How the Employer Credit for Family and Medical Leave Benefits Employers

Here are some highlights of the new employer credit for paid family and medical leave created by the Tax Cuts and Jobs Act passed last year. Employers may claim the credit based on wages paid to qualifying employees while they are on family and medical leave.

Here are some facts about this credit and how it benefits employers:

  • To claim the credit, employers must have a written policy that meets certain requirements:
    • Employers must provide at least two weeks of paid family and medical leave annually to all qualifying employees who work full time. This can be prorated for employees who work part time.
    • The paid leave must be not less than 50 percent of the wages normally paid to the employee.
  • A qualifying employee is any employee who:
    • Has been employed for one year or more.
    • For the preceding year, had compensation that did not exceed a certain amount. For 2018, the employee must not have earned more than $72,000 in 2017.
  • For purposes of this credit, “family and medical leave” is leave for one or more of the following reasons:
    • Birth of an employee’s child and to care for the newborn.
    • Placement of a child with the employee for adoption or foster care.
    • To care for the employee’s spouse, child, or parent who has a serious health condition.
    • A serious health condition that makes the employee unable to perform the functions of his or her position.
    • Any qualifying event due to an employee’s spouse, child, or parent being on covered active duty – or being called to duty – in the Armed Forces.
    • To care for a service member who is the employee’s spouse, child, parent, or next of kin.
  • The credit is a percentage of the amount of wages paid to a qualifying employee while on family and medical leave for up to 12 weeks per taxable year. 
  • An employer must reduce its deduction for wages or salaries paid or incurred by the amount determined as a credit.  Any wages taken into account in determining any other general business credit may not be used toward this credit.
  • The credit is generally effective for wages paid in taxable years of the employer beginning after December 31, 2017. It is not available for wages paid in taxable years beginning after December 31, 2019.

2018 Tax Filing Season Begins Jan. 29

The Internal Revenue Service announced today that the nation’s tax season will begin Monday, Jan. 29, 2018 and reminded taxpayers claiming certain tax credits that refunds won’t be available before late February.

The IRS will begin accepting tax returns on Jan. 29, with nearly 155 million individual tax returns expected to be filed in 2018. The nation’s tax deadline will be April 17 this year – so taxpayers will have two additional days to file beyond April 15. 

Although the IRS will begin accepting both electronic and paper tax returns Jan. 29, paper returns will begin processing later in mid-February as system updates continue. The IRS strongly encourages people to file their tax returns electronically for faster refunds.

Tax Cuts and Jobs Act Summary on Law Passed on 12/22/17

The Tax Cuts and Jobs Act (H.R. 1) overhauls America’s tax code to deliver historic tax relief for workers, families and job creators, and revitalize our nation’s economy. By lowering taxes across the board, eliminating costly special-interest tax breaks, and modernizing our international tax system, the Tax Cuts and Jobs Act will help create more jobs, increase paychecks, and make the tax code simpler and fairer for Americans of all walks of life. With this bill, the typical family of four earning the median family income of $73,000 will receive a tax cut of $2,059.

For individuals and families, the Tax Cuts and Jobs Act:

• Lowers individual taxes and sets the rates at 0%, 10%, 12%, 22%, 24%, 32%, 35%, and 37% so people can keep more of their hard-earned money.

• Significantly increases the standard deduction to protect roughly double the amount of what you earn each year from taxes – from $6,500 and $13,000 under current law to $12,000 and $24,000 for individuals and marriedcouples, respectively.

• Continues to allow people to write off the cost of state and local taxes – up to $10,000. Gives individuals and families the ability to deduct property taxes and income – or sales – taxes to best fit their unique circumstances.

• Takes action to support more American families by:

• Expanding the Child Tax Credit from $1,000 to $2,000 for single filers and married couples to help parents with the cost of raising children. The tax credit is fully refundable up to $1,400 and begins to phase-out for families making over $400,000. Parents must provide a child’s valid Social Security Number in order to receive this credit.

• Preserving the Child and Dependent Care Tax Credit to help families care for their children and older dependents such as a disabled grandparent who may need additional support.

• Preserving the Adoption Tax Credit so parents can continue to receive additional tax relief as they open their hearts and homes to an adopted child.

• Preserves the mortgage interest deduction – providing tax relief to current and aspiring homeowners.

For all homeowners with existing mortgages that were taken out to buy a home, there will be no change to the current mortgage interest deduction.

For homeowners with new mortgages on a first or second home, the home mortgage interest deduction will be available up to $750,000.

• Provides relief for Americans with expensive medical bills by expanding the medical expense deduction for 2017 and 2018 for medical expenses exceeding 7.5 percent of adjusted gross income, and rising to 10 percent beginning in 2019.

• Continues and expands the deduction for charitable contributions so people can continue to donate to their local church, charity, or community organization.

• Eliminates Obamacare’s individual mandate penalty tax – providing families with much-needed relief and flexibility to buy the health care that’s right for them if they choose.

• Maintains the Earned Income Tax Credit to provide important tax relief for low-income Americans working to build better lives for themselves.

• Improves savings vehicles for education by allowing families to use 529 accounts to save for elementary, secondary and higher education.

• Provides support for graduate students by continuing to exempt the value of reduced tuition from taxes.

• Retains popular retirement savings options such as 401(k)s and Individual Retirement Accounts (IRAs) so Americans can continue to save for their future.

• Increases the exemption amount from the Alternative Minimum Tax (AMT) to reduce the complexity and tax burden for millions of Americans.

• Provides immediate relief from the Death Tax by doubling the amount of the current exemption to reduce uncertainty and costs for many family-owned farms and businesses when they pass down their life’s work to the next generation.

For job creators of all sizes, the Tax Cuts and Jobs Act:

• Lowers the corporate tax rate to 21% (beginning Jan. 1, 2018) – down from 35%, which today is the highest in the industrialized world – the largest reduction in the U.S. corporate tax rate in our nation’s history.

• Delivers significant tax relief to Main Street job creators by:

• Offering a first-ever 20% tax deduction that applies to the first $315,000 of joint income earned by all businesses organized as S corporations, partnerships, LLCs, and sole proprietorships. For Main Street job creators with income above this level, the bill generally provides a deduction for up to 20% on business profits– reducing their effective marginal tax rate to no more than 29.6%.

