Disclaimer – information below is provided to give general information and start a discussion between my clients and myself. It is not to be viewed as tax advice. Please call to discuss your individual concerns and how any of this affects your own situation.
2019 Tax Act Changes (The Secure Act)
- Mortgage Insurance premiums are now a deduction again retroactive to 01/01/2018
- Medical expense as part of itemized deductions now have to be reduced by 7.5% of your AGI, previously it was raised to 10% of you AGI
- Premium Tax Credit has been extended through 12/31/2020
- College Tuition Deduction has been reinstated
- Work Opportunity Credit
- Small Employer Pension Plan startup credit
- Credit for employers who provide paid family and medical leave
- Non-Business Energy Property credit with life time max of $500 has been reinstated
- Taxpayers who have not reached 70 ½ by 12/31/19 have until the age of 72 to be required to withdraw the Required Minimum Distribution
- Taxpayers 70 ½ can no make contributions to IRA and Roth IRA’s
- For beneficiaries who inherit a retirement plan (deceased person passes away after 12/31/19), there are new rules for the beneficiary depending on who is the beneficiary.
- Someone more than 10 year younger than you
- Disabled person
- All these have a different set of rules that will apply with your planning opportunities
- 529 plan funds can now be used for more types of expenses
- Up to $10,000 of student loan payment – even for a sibling
- Books & expenses for private schools
- Kiddie Tax rules are put back to where they were before the TCJA
- Any more, check with me if you think something applies to you
Heath Savings Account Earnings
Earnings are exempt from federal tax if used for qualified medical expenses. However, the earnings are taxable in California and New Jersey.
Satanic Temple in Salem MA – Exempt Church
IRS approved their application to be recognized as a church. The organization had a set of tenets, regular congregation and religious services and a established headquarters. Churches don’t need to file annual IRS filing form 990.
529 Plan Funds to pay for K-12
Where you can use up to $10,000 per student per year of these funds to pay for Kindergarden through 12th grade of a private school, states don’t always follow the federal. NYS does not. Neither does California, Colorado, Minnesota, Montana, Oregon or Vermont.
Foreign Account voluntary disclosure program (OVDP)
This program allows individuals with undeclared bank accounts abroad to report them and avoid criminal prosecution. The OVDP program will close September 28
Selling Principal Residence for move to nursing home
When taxpayers sell their personal residence and they’ve lived in it 2 out of the last 5 years, they can exclude part of the gain. If taxpayer needs to move into a nursing home, the 2 out of 5 years residence test turns into a 1 out of 5 years.
In 2017, 3 taxpayers were caught by IRS using bitcoin to evade taxes. US federal court ordered Coinbase, a US exchange, to turn over US Customers to IRS.
Spouses who co-own businesses
Spouses that co-own a business can elect to file two Schedule C’s with their income taxes with each schedule C representing their ownership stakes to each get credit for social security. Husband & Wife LLC & Limited Partnerships do not qualify for this.
State workarounds for 10k limit
A lot of talk has been happening around have a way to call your real estate taxes a charitable contribution. However, many states have laws where residents can donate to state scholarship programs and get credits on their real estate taxes. IRS has previously ok’d this law.
Borrowing from 401k Plan
New time limits to repay if employee lose their job or the plan is terminated. It used to be the employee had 60 days after leaving employment to repay the loan before it became an early distribution. Now, employees have until the due date of their tax return for the year employment terminated.
New Family Leave Credit.
Available for 2017 & 2018. For Wages paid to employees who are on leave. Multiple other requirements are also required.
Starting 2019 – Medicare “donut hole” will end.
Company liable for FICA tax on unreported tips
Company has a tip box to encourage their customers to give cash amounts to their unpaid staff. At the end of the day, the tips are divided up between the staff. Company is liable for the Employer share of FICA taxes on the tips.
Not Filing Gift Tax Returns – Statue of Limitations doesn’t close
Taxpayer/Donor gave gifts over a six year period and did not file gift tax returns. Normally IRS has 3 years to question for forms. Donor did file for one year but didn’t fill out forms correctly. Didn’t describe the gift or disclosed method of valuing the gift.
529 Plan Distributions for Off-Campus Housing
Yes you can use 529 plan funds to pay for off-campus housing. Limitation apply. Rent, utilities and food are allowed however, the limit is the college Room and Board cost by the college used in financial aid.
How long do you keep the records of a home? Keep a file for each property you own to establish your adjusted basis. Keep them for 3 years after you dispose of the property.
Same for securities purchases and sales and property you inherit or were gifted.
Businesses keep payroll tax record for minimum 4 years.
Assets purchased for depreciation should be kept for decades.
