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William Byrnes (Texas A&M) tax & compliance articles

Archive for the ‘Taxation’ Category

Getting its “fair share” from the U.S., U.K. implements 2% tax on gross revenues of Google, Amazon, and Facebook

Posted by William Byrnes on July 11, 2019


From April 2020, the government will introduce a new 2% tax on the revenues of search engines, social media platforms and online marketplaces which derive value from UK users. Large multi-national enterprises with revenue derived from the provision of a social media platform, a search engine or an online marketplace (‘in scope activities’) to UK users.

The Digital Services Tax will apply to businesses that provide a social media platform, search engine or an online marketplace to UK users. These businesses will be liable to Digital Services Tax when the group’s worldwide revenues from these digital activities are more than £500m and more than £25m of these revenues are derived from UK users.

If the group’s revenues exceed these thresholds, its revenues derived from UK users will be taxed at a rate of 2%. There is an allowance of £25m, which means a group’s first £25m of revenues derived from UK users will not be subject to Digital Services Tax.

The provision of a social media platform, internet search engine or online marketplace by a group includes the carrying on of any associated online advertising business. An associated online advertising business is a business operated on an online platform that facilitates the placing of online advertising, and derives significant benefit from its connection with the social media platform, search engine or online marketplace. There is an exemption from the online marketplace definition for financial and payment services providers.

The revenues from the business activity will include any revenue earned by the group which is connected to the business activity, irrespective of how the business monetises the platform. If revenues are attributable to the business activity and another activity, the business will need to apportion the revenue to each activity on a just and reasonable basis.

Revenues are derived from UK users if the revenue arises by virtue of a UK user using the platform. However, advertising revenues are derived from UK users when the advertisement is intended to be viewed by a UK user.

A UK user is a user that is normally located in the UK.

Where one of the parties to a transaction on an online marketplace is a UK user, all the revenues from that transaction will be treated as derived from UK users. This will also be the case when the transaction involves land or buildings in the UK. However, the revenue charged will be reduced to 50% of the revenues from the transaction when the other user in respect of the transaction is normally located in a country that operates a similar tax to the Digital Services Tax.

Businesses will be able to elect to calculate the Digital Services Tax under an alternative calculation under the ‘safe harbour’. This is intended to ensure that the tax does not have a disproportionate effect on business sustainability in cases where a business has a low operating margin from providing in-scope activities to UK users

The total Digital Services Tax liability will be calculated at the group level but the tax will be charged on the individual entities in the group that realise the revenues that contribute to this total. The group consists of all entities which are included in the group consolidated accounts, provided these are prepared under an acceptable accounting standard. Revenues will consequently be counted towards the thresholds even if they are recognised in entities which do not have a UK taxable presence for corporation tax purposes.

A single entity in the group will be responsible for reporting the Digital Services Tax to HMRC. Groups can nominate an entity to fulfil these responsibilities. Otherwise, the ultimate parent of the group will be responsible.

The Digital Services Tax will be payable and reportable on an annual basis.

Draft legislation

Explanatory notes

Read:

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TaxFacts Intelligence Weekly of July 11

Posted by William Byrnes on July 11, 2019


2019’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.  Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

Prof. William H. Byrnes, Esq. and Robert Bloink, Esq. of

Texas A&M University Law Wealth Management programs

Jul 11, 2019

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IRS Snapshot Guidance Provides Insight into Post-2018 Plan Hardship Distribution Requirements

The Bipartisan Budget Act of 2018 made substantial changes to the rules governing hardship distributions from qualified plans beginning in 2019. These changes have left many employers wondering how to adequately comply with the new rules. The IRS has directed its agents to review the language in the plan document, as well as any written statement provided by the participant to ensure all documents are properly executed and signed. Further, agents are directed to examine any records that the employer used to verify that a true hardship did exist, as well as the amount of that hardship. These records can include bills, eviction notices, closing documents for purchase of a home, etc. The employee should also provide documentation to establish that no other readily available source of funds existed, which can be as simple as an employee attestation. For more information on post-2018 hardship distributions, visit Tax Facts Online. Read More

IRS Clarifies Treatment of Transportation Benefits Upon Termination of Employment

An IRS information letter has clarified that a taxpayer forfeits any unused transportation benefits upon termination of employment. Because employers have only been permitted to provide tax-preferred transportation benefits to current employees, those benefits must be lost once the individual is no longer an employee. This is the case even if the benefits were provided through pre-tax employee contributions, and even if the employee is fired (i.e., compensation reductions cannot be reimbursed if the employee had not fully used them). Importantly, employees can change their elections regarding transportation benefits monthly without the need for a change in status event. For more information on employer-provided transportation benefits, visit Tax Facts Online. Read More

Ninth Circuit Affirms Termination of Pension Benefits for Working Retiree

The Ninth Circuit recently confirmed that a pension plan was within its rights to terminate pension benefits to a participant who retired early, but then returned to work in the same industry. This was the case even though the plan itself had initially approved the taxpayer’s post-retirement work in the same industry in which he worked prior to retirement. Although Supreme Court precedent prohibits a pension from adding additional requirements to a participant’s benefit eligibility after that participant has retired, the court here found that the precedent did not apply because the plan in question had always required participants to withdraw from the industry in order to be eligible for benefits. The plan had begun enforcing the rule pursuant to a voluntary corrective action with the IRS that was entered in order to maintain the plan’s tax-qualified status. For more information on situations where a pension plan may reduce a participant’s benefits, visit Tax Facts Online. Read More

Tax Facts Team
Molly Miller
Publisher
William H. Byrnes, J.D., LL.M
Tax Facts Author
Jason Gilbert, J.D.
Senior Editor
Robert Bloink, J.D., LL.M.
Tax Facts Author
Connie L. Jump
Senior Manager, Editorial Operations
Alexis Long, J.D.
Senior Contributor
Patti O’Leary
Senior Editorial Assistant
Danielle Birdsail
Digital Marketing Manager
Emily Brunner
Editorial Assistant
For questions, contact Customer Service at 1-800-543-0874.

CONNECT WITH TAXFACTS

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TaxFacts Intelligence Weekly for May 2 – May 8

Posted by William Byrnes on May 6, 2019


2019’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.  Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

Family Attribution Rules Do Not Impair Deductibility of S Corporation Employee Health Insurance

The IRS released a CCM providing that an S corporation employee who was considered a 2-percent shareholder via the family attribution rules was entitled to deduct the cost of health insurance premiums paid by the S corporation and included in the employee’s income. Here, the S corporation paid the premium costs and included those amounts in the individual’s income, who was, in turn, entitled to the deduction. For more information on the tax treatment of S corporation health insurance, visit Tax Facts Online. Read More

IRS Rules Loan Availability Does Not Jeopardize Employee Stock Purchase Plan Qualification

The IRS released a PLR providing that a plan participant’s eligibility to obtain a loan from the employer (or a third party) to purchase shares under an employee stock purchase plan does not jeopardize the plan’s qualification under IRC Section 423(b). In this case, loan availability was premised on the fact that the loan could not violate the Sarbanes-Oxley Act of 2002, meaning that some participants may have been rendered ineligible to take out a loan to purchase employee shares through the plan. This PLR indicates the IRS’ view that provisions allowing purchase of shares via loans do not prevent qualification even if some employees are ineligible. For more information on the ownership of employer stock in an employer-sponsored plan, visit Tax Facts Online. Read More

Received a 226J Letter? Here’s How to Respond

Employers have recently begun receiving 226J letters detailing employer mandate compliance issues from the IRS with respect to the 2016 tax year. Importantly, employers must remember that the employer mandate continues in effect despite the repeal of the individual mandate and despite pending challenges to the ACA itself. An employer may receive a 226J letter with respect to two types of failures: failure to offer minimum essential coverage to at least 95% of full-time employees or failure to: (1) offer coverage to the employee, (2) provide affordable coverage or (3) offer coverage that satisfied minimum value requirements, in all cases if the FTE received a tax credit. Letter 226J should contain a deadline for a response, usually 30 days after the letter was issued (employers may request a 30-day extension). It is important to get expert advice when drafting the response, but issues to consider include whether the IRS was using the correct data (i.e., was a corrected Form 1094 filed with the IRS in 2016?), whether the plan was a calendar year plan (transition relief may apply) and whether the employer did, in fact, offer minimum coverage during each month. For more information on the employer mandate, visit Tax Facts Online. Read More