• Establishing strong safeguards so that wage income does not receive the lower marginal effective tax rates on business income – helping to ensure that Main Street tax relief goes to the local job creators it was designed to help most.

• Allows businesses to immediately write off the full cost of new equipment to improve operations and enhance the skills of their workers – unleashing growth of jobs, productivity, and paychecks.

• Protects the ability of small businesses to write off interest on loans, helping these Main Street entrepreneurs start or expand a business, hire workers, and increase paychecks.

• Preserves important elements of the existing business tax system, including:

• Retaining the low-income housing tax credit that encourages businesses to invest in affordable housing so families, individuals, and seniors can find a safe and comfortable place to call home.

• Preserving the Research & Development Tax Credit that encourages our businesses and workers to develop cutting-edge “Made in America” products and services.

• Retaining the tax-preferred status of private-activity bonds that are used to finance valuable infrastructure projects.

• Eliminates the Corporate Alternative Minimum Tax, thereby lowering taxes and eliminating confusion and uncertainty so American job creators can focus on growing their business and hiring more workers, rather than on burdensome paperwork.

• Modernizes our international tax system so America’s global businesses will no longer be held back by an outdated “worldwide” tax system that results in double taxation for many of our nation’s job creators.

• Makes it easier for American businesses to bring home foreign earnings to invest in growing jobs and paychecks in our local communities.

• Prevents American jobs, headquarters, and research from moving overseas by eliminating incentives that now reward companies for shifting jobs, profits, and manufacturing plants abroad.

For greater American energy security and economic growth, the Tax Cuts andJobs Act:

• Establishes an environmentally responsible oil and gas program in the non-wilderness 1002 Area of the Arctic National Wildlife Refuge (ANWR). Congress specifically set aside the 1.57-million acre 1002 Area for potential future development. Two lease sales will be held over the next decade and surface development will be limited to 2,000 federal acres – just one ten-thousandth of all of ANWR.

• Significantly boosts American energy production. Responsible development in the 1002 Area will raise tens of billions of dollars for deficit reduction in the decades to come, while creating thousands of new jobs, reducing our dependence on foreign oil, and helping to keep energy affordable for American families and businesses.

• Provides a temporary increase in offshore revenue sharing for the Gulf Coast in 2020 and 2021, allowing those states to invest in priorities such as coastal restoration and hurricane protection

A Preliminary Look at the Tax Overhaul

This is a great article by Deborah Jacobs that gives us a preliminary look at some the possible tax changes that will be officially announced later this week.

Deborah Jacobs - 10 Ways the Tax Overhaul Could Hurt You

 EXECUTIVE SUMMARY: The tax overhaul bill recently passed by the Senate and headed to a conference committee with the House, could create long-term hardships for people who made financial commitments based on a tax system long in effect. It also leaves much less room for all of us to employ financial strategies on a yearly basis. By imposing new restrictions on itemized deductions and raising the standard deduction, the tax overhaul would create a system in which there are not as many moving parts. Fewer people will have enough deductions to itemize, and therefore will wind up taking the standard deduction. Those hurt most by these changes are likely to be people who previously itemized, and whose total deductions in previous tax years exceed the new standard deduction. Before the draconian changes take effect, in 2018, there’s time for you to take a few steps between now and December 31 to reduce what you’ll owe in April. But after that, we’ll start feeling the chokehold. How tight things will be depends on the size of your household, where you live, whether you own a home (or would like to someday) and your stage of life. Depending on your situation, this ill-conceived scheme to benefit the rich and worsen income inequality may come between you and the American dream: a home of your own, a living wage and a comfortable retirement.

 FACTS: The tax overhaul bill passed by the Senate and headed to a conference committee with the House, eliminates some major tax breaks for individuals. That could create long-term hardships for people who made financial commitments based on a tax system long in effect. It also leaves much less room for all of us to employ financial strategies on a yearly basis. Don’t be distracted by the new brackets (Sec. 1001 of the House bill, Sec. 11001 of the Senate bill, and Sec. 1 of the Code). What I’m talking about are the amounts that get subtracted on your tax return before those rates are used to compute your tax. While the two houses of Congress agree on some of these, others are still in play and headed for reconciliation. The other aspect of the overhaul that will have a crucial effect on individuals is the increase in the standard deduction, which last year was $6,350 for single people and $12,700 for married couples. Both bills would roughly double it: The deduction would increase to $12,200 for singles ($24,400 for married couples) under the House bill; and $12,000 for singles ($24,000 for married couples) under the Senate bill.

 COMMENT: Without the income tax deductions and exemptions that Congress would curtail or eliminate, many of us will be worse off, at least for the next eight years. (For budgetary reasons, the provisions discussed here are set to expire December 31, 2025.) Before the draconian changes take effect, in 2018, there’s time for you to take a few steps between now and December 31 to reduce what you’ll owe in April. But after that, we’ll start feeling the chokehold. How tight things will be depends on the size of your household, where you live, whether you own a home (or would like to someday) and your stage of life. To be sure, for decades taxpayers have been using deductions to game the system, and in an ideal world tax reform would put an end to that. But the latest overhaul is not about tax policy, reform, or ideology. Instead, it is a scheme to benefit the top 1 percent, the richest of the rich, being sold to poor and middle-class voters as a simplification and tax cut plan. Lawyers and accountants are already gloating about the hefty fees they’ll collect to help wealthy clients exploit new loopholes. But, like many of the rest of us, the tax geeks may be in for some pain themselves. You’ll want to have your 2016 tax return and latest financial statements handy as you review the following list. It explains how, depending on your situation, the tax overhaul may come between you and the American dream: a home of your own, a living wage and a comfortable retirement.

 1. You’re married with kids. Currently you can claim a personal exemption of $4,050 for yourself, your spouse and each of your dependents. The Senate bill repeals that. Figure the amount on line 42 of your 2016 tax return would disappear, making your taxable income on the following line that much higher. An increase in the child tax credit (currently for children under 17 and for children under 18 in the Senate version), from $1,000 to $1,600 in the House bill ($2,000 in the Senate version), does not come close to making up for the loss of the personal exemption.