NYS is requiring driver’s license with issue and expiration dates in all its e-filed tax returns in an effort to help prevent identity theft.
IRS offers resources to “Sharing Economy”
IRS has new page of resources for taxpayers involved in Uber, Taskrabbit, Airbnb, DogVacay and similar organizations. www.irs.gov/businesses/small-business-self-employed/sharing-econcomy-tax-center
Nonprofit sales subject to tax
IRS privately said, non-profit entities sales were not substantially related to its exempt purpose, so profits are taxable.
Coverdell IRAs are subject to the same IRA rollover rules. (One free rollover in a 12 month period.)
R&D Credit for Small Businesses
In 2016 Small Businesses can use R&D credit against payroll taxes instead of income taxes. Companies in business less than 5 years, gross receipts less than 5 million.
Increase in installment plan fees
As of January 1, 2017 installment plans with IRS will increase from $105 to $225.
Olympic Medals and prize money – taxable
This is similar to other prize and award money given to anyone, not just Olympians. Congress is working on a bill that would make this income tax free. Income from sponsorships and endorsements are taxable as always.
US Individuals working abroad and taking the foreign housing exclusion
Extravagant housing costs when working abroad is likely to get kicked on IRS Audit. Expenses need to be reasonable.
New due date for filing W-2’s & 1099’s
Paper copies filed to Federal Government by Jan 31st. Efiled Copies due date is March 31st.
IRS Scam/Fraud Phone Calls
More and more people are getting calls. The fraudsters are coming up with new ways to get to people. Latest scam involved students telling them they owe a “Student Tax” . Another required prepaid Itunes cards. IRS doesn’t call taxpayers on debt – they mail letters.
To report fraud : Call Treasury Inspectors at 1-800-366-4484 and
File a complaint with the Federal Trade Commission at www.ftc.gov
Private Road doesn’t qualify for Tax Exempt Status
A group of homeowners with a common driveway applied for tax exempt status as a homeowners association to cover the upkeep on the road. IRS denied request. A tax exempt organization must provide a public good. This group operated for the private benefit of it’s members.
Employers Wellness Awards
Employers cash awards given to employees who participate in a wellness program are taxable benefits.
Student Loan Debt
Employers are paying student loan debt as a way to attract talent. This benefit is taxable compensation.
Funds to move to another state
IRS ruled that funds received from a state for a business to move is not taxable – moving expenses are not deductible either.
Simple Ira’s can now accept tax free rollovers from 401ks and IRAs
IRS is being sent more data on self-directed IRAs. Starting in 2015, Form 5498 will report values of non-publicly traded assets. Included in this are: real estate, closely held firms and nonpublicly traded debt obligations.
Intentionally Defective Trusts – Basis Step up
These are trusts where the grantor is treated as the owner for income tax purposes but not estate tax purposes. There is a question about if the trust assets will receive a step up in basis on grantors death. IRS said they will not rule on it.
How does the IRS apply payments?
Normally, they apply payment per taxpayers instructions. (this is assuming taxpayer has more than one type of tax due at a time – say income and payroll). However, a payment was ordered by the tax court. IRS did not have to follower taxpayers’ instructions on allocation with the court ordered payment as they do with voluntary payments.
Penalties for filing incorrect information returns increase
Basic fine is $250 per 1099. Is used to be $100. Lower penalties if corrected by Aug 1st. this applies to W-2’s, 1099’s and 1095-C in addition to others
Sports Team Deducting Full Cost of Meals on the Road
Meals on the road are generally 50% deductible. However, meals provided at your own facility can be 100% deductible. Boston Bruins has an issue before the courts disputing their meals on the road. They consider the hotel used when preparing for away games as their facility and want to deduct 100%.
Taxpayers who have had their social securities compromised will soon be able to see the false returns filed in their name. https://www.irs.gov/Individuals/Instructions-for-Requesting-Copy-of-Fraudulent-Returns
Gift Taxes and Statue of Limitations
The normal 3 year statute of limitations does not apply to gift tax returns where information disclosed is inadequate or missing.
Mortgage Data Reported
Starting in 2016, Mortgage companies will report on 1098, remaining principal of mortgage, address of property securing loan and loan origination date.
No Statue of Limitation if underreporting income by 25%
In the past if taxpayer underreported their income by 25% it was considered fraud and the statue of limitations didn’t end. It was challenged that if taxpayer overstates their cost basis, therby reporting less income – would that be considered fraud. Answer from the Supreme Court was no. However, congress made some changes and IRS has 6 years if taxpayer overstates basis and reports less gain.
Also, executors must give basis to heirs. If heirs use a basis that is higher, they will get hit with a 20% understatement penalty.