LL.M. or M.Jur. Curriculum in Wealth Management at Texas A&M Law

Our Wealth Management program gives you the knowledge and skills you need to advise wealthy clients and help manage their assets. Because wealth management involves professionals with various backgrounds, we’ve designed the program with both lawyers and non-lawyers in mind. This program is offered completely online, which gives professionals the flexibility they need to learn and to meet the increasing need of being versed in the legal aspects of financial transactions and in the legal aspects of financial investment and portfolio management. Contact us to learn more

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TaxFacts Intelligence Weekly Client Questions Answered on April 29

Posted by William Byrnes on April 29, 2019


2019’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

William Byrnes and Robert Bloink reduce complicated tax questions to understandable client answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.  Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

 

IRS Releases FAQ on Section 199A Shedding Light on Impact of S Corporation Health Insurance Deductions

The IRS has released a set of FAQs based upon the regulations governing the new Section 199A deduction for pass-through entities, such as S corporations. One potentially overlooked issue in the S corporation context is the impact of health insurance premium payments on QBI. The FAQ provides that health insurance premiums paid by the S corporation for a greater-than-2-percent shareholder reduce QBI at the entity level (by reducing the ordinary income used to calculate QBI). Similarly, when a self-employed individual takes a deduction for health insurance attributable to the trade or business, this will be a deduction in determining QBI and can reduce QBI at the entity and individual levels. For more information on the treatment of health insurance premiums in the S corporation context, visit Tax Facts Online. Read More

Post-Reform Life Insurance Reporting Regs Provide Relief for Certain Contacts Acquired in Business Combinations

The proposed regulations governing the new life insurance reporting requirements created by the 2017 tax reform legislation (which do not become effective until finalized) would exclude from the new rules situations where one entity acquires a C corporation that owns life insurance contracts, so long as the life insurance contracts do not represent more than half of the corporation’s assets. Generally, the new rule created by tax reform would make cause certain life insurance contracts to lose their tax-preferred status if transferred in a reportable policy sale (and most business combinations would qualify as such). Under the proposed rules, however, the pre-tax reform exceptions to the transfer for value rule could apply when a C corporation is acquired. For more information on the future reporting requirements that will apply, visit Tax Facts Online. Read More

Missed the April 15 Tax Filing Deadline? Tips for Obtaining an Extension After the Fact

With the 2018 tax filing deadline behind us, many taxpayers who were unable to complete their returns may be wondering what steps to take to file those returns after the deadline has expired. Most taxpayers can easily request an extension through October 15 by using Form 4868 (available at irs.gov) to request the extension. The form will require that the client provide his or her estimated tax liability–remembering that the filing extension only extends the time for filing a return, so that the client’s 2018 tax payment was still due April 15. If the client was impacted by certain recent disasters, including the California wildfires, severe storms in Alabama, and storms and flooding in Nebraska or Iowa, have automatically been granted various extensions, so are not required to complete the paperwork necessary to obtain the extension. For more information on federal income tax filing requirements, visit Tax Facts Online. Read More

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TaxFacts Intelligence Weekly

Posted by William Byrnes on April 12, 2019


Tax Reform Impact on Performance Goal Certification Requirements in Executive Compensation Context

Prior to tax reform, companies were afforded special treatment for certain compensation in excess of the $1 million limit so long as the compensation was based on performance goals certified by the company’s compensation committee. Tax reform eliminated that exception so that companies cannot deduct this excess compensation even if it is performance based–therefore, there is no tangible benefit to having a compensation committee certify that those goals were met in many cases. Despite this, in order to qualify under tax reform’s grandfathering provisions, performance-based compensation must continue to satisfy all of the standards that existed prior to the reform, so many companies may wish to continue their certification practice if they otherwise qualify for grandfathering treatment. For more information on the post-reform rules governing the deduction for executive compensation and the grandfathering rules, visit Tax Facts Online. Read More

2019 Tax Season Preview: Now is the Time to Check Withholding

As we near the end of the 2018 tax season, many clients may have been disappointed by the amount of their refunds or even unexpectedly owed taxes because of the changes brought about by the 2017 tax reform legislation. Many of these surprises were caused by the new withholding tables developed by the IRS because the personal exemption was suspended from 2018-2025. Because of this, taxpayers should be advised to check their withholding now even though it may seem early in order to make any adjustments necessary to avoid unpleasant tax surprises next year. Taxpayers are entitled to have their employers withhold more or less depending upon their personal preferences, and the IRS website provides a calculator designed to help taxpayers anticipate how their withholding choices will impact their refund next year. For more information on the federal tax rules that apply this year post-reform, visit Tax Facts Online. Read More

IRS Provides Last-Minute Penalty Relief for Taxpayers Who Underpaid in 2018

The IRS released last minute penalty relief for certain taxpayers whose tax withholding or estimated tax payments were insufficient in 2018. Usually, a penalty will apply if the taxpayer did not pay at least 90 percent of his or her tax liability for the year. For the 2018 tax year only, the IRS lowered the threshold to 80 percent to account for the significant changes made to the tax code late in 2017. Under previous guidance released in January, the relief was to apply for taxpayers who paid at least 85 percent of their total tax liability. This relief applies both to taxpayers who paid through employer withholding and those who paid quarterly estimated payments (or any combination). If the taxpayer qualifies for this relief but has already filed a return, the taxpayer can request a refund using Form 843, which must be filed in paper format. For more information on the underpayment penalty, visit Tax Facts Online. Read More

Tax Facts Team
Molly Miller
Publisher
William H. Byrnes, J.D., LL.M
Tax Facts Author
Jason Gilbert, J.D.
Senior Editor
Robert Bloink, J.D., LL.M.
Tax Facts Author
Connie L. Jump
Senior Manager, Editorial Operations
Alexis Long, J.D.
Senior Contributor
Patti O’Leary
Senior Editorial Assistant
Danielle Birdsail
Digital Marketing Manager
Emily Brunner
Editorial Assistant

2019’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.  Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

Posted in Taxation | Tagged: , | Leave a Comment »

TaxFacts Intelligence Weekly

Posted by William Byrnes on April 10, 2019


IRS Explains Impact of SALT Cap on Taxpayers Receiving State and Local Tax Refunds

The IRS has provided guidance explaining the relevance of the “tax benefit rule” for taxpayers who receive a refund of state and local taxes in years when the post-reform limit on deducting state and local taxes (the “SALT cap”) is in effect. For more information on the impact of the SALT cap, visit Tax Facts Online. Read More

Federal Court Invalidates DOL Rules Expanding Association Health Plans

A Washington, D.C. federal court struck down the final regulations released by the DOL in effort to expand the availability of association health plans for various smaller employers and owner-employees, which would have given these groups access to less expensive plans that offered fewer benefits and did not satisfy ACA requirements. The fate of the actual expansion of association health plans remains unclear, however, as the DOL has indicated it will explore all available options and continue to work toward expanding access. For more information on the tax rules for self-employed business owners’ health coverage, visit Tax Facts Online. Read More

Employer Stock & 401(k) Plans: The Bad, the Ugly…and the Potentially Good?

In recent years, many employers have begun shying away from offering employer stock to employees as 401(k) investments. Fiduciary liability concerns and lack of diversification, especially amid dramatic decreases in value in some cases, have made the strategy risky for some companies. However, this does not mean that any client who currently holds employer stock in a 401(k) should immediately liquidate all employer stock. Clients should first be advised that the potential to take advantage of a net unrealized appreciation (NUA) strategy could provide a more valuable way to sell off employer stock. For more information on the NUA strategy, visit Tax Facts Online. Read More

Tax Facts Team
Molly Miller
Publisher
William H. Byrnes, J.D., LL.M
Tax Facts Author
Jason Gilbert, J.D.
Senior Editor
Robert Bloink, J.D., LL.M.
Tax Facts Author
Connie L. Jump
Senior Manager, Editorial Operations
Alexis Long, J.D.
Senior Contributor
Patti O’Leary
Senior Editorial Assistant
Danielle Birdsail
Digital Marketing Manager
Emily Brunner
Editorial Assistant
For questions, contact Customer Service at 1-800-543-0874.

