Category Archives: IRS

IRS Extends Due Date to Issue Health Coverage Forms to Individuals

Yet again, the IRS has extended the deadline for “insurers, self-insuring employers, other coverage providers, and applicable large employers to send out 1095 forms to individuals.”

They now have until March 2, 2018, to provide Forms 1095-B or 1095-C to individuals, which is a 30-day extension from the original due date of Jan. 31… This 30-day extension is automatic. Employers and providers don’t have to request it.

For individual taxpayers and the accountants that prepare their returns, this is pretty frustrating news. Those responsible for providing health insurance (insurance companies, self-insuring employers, and applicable large employers, etc.) are required by the ACA to furnish statements to employees and other covered individuals regarding the health care coverage offered to them. Individuals use this information to determine whether, for each month of the calendar year, they may claim the premium tax credit on their individual income tax returns.

Because accountants are required by law to confirm with their clients that they had insurance that meets the requirements of the mandate, not having Form 1095 in-time to prepare 2017 tax returns is a challenge. Therefore, the IRS has provided guidance indicating that other sources can be used to confirm coverage — such as insurance cards or bills — but obviously those documents don’t provide information on which months the taxpayer may not have had coverage, so relying on them or on a taxpayer’s memory of which months they are covered can be a costly mistake.

Source: IRS Extends Due Date for Employers and Providers to Issue Health Coverage Forms to Individuals in 2018 | Internal Revenue Service

2018 Tax Season Begins Jan 29; Tax Returns Due Apr 17

Big news — The IRS has finally announced the day they will begin accepting e-files: January 29th. And Tax Day is April 17th — making it a shorter-than-usual season, based on the number of days in-between.

Therefore, we encourage getting your books and tax prep docs together ahead-of-time, making fourth-quarter estimates based on these reconciled books, and getting in-line with your tax preparer asap, so as to avoid any bottlenecks. Your tax accountant can prepare your return ahead of the due date and simply check for new form updates the day filing opens — then your return will be one of the first in the queue.

More here: 2018 Tax Filing Season Begins Jan. 29, Tax Returns Due April 17; Help Available for Taxpayers | Internal Revenue Service

The New ‘20% Qualified Business Income Deduction’

NOTE: UPDATED JAN 2, 2018

Clients and long-lost friends have been calling incessantly and I’ve been overwhelmed by emails and facebook posts since the new tax legislation was passed. Most of the questions I’m getting are on the topic of an attempt at ‘parity’ between the new, permanently lower C-corp tax rates, and the tax rates paid by sole proprietors and flow-through entities.

So thank goodness that my favorite tax writer, Tony Nitti, has done it again. He’s managed to make the most asinine, overly-complex piece of tax law comprehensible. Well, mostly. Given that the congressmen that passed the law have clearly never read any of it, there’s only so far you can go.

Tony’s recent article in Forbes, Tax Geek Tuesday: Making Sense Of The New ‘20% Qualified Business Income Deduction’, does its best to interpret, analyze, and instruct on the topic of the new mysterious 20% income deduction for flow-through entities. Tony states:

On its surface, Section 199A will allow owners of sole proprietorships, S corporations and partnerships — and yes, even stand-alone rental properties reported on Schedule E —  to take a deduction of 20% against their income from the business. The result of such a provision is to reduce the effective top rate on these types of business income from 40.8% under current law to 29.6% under the new law (a new 37% top rate * a 20% deduction= 29.6%).

Courtesy of this new deduction, sole proprietors and owners of flow-through businesses retain their competitive rate advantage over C corporations: it is 10% under current law, and will be 10% under the new law (39.8% versus 29.6%).

He reviews the following areas, being careful to note what we don’t know (given the rushed passing of this law and the lack of precedent or regulations, there’s a lot of that):

  • Overview of the QBI Deduction
  • Qualified Business Income
  • W-2 Limitations
  • Exception to W-2 Wage Limitations
  • Phase-In of W-2 Limitations
  • Treatment of “Specified Service Trades or Businesses”
  • Phase-Out of Deduction for Specified Service Businesses
  • Ancillary Issues

He somehow manages to do this all with illustrations using various scenarios and examples, and above all — humor. Again, he stresses that “Section 199A, however, is in its infancy. We don’t have regulations.” There are “definitional debates” all over the internet already… and without any precedent from court cases on some of the related topics, we’re likely to see a lot of loopholes until this section makes its way through the justice system.