 2. You own a home – or aspire to. The ability to deduct property taxes and interest paid on a mortgage have long been crucial to figuring out how much one could afford to spend on a home. Both these deductions are at risk. And the overall economic effect could be disastrous. Proposed changes could deter new home building and purchases – both of primary residences and vacation homes; drive down real estate values; make it unaffordable for current homeowners with large mortgages and high property taxes to continue living in those homes; and make it more difficult to finance renovations. The effects could trickle down to all the businesses that help you feather your nest, from contractors, to granite fabricators, to plumbing supply stores. How bad it will get depends on how discrepancies between the two bills are resolved during reconciliation, but it is almost certain that the deduction for property taxes will be capped at $10,000. With respect to debt on a home, the bills differ in significant ways. The House bill would reduce the amount of debt for which mortgage interest can be deducted, from $1 million to $500,000 (mortgages obtained on or before November 2 of this year would be grandfathered at $1 million), and the interest would only be deductible on a personal residence (not a vacation home). Both bills would eliminate the deduction for interest on a home equity loan. Not surprisingly, the National Association of Realtors is already projecting the adverse impact on home prices. One example: If deductions for both mortgage interest and real estate taxes are eliminated, they predict that prices in New York will fall between 10 and 15 percent! While mortgage interest deductions get hashed out in reconciliation, consider the effect of the cap on real estate tax deductions. If you own your home (or apartment) and itemized deductions in 2016, check Schedule A, line 6, to see what you paid for these taxes. Assume that, instead of itemizing, you’ll be taking the standard deduction for your 2018 tax return. To get some idea of how much worse off you might be, start by subtracting from whatever standard deduction applies to your situation (it doesn’t really matter whether you use the House or the Senate amount) what you are now paying in real estate taxes. If the result is more than zero, multiply this amount by the tax rate that you expect will apply to you in 2018. That’s roughly how much more you will pay in taxes just because of the new limitations on real estate tax deductions. At one end of the demographic spectrum, this affects empty nesters like those in the New York City suburbs whose property taxes alone exceed the new standard deduction. At the other end, it impacts their children, like a millennial who, after getting his first job, bought an apartment in Portland, Maine. “His budget is already tight,” his concerned mother said in an email, when I alerted her to the tax break he is about to lose. With this in mind, consider prepaying your real estate taxes for 2018. If you do that before December 31, you can deduct whatever you paid in 2017 on this year’s tax return. After that, your deduction will be limited to $10,000 and won’t count at all unless you itemize. Figure you’ll “wait and see” if the law passes? Consider this: Even if that doesn’t happen until early next year, it is likely to be made retroactive. If, in reconciliation, deductions for loans secured by a personal residence are curtailed (whether for a mortgage or a home equity loan), another strategy to consider is paying off those loans more quickly than the bank requires. This is a great investment, because your rate of return equals the interest rate on the loan. Not persuaded? Think of it this way: When you’ve paid down a dollar of debt, that’s a dollar you no longer owe. When you invest a dollar, you can’t be sure whether it will grow or shrink.

 3. You need to sell your house. Under current law, if you lived in the house for at least two of the five years before the sale, you qualify for a special break that is available to homeowners who sell their principal residence (but not vacation homes): The first $250,000 ($500,000 for married couples) of their capital gain on the sale is not subject to tax. The tax overhaul will make it harder to qualify for this benefit, because you must have lived in the house for longer – five out of eight years – to qualify for the break. And the exclusion only applies to one residence every five years. For empty nesters, an alternative strategy to consider is renting out your primary residence and downsizing to smaller quarters that you rent, rather than own. This made tax sense even before the latest congressional fiasco, as I wrote here, but it could be even more attractive going forward. A growing number of people like me are leveraging their homes in this way to finance long stints overseas. (High-speed internet access, now available all over the world, makes it possible to work remotely.) Though sharing economy websites are not hospitable to older hosts, I have found that real estate agents, who may see home sales go down as a result of the tax overhaul, are happy to help. But this provision doesn’t just concern people who are downsizing. It also “will make it harder for people to move for a job, and potentially harder for employers to recruit good employees who would have to move,” says Wendy S. Goffe, a lawyer with Stoel Rives, in Seattle. If that young executive in Portland gets transferred by his company a few years from now and needs to sell his apartment (all of which could easily happen), he’ll have to pay tax on any appreciation.

 4. You live in a state or city that has an income tax. This deduction, too, will be eliminated next year. To measure the impact, check Schedule A, line 5, of your 2016 return. Add that to whatever you’re spending on real estate taxes. Then, as described in No. 2, above, figure out whether your current itemized deductions exceed the new standardized one. If they do, you’re worse off. If you find that to be true, try to pay all the state and local taxes you owe for 2017 before the end of this year. If, instead, you wait until tax time, it counts as a payment in 2018, when it can no longer be deducted.

 5. You have children or grandchildren who attend public school. By eliminating the deduction for state and local taxes, and capping the one for real estate taxes, the overhaul hurts public education, which relies on these revenues for funding. As taxpayers who have lost the deduction resist tax increases, funding for public education will constrict. Again, this will frustrate financial commitments people made based on certain assumptions: For example, buying a home in a certain community, even though the property taxes there are high, because it has a good public school system. Meantime, the overhaul contains incentives to send children to private or parochial school. Those who’ve been using 529 plans to save for higher education could withdraw up to $10,000 per year to pay for elementary or secondary education. It’s a provision that will only benefit parents who opt out of public education, and have the means to pay the rest of the tab; In New York City, where I live, kindergarten at a private school costs as much as a year at many colleges. Under the Senate bill this provision would also include certain home school expenses. One of the more penny-ante provisions of the tax overhaul applies to teachers, whose wages tend to be pathetically low, especially considering their important role in educating the next generation. The House Bill would repeal the $250 above-the-line (non-itemized) deduction they can currently take for spending their own money on “educator” expenses, such as books or classroom supplies. The Senate Bill would increase this deduction to $500.

 6. You have high medical expenses – or might someday. The House bill repeals the deduction for unreimbursed medical expenses, which last year were deductible if they exceeded 10 percent of adjusted gross income (7.5 percent if at least one spouse was older than 65). The Senate bill would retain this deduction, but lower the floor to 7.5 percent for the 2017 and 2018 tax years. But of course you need to itemize for it to do you any good.