2019’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.  Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

Posted in Taxation, Uncategorized | Tagged: , | Leave a Comment »

TaxFacts Intelligence Weekly

Posted by William Byrnes on March 29, 2019


EDITOR’S NOTE FOR ONLINE SUBSCRIBERS
You will notice a new orange banner appearing at the top of your screen called “Latest Developments”. In this section we are offering new features, and we will introduce other features later in the year….

· Tax Facts Intelligence Weekly – current as well as archive weekly newsletters you receive by email as another way to access our latest developments.

· Thumbs Up/Thumbs Down – a debate each week between Robert Bloink and myself (William Byrnes) whereby we take opposing viewpoints on tax policy and argue our opinions. Find out if you agree or disagree and, eventually, you will be able to vote on whose side you are on for that week.

· Featured Articles – a weekly article with archives written by Robert Bloink and myself, thought leaders in finding customer needs for new products and how to make new practice tools work with your clients, perhaps in ways you may not have thought about.

· Recent Updates – as you may know, our digital version of Tax Facts is updated weekly and not annually like our print version of Tax Facts. You can now see any significant changes made to a Tax Facts question that week as it will appear in the “Latest Developments” section, so you are aware of changes. These changes can even be delivered to your smartphone should you choose.

We are looking for another big year providing lots of value-added commentary and analysis. I am always interested in your feedback so feel free to email me at williambyrnes@gmail.com.

Sixth Circuit Confirms Insurance Agents Remain Independent Contractors

The Sixth Circuit Court of Appeals recently confirmed that life insurance agents were properly classified as independent contractors, rather than employees. The case involved eligibility for benefits under ERISA, and a district court, using the traditional Darden factors for determining classification status, had ruled in 2017 that the agents were employees who were eligible for ERISA benefits. For more information on insurance agents and employment classification issues, visit Tax Facts Online. Read More

Renewed Importance of Checking “Compensation” Definition in Retirement Plans Post-Tax Reform

The definition of “compensation” is important for many reasons in the retirement planning arena, but has gained new importance in light of suspended deductions and exclusions post-tax reform. Retirement plans generally must use the IRC’s definition of compensation for nondiscrimination testing purposes, which includes, for example, nondeductible moving expenses (but excludes deductible moving expenses). Post-reform, however, all moving expenses are nondeductible. Despite this, the moving expense deduction was only suspended, not eliminated. This is one example of how tax reform has created a level of uncertainty regarding the appropriate definition of compensation while all tax reform provisions remain (at least temporarily) in effect. For more information on the definition of compensation for qualified plan purposes, visit Tax Facts Online. Read More

Grandfathered Health Plan Status: Still Important for Employers

In the years that have passed since the ACA became effective, many employers may have forgotten the importance of maintaining the grandfathered status of their health insurance plans. Grandfathered health plans remain exempt from many of the ACA market reform provisions and help employers avoid some of the more difficult compliance issues presented by the ACA. To maintain grandfathered status, employers should be sure to maintain proper documentation of the plan coverage extending from March 23, 2010 to the present. If and when the plan enters a new policy or contract, it should provide the health insurance company with documents governing the plan terms to make sure the change will not cause loss of grandfathered status. Adding new employees or new contributing employers will not impact the grandfathered status of the plan, so long as the principal purpose of any restructuring of the business was not to cover additional people under a grandfathered plan. Amendments to the plan that eliminate certain benefits can cause loss of grandfathered status, as can increases in certain cost-sharing requirements and copayments. For more information on grandfathered health plans, visit Tax Facts Online. Read More

2019’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.  Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

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TaxFacts Intelligence Weekly

Posted by William Byrnes on March 27, 2019


EDITOR’S NOTE FOR ONLINE SUBSCRIBERS
You will notice a new orange banner appearing at the top of your TaxFacts & App screen called “Latest Developments”. In this section we are offering new features, and we will introduce other features later in the year….

· Tax Facts Intelligence Weekly – current as well as archive weekly newsletters you receive by email as another way to access our latest developments.

· Thumbs Up/Thumbs Down – a debate each week between Robert Bloink and myself (William Byrnes) whereby we take opposing viewpoints on tax policy and argue our opinions. Find out if you agree or disagree and, eventually, you will be able to vote on whose side you are on for that week.

· Featured Articles – a weekly article with archives written by Robert Bloink and myself, thought leaders in finding customer needs for new products and how to make new practice tools work with your clients, perhaps in ways you may not have thought about.

· Recent Updates – as you may know, our digital version of Tax Facts is updated weekly and not annually like our print version of Tax Facts. You can now see any significant changes made to a Tax Facts question that week as it will appear in the “Latest Developments” section, so you are aware of changes. These changes can even be delivered to your smartphone should you choose.

We are looking for another big year providing value-added commentary and analysis. I am always interested in your feedback and “practitioner note” submissions so feel free to email me at williambyrnes@gmail.com.

IRS Releases New Safe Harbor for Depreciating Passenger Autos Under Tax Reform 

Post-reform, taxpayers are generally entitled to an additional depreciation deduction for qualified property, including passenger automobiles, if that property was placed in service after September 27, 2017 (and before 2027). If the passenger auto qualifies for 100% depreciation deduction in year one, the tax legislation increased the first-year limitation by $8,000. Assuming the depreciable basis is less than the first year limitation, the additional amount is deductible in the first tax year after the end of the recovery period. Under the safe harbor, however, the taxpayer can take the depreciation deductible for the excess amounts during the recovery period up to the limits applicable to passenger autos during this time frame. The IRS will publish a depreciation table in Appendix A of Publication 946, which taxpayers must use to apply the safe harbor. The safe harbor only applies to passenger autos placed into service before 2023, and does not apply if (1) the taxpayer elected out of 100% first year depreciation or (2) elected to expense the automobile under Section 179. For more information on the rules that apply in determining the depreciation deduction for passenger automobiles, visit Tax Facts Online. Read More

PBGC Proposes Regulations to Simplify Calculating Withdrawal Liability Under the Multi-Employer Pension Reform Act

PBGC recently released a set of proposed regulations to amend the rules on calculating withdrawal liability and annual withdrawal liability payments when an employer withdraws from a multi-employer pension plan. Under the regulations, in calculating withdrawal liability, plan sponsors must disregard benefit suspensions for the ten plan years following the plan year in which the suspension of benefits became effective, and include the suspended benefits when determining the plans unvested benefit liability (UVBs) during that period. The proposed regulations would also require plan sponsors to disregard surcharges when determining how to allocate UVBs to a withdrawing employer, as well as certain increases in contribution rates. The regulations provide detailed guidance on how each element necessary to calculate a withdrawing employer’s liability could be calculated. For more information on benefit reductions under the MPRA, visit Tax Facts Online. Read More

Court Clarifies When Disabled Employees May be Entitled to Disability Benefits

A district court recently clarified that an employee’s request for reasonable accommodations for a disability does not necessarily mean that the employee will also qualify for benefits under a short-term disability plan. In this case, the employee provided evidence from his doctor that stated he was unable to drive in traffic, but the employer’s plan required that he be unable to perform essential duties of his job in order to qualify for disability benefits. The employer denied the claim for benefits because the employee’s job did not involve driving, although he was entitled to work from home so that he could avoid driving into an office (the “reasonable accommodation” in this case). The court agreed with the employer that the employee’s ability to perform his job was not impaired, so he was not entitled to disability benefits. The key takeaway from this case is that, even if an employee has a disability that requires reasonable accommodation, that employee is not necessarily entitled to receive employer-sponsored disability benefits. For more information on employer-sponsored disability benefits, visit Tax Facts Online. Read More

2019’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.  Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

 

Posted in Taxation | Tagged: , | Leave a Comment »

TaxFacts Intelligence Weekly

Posted by William Byrnes on March 25, 2019


EDITOR’S NOTE FOR ONLINE SUBSCRIBERS
You will notice a new orange banner appearing at the top of your screen called “Latest Developments”. In this section we are offering new features, and we will introduce other features later in the year….· Tax Facts Intelligence Weekly – current as well as archive weekly newsletters you receive in email today as another way to access our latest developments.

