Category Archives: IRS

Five New Year’s Resolutions Every Tax Pro Should Make for 2017

My favorite blogger is back again with his list of New Year’s Resolutions for Tax Pros. In his characteristically disarming comedic style (“…while being able to speak confidently about the tax law will undeniably make you more appealing to the opposite sex, that’s not my main motivation here…”), he walks us through some suggestions for making 2017 a better year as tax planners and preparers.

As Nitti explains, “the five resolutions discussed below share a common theme — each one will help you adjust to the changing landscape we’re sure to face as 2017 unfolds.”

1. Learn the Trump Tax Plan
2. Be Able to Explain the Difference Between Static and Dynamic Scoring
3. Understand the Tax Consequences of Entity Conversions
4. Learn the Ins-and-Outs of Section 1202
5. Understand How to Compute and Minimize S Corporation Built-In Gains

Read the full article here: The Five New Year’s Resolutions Every Tax Pro Should Make-2017

New IRS Tool to Look Up Tax Preparer Disciplinary Records

The IRS Office of Professional Responsibility (OPR) has created an online lookup table — a searchable Excel file — that allows the public to find out if a tax practitioner has been reported for violations of their professional responsibility.  Until this new tool was released, one had to search every single IRS Bulletin for announcements.  Now the information is compiled into one document.  It includes 25 years of info (the IRS requirement for maintaining records on the topic) on more than 3,000 censures, suspensions, disbarments and other restrictions.

More info here, including how best to search the file: IRS Makes It Easier to Look Up Disciplinary Records of Tax Practitioners

I’ve inherited enough clients from unscrupulous prior preparers, that I intend to make searching this document a standard practice before beginning a new client’s return.

Congress Eliminates IRS Penalty on Employer Reimbursements for Health Insurance

The most popular post on my blog has always been the one explaining that HRAs (Health Reimbursement Arrangements) were no longer legal (as of mid-2015).  Well… that’s all changed.

The Senate passed legislation Wednesday eliminating a tax penalty on employers who reimburse employees for the cost of health insurance premiums, following passage of the measure last week in the House.

Source: Congress Eliminates IRS Penalty on Employer Reimbursements for Health Insurance

President Obama has already signed it into law, and it goes into effect January 1st.  Joe Biden’s really excited about it.

Title 18 of the new law, originally a separate bill called the Small Business Healthcare Relief Act, allows companies to use Health Reimbursement Arrangements to compensate employees who buy their own insurance.

Source: New Law Eases Small Business Health Care Burden

Health reimbursement accounts, or HRAs, are more simply recognized as the practice of reimbursing employees for the cost of their health insurance.  The reason they were made illegal with the advent of the ACA makes sense — an employee might have a personal tax situation whereby they can get Marketplace health insurance subsidized by the government, and it’s cheaper for the employer to simply reimburse the employee for that insurance than for the employer to provide an insurance plan. However, that’s unfair to the rest of us, whose tax dollars go to paying for that subsidy.

Previously, stand-alone HRAs were considered noncompliant under federal law. Beginning in 2014, a joint notice from the Departments of Labor, Health and Human Services, and the Treasury subjected employers using these noncompliant plans to fines of up to $36,500 per employee per year.

Source: The SBHRA Heads to the White House—What It Means for Small Business

Apparently that inequity no longer matters.  The IRS fees were seen as exorbitant, and Congress saw that it was hurting small businesses, who may not have been trying to game the system — they simply did not want to take on the administrative headache of offering health insurance when they weren’t required to do so.

Please spread the word to your small business accounting clients or friends/colleagues who own businesses and have employees.

UPDATE 3/4/17 — IRS Notice 2017-20 extends the period for an employer that provides a qualified small employer health reimbursement arrangement (QSEHRA) to furnish a written notice to its eligible employees. The period is extended to at least 90 days after additional guidance regarding the contents of the QSEHRA notice is issued. The notice also provides transition relief from penalties for failure to furnish the written notice until after further guidance has been issued.

For more info on what qualifies as a QSEHRA, see the Department of Labor Q3 on page 5 of their FAQ released 12/20/16.

(In other words, hang tight — the how-to’s are still to come.)

2017 Standard Mileage Rates

Beginning on Jan. 1, 2017, the standard mileage rates will be:

  • 53.5 cents per mile for business miles driven, down from 54 cents for 2016
  • 17 cents per mile driven for medical or moving purposes, down from 19 cents for 2016
  • 14 cents per mile driven in service of charitable organizations

The business mileage rate decreased half a cent per mile, and the medical and moving expense rates each dropped 2 cents per mile from 2016. The charitable rate is set by statute and remains unchanged.