 7. You’re career-oriented. It’s bitterly ironic that the bill is called the “Tax Cuts and Jobs Act,” because in fact it eliminates a bunch of deductions for money we might at various times spend to advance our careers. These are expenses that get lumped together on Schedule A under the heading “Job Expenses and Certain Miscellaneous Deductions.” Examples include unreimbursed job travel, training or moving costs. It has always been hard to get much juice out of these deductions, since you can claim them only if they total more than 2 percent of your adjusted gross income. But in some years that could certainly be the case. And the tax law, especially one with this title, ought to provide financial incentives for self-directed career growth rather than take them away. In a similar vein, the House bill would make it necessary for employees to pay tax on education expenses paid for by their companies. Currently $5,250 of these expenses are excluded from income.

 8. You’re in debt for your education. Before you blink, a handful of tax goodies that are less than a rounding error in the federal budget, but help people struggling with the high cost of education, would go poof if the House draftsmen have their way. One that could affect many people is the repeal of the deduction for interest on a student loan. Currently, up to $2,500 of that interest can be deducted each year. (The higher your adjusted gross income, the less you can deduct.) This is another provision that could hurt millennials who previously had enough deductions to itemize – like the young executive who recently bought an apartment in Portland.

 9. You’re retired – or nearing retirement. As our earned income declines, those of us who saved money in retirement accounts will start to take withdrawals to meet current expenses. When we do that from traditional IRAs or 401(k)s (as opposed to Roths, which are funded with after-tax dollars), the money is taxed at ordinary income rates. In an environment in which fewer deductions are available to offset that income, more of our retirement savings will go to taxes and less will be available for personal use. Knowing that, and with the stock market at an all-time high, you may want to skim off some of the growth in traditional IRAs before year-end, and load up on as many itemized deductions as you can possibly take before they disappear. (Warning: To do that without penalty, you must be older than 59 1/2.) Of course, people who converted traditional IRA assets to Roths will be able to take withdrawals from those accounts tax-free in future years. If you were clever enough to do that a couple of years ago and have benefited from this year’s stock market run-up, give yourself a big hug. The Roth strategy will become more risky under the tax overhaul because it would repeal a special rule that allows the conversion to be reversed, or “recharacterized.” If you converted IRA assets to a Roth this year, figuring you could undo the conversion if the stock market tanks – say in January – and later reconvert the assets at a lower tax cost, you will be out of luck. Though the bills are inartfully drafted, the Ways and Means Committee report clearly indicates that you will no longer get another bite at the apple: “Recharacterization of IRA contributions may enable an individual to avoid tax by retroactively manipulating the amount of income that must be recognized for tax purposes. The Committee intends to repeal the recharacterization rule in order to prevent such manipulation.” In a footnote, the Committee notes that it will not restrict the use of socalled backdoor IRAs (though it does not use this term): “The provision does not preclude an individual from making a contribution to a traditional IRA and converting the traditional IRA to a Roth IRA. Rather, the provision would preclude the individual from later unwinding the conversion through a recharacterization.”

 10. You own low-basis stock. Currently when you sell stock, you can choose which blocks to liquidate, in order to minimize capital gains or take advantage of capital losses. The Senate bill would require that you use the first-in, first-out method instead: sell the shares in the order in which you acquired them (whether by purchase, reinvestment of dividends or the exercise of stock options). This could result in your taking a big tax hit when selling shares with a low basis – for example, those acquired early in the life of a company or shortly before an IPO. If you hold a lot of stock in a particular company, you might want to engage in some year-end tax planning in anticipation of possible changes. That might involve harvesting gains and losses on certain shares yourself, and donating others to charity. Just be sure you will not regret this strategy if the provision in the Senate bill is dropped during reconciliation. Even when the state of the law is clear, it’s usually better not to let the tax tail wag the investment dog.

 I still hope our legislators will take all the commentary to heart, slow down and come up with a significantly less “one-percent sided” tax law. Not wanting to lose the support of wealthy donors, most of them rushed to vote for a bill that they couldn’t begin to understand (or perhaps did but thought the public would not). We will spend years suffering the consequences of their senseless and self-serving haste.

 

How to Know if the Knock on Your Door is Actually Someone from the IRS

Every Halloween, children knock on doors pretending they are everything from superheroes to movie stars. Scammers, on the other hand, don’t leave their impersonations to one day. They can happen any time of the year.

People can avoid taking the bait and falling victim to a scam by knowing how and when the IRS does contact a taxpayer in person. This can help someone determine whether an individual is truly an IRS employee.

Here are eight things to know about in-person contacts from the IRS.

  • The IRS initiates most contacts through regular mail delivered by the United States Postal Service.
  • There are special circumstances when the IRS will come to a home or business. This includes:
    • When a taxpayer has an overdue tax bill
    • When the IRS needs to secure a delinquent tax return or a delinquent employment tax payment
    • To tour a business as part of an audit
    • As part of a criminal investigation
  • Revenue officers are IRS employees who work cases that involve an amount owed by a taxpayer or a delinquent tax return. Generally, home or business visits are unannounced.
  • IRS revenue officers carry two forms of official identification.  Both forms of ID have serial numbers. Taxpayers can ask to see both IDs.
  • The IRS can assign certain cases to private debt collectors. The IRS does this only after giving written notice to the taxpayer and any appointed representative. Private collection agencies will never visit a taxpayer at their home or business.
  • The IRS will not ask that a taxpayer makes a payment to anyone other than the U.S. Department of the Treasury.
  • IRS employees conducting audits may call taxpayers to set up appointments, but not without having first notified them by mail. Therefore, by the time the IRS visits a taxpayer at home, the taxpayer would be well aware of the audit.   

IRS criminal investigators may visit a taxpayer’s home or business unannounced while conducting an investigation. However, these are federal law enforcement agents and they will not demand any sort of payment.

Gifts to Charity: Six Facts About Written Acknowledgements

Throughout the year, many taxpayers contribute money or gifts to qualified organizations eligible to receive tax-deductible charitable contributions. Taxpayers who plan to claim a charitable deduction on their tax return must do two things:

  • Have a bank record or written communication from a charity for any monetary contributions.
  • Get a written acknowledgment from the charity for any single donation of $250 or more.