· Thumbs Up/Thumbs Down – a debate each week between Robert Bloink and myself (William Byrnes) whereby we take opposing viewpoints on tax policy and argue our opinions. Find out if you agree or disagree and, eventually, you will be able to vote on whose side you are on for that week.

· Featured Articles – a weekly article with archives written by Robert Bloink and myself, thought leaders in finding customer needs for new products and how to make new practice tools work with your clients, perhaps in ways you may not have thought about.

· Recent Updates – as you may know, our digital version of Tax Facts is updated weekly and not annually like our print version of Tax Facts. You can now see any significant changes made to a Tax Facts question that week as it will appear in the “Latest Developments” section, so you are aware of changes. These changes can even be delivered to your smartphone should you choose.

We are looking for another big year providing lots of value-added commentary and analysis. I am always interested in your feedback so feel free to email me at williambyrnes@gmail.com.

IMPORTANT TAX DEVELOPMENTS

IRS Provides Additional Rules for Employers’ Ability to Recover Mistaken HSA Contributions
The IRS clarified when an employer can recover health savings account (HSA) contributions made in error. Generally, erroneous HSA contributions must be corrected by reducing future contributions. The IRS Office of the Chief Counsel released an information letter stating an employer can recover mistaken contributions if the employer has clear documentary evidence that demonstrates an administrative or process error that caused the mistaken contribution. Examples of correctable mistakes provided by the IRS include situations where the participants’ names were confused, mathematical errors and duplicate payroll transmittals. For more information on excess HSA contributions, visit Tax Facts Online and Read More.

8th Circuit Denies Bankruptcy Exemption for Retirement Accounts Transferred Incident to Divorce 
The 8th Circuit denied the bankruptcy exemption for retirement plan assets that the debtor acquired incident to divorce. Qualified plan assets and up to about $1.3 million in IRA assets are usually protected from creditors in bankruptcy. In this case, the debtor received a portion of his former spouse’s 401(k) and her entire IRA in their divorce settlement, via a domestic relations order. The courts relied upon the Supreme Court’s prior ruling that inherited IRAs are not exempt in bankruptcy in concluding that assets acquired through a divorce are not primarily retirement assets of the debtor. Instead, the assets represented a property settlement, so were not entitled to any type of special treatment in bankruptcy. For more information on the treatment of qualified plans in divorce, visit Tax Facts Online and Read More.
LITIGATION WATCH

Wellness Programs Post-EEOC: What Remains Important 
EEOC regulations that were recently vacated and removed focused incentives an employer could offer without rendering the program impermissibly involuntary. Although the incentive based regulations were removed, the remaining regulations provide some clarity on this “voluntariness” issue. The program may not require employees to participate, and the employer is not permitted to deny health coverage or limit group health plan or other benefits if the employee chooses not to participate in the program. The employer cannot take an action that would be considered retaliation or take any adverse employment actions for non-participation. For more information on the rules that currently govern employer-sponsored wellness programs, visit Tax Facts Online and Read More.

 

2019’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.  Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

 

Posted in Taxation | Tagged: , | Leave a Comment »

TaxFacts Intelligence Weekly March 21, 2019

Posted by William Byrnes on March 21, 2019


William H. Byrnes, J.D., LL.M. and Robert Bloink, J.D., LL.M.

IRS Ruling Provides New Impetus for Lump-Sum Pension Buyouts for Retirees

The IRS has released a ruling that impacts whether pension plan sponsors are permitted to provide lump-sum distributions to plan participants who are already receiving plan benefits via regular annuity payments. The issue was whether, under the IRS required minimum distribution (RMD) rules, a lump-sum payment would constitute an impermissible increase in the payment amounts these participants were receiving. In 2015, the IRS reversed its previous stance allowing these lump-sum payments to participants in pay status and stated its intent to amend the RMD rules to prohibit these payment options. Now, the IRS has once again changed course and announced that, for the time being anyway, it is no longer planning to amend the RMD rules to prohibit lump-sum payments to pension plan participants already receiving annuity payments under the plan. For more information on lump sum pension buyout offers, visit Tax Facts Online. Read More

Tax Court Case Could Eliminate Valuable Split-Dollar Insurance Estate Planning Strategy

The Tax Court is set to hear a case that has had planners who help very wealthy clients use split-dollar strategies to minimize transfer taxes waiting for results since 2014. This issue in this case involves the value of several life insurance policies. Here, a parent purchased life insurance on her sons’ lives–the policies were technically purchased through revocable “dynasty” trusts–for $29.9 million (premium costs). When she died, her reimbursement rights under these “split-dollar” arrangements were valued at only $7.5 million, because the policies would not pay out until the sons died at some future date (essentially, the strategy is valuable because the difference between the two values is a tax-free gift). The IRS has argued that a fair market valuation approach must be used in split-dollar cases, which would assign the much higher premium cost to the value of the policies using the logic typically applied to buy-sell arrangements in family businesses. Initially, the Tax Court indicated that the economic benefit theory of split-dollar could be applied, a result that would favor the estate. Since then, the court has noted that the estate may have to prove it can satisfy an exception under IRC Section 2703 to avoid full taxation of the $29.9 million in premiums paid. A similar case, Cahill v. Comm., was settled out of court in 2018. For more information on split-dollar plans, visit Tax Facts Online. Read More

Sixth Circuit Allows Employer to Terminate Retiree Health Benefits Despite Collective Bargaining Agreements

The Sixth Circuit recently overturned a district court ruling, finding instead that an employer was permitted to terminate certain retiree health benefits despite the presence of collective bargaining agreements (CBAs). The plaintiffs in this case failed to show that the CBAs’ general durational clauses did not apply to healthcare benefits covered under the agreements. In the Sixth Circuit, a CBA’s general durational clause applies to every provision, unless the contract clearly states that it does not. Despite language pertaining to health benefits in the CBAs, that language did not specifically state the duration of the health benefits, so that the general durational clauses applied and the employer was permitted to modify or terminate coverage when the relevant CBAs expired. For more information on retiree-only health benefits provided in the employment context, visit Tax Facts Online. Read More

 

2019’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.  Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

 

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15 Recent Tax Debates Between Robert Bloink and William Byrnes

Posted by William Byrnes on March 18, 2019


the weekly tax debate transcribed from Tax Facts authors Professors Robert Bloink and William Byrnes, both of Texas A&M University Law School’s Wealth Management graduate program for professionals.

— More Bloink & Byrnes Go Thumb to Thumb:

  1. IRS Relief for Tax Underpayment: Bloink & Byrnes Go Thumb to Thumb
  2. IRS’ New 199A Real Estate Safe Harbor
  3. Postcard Premiere of IRS Form 1040
  4. Repeal SALT Cap, Raise Corporate Tax
  5. Tax Deferral on Stock Options and RSUs
  6. Should Annuity Products Get a Fiduciary Safe Harbor?
  7. Should Tax Hikes Need Supermajority Vote?
  8. Does DOL’s HRA Proposal Go Far Enough?
  9. Should 2017 Tax Changes Be Permanent?
  10. Is the Proposed Child Tax Credit Even Needed?
  11. Is Inflation Indexing of Capital Gains Good?
  12. Are New USA Plans a Boon to Savers?
  13. Was It Right to Kill the DOL Fiduciary Rule?
  14. Is DOL Rule on Health Plans Bad?
  15. Trump’s RMD Rule Change

 

2019’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.  Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

 

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TaxFacts Intelligence (Week of March 14, 2019)

Posted by William Byrnes on March 14, 2019


William H. Byrnes, J.D., LL.M. and Robert Bloink, J.D., LL.M.

