-4 has always been a complicated matter, but has become even more so with the TCJA updates. If you are concerned about whether your W-4 is providing you the greatest benefit, please make an appointment to meet with one our Tax Pros. They can assist you in understanding the implications of TCJA on your tax return, and whether a change in your W-4 would be necessary.

The post Tax Reform and changes to your W-4 appeared first on Tax Information Center.

Assuming you can’t pay all the taxes, the real question is: How long does it take to set up a payment plan or other arrangement with the IRS to stop (or, “release”) the levy/garnishment?

With simple payment agreements, the IRS will release the levy immediately

That’s assuming you haven’t already gotten a payment extension. Normally, when you request an extension, you can get up to 120 days. But if you’re being levied, the IRS will probably only give you 60 days to pay off the balance, pay down the balance, and/or get into a payment agreement with the IRS.

If you get an extension to pay, you can ask the IRS to immediately release the levy/garnishment. Ask the IRS representative to fax the levy release to your employer/bank/payer during the call.

So, in short, you can get a levy/garnishment release done in the time it takes to call the IRS if you meet the terms of the extension-to-pay agreement.

You can also get an immediate levy release if you call the IRS to request a simple monthly payment plan (called a streamlined installment agreement). Be prepared to finalize the terms of the agreement with the IRS by phone and ask the IRS to fax a levy release to your employer/bank/payer while you are on the phone.

Tip for bank levies: If you have a bank levy, the bank has to freeze the funds for 21 days before sending them to the IRS. To access to these funds, act quickly to call the IRS and get into an agreement. If you get an extension to pay or one of the simplified installment agreements, you’ll be able to get the bank levy released right away and access your funds.

If you need a more complicated payment agreement, releasing a levy can take months

If the extension to pay or the simplified installment agreements won’t work for your situation, you’ll need to request a more complicated installment agreement from the IRS. You’ll need to provide the IRS with a lot of documentation about your financial situation to qualify, which will take you more time.

You’ll also spend more time gathering and submitting documents if you want to request one of the IRS’ special programs for people with financial hardship. Those programs are deferred payment (called currently not collectible status) and settlement (called offer in compromise).

When requesting these agreements, be sure to ask the IRS to release the levy due to your hardship. But be prepared for the levy to stay in place while the IRS processes your paperwork for the agreement. In many cases, the IRS doesn’t register that it needs to release the levy, so you may need to call the IRS to request a levy release after you are in an agreement.

For best results, get into an agreement by phone – and if you need to follow up with documents – do so quickly.

Learn more about what to do when you can’t pay your taxes.

You can also outsource the work to a tax professional, who can help you figure out which payment agreement is best for your situation and request it from the IRS for you. Learn more about H&R Block’s Tax Audit & Notice Services. Or make an appointment for a free consultation with a local tax professional by calling 855-536-6504 or finding a local tax pro.

The post How Long Does It Take? Removing a Levy or Wage Garnishment appeared first on Tax Information Center.

What has changed?

Then came the Great SALT Limitation of 2018, a.k.a. the Tax Cuts and Jobs Act, which reduced the value of state and local tax deductions for two reasons:

1. By increasing the standard deduction, which will make itemizing deductions less attractive for many taxpayers, and
2. By capping the itemized deduction for combined state and local taxes paid at $10,000.

As Congress rushed to pass tax reform legislation in late December of last year, many taxpayers were rushing to prepay real estate taxes, often at the suggestion of elected officials.

A few days later, the IRS issued guidance that appeared to render many of those prepayments nondeductible. So, the question on everyone’s mind is whether they can deduct on their 2017 return that large property tax prepayment they made at the end of the year.

The IRS Perspective

Let’s start with the IRS guidance on the topic:

In general, whether a taxpayer is allowed a deduction for the prepayment of state or local real property taxes in 2017 depends on whether the taxpayer makes the payment in 2017 and the real property taxes are assessed prior to 2018.  Prepaid real estate taxes that have not been assessed prior to 2018 are not deductible in 2017.  State or local law determines whether and when a property tax is assessed, which is generally when the taxpayer becomes liable for the property tax imposed. (IR-2017-210)

The IRS then provides two examples intended to clarify that the tax itself had to be known by the end of 2017 to be deductible on the 2017 return.