Here are six things for taxpayers to remember about these donations and written acknowledgements:

  • Taxpayers who make single donations of $250 or more to a charity must have one of the following:
    • A separate acknowledgment from the organization for each donation of $250 or more.
    • One acknowledgment from the organization listing the amount and date of each contribution of $250 or more.
  • The $250 threshold doesn’t mean a taxpayer adds up separate contributions of less than $250 throughout the year.
    • For example, if someone gave a $25 offering to their church each week, they don’t need an acknowledgement from the church, even though their contributions for the year are more than $250.
  • Contributions made by payroll deduction are treated as separate contributions for each pay period.
  • If a taxpayer makes a payment that is partly for goods and services, their deductible contribution is the amount of the payment that is more than the value of those goods and services.
  • A taxpayer must get the acknowledgement on or before the earlier of these two dates:
    • The date they file their return for the year in which they make the contribution.
    • The due date, including extensions, for filing the return.
  • If the acknowledgment doesn't show the date of the contribution, the taxpayers must also have a bank record or receipt that does show the date.

 

IRS Issues Reminder to Taxpayers as Scams Continue Across the Nation

Internal Revenue Service today warned taxpayers to remain vigilant to scams as they continue to be reported around the country. Phishing, phone scams and identity theft top the list of items normally reported. However, following hurricanes and other disasters, the IRS urged taxpayers to be on the lookout for schemes stemming from these recent events.

While individuals and businesses deal with the devastation of Hurricanes Harvey, Irma and Maria and wildland fires in the West, criminals may take advantage of this situation by creating fake charities to get money or personal information from sympathetic taxpayers. They may also attempt to con victims by impersonating a relief agency or charity that will provide relief. Such fraudulent scams and solicitations for donations may involve contact by telephone, social media, e-mail or in person.

Below are some of the more typical scams the IRS has seen:

Email Phishing Scams          

The IRS has recently seen email schemes that target tax professionals, payroll professionals and human resources personnel in addition to individual taxpayers.

In email phishing attempts, criminals pose as a person or organization that taxpayers trust and recognize. They may hack an email account and send mass emails under another person’s name. They may pose as a bank, credit card company, tax software provider or government agency. If a person clicks on the link in these emails, it takes them to fake websites created by fraudsters to appear legitimate but contain phony login pages. These criminals hope victims will take the bait and provide money, passwords, Social Security numbers and other information that can lead to identity theft.

Scam emails and websites also can infect computers with malware without the user knowing it. The malware can give the criminal access to the device, enabling them to access sensitive files or track keyboard strokes, exposing logins and other sensitive information.

If a taxpayer receives an unsolicited email that appears to be from either the IRS or a program closely linked to the IRS, such as the Electronic Federal Tax Payment System (EFTPS), report it by sending it to phishing@irs.gov.  Learn more by going to the Report Phishing and Online Scams page.

The IRS generally does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels. The IRS has information online that can help protect taxpayers from email scams.

Phone Scams

The IRS does not call and leave prerecorded, urgent messages asking for a call back. In this tactic, the victim is told if they do not call back, a warrant will be issued for their arrest.

The IRS recently began sending letters to taxpayers whose overdue federal tax accounts are being assigned to one of four private-sector collection agencies. Because of this, taxpayers should be on the lookout for scammers posing as private collection firms. The IRS-authorized firms will only be calling about a tax debt the person has had – and has been aware of – for years. Taxpayers also would have been previously contacted by the IRS about their tax debt.

How to Know It’s Really the IRS Calling or Knocking on Your Door

The IRS initiates most contacts through regular mail delivered by the United States Postal Service.

However, there are special circumstances in which the IRS will call or come to a home or business, such as when a taxpayer has an overdue tax bill, to secure a delinquent tax return or delinquent employment tax payment, or to tour a business as part of an audit or during criminal investigations.

Even then, taxpayers will usually first receive several letters (called “notices”) from the IRS in the mail. For more information, visit “How to know it’s really the IRS calling or knocking on your door” on IRS.gov.

Tax Refund Fraud -- Identity Theft

Tax-related identity theft occurs when someone uses a stolen Social Security number or Individual Taxpayer Identification Number (ITIN) to file a tax return claiming a fraudulent refund.

In 2015, the IRS joined forces with representatives of the software industry, tax preparation firms, payroll and tax financial product processors and state tax administrators to combat identity-theft refund fraud and protect the nation's taxpayers. This group -- the Security Summit -- has held a series of public awareness campaigns directed at taxpayers called "Taxes.Security.Together."  For tax professionals, the “Protect Your Clients; Protect Yourself” and “Don’t Take the Bait” campaigns encourage the tax community to take steps to protect themselves from identity thieves and cybercriminals.

Security Reminders for Taxpayers

The IRS and its Summit partners remind taxpayers they can do their part to help in this effort. Taxpayers and tax professionals should:

  • Always use security software with firewall and anti-virus protections. Make sure the security software is always turned on and can automatically update. Encrypt sensitive files such as tax records stored on computers and devices. Use strong passwords.  
  • Learn to recognize phishing emails, threatening phone calls and texts from thieves posing as legitimate organizations, such as a bank, credit card company and government agencies. Do not click on links or download attachments from unknown or suspicious emails.
  • Protect personal data. Don’t routinely carry Social Security cards, and make sure tax records are secure. Treat personal information like cash; don’t leave it lying around.

Helpful Tips to Know About Gambling Winnings & Losses

Taxpayers must report all gambling winnings as income. They must be able to itemize deductions to claim any gambling losses on their tax return.

Taxpayers who gamble may find these tax tips helpful:

  1. Gambling income. Income from gambling includes winnings from the lottery, horseracing and casinos. It also includes cash and non-cash prizes. Taxpayers must report the fair market value of non-cash prizes like cars and trips to the IRS.
  2. Payer tax form. The payer may issue a Form W-2G, Certain Gambling Winnings, to winning taxpayers based on the type of gambling, the amount they win and other factors. The payer also sends a copy of the form to the IRS. Taxpayers should also get a Form W-2G if the payer withholds income tax from their winnings.
  3. How to report winnings. Taxpayers must report all gambling winnings as income. They normally should report all gambling winnings for the year on their tax return as “Other Income.” This is true even if the taxpayer doesn’t get a Form W-2G.
  4. How to deduct losses. Taxpayers are able to deduct gambling losses on Schedule A, Itemized Deductions, but keep in mind, they can’t deduct gambling losses that are more than their winnings.
  5. Keep gambling receipts. Keep records of gambling wins and losses. This means gambling receipts, statements and tickets or by using a gambling log or diary.