Mar 14, 2019

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IRS: Employers Must Exercise Caution in Providing “Free Lunch” for Employees 

The IRS has released a technical advice memorandum (TAM) that sheds light on the potential tax implications when employers provide employees with free meals in the office. Post-tax reform, meals provided “for the convenience of the employer” may receive favorable tax treatment. In the TAM, the IRS denied exclusion of the meals’ value from employee compensation. Here, the employer provided free meals to all employees in snack areas, at their desks and in the cafeteria, justifying provision of these meals by citing need for a secure business environment for confidential discussions, employee protection, improvement of employee health and a shortened meal period policy. The IRS rejected these rationales, stating that the employer was required to show that the policies existed in practice, not just in form, and that they were enforced upon specific employees. In this case, the employer had no policies relating to employee discussion of confidential information and provided no factual support for its other claims. General goals of improving employee health were found to be insufficient. The IRS also considered the availability of meal delivery services a factor in denying the exclusion, but indicated that if the employees were provided meals because they had to remain on the premises to respond to emergencies, that would be a factor indicating that the exclusion should be granted. For more information on “de minimis” type fringe benefits, visit Tax Facts Online. Read More

Common Scenarios in Client Retirement Planning: Account Consolidation and the Rules of the Road

Most clients will change jobs a few times in their lives, which often means they wind up with multiple 401(k) and other types of retirement plans. Consolidating can produce many benefits–namely, making it easier to manage retirement assets and easing RMD calculations, but there are rules to consolidating and clients also need to be aware of benefits that may be unique to any one type of plan. Clients should evaluate their goals with respect to eventual withdrawals, as the rules for penalty-free withdrawals–for example, via using an IRA to establish a series of substantially equal periodic payments to provide penalty-free withdrawals prior to age 591/2. For more information on the rollover rules and how they may impact clients considering retirement account consolidation, visit Tax Facts Online. Read More

April 1 is Fast Approaching: Important Deadline for Clients With First-Time RMD Obligations

While April 15 is a well-known and understood deadline, most clients don’t associate April 1 with any important tax-related deadlines—but April 1 is, in fact, one of the most important deadlines for clients who turned 701/2 years old in the previous year. For those clients who maintain traditional retirement accounts, such as 401(k)s and IRAs, April 1 is the date by which they must take their first required minimum distribution (RMD) from the account if they turned 701/2 in the previous year. For example, a client who turned 701/2 in 2018 must take their first RMD by April 1, 2019. This April 1 deadline is a special rule that applies only to first-time RMDs–a client’s 2019 RMD will be due by December 31, 2019. This means that clients who choose to wait until the April 1 deadline will be required to take two RMDs in 2019. For each subsequent year, the generally applicable December 31 deadline is the relevant date for RMDs. For more information on lifetime RMD requirements, visit Tax Facts Online. Read More

 

2019’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.  Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

 

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TaxFacts Intelligence Weekly (Feb 7, 2019)

Posted by William Byrnes on February 8, 2019


William H. Byrnes, J.D., LL.M. and Robert Bloink, J.D., LL.M.

TAX REFORM DEVELOPMENTS

IRS Provides New 199A Safe Harbor for Rental Real Estate Activities
Since the introduction of Section 199A, business owners engaged in real estate activities have been confused by the new 20 percent deduction for qualified business income of certain pass-through entities. IRS proposed Revenue Procedure 2019-07 provide a safe harbor so that rental real estate businesses will qualify as “trades or businesses” if it: (1) maintains separate books and records for each rental enterprise, (2) involves the performance of at least 250 hours of rental real estate activities, and (3) maintains contemporaneous records regarding the rental real estate services. The safe harbor is effective for tax years ending after December 31, 2017. For more information, visit Tax Facts Online and Read More.

Final 199A Guidance on Tracking W-2 Wages Provides Guidance for Short Tax Years
The IRS has recently finalized the methods that a business owner can use to track W-2 wages for calculating the Section 199A deduction. The new guidance clarifies that, in the case of short taxable years, the business owner is required to use the “tracking wages method” with certain modifications. The total amount of wages subject to income tax withholding and reported on Form W-2 can only include amounts that are actually or constructively paid to the employee during the short tax year and reported on a Form W-2 for the calendar year with or within that short tax year. For more information on the methods available for calculating W-2 wages for Section 199A purposes, visit Tax Facts Online and Read More.

LITIGATION WATCH

Court Requires Employer to Pay Dependent Life Insurance Benefits After Failure to Provide SPD
A court recently ruled that an employer was required to pay life insurance benefits to an employee under a life insurance policy insuring her former spouse, which was offered by the employer as a dependent life insurance benefit. When the employee’s former husband died within three months’ of their divorce, her claim for benefits under the policy was denied because she was not an “eligible dependent” because of the divorce. The employee made several claims, including one that the she was not provided a summary plan description (SPD) with respect to the policy. The court agreed with the plaintiff’s claim that failure to provide the SPD was a breach of fiduciary duty under ERISA. For more information on employer-sponsored life insurance, visit Tax Facts Online and Read More.

2019’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.  Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

 

Tax Facts Team

  • William H. Byrnes, J.D., LL.M, Tax Facts Author
  • Robert Bloink, J.D., LL.M., Tax Facts Author
  • Alexis Long, J.D., Senior Contributor
  • Richard Cline, J.D. Senior Director, Practical Insights
  • Jason Gilbert, J.D., Senior Editor
  • Patti O’Leary, Senior Editorial Assistant
  • Connie L. Jump, Senior Manager, Editorial Operations
  • Molly Miller, Publisher
  • Danielle Birdsail, Digital Marketing Manager
  • Emily Brunner, Editorial Assistant

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Guidance on receiving the 20% deduction from qualified business income; many rental real estate owners may claim deduction

Posted by William Byrnes on January 25, 2019


The Treasury Department and the Internal Revenue Service issued final regulations and three related pieces of guidance, implementing the new qualified business income (QBI) deduction (section 199A deduction).

The new QBI deduction, created by the 2017 Tax Cuts and Jobs Act (TCJA) allows many owners of sole proprietorships, partnerships, S corporations, trusts, or estates to deduct up to 20 percent of their qualified business income.  Eligible taxpayers can also deduct up to 20 percent of their qualified real estate investment trust (REIT) dividends and publicly traded partnership income.

The QBI deduction is available in tax years beginning after Dec. 31, 2017, meaning eligible taxpayers will be able to claim it for the first time on their 2018 Form 1040.

The guidance, released today includes:

  • A set of regulations, finalizing proposed regulations issued last summer, A new set of proposed regulations providing guidance on several aspects of the QBI deduction, including qualified REIT dividends received by regulated investment companies
  • revenue procedure providing guidance on determining W-2 wages for QBI deduction purposes,
  • notice on a proposed revenue procedure providing a safe harbor for certain real estate enterprises that may be treated as a trade or business for purposes of the QBI deduction

The proposed revenue procedure, included in Notice 2019-07, allows individuals and entities who own rental real estate directly or through a disregarded entity to treat a rental real estate enterprise as a trade or business for purposes of the QBI deduction if certain requirements are met.  Taxpayers can rely on this safe harbor until a final revenue procedure is issued.

The QBI deduction is generally available to eligible taxpayers with 2018 taxable income at or below $315,000 for joint returns and $157,500 for other filers. Those with incomes above these levels, are still eligible for the deduction but are subject to limitations, such as the type of trade or business, the amount of W-2 wages paid in the trade or business and the unadjusted basis immediately after acquisition of qualified property. These limitations are fully described in the final regulations.

The QBI deduction is not available for wage income or for business income earned by a C corporation.

For details on this deduction, including answers to frequently-asked questions, as well as information on other TCJA provisions, visit IRS.gov/taxreform

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TaxFacts Intelligence Weekly

Posted by William Byrnes on December 3, 2018


TAX DEVELOPMENTS

SEC Announces New Disclosure Requirements for Variable Annuities and Life Insurance 
The SEC recently proposed a rule change designed to improve disclosures with respect to variable annuities and variable life insurance contracts. The new disclosure obligations would help investors understand the features, fees and risks to these types of products in an effort to allow investors to make more informed investment decisions. Under the proposal, annuity and life insurance carriers would be entitled to provide information to investors in a summary prospectus form that would provide a more concise summary of the terms of the contract. For more information on variable annuities, visit Tax Facts Online and Read More.