At 10,000 words, it’s a long one, but it’s worth the read. This is the shortest, clearest, and most entertaining description I’ve seen so far of this particularly messy section of the new tax code. As Tony says, “with no regulations, no form instructions, and most unfortunate of all, no one who helped craft the bill or vote on the thing who actually understands what it says, it may be a while before clarity is forthcoming.”

UPDATE: January 2, 2018 — some clarity and additional explanation of complex areas came out in another Nitti article, a follow-up to the one noted above, in which he interviews a former IRS attorney about this new section of the law. It fills in some gaps in the last article, and the two of them discuss additional potential issues, as well as a timeline for technical corrections. My biggest take-away is that this thorny section of the code will be causing us all massive headaches well into 2019.

Prepaid Real Property Taxes May Be Deductible in 2017

I mentioned this in a recent blog post, but it’s now been officially sanctioned by the IRS, so it bears repeating. If you have property taxes that would usually be due in 2018, which are assessed and paid before 2017 year-end, then you can deduct them on your Schedule A with the rest of your property taxes for 2017 as an itemized deduction.

This may be important for those that:

  1. will no longer itemize starting in 2018, because the new standard deduction is higher than their combined allowable itemized deductions; or
  2. who will continue to itemize in 2018, but will find themselves affected by the new $10,000 cap on deductible property + state income tax.

But caution: there are situations where the pre-payment deduction will not hold up — as this NYT article does a good job of outlining.

More here, direct from the IRS: IRS Advisory: Prepaid Real Property Taxes May Be Deductible in 2017 if Assessed and Paid in 2017 | Internal Revenue Service

Year-End Tax Planning Moves to Make Now

UPDATED 12/19/17 — at the last minute, Congress decided to explicitly forbid prepayment of state income tax (but not property tax), so unfortunately, #5 below now only refers to making 4Q 2017 estimated payments, not any payments for 2018.

With tax “reform” looming, there is still a great deal of uncertainty in terms of what the new year will bring. However, there are some tips that are worth taking, given what we do know. I’ve attended three tax update webinars this month and read quite a few articles on the topic, and reduced the list to these essentials:

  1. Defer Income into 2018
  2. Accelerate Deductions into 2017
  3. Boost Donations to Charities in 2017
  4. Prepay Property Taxes in 2017
  5. Prepay State Estimated Taxes in 2017 (see update above)
  6. Harvest Investment Losses Against Capital Gains in 2017
  7. Max-Out Retirement Contributions in 2017
  8. Pay Deductible Medical Expenses in 2017
  9. Pay Miscellaneous Deductible Expenses in 2017
  10. Pay For Your Move in 2017

Please click on the links below for more information:

Accounting Today: Six ways taxpayers can make the new tax bill work for them, if they act fast

CNBC: Year-end tax moves to make before tax reform kicks in

Fox Business: Top year-end tips for taxpayers

And for the most astute, intelligent, comprehensible, and clever coverage of the tax bill, I suggest you follow Tony Nitti’s column in Forbes. Here’s his latest: The Tax Bill Is Finalized: Who’s Happy, And Who’s Not?

This particular article breaks it down section by section and identifies the winners and losers. Excellent coverage.

IRS Issues 2018 Standard Mileage Rates

From today’s Journal of Accountancy:

The optional standard mileage rates for business use of a vehicle will increase slightly in 2018, after decreasing in the two previous years, the IRS announced Thursday (Notice 2018-3). For business use of a car, van, pickup truck, or panel truck, the rate for 2018 will be 54.5 cents per mile, up from 53.5 cents per mile in 2017.

Taxpayers can use the optional standard mileage rates to calculate the deductible costs of operating an automobile.

Driving for medical or moving purposes may be deducted at 18 cents per mile, which is one cent higher than for 2017. (The medical and moving expense deductions may be affected by the pending tax reform legislation.) The rate for service to a charitable organization is unchanged, set by statute at 14 cents per mile (Sec. 170(i)). The portion of the business standard mileage rate that is treated as depreciation will be 25 cents per mile for 2018, unchanged from 2017.

Forbes made some interesting points about how the current debate on looming tax reform may limit the use of these rates, however.