How Does the IRS Contact Tax Payers

When the IRS needs to contact a taxpayer, the first contact is normally by letter delivered by the U.S. Postal Service. The IRS doesn’t normally initiate contact with taxpayers by email, nor does it send text messages or contact through social media channels.

Depending on the situation, IRS employees may first call or visit with a taxpayer. In some instances, advance notice is provided in writing via a letter or notice, but not always.

IRS Phone Calls

  • IRS revenue officers work directly with taxpayers to educate them about their options to resolve delinquencies and to collect delinquent taxes and tax returns, while protecting taxpayers’ rights.
  • IRS revenue agents or tax compliance officers may call a taxpayer or tax professional after mailing a notice to confirm an appointment or to discuss items for a scheduled audit.
  • Private debt collectors can call taxpayers for the collection of certain outstanding inactive tax liabilities but only after the taxpayer and their representative has received written notice. Private debt collectors for the IRS must respect taxpayers’ rights and abide by the consumer protection provisions of the Fair Debt Collection Practices Act.

IRS Visits

  • IRS revenue officers routinely make unannounced visits to a taxpayer’s home or place of business to discuss taxes owed, delinquent tax returns or a business falling behind on payroll tax deposits. IRS revenue officers will request payment of taxes owed by the taxpayer; however, payment will never be requested to a source other than the US Treasury.
  • IRS revenue agents usually visit taxpayers or tax professionals to conduct the audit after either mailing a notice and/or agreeing on the day and time. IRS revenue agents will sometimes make unannounced visits to a taxpayer’s home or place of business to discuss a tax matter.
  • IRS criminal investigators are federal law enforcement agents who may visit a taxpayer’s home or place of business unannounced while conducting an investigation. They will not demand any sort of payment.

Ask For Credentials

IRS representatives can always provide two forms of official credentials: a pocket commission and a Personal Identity Verification Credential (PIV). Pocket commissions describe the specific authority and responsibilities of the authorized holder. The PIV is a government-wide standard for secure and reliable forms of identification for federal employees and contractors. Criminal investigators also have a badge and law enforcement credentials.

Paying Taxes

All tax payments are to the U.S. Treasury. Taxpayers should never use a preloaded debit card or wire transfer to make a payment. The IRS provides specific guidelines on how to make a tax payment at irs.gov/payments.

IRS employees and contractors will never:

  • Be hostile or insulting
  • Demand payment without giving taxpayers the opportunity to question or appeal the amount
  • Require a specific payment method, such as a prepaid debit card
  • Threaten lawsuits, arrest, deportation or other action for not paying
  • Ask for credit or debit card numbers over the phone.

Avoid scams. The IRS never initiates contact using social media or text messages. First contact generally comes in the mail.  A special page on IRS.gov, “How to know it’s really the IRS calling or knocking on your door,”  helps taxpayers determine if a person claiming to be from the IRS is legitimate or an imposter.

Real Property Tax Credit for Homeowners

The City & County of Honolulu offers a real property tax credit to property owners
who meet certain eligibility requirements. If you qualify, the maximum real property
tax owed would not exceed 3% or 4% of your income, depending on your age.

What are the Eligibility Requirements?

  • Homeowner must have a home exemption in effect at the time of application and for the following tax year.
  • Any of the titleholders do not own any other property anywhere.
  • The combined income of all titleholders cannot exceed $60,000.

How Do I Apply for the Tax Credit Program?

  • Complete an application available at the following locations in early July:
  • Satellite City Halls
  • Treasury Division at Honolulu Hale
  • Tax Relief Section at the Standard Financial Bldg.
  • Online (here)

What is the Application Deadline? October 2, 2017

Important Reminder: You must file annually for this credit.

For more information contact the Real Property Tax Relief Office at 768-3205 or view the brochure at http://www.honolulu.gov/rep/site/bfs/treasury_docs/2018_Tax_Credit_Information_Brochure.pdf

Information furnished is subject to change without notice.

Tips for Taxpayers Who Owe Taxes

The IRS offers a variety of payment options where taxpayers can pay immediately or arrange to pay in installments. Those who receive a bill from the IRS should not ignore it. A delay may cost more in the end. As more time passes, the more interest and penalties accumulate.

Here are some ways to make payments using IRS electronic payment options:

  • Direct Pay. Pay tax bills directly from a checking or savings account free with IRS Direct Pay. Taxpayers receive instant confirmation once they’ve made a payment. With Direct Pay, taxpayers can schedule payments up to 30 days in advance. Change or cancel a payment two business days before the scheduled payment date.
  • Credit or Debit Cards. Taxpayers can also pay their taxes by debit or credit card online, by phone or with a mobile device. A payment processor will process payments.  The IRS does not charge a fee but convenience fees apply and vary by processor.

Those wishing to use a mobile devise can access the IRS2Go app to pay with either Direct Pay or debit or credit card. IRS2Go is the official mobile app of the IRS. Download IRS2Go from Google Play, the Apple App Store or the Amazon App Store.

  • Installment Agreement. Taxpayers, who are unable to pay their tax debt immediately, may be able to make monthly payments. Before applying for any payment agreement, taxpayers must file all required tax returns. Apply for an installment agreement with the Online Payment Agreement tool.

Who’s eligible to apply for a monthly installment agreement online?

    • Individuals who owe $50,000 or less in combinedtax, penalties and interest and have filed all required returns
    • Businesses that owe $25,000 or less in combined tax, penalties and interest for the current year or last year’s liabilities and have filed all required returns

Those who owe taxes are reminded to pay as much as they can as soon as possible to minimize interest and penalties. Visit IRS.gov/payments for all payment options.

Home Office Deduction Often Overlooked by Small Business Owners

The Internal Revenue Service reminded small business owners who work from a home office that there are two options for claiming the Home Office Deduction. The Home Office Deduction is often overlooked by small business owners.