1. Each county and municipality has its own method for appraising and billing property tax. If your local tax authority merely accepted prepayments prior to assessing or billing your 2018 property tax, the IRS may deny the portion of your 2017 itemized deductions that reflect your prepayment.
2. On the other hand, if your local tax authority had already determined the amount of tax you would owe in 2018, you can deduct that prepaid amount on your 2017 return as an itemized deduction.

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If you paid your 2018 property tax in 2017 and you’re not sure whether you can deduct it on your 2017 return, a H&R Block tax professional can help you make the decision.

The post Can I deduct prepaid property taxes? appeared first on Tax Information Center.

The IRS sends notices and letters for the following reasons:

• You have a balance due.
• You are due a larger or smaller refund.
• The IRS has a question about your tax return.
• The IRS needs to verify your identity.
• The IRS needs additional information.
• The IRS changed your return.
• The IRS needs to notify you of delays in processing your return.

More from H&R Block

If the IRS made a change to your tax return and sent you a notice, you usually have the option to agree with the changes or you can send back a response telling the IRS that you disagree with the changes. Be sure to explain why you disagree with the changes and provide documents to support your case. If you disagree without a valid reason, the IRS will send your return for audit review.

Learn how to handle an IRS audit.

The post Changes to Tax Return appeared first on Tax Information Center.

File an amended tax return to correct errors or make changes to your original tax return. For example, you should amend to change your filing status, or to correct your income, deductions or credits. You normally don’t need to file an amended return to correct math errors on your original return. The IRS will automatically correct those for you. Also, do not file an amended return if you forgot to attach tax forms, such as a Form W-2 or a schedule. The IRS will mail you a request for them in most cases.

More from H&R Block

If you discover that you made an error on your tax return, you may need to file IRS Form 1040X, Amended U.S. Individual Income Tax Return. However, many errors will automatically be corrected by the IRS. If it is a math mistake, a wrong number is pulled from a chart, or a supporting form is missing, the IRS will send you a notice. If you receive one of these notices, you can simply reply to the notice and no amended return is required.

Learn more about filing an amended return.

The post Mistake on Tax Return appeared first on Tax Information Center.

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Possible next step: File back tax returns

Also see: IRS penalties, IRS bill for unpaid taxes

Why you received IRS Notice LT41

1. You have an unfiled tax return.
2. The IRS attempted to contact you regarding the unfiled return, but the return remains unfiled.
3. The IRS sent LT41 to notify you that it may be necessary to contact third parties to obtain and/or verify information regarding your account. If the IRS makes these contacts, you will be sent a list of all contacts the IRS is required to report.

Notice deadline: None

If you miss the deadline: Although there is no deadline, if you do not file a tax return for the tax year shown on the notice, the IRS will file one on your behalf. The return will be filed as single or married filing separately with no exemptions other than yourself. The IRS will not any include credits or deductions to which you may be entitled.

Want more help?

Your tax professional can deal with the IRS for you. Learn more about H&R Block’s Tax Audit & Notice Services. Or make an appointment for a free consultation with a local tax professional by calling 855-536-6504 or finding a local tax pro.

The post IRS Notice LT41 – We May Contact Others for Information appeared first on Tax Information Center.

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Possible next step: Address an IRS bill for unpaid taxes

Also see: IRS penalties

Why you received IRS Notice LT24

1. You either filed a tax return with a balance due or the IRS filed a tax return on your behalf with a balance due.
2. You contacted the IRS and indicated that you were unable to pay the balance due in full, but would like a payment plan.
3. The IRS sent LT24 to request that you contact them within 7 days to discuss your financial situation. The letter asks that you have income and expense information available when you call.

Notice deadline: 7 days

If you miss the deadline: The IRS may proceed with enforced collection actions such as issuing a levy or filing a notice of tax lien.

Want more help?

Your tax professional can deal with the IRS for you. Learn more about H&R Block’s Tax Audit & Notice Services. Or make an appointment for a free consultation with a local tax professional by calling 855-536-6504 or finding a local tax pro.

The post IRS Notice LT24 – We Need More Information appeared first on Tax Information Center.