The current tax reform proposals would eliminate the mileage deduction for moving expenses and job-related business mileage deductions for employees filing a Schedule A. In addition, both proposals would disallow – on the employer’s side – favorable tax treatment for employer reimbursement of employee moving expenses. However, under Senate version of the bill, the tax treatment of these deductions would sunset, which means that the treatment of expenses would go back to the way the law is now (in 2017) beginning in 2026.

Both proposals would retain the charitable donation deduction, including for charitable miles. And in good news, under the House proposal, the mileage rate for charity would finally be indexed for inflation (it’s been 14 cents per mile since the Clinton era).

Both proposals would continue to allow you to deduct business miles related to your trade or business (for more on the difference between a Schedule A and a Schedule C, click here).

Remember: These are the rates effective at the beginning of 2018 for the 2018 tax year. Assuming that they still apply to you, that means they’ll show up on your 2018 returns (the ones you’ll file in 2019). However, you can still use the 2017 standard mileage rates for the tax return that you’ll submit in 2018. Even if the tax reform bills eliminate certain deduction as of January 1, 2018, those deductions are still applicable for the 2017 tax year.

If you’re looking for 2017 tax rates, including the standard deduction and other tax items, you’ll find them here.

NSAC Cooperative Learning Network – Upcoming Webinars

The National Society of Accountants for Cooperatives offers some great online learning resources from time-to-time, and in today’s e-newsletter update, a few in particular were listed that caught my attention. In particular, George Benson and Teree Castanias are excellent, knowledgeable presenters, and Don Frederick — himself a legend in the co-op tax world — does a great job introducing the concept of co-op taxation.

Book vs Tax vs Hybrid Basis of Paying Patronage
Tuesday, November 14, 2017
02:00 PM EST / 01:00 PM CST / 12:00 PM MST / 11:00 AM PST

A cooperative must return the profits of its patronage operations to the member/patrons based on the business done with the cooperative for the year. But how that income is computed (book, tax or hybrid) will create very different results. How the cooperative addresses this issue can have important financial and member relations implications.

MORE INFO    REGISTER NOW 

Fraud Risk Management for Cooperatives
Wednesday, December 06, 2017
11:00 AM EST / 10:00 AM CST / 09:00 AM MST / 08:00 AM PST

Cooperatives face a multitude of risks every day. How that risk is managed can affect the long-term success of the organization. Fraud Risk Management for Cooperatives focuses on recognizing risks, especially related to the difficult topic of fraud, and building a simple, actionable organization wide plan to effectively manage those fraud risks.

MORE INFO    REGISTER NOW

Basic A&A Seminar
Tuesday, December 12, 2017
11:00 AM EST / 10:00 AM CST / 09:00 AM MST / 08:00 AM PST

This 4-hour, 4-CPE credit course, is designed for new hires and other employe es of cooperatives and firms serving cooperatives that can benefit from training in the unique nature of cooperatives.

Introduction to Cooperatives – Donald Frederick (11:00 am – 12:00 pm
During this presentation we explain the foundation for doing business on a cooperative basis, with special emphasis on the owner-customer role of a co-op’s members. We discuss the rich history of cooperatives in America, the many types of cooperatives in our communities, and conclude with an examination of the benefits of having businesses operate as cooperatives.

Equity Management & Inter-Cooperative Investments – Phil Miller (12:00 pm – 1:00 pm
The course discusses the various types of Cooperative Equity and introduces the concepts of Equity Redemption. It discusses the Components of Inter-Cooperative Investments and why Co-ops so often invest in each other. It covers Balance Sheet and Income Statement Presentation, Timing and Recognition issues, Footnote Disclosures, and Impairment Questions related specifically to Inter-Cooperative Investments.

Lunch (1:00 pm – 1:30 pm
The audio portion of the CLN will be suspended during this time.

Basic Cooperative Taxation – Donald Frederick (1:30 pm – 2:30 pm
During this session we discuss the unique Federal income tax treatment of cooperatives. We focus on how tax law supports equity accumulation by cooperatives, particularly the patronage refund. We conclude by providing a set of tools to facilitate tax planning by cooperatives and their professional advisers.

Co-op GAAP – Phil Miller (2:30 pm – 3:30 pm
The course discusses how all GAAP is applicable to co-ops, but also how some GAAP applies specifically to only co-ops. We will discuss the two single pieces of GAAP that form the basis for Co-op GAAP, plus one piece of GAAP that applies to electric co-ops. We will discuss how NSAC has contributed to the body of Co-op GAAP over the years and will finish with a discussion of the new FASB Codification and how Co-op GAAP is contained within the Codification.