Source: IRS — 2017 Standard Mileage Rates for Business, Medical and Moving Announced

Comparing Income, Corporate, Capital Gains Tax Rates: 1916-2011

I recently rediscovered a pretty fascinating chart I originally found a couple years back (when looking for holiday presents for my father — yes, I was born a nerd and came by it honestly), comparing various top tax rates through history.  It only contains data up through 2011, but I’m hopeful the author, Catherine Mulbrandon, will update it again at some point.  All of her graphics are pretty interesting — clear and to-the-point — and her Visualizing Economics blog is worth a visit whether you’re an economics nerd or a graphic design nerd.

Reminder: your marginal tax rate is the rate you pay on the “last dollar” you earn; but when you view the taxes you paid as a percentage of your income, your effective tax rate is less than your marginal rate, especially after you take into account the deductions and exemptions, i.e. income that is not subject to any tax.

Source: Comparing Income, Corporate, Capital Gains Tax Rates: 1916-2011 — Visualizing Economics

10 Year-End Tax-Planning Tips for Individuals

It’s that time again!  Accounting Today releases its annual list… many of which are particularly smart planning techniques for tax savings.

Grant Thornton has released a collection of Year-End Tax Guides for 2016. Here are 10 of the most important 2016 tax-planning considerations for individuals.

1. Accelerate Deductions and Defer Income
2. Bunch Itemized Deductions
3. Make Up a Tax Shortfall with Increased Withholding
4. Leverage Retirement Account Tax Savings
5. Reconsider a Roth IRA Rollover
6. Get Your Charitable House in Order
7. Give Directly from an IRA
8. Zero out AMT
9. Don’t Squander Your Gift Tax Exclusion
10. Leverage Historically Low Interest Rates

Source: 10 Year-End Tax-Planning Tips for Individuals

IRS Urges Employers to Take Advantage of Expanded Work Opportunity Tax Credit; Sept. 28 Deadline to Request Certification

The Work Opportunity Tax Credit is available to employers who hire and retain veterans and individuals from other target groups (see below) who experience significant barriers to employment. There is no limit on the number of individuals an employer can hire to qualify to claim the tax credit.  The Department of Labor is a great source of info on the credit, offering a tutorial, video, and employer’s guide.

The IRS also offers some excellent resources.

This year, there is an extended certification deadline — Sept. 28, 2016 — which applies to eligible workers hired between Jan. 1, 2015, and Aug. 31, 2016.

The 10 categories of WOTC-eligible workers include:

  1. Qualified IV-A Temporary Assistance for Needy Families (TANF) recipients
  2. Unemployed veterans, including disabled veterans
  3. Ex-felons
  4. Designated community residents living in Empowerment Zones or Rural Renewal Counties
  5. Vocational rehabilitation referrals
  6. Summer youth employees living in Empowerment Zones
  7. Food stamp (SNAP) recipients
  8. Supplemental Security Income (SSI) recipients
  9. Long-term family assistance recipients
  10. Qualified long-term unemployment recipients (for people who begin work after 2015).

This is a great example of a win-win tax credit, designed to encourage employers to hire those people who face difficulties getting into the workforce, which not only helps the employers and their employees, but also strengthens communities.

More here: IRS Urges Employers to Take Advantage of Expanded Work Opportunity Tax Credit; Employers Have until Sept. 28 to Request Certification for Many New Hires

Back-to-School Season = Catch-up Time for Nanny Taxes

“The IRS considers that babysitter or nanny that was working in the home for the family over the course of the summer to be an employee of the family, which makes the family a household employer… Families should make sure they tie up all those loose ends before they move on with the rest of their year so that it doesn’t make tax time come April even more complicated than it has to be.”

Source: Back-to-School Season Means Catch-up Time for Nanny Taxes

Nice little reminder article of the thresholds and requirements for taxation of household employees (hint: it’s more likely that you owe it than not) — but remember that the nanny payroll company cited in the article is but one of many out there.  Because it’s such a specialized area, they tend to be pricier than I think is reasonable, but it’s better than trying to do it yourself.  Here are some companies to consider:

Some companies offer lower prices than others, but beware — make sure you’re getting all the features you need:

  • Will they apply for federal EIN, state registration and unemployment accounts for you?  This is a royal pain and it’s best to outsource these steps.
  • Will they prepare and file quarterly and annual payroll taxes, as well as issue W-2s, or is this an extra charge?
  • Do they offer direct deposit?
  • Are their charges per paycheck or per month?  If your nanny gets paid every week, this difference can be substantial.
  • Will they prepare your annual Schedule H for you?

If you’ve found an affordable household employee payroll service that performs all the above tasks, please mention them in the comments!  I’m always looking for good companies to recommend to clients.