Digging Into the Details of Hardship Distributions for Primary Residence Purchases
Qualified plans can to allow participants to take hardship distributions to help with the purchase of a primary residence. The distribution must be directly taken to purchase the residence–items such as renovations made prior to move-in do not qualify. Despite this, the distribution can cover more than just the purchase price of the residence itself. Closing costs would also qualify, as would the cost of a piece of land upon which the primary residence would be built. If a participant buys out a former spouse’s interest in a jointly-owned home pursuant to divorce, the distribution would also qualify. For more information on the hardship distribution rules, visit Tax Facts Online and Read More.
Avoiding Gift Tax Traps This Holiday Season
Most taxpayers believe that they are not required to file a gift tax tax return if they do not owe gift taxes–as many will not because of the current $11.18 million gift tax exemption will shield most donors from gift tax liability. Despite this, each gift made during a donor’s lifetime serves to reduce that $11.18 million amount, which applies both to lifetime gifts and transfers made at death. Taxpayers must file Form 709 to report taxable gifts in excess of the annual exclusion amount to avoid potential IRS penalties for failure to file a return. The form is required not because gift taxes are owed, but to provide the IRS with a mechanism for tracking any given taxpayer’s use of the exemption amount during life. For more information on the gift tax filing requirements, visit Tax Facts Online and Read More.

Posted in Retirement Planning, Taxation | Tagged: , | 1 Comment »

IRS provides tax inflation adjustments for tax year 2019

Posted by William Byrnes on November 23, 2018


The Internal Revenue Service was very late (only on November 15) in announcing the tax year 2019 annual inflation adjustments for more than 60 tax provisions, including the tax rate schedules and other tax changes. Revenue Procedure 2018-57 provides details about these annual adjustments. The tax year 2019 adjustments generally are used on tax returns filed in 2020.

The tax items for tax year 2019 of greatest interest to most taxpayers include the following dollar amounts:

  • The standard deduction for married filing jointly rises to $24,400 for tax year 2019, up $400 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $12,200 for 2019, up $200, and for heads of households, the standard deduction will be $18,350 for tax year 2019, up $350.
  • The personal exemption for tax year 2019 remains at 0, as it was for 2018, this elimination of the personal exemption was a provision in the Tax Cuts and Jobs Act.
  • For tax year 2019, the top rate is 37 percent for individual single taxpayers with incomes greater than $510,300 ($612,350 for married couples filing jointly). The other rates are:

o 35 percent, for incomes over $204,100 ($408,200 for married couples filing jointly);

o 32 percent for incomes over $160,725 ($321,450 for married couples filing jointly);

o 24 percent for incomes over $84,200 ($168,400 for married couples filing jointly);

o 22 percent for incomes over $39,475 ($78,950 for married couples filing jointly);

o 12 percent for incomes over $9,700 ($19,400 for married couples filing jointly).

o The lowest rate is 10 percent for incomes of single individuals with incomes of $9,700 or less ($19,400 for married couples filing jointly).

  • For 2019, as in 2018, there is no limitation on itemized deductions, as that limitation was eliminated by the Tax Cuts and Jobs Act.
  • The Alternative Minimum Tax exemption amount for tax year 2019 is $71,700 and begins to phase out at $510,300 ($111,700, for married couples filing jointly for whom the exemption begins to phase out at $1,020,600). The 2018 exemption amount was $70,300 and began to phase out at $500,000 ($109,400 for married couples filing jointly and began to phase out at $1 million).
  • The tax year 2019 maximum Earned Income Credit amount is $6,557 for taxpayers filing jointly who have three or more qualifying children, up from a total of $6,431 for tax year 2018. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phase-outs.
  • For tax year 2019, the monthly limitation for the qualified transportation fringe benefit is $265, as is the monthly limitation for qualified parking, up from $260 for tax year 2018.
  • For calendar year 2019, the dollar amount used to determine the penalty for not maintaining minimum essential health coverage is 0, per the Tax Cuts and Jobs act; for 2018 the amount was $695.
  • For the taxable years beginning in 2019, the dollar limitation for employee salary reductions for contributions to health flexible spending arrangements is $2,700, up $50 from the limit for 2018.
  • For tax year 2019, participants who have self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,350, an increase of $50 from tax year 2018; but not more than $3,500, an increase of $50 from tax year 2018. For self-only coverage, the maximum out-of-pocket expense amount is $4,650, up $100 from 2018. For tax year 2019, participants with family coverage, the floor for the annual deductible is $4,650, up from $4,550 in 2018; however, the deductible cannot be more than $7,000, up $150 from the limit for tax year 2018. For family coverage, the out-of-pocket expense limit is $8,550 for tax year 2019, an increase of $150 from tax year 2018.
  • For tax year 2019, the adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit is $116,000, up from $114,000 for tax year 2018.
  • For tax year 2019, the foreign earned income exclusion is $105,900 up from $103,900 for tax year 2018.
  • Estates of decedents who die during 2019 have a basic exclusion amount of $11,400,000, up from a total of $11,180,000 for estates of decedents who died in 2018.
  • The annual exclusion for gifts is $15,000 for calendar year 2019, as it was for calendar year 2018.
  • The maximum credit allowed for adoptions is the amount of qualified adoption expenses up to $14,080, up from $13,810 for 2018.

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Tax Facts was first published in 1951 in a slim, 137-page volume covering the income, estate and gift tax aspects of life insurance and annuity ownership, titled Tax Facts on Life Insurance. Since that first year, the breadth and depth of Tax Facts coverage has grown to include employee benefits, business continuation, individual and qualified retirement plans, as well as decades of hard-to-find rulings and clarifications of longstanding regulations.  In 1983, Tax Facts grew to two volumes, with the second covering investments of all types: stocks, bonds, mutual funds, real estate, and the tax requirements related to each. What began as a 234-page book grew rapidly as tax reform in the 1980s multiplied the rules covering the treatment of investments.

In 2010 Tax Facts expanded to its current 4 volume and online format.  In its 67-year history, Tax Facts has become the financial advisor industry’s standard for clear, up-to-date thorough tax information. Now in an all-inclusive online format, every answer, ruling and table is easier than ever to find.

Tax Facts is the place I go to find the answers to those tough life insurance questions that no one else has – and to check those they do. It’s THE SOURCE for authoritative income, estate, and gift tax information on life insurance and annuity contracts.”

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TaxFacts Intelligence Weekly Nov 16th

Posted by William Byrnes on November 16, 2018


IRS Releases Guidance on Impact of Personal Exemption Suspension on Premium Tax Credit
The 2017 tax reform legislation suspended the personal exemption for tax years beginning after 2017 and before 2026. Relatedly, taxpayers are entitled to claim the Affordable Care Act premium tax credit with respect to an individual if the taxpayer has claimed an exemption with respect to that taxpayer (i.e., the personal or dependency exemption). A taxpayer is entitled to claim the premium tax credit with respect to another individual if the taxpayer would otherwise be entitled to claim a dependency exemption with respect to that individual, and includes the individual’s name and TIN on his or her Form 1040. For more information, visit Tax Facts Online and Read More.
OTHER IMPORTANT DEVELOPMENTS

Grandfathering Potential May Still Exist Under Section 162(m) Post-Regulations
The IRS regulations governing the new limitations on the Section 162(m) executive compensation deduction limits may have curtailed grandfathering opportunities that some had expected under the new tax law, but possibilities still remain. The test for determining whether grandfather treatment is permitted involves whether the company was legally obligated to pay the compensation under state law (meaning contract law) as of November 2, 2017. For more information on the new rules governing the deductibility of executive compensation, visit Tax Facts Online and Read More.

LITIGATION WATCH

Tax Court Rules Business-Provided Life Insurance Taxable to Insured Individual Under Split Dollar Rules
The Tax Court recently ruled that the “economic benefit” of business-sponsored life insurance provided to a key employee through a multiple-employer welfare benefit fund was taxable income to the employee. The Tax Court agreed with the IRS that this structure required current income inclusion under the split dollar life insurance principles, so that the economic benefit received by the employee was required to be included in his gross income for the year in question despite the fact that no actual cash benefits were received during that year. For more information on the rules governing split dollar life insurance, visit Tax Facts Online and Read More.