MORE INFO    REGISTER NOW 

Record Retention Policies and Practices: A Legal Perspective
Tuesday, January 16, 2018
11:00 AM EST / 10:00 AM CST / 09:00 AM MST / 08:00 AM PST

What documents do you have to keep?? Can you destroy documents?? This session will answer those questions and discuss organizing, cataloguing, r etaining and routinely destroying documents to allow you to review your process at your organization.? The process of creating and enforcing a formal policy for document retention with attendant schedules will be examined, and the annual documentation that should accompany the policy will be discussed. Legal holds for documents and leading practices for routine destruction will also be reviewed

MORE INFO    REGISTER NOW 

Advanced A&A Seminar
Wednesday, March 14, 2018
11:00 AM EST / 10:00 AM CST / 09:00 AM MST / 08:00 AM PST

This 4-hour webinar is designed for recent hires and other employees of cooperatives and firms serving cooperatives that can benefit from training in the unique nature of cooperatives. The three modules presented in this course include Hedge Acco unting, Advanced Cooperative Taxation and Co-op Ratio Analysis.

MORE INFO    REGISTER NOW 

The full list of online webinars can be found at the NSAC Cooperative Learning Network.

IRS Filing Date Announcements

The IRS made two announcements yesterday about filing dates. One is that for Tax Year 2016, E-File closes this Saturday, November 18; after that, disaster victims and others need to file on paper.

While most individuals have already filed their 2016 federal tax returns, certain taxpayers may qualify for an extension until Jan. 31, 2018. This includes taxpayers who live in a federally declared disaster area, have a U.S. tax filing obligation, and had previously obtained a valid 6-month extension of time to file their federal tax return.

The second announcement is that the IRS has not yet set the date on which they will be accepting Tax Year 2017 returns.

Speculation on the Internet that the IRS will begin accepting tax returns on Jan. 22 or after the Martin Luther King Jr. Day holiday in January is inaccurate and misleading; no such date has been set.

The IRS must keep an eye on pending legislation and extender tax provisions that may be renewed, and then finish updating programming and processing systems before they can announce a filing season start-date.

However, they also explain that:

Due to law changes first affecting last year’s returns, the IRS cannot issue refunds for tax returns claiming the EITC or ACTC before mid-February. This law requires the IRS to hold the entire refund — even the portion not associated with the EITC or ACTC. However, there is no need to wait to file such returns since the IRS will process them to the point of refund and then begin refund release when permitted by law.

IRS To Reject Tax Returns Next Year Without Health Coverage Info

Accounting Today, October 19, 2017 —

The Internal Revenue Service said that for the upcoming 2018 filing season, it‎ will not accept electronically filed tax returns where the taxpayer does not address the health coverage requirements of the Affordable Care Act, the first tax season it has refused to accept such returns.‎

In an update Friday to the web page of its ACA Information Center for Tax Professionals, the IRS said it will not accept the electronic tax return until the taxpayer indicates whether they had coverage, had an exemption or will make a shared responsibility payment. On top of that, the IRS said tax returns filed on paper that don’t address the health coverage requirements may be suspended pending the receipt of additional information and any refunds may be delayed.

Full article here: IRS won’t accept returns next year without health coverage | Accounting Today

Budget Cuts Cause IRS to Discontinue ‘Automated Substitute for Return’ Program

When a taxpayer who has a tax filing requirement fails to file a tax return, the IRS is allowed to use third-party information to determine a tax liability and assess it. The IRS handles these cases mostly through the ASFR Program, which enforces filing compliance against taxpayers who haven’t filed individual income tax returns but seem to owe a lot of money in taxes.

“The Automated Substitute for Return (AFSR) program is a component of our collection strategy to promote filing compliance,” wrote Mary Beth Murphy, commissioner of the IRS’s Small Business/Self-Employed Division, in response to the report. “Attempting to bring noncompliant taxpayers into compliance ensures fairness and reduces the burden on taxpayers who fully pay their taxes on time. Resource constraints have forced us to make difficult decisions with respect to some of our programs, even those that provide clear benefits to tax administration. Because a nonfiler strategy is important to our mission, we are currently working to develop one that fits within the current and future IRS operating environment, requiring fewer human resources, while providing an opportunity for us to achieve our desired outcomes.”

Full story here: IRS scales back program to go after people who don’t file taxes | Accounting Today