Tax return Deadlines changed
Starting for tax years beginning after 2015, Calendar year Partnerships will be due 3/15. Formerly, they were due 4/15. Calendar year S Corporations due date remains unchanged at 3/15. Calendar C Corporations are not due 4/15 and not 3/15 as previously.
Fbar Reporting now called FinCin 114 has previously been due 6/30. The due date now is 4/15. However, taxpayers can now request a 6 month extension.
Retiree Medical Expenses
Firms are now allowed to tap overfunded pension plans to pay for retiree’s medical expenses.
Retiree use of unpaid sick days into HRA
Retirees can put unused sick days into their HRA accounts. Tax Free. Employer plan must allow it. It must me mandatory to be tax free. If retiree has option to take cash, then benefit will not be tax free.
Gift Basket Assembling – DPAD Deduction
Taxpayer took Section 199 deduction for producing gift baskets. IRS disagreed saying they were not producing anything, but taking products already made and putting them into a gift basket. Federal Court disagreed with the IRS and allowed the deduction. IRS is not acquiescing on the issue. They added another example in the regulations of what doesn’t qualify for the deduction.
Employer Provided Clothing
Employer provided Tshirts, Polo Shirts, Hats etc with company logo’s can be a deminimus tax free benefit if employers requires them to be worn as a condition of employment and prohibits the wearing of the clothing when off duty.
Penalties for late filing – S Corporation
Penalty for filing S Corporations returns late is $195 per month per partner up to a maximum of 12 months. Tax court just upheld this penalty in Roshdieh MD Corporation (TC Memo 2014-113)
NY now requires peddlers in bitcoin to get a license to operate in New York
IRS is using another avenue to find taxpayers not reporting foreign bank accounts. They are sending Summons to the delivery companies, Fed Ex, UPS and DHL in its probe of Sovereign Management & Legal LTD.
Veterinary costs for service dog = medical expense for owner
Costs of purchase, vet bills, food, grooming & training qualify for medical expense of owner per IRS.
Free meals by employer
Meals provided by employer on their own premises are tax free to employees. However, certain employers are providing lavish meals. IRS is looking at its regulations to limit tax-free meals.
Sales tax and out of state vendors
States would like companies to collect sales tax on out of state sales for a while now. However, companies that do not have a presence in a state are not required to. Senate passed a bill to allow this but the House has not.
Form 1099-K being used for audit leads
IRS is using the 1099-K forms to generate estimates of industry credit sales and cash sales. It’s not known exactly how they are calculating their figures but they are being used to audit companies that report a higher percentage of credit sales than the industry average.
IRS Revising Form 1098 – The form you receive from your mortgage company with mortgage interest and LOC interest. Their plan is to receive better information from the mortgage companies on the debt designed to help IRS determine if any filers are deducting interest on HELOC’s with balances over $100,000.
Net Investment Income Tax – Taxpayers Living Abroad
It’s unclear at this time whether the NII tax is considered an income tax or a social security tax. When US Citizens or green card holders live abroad, they have a tax reporting obligation in the US. To help combat the double taxation of being taxed in both countries, a Foreign Tax Credit exists on the US return. However, it’s for income tax not Social Security Tax. If you find yourself in this situation, you will need to review your situation with your accountant to determine how you proceed and what planning opportunities exist.
When corporations reincorporate abroad
When you own a stock that reincorporates in another country and you get your old corporation shares reissued in the name of the new corporation, you may have to pay tax on the paper profits. Burger King is in the news with the corporate office move to Canada. We’ll see how this plays out for their shareholders.
Summer day camp can qualify for child care
School age kids (under 13) that attend day camps during the summer may qualify for the dependent care credit. Camp cannot be an overnight camp and it must be for the parents to work.
Form 1023-EZ has been released
It’s a short form that can be used by small non-profits to obtain non-profit status with the IRS. It must be e-filed. Applicants pay a $400 user fee.
New rules allow IRA & 401K owners to use the lower of $125,000 or 25% of their account balance to obtain an annuity that doesn’t start until the taxpayer is much older and the annuity amount is not used in calculating the RMD.
Direct Deposit of more than 3 refunds into 1 account – not allowed by IRS anymore
If a taxpayer has more than 3 deposits into the same account, IRS will issue a paper check. Intent is curb identity theft. Parents also sometimes have their kids refunds deposited into their own bank accounts instead of opening an account for the kids.
Foreign Bank Accounts
Foreign online poker accounts qualify as a foreign bank account under the Foreign Bank Accounting Rules.
Each individual is allowed to gift another $14,000 each year. However, a planning technique is to pay any college tuition costs directly to the college or medical expenses directly to the hospital. These payments do not qualify toward the $14,000 annual gift limit.