Regular Method

The first option for calculating the Home Office Deduction is the Regular Method. This method requires computing the business use of the home by dividing the expenses of operating the home between personal and business use. Direct business expenses are fully deductible and the percentage of the home floor space used for business is assignable to indirect total expenses. Self-employed taxpayers file Form 1040, Schedule C , Profit or Loss From Business (Sole Proprietorship), and compute this deduction on Form 8829Expenses for Business Use of Your Home.

Simplified Method

The second option, the Simplified Method, reduces the paperwork and recordkeeping burden for small businesses. The simplified method has a prescribed rate of $5 a square foot for business use of the home. There is a maximum allowable deduction available based on up to 300 square feet. Choosing this option requires taxpayers to complete a short worksheet in the tax instructions and entering the result on the tax return. There is a special calculation for daycare providers. Self-employed individuals claim the home office deduction on Form 1040, Schedule C , Line 30; farmers claim it on Schedule F, Line 32 and eligible employees claim it on Schedule A, Line 21.

Regardless of the method used to compute the deduction, business expenses in excess of the gross income limitation are not deductible. Deductible expenses for business use of a home include the business portion of real estate taxes, mortgage interest, rent, casualty losses, utilities, insurance, depreciation, maintenance and repairs. In general, expenses for the parts of the home not used for business are not deductible.

Deductions for business storage are deductible when the dwelling unit is the sole fixed location of the business or for regular use of a residence for the provision of daycare services; exclusive use isn’t required in these cases.

Employee or Independent Contractor? Know the Rules

The IRS encourages all businesses and business owners to know the rules when it comes to classifying a worker as an employee or an independent contractor.

An employer must withhold income taxes and pay Social Security, Medicare taxes and unemployment tax on wages paid to an employee. Employers normally do not have to withhold or pay any taxes on payments to independent contractors.

Here are two key points for small business owners to keep in mind when it comes to classifying workers:

  1. Control. The relationship between a worker and a business is important. If the business controls what work is accomplished and directs how it is done, it exerts behavioral control. If the business directs or controls financial and certain relevant aspects of a worker’s job, it exercises financial control. This includes:
  • The extent of the worker’s investment in the facilities or tools used in performing services
  • The extent to which the worker makes his or her services available to the relevant market
  • How the business pays the worker, and
  • The extent to which the worker can realize a profit or incur a loss
  1. Relationship. How the employer and worker perceive their relationship is also important for determining worker status. Key topics to think about include:
  • Written contracts describing the relationship the parties intended to create
  • Whether the business provides the worker with employee-type benefits, such as insurance, a pension plan, vacation or sick pay
  • The permanency of the relationship, and
  • The extent to which services performed by the worker are a key aspect of the regular business of the company
  • The extent to which the worker has unreimbursed business expenses

Tax Tips to Help You Determine What Makes a Gift Taxable

Taxpayers who give money or property to others may wonder about the federal gift tax and if it applies. Most gifts are not subject to the gift tax.

Here are seven tax tips about the gift tax and giving:

  1. Nontaxable Gifts. The general rule is that any gift is potentially taxable. However, there are exceptions to this rule. The following are nontaxable gifts:
  • Gifts that do not exceed the annual exclusion amount for the calendar year,
  • Tuition or medical expenses a taxpayer pays directly to a medical or educational institution for another person,
  • A taxpayer’s gifts to their spouse,
  • Gifts to a political organization for its use, and
  • Gifts to charities.
  1. Annual Exclusion. For 2016, the annual exclusion amount is $14,000. Most gifts are not subject to the gift tax. For example, there is usually no tax if the taxpayer makes a gift to their spouse or to a charity. If a taxpayer makes a gift to another person, the gift tax usually does not apply until the value of the gift exceeds the annual exclusion amount for the year.
  2. No Tax on Recipient. Generally, the person who receives the gift will not have to pay tax on it.
  3. Gifts Not Deductible. Making a gift does not ordinarily affect the taxpayer’s situation. A taxpayer cannot deduct the value of gifts they make (other than deductible charitable contributions as subject to the tax code).
  4. Forgiven Debt and Certain Loans. Taxpayers who forgive debt or make a loan interest-free or below the applicable market interest rate may be subject to the gift tax.
  5. Gift-Splitting. A taxpayer and their spouse can give up to $28,000 to a third party without making that gift taxable. Taxpayers need to consider one-half of the gift as from them and one-half given by their spouse.
  6. Filing Requirement. Taxpayers need to file Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, if any of the following apply:
  • The taxpayer gave gifts to at least one person (other than their spouse) that amounts to more than the annual exclusion for the year.
  • The taxpayer and their spouse are splitting a gift. This is true even if half of the split gift is less than the annual exclusion.
  • If the taxpayer gave a person (other than their spouse) a gift of a future interest that the recipient can’t actually possess, enjoy, or from which that person will receive income later.
  • A taxpayer gifting their spouse an interest in property that will terminate due to a future event.

Know these Facts Before Deducting a Charitable Donation

If taxpayers gave money or goods to a charity in 2016, they may be able to claim a deduction on their federal tax return. Taxpayers can use the Interactive Tax Assistant tool, Can I Deduct my Charitable Contributions?, to help determine if their charitable contributions are deductible.

Here are some important facts about charitable donations:

  1. Qualified Charities. Taxpayers must donate to a qualified charity. Gifts to individuals, political organizations or candidates are not deductible. To check the status of a charity, use the IRS Select Check tool.
  2. Itemize Deductions. To deduct charitable contributions, taxpayers must file Form 1040 and itemize deductions. File Schedule A, Itemized Deductions, with a federal tax return.
  3. Benefit in Return. If taxpayers get something in return for their donation, they may have to reduce their deduction. Taxpayers can only deduct the amount that exceeds the fair market value of the benefit received. Examples of benefits include merchandise, meals, tickets to events or other goods and services.
  4. Type of Donation. If taxpayers give property instead of cash, their deduction amount is normally limited to the item’s fair market value. Fair market value is generally the price they would get if the property sold on the open market. If they donate used clothing and household items, those items generally must be in good condition or better. Special rules apply to cars, boats and other types of property donations.
  5. Noncash Charitable Contributions. File Form 8283, Noncash Charitable Contributions, for all noncash gifts totaling more than $500 for the year. Complete section-A for noncash property contributions worth $5,000 or less. Complete section-B for noncash property contributions more than $5,000 and include a qualified appraisal to the return. Taxpayers may be able to prepare and e-file their tax return for free using IRS Free File. The type of records they must keep depends on the amount and type of their donation. To learn more about what records to keep, see Publication 526, Charitable Contributions.
  6. Donations of $250 or More. If taxpayers donated cash or goods of $250 or more, they must have a written statement from the charity. It must show the amount of the donation and a description of any property given. It must also say whether they received any goods or services in exchange for the gift.