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TaxFacts Intelligence Weekly

Posted by William Byrnes on September 21, 2018


TAX REFORM DEVELOPMENTS

IRS Provides Guidance Updating Accounting Method Changes for Terminated S Corporations
The 2017 tax reform legislation added a new IRC section that now requires eligible terminated S corporations to take any Section 481(a) adjustment attributable to revocation of the S election into account ratably over a six-year period. Under newly released Revenue Procedure 2018-44, an eligible terminated S corporation is required to take a Section 481(a) adjustment ratably over six years beginning with the year of change if the corporation (1) is required to change from the cash method to accrual method and (2) makes the accounting method change for the C corporation’s first tax year. For more information on the rules governing S corporations that convert to C corporation status post-reform, visit Tax Facts Online and Read More.
OTHER IMPORTANT DEVELOPMENTS

IRS Guidance on Interaction between New Association Health Plan Rules and ACA Employer Mandate
The IRS recently released new guidance on the rules governing association health plans (AHPs), which permit expanded access to these types of plans, and the Affordable Care Act (ACA) employer mandate. The guidance provides that determination of whether an employer is an applicable large employer subject to the shared responsibility provisions is not impacted by whether the employer offers coverage through an AHP. Participation in an AHP does not turn an employer into an applicable large employer if the employer has less than 50 employees. For more information on the employer mandate, visit Tax Facts Online and Read More.

OCC Explains Employee Tax Consequences of Employer’s Belated Payment of FICA Tax on Fringe Benefits
The IRS Office of Chief Counsel (OCC) released a memo explaining the tax consequences of a situation where the employer failed to include $10,000 of fringe benefits. The employer paid the FICA taxes associated with the benefits in 2018, although the benefits were provided in 2016. The guidance provides that the payment in 2018 did not create additional compensation for the employee in 2016. If the employer collects the amount of the employee portion of the FICA tax from the employee in 2018, the employer’s payment is not additional compensation. However, if the employer does not seek repayment, the payment of the employee’s portion is additional compensation. For more information on FICA tax issues in the employment benefit context, visit Tax Facts Online and Read More.
LITIGATION WATCH

Employer Amendments to VEBA Did Not Result in Adverse Tax Consequences
The IRS recently ruled that an employer could amend its voluntary employees’ beneficiary association (VEBA) to provide health benefits for active employees in addition to retired employees without violating the tax benefit rule or incurring excise taxes. In this case, the VEBA provided health benefits for collectively bargained retired employees. When the VEBA became overfunded, the employer proposed transferring the excess assets into a subaccount for collectively bargained active employees. The IRS found that this proposed amendment would not violate the tax benefit rule because, the new purpose of providing health benefits to active employees under a collective bargaining agreement was not inconsistent with the employer’s earlier deduction. For more information on VEBAs, visit Tax Facts Online and Read More.
Tax Facts Team
Molly Miller
Publisher
William H. Byrnes, J.D., LL.M
Tax Facts Author
Richard Cline, J.D.
Senior Director, Practical Insights
Robert Bloink, J.D., LL.M.
Tax Facts Author
Jason Gilbert, J.D.
Senior Editor
Alexis Long, J.D.
Senior Contributor
Connie L. Jump
Senior Manager, Editorial Operations
Danielle Birdsail
Digital Marketing Manager
Patti O’Leary
Senior Editorial Assistant
Emily Brunner
Editorial Assistant
For questions, contact Customer Service at 1-800-543-0874.

Posted in Insurance, Retirement Planning, Taxation, Uncategorized | Tagged: , | Leave a Comment »

5 Fundamentals Of LLCs (Guest Attorney Article by Haik Chilingaryan, Esq.)

Posted by William Byrnes on June 29, 2018


Haik Chilingaryan, Esq.

Please contact Mr. Chilingaryan to discuss the five fundamentals of an LLC at E-Mail: haik@chilingaryan.law or Tel: 818.442.7777

A Limited Liability Company (“LLC”) is a hybrid business entity which contains elements of a partnership and a corporation. LLCs consist of members and managers. An LLC may provide tremendous benefits for its members, which include asset protection, intergenerational transfers, tax saving strategies, wealth preservation, flexible management structures, and clarity on the roles of all essential parties involved in the company as set out in the Operating Agreement.

The following five concepts are fundamental for establishing an LLC: Asset Protection, Intergenerational Transfers, Tax Saving Strategies, Management, and Funding.

Asset Protection

Generally, the more assets a person owns in one’s name, the more likely it is that he or she will be a target mark for creditors. This is why it’s good practice to own as little as possible in your own name. In order to accomplish this goal, it’s important to evaluate the types of asset protections tools that are available to you. An LLC is one such tool that is effective for asset protection purposes.

For creditors of the LLC itself, a member’s personal liability will generally be limited to the amount of the member’s investment in the LLC unless the member personally guarantees the transaction in question.

For creditors of the member of the LLC, a creditor is generally precluded from acquiring an interest in the debtor-member’s interest in the LLC if the judgment was entered after the LLC was formed. However, most states allow for a judgment creditor to levy on assets after distributions have been made to the debtor-member by the LLC.

As a general rule, a creditor has no right to become a member, compel a distribution, or demand company assets. If such rights were given to a creditor, then the other members of the company would suffer from an action or inaction of a particular member. This would inevitably lead to an unjust result for the remainder of the group. Therefore, the creditor must wait until distributions are made to the member before any potential recovery can be pursued.

Another limitation on a creditor’s pursuit on a claim against the debtor-member is that an Operating Agreement has the power to prevent non-members from acquiring an interest in the company. This is especially important in the case of failed marriages and judgment creditors because courts may at times issue overreaching rulings in order to accomplish an equitable outcome in the event of divorces or other circumstances. An LLC can also provide the means for family members or ex-family members who are in dispute to not be compelled to communicate at the time their interest is being transferred from their donors to them.

There is another layer of asset protection that deals particularly with the recipients of the LLC interest. It’s standard practice for owner-members to make gifts to their heirs throughout their lives. Several problems are immediately surfaced when gifts of substantial value such as property or a significant amount of cash are transferred to their heirs. Without a proper plan in place, the recipients are likely to subject these assets to waste or relinquish them to creditors or former spouses. However, the transfer of an interest in the LLC can protect these assets from loss or waste by the recipient-members.

Keep in mind that the asset protection planning must be done well in advance of any anticipation to a claim. That’s because fraudulent transfers are broadly construed. Intent is generally presumed if a transfer is found to have been made before or after the claim arose with the intent to defraud, hinder, or delay a known creditor. If the transfer is deemed fraudulent by the court, the court may set aside the transfer, which may also lead to criminal consequences.

An LLC is the preferred homeplace for many types of properties, including real estate. Real estate held for the purpose of investment is a ubiquitous phenomenon. Yet in practice, it is widespread to see title to its ownership being held in an individual’s name. In fact, if an investor owns multiple income-producing properties, it’s recommended (subject to some exceptions) to form and operate a separate LLC for each piece of property. In the case of a primary residence, transferring title to a living trust is the preferred method primarily due to tax advantages and the homestead exemption.

One of the reasons for forming a separate LLC for an income-producing real estate is that an injury on its premises can be costly even if the insurance policy satisfies a portion of the claim. Thus, if an entity only owns one piece of real estate, the claims will only be limited to that piece of property. If, however, the entity owns other assets, all such assets are at the risk of being exposed to the creditor.

Let’s also not forget one crucial point in the context of asset protection. By merely establishing an LLC, it will not be enough to be sheltered from personal liability. Formalities must be followed to embolden the shield of limited liability (just like for corporations or other types of entities that are subject to limited liability). If formalities are not adequately followed or there is a personal guarantee against the particular risk in question, the member’s personal assets will likely be exposed to the creditor.