Debt Cancellation May be Taxable

If a lender cancels part or all of a debt, a taxpayer must generally consider this as income. However, the law allows an exclusion that may apply to homeowners who had their mortgage debt canceled in 2016.

Here are some tips about debt cancellation:

  1. Main Home. If the canceled debt was a loan on a taxpayer’s main home, they may be able to exclude the canceled amount from their income. They must have used the loan to buy, build or substantially improve their main home to qualify. Their main home must also secure the mortgage.
  2. Loan Modification. If a taxpayer’s lender canceled or reduced part of their mortgage balance through a loan modification or ‘workout,’ the taxpayer may be able to exclude that amount from their income. They may also be able to exclude debt discharged as part of the Home Affordable Modification Program, or HAMP. The exclusion may also apply to the amount of debt canceled in a foreclosure.
  3. Refinanced Mortgage. The exclusion may apply to amounts canceled on a refinanced mortgage. This applies only if the taxpayer used proceeds from the refinancing to buy, build or substantially improve their main home and only up to the amount of the old mortgage principal just before refinancing. Amounts used for other purposes do not qualify.
  4. Other Canceled Debt. Other types of canceled debt such as second homes, rental and business property, credit card debt or car loans do not qualify for this special exclusion.
  5. Form 1099-C. If a lender reduced or canceled at least $600 of a taxpayer’s debt, the taxpayer should receive Form 1099-C, Cancellation of Debt, by Feb. 1. This form shows the amount of canceled debt and other information.

IRS Has Refunds Totaling $1 Billion for People Who Have Not Filed a 2013 Federal Income Tax Return

The Internal Revenue Service announced today that unclaimed federal income tax refunds totaling more than $1 billion may be waiting for an estimated 1 million taxpayers who did not file a 2013 federal income tax return.

To collect the money, taxpayers must file a 2013 tax return with the IRS no later than this year’s tax deadline, Tuesday, April 18.

In cases where a tax return was not filed, the law provides most taxpayers with a three-year window of opportunity for claiming a refund. If they do not file a return within three years, the money becomes the property of the U.S. Treasury. For 2013 tax returns, the window closes April 18, 2017. The law requires taxpayers to properly address mail and postmark the tax return by that date.

The IRS reminds taxpayers seeking a 2013 refund that their checks may be held if they have not filed tax returns for 2014 and 2015. In addition, the refund will be applied to any amounts still owed to the IRS, or a state tax agency, and may be used to offset unpaid child support or past due federal debts, such as student loans.

By failing to file a tax return, people stand to lose more than just their refund of taxes withheld or paid during 2013. Many low-and-moderate income workers may have been eligible for the Earned Income Tax Credit (EITC). For 2013, the credit was worth as much as $6,044.

State-by-state estimates of individuals who may be due 2013 tax refunds:

Name Change? How It Impacts Taxes

A name change can have an impact on taxes. All the names on a taxpayer’s tax return must match Social Security Administration records. A name mismatch can delay a tax refund. Here’s what taxpayers should know if they changed their name:

  • Reporting Name Changes. Got married and now using a new spouse’s last name or hyphenate a name? Divorced and now back to using a former last name? In either case, taxpayers should notify the SSA of a name change. That way the new name on IRS records will match the SSA records.
  • Making Dependent’s Name Change. Notify the SSA if a dependent had a name change. For example, if a taxpayer adopted a child and the child’s last name changed. If the child does not have a Social Security number, the taxpayer may use an Adoption Taxpayer Identification Number on their tax return. An ATIN is a temporary number. Apply for an ATIN by filing Form W-7A, Application for Taxpayer Identification Number for Pending U.S. Adoptions, with the IRS. Visit IRS.gov to get the form.
  • Getting a New SS Card. File Form SS-5, Application for a Social Security Card. The form is on SSA.gov or by calling 800-772-1213. The taxpayer’s new card will reflect the name change.

IRS YouTube Videos: 

Six Tax Tips for the Self-Employed

Self-employed taxpayers normally earn income by carrying on a trade or business. Here are six important tips from the IRS for the self-employed:

  • Self-Employed Taxpayers. Sole proprietors and independent contractors are two types of self-employment. Taxes can be complex for the self-employed. Check out the IRS Self Employed Individuals Tax Center.
  • Estimated Tax. Self-employed taxpayers generally need to make quarterly estimated tax payments. IRS Publication 505, Tax Withholding and Estimated Tax, has details on making those payments.
  • Schedule C or C-EZ. Self-employed taxpayers must file a Schedule C, Profit or Loss from Business, or Schedule C-EZ, Net Profit from Business, with their Form 1040. For expenses less than $5,000, use Schedule C-EZ. Each form’s instructions provide the rules for which form to use.
  • SE Tax. For those making a profit, self-employment and income tax may need to be paid. Self-employment tax includes Social Security and Medicare taxes. Use Schedule SE, Self-Employment Tax, to figure the tax.
  • Allowable Deductions. Taxpayers can deduct expenses paid to run a business that are both ordinary and necessary. An ordinary expense is one that is common and accepted in the industry. A necessary expense is one that is helpful and proper for a trade or business.
  • When to Deduct. In most cases, taxpayers can deduct expenses in the year paid or incurred. Some costs must be ‘capitalized,’ however. This means deducting the cost over a number of years.

Where’s My Refund?

Here is a video tax tip from the IRS:

How to Use the “Where’s My Refund?” Tool   English | Spanish |ASL

This IRS YouTube video walks taxpayers through the steps of how to use the IRS “Where’s my refund?” tool.  The online tool gives personalized up to date tracking information on a refunds’ status. Nine out of 10 refunds are issued within 21 days when sent electronically and using direct deposit.