It’s also equally important to make sure that the business is never conducted in the individual member’s capacity, but only in business capacity. For example, as “Manager” or “Member.” In the context of distributions, the accounting must continuously be updated as the distributions are being made to the members. The lack of formalities will give more weight to the argument that the LLC had no business purpose and should be disregarded as a separate legal entity.

Despite all the asset protection tools, a creditor has a few recourses (some of which go beyond the scope of this article). The one recourse that is generally available to a creditor is commonly referred to as a “charging order.” A charging order permits a creditor to seize only those assets that have been actually distributed, but not the assets that the debtor-member may potentially be entitled to receive under his or her ownership interest in the LLC.

Charging orders are better known as “phantom income” for a reason. The IRS requires for the members of the LLC to pay income tax even if they do not receive any distributions. In the case of charging orders, the creditor would be required to pay income tax on the debtor-member’s interest in the LLC even if the creditor does not receive any actual distributions. This is perhaps the most deterring factor on a creditor’s pursuit in recovering from an LLC because a creditor generally ends up in a worse position than before his pursuit of the charging order. Additionally, a creditor’s tax bracket may also increase as a result of the charging order.

Intergenerational Transfers

An LLC can be structured in such a way to protect the assets of a family for generations. These are otherwise known as Family Limited Liability Companies (“FLLC”). Even though such entities are structured and operated just like typical LLCs, most, if not all of the assets, are owned by the family in FLLCs.

In general, LLCs have some of the same benefits as living trusts when it comes to intergenerational transfers. An LLC can provide for a smoother transfer of wealth upon the death of an owner by avoiding probate. It can further prevent assets from going through probate in the event of a member’s disability and even in guardianship or conservatorship proceedings.

Another similarity with a living trust is that the nature and character of the underlying assets of the company are private. In other words, details as to what assets the LLC owns will generally be outside the scope of the public domain. As opposed to probate, where the circumstances surrounding the transfers of the decedent’s assets are a matter of public record, transfers of LLC assets are generally accomplished under private circumstances.

The effective planning techniques involve not only how the assets will be transferred when the owner of those assets dies, but to also employ techniques that will allow the transfer of assets during the donor’s life. In the context of FLLCs, there is a planning method available through gifting which allows for senior family members to periodically gift a portion of their assets to their younger family members.

There are some assets, however, that by their nature make it difficult to gift in fractions. Transferring portions of real estate, farm, or other assets are difficult to calculate especially when their value can fluctuate on a daily basis. There are some factors that may make the particular asset periodically more or less valuable: external market conditions and the overall condition of the asset. However, the gifting of an interest in an LLC avoids the trouble of transferring a fraction of a particular asset.

Regardless of the type of asset being transferred, there are incentives in place for transferring wealth during a donor’s life. These incentives can range from reducing the donor’s taxable estate to providing for the living expenses of the donor’s children. As such, the implementation of an annual gifting method may play a significant role in the periodic transfer of wealth from the older family members to the younger ones.

In 2018, the annual exclusion amount is $15,000 for individual taxpayers. Under the taxation rule of gift-splitting, a married couple can transfer $30,000 to any individual without being required to pay a Gift Tax or having to file a Gift Tax Return. To illustrate the significance of annual gifting, suppose that a married couple has four children. The couple can potentially remove $120,000 per annum from their estate without the Gift Tax consequences.

An LLC can also provide an excellent tool for gifting an interest during the donor’s life without commingling the gifted portion of the assets with the recipient’s other assets that have been accumulated during his or her marriage. After the membership interest is directly transferred to the recipient or in a separate property trust that has been specifically established for the recipient, the “paper trail” can show that a particular asset (whether in the form of cash or other property interest) is in fact the separate property of the recipient-member.

In the context of LLC ownership transfers, it is the member’s interest – not the actual asset – being transferred. Thus, the interest is adjusted in value due to lack of marketability. That’s because the assets that are subject to the LLC generally have limitations. Such limitations may include the right of first refusal, the inability to demand a distribution, order a dissolution, or participate in the management of the LLC.

The fundamental reason for the lack of marketability is that the membership interest is not a liquid asset and generally cannot be freely assigned. In other words, if the buyer cannot indeed purchase the piece of a parcel, but instead he or she can only purchase a potential ownership interest in the parcel (e.g., by owning X% in the LLC) with some of the previously mentioned limitations, the value of the membership interest will be discounted in accordance with the limitations.

The discounting aspect for lack of marketability is especially useful in the context of gifting. For instance, if a member’s interest is discounted by 1/3 due to lack of marketability, a gift of $10,000 in the form of an LLC interest is equivalent to a gift of $15,000 in the underlying assets of the LLC ($15,000 x 2/3 =$10,000).

Upon the death of the owner-member, value adjustments may also apply to the remaining portion of the deceased member’s interest in the LLC based on lack of marketability. A general formula for calculating the taxable value of the estate of the deceased-member’s interest is the following:

% of ownership x FMV (1 – discount) = Estate Tax Value

Tax Saving Strategies

An LLC can be taxed as a disregarded entity, partnership, cooperative, or corporation. By default, a multi-member LLC is taxed as a partnership. By default, a single-member LLC is taxed as a sole proprietorship. Under such a classification, the member is considered self-employed and is consequently responsible for self-employment taxes (Social Security and Medicare).

For income tax purposes, sole proprietorships, partnerships, and S-corporations are classified as pass-through entities. This means that the income and expense will pass through to the owner’s personal tax returns. Under a pass-through scenario, the LLC itself will file a Form 1065 tax return, but it will not pay the income taxes on the LLC’s profits.

One strategy for lowering a member’s taxable income is to not have them actively participate in the management of the LLC. Members who do not participate in the management of the company will generally be exempt from paying the self-employment tax. Therefore, their overall income tax may be reduced since they will not pay the self-employment tax on the LLC portion of their income.

Another way to reduce the overall income taxes during the members’ life is by spreading them among members who happen to fall in lower tax brackets than the owners. This is especially useful in the context of FLLCs since younger family members may not necessarily earn as high of an income as their elder counterparts.

Another benefit of an LLC is that a transfer of an asset by an individual to the LLC is normally not a taxable event unless otherwise excepted. Similarly, transfers upon the dissolution of the LLC are also not taxable since they are deemed a return of capital. Of course, gain may be recognized if the asset is sold by the individual after the asset has been transferred from the LLC.

The general tax consequence on transfers (to and from) an LLC is especially significant when considering that virtually any transfer from one entity to another can either be accomplished by sale or gift. If it’s a sale, then the transferor must generally pay capital gain taxes if the asset has appreciated in value since its purchase. If it’s a gift, there may be gift tax consequences. In this case, we have the owner being a separate entity, transferring to the LLC (also a separate entity). Nonetheless, these transfers generally do not qualify as taxable events for IRS purposes.

In the context of FLLCs, calculating the basis of assets or membership interests can be problematic, especially if such assets are sold generations after their purchase. This will inevitably affect the basis adjustments of those assets. The basis of an asset is what the original owner paid for its purchase. Several factors may affect the adjustment of the basis by either increasing the original basis (e.g., capital improvements) or by decreasing the original basis (e.g., depreciation deductions).

The similar concepts on basis adjustments apply to a member’s interest in the LLC because these interests also have their own basis. If there are many assets with different basis inside the LLC, it can become a logistical nightmare for accountants and administrators to calculate each member’s separate basis in the LLC. Thus, mixing different assets in the same LLC can be problematic especially in the context of multi-generational entities (e.g., FLLCs). Instead of being limited to one LLC, it is recommended to consider additional or subordinate LLCs especially for preventing such problems down the road.

The last point with regard to tax consequences of LLCs pertains to state law. When forming an LLC, it’s essential to consider all of the laws that the state provides on the formation and governance of LLCs. Some states have favorable laws with regard to LLCs versus other business types of entities; other states tend to be less favorable.

Management of an LLC

LLCs consist of members and managers. If we can make an analogy with corporations, members would be equivalent to the shareholders of a corporation; whereas managers can be a hybrid between Board of Directors and senior officers of a corporation (depending on the scope of authority provided by the members and the Operating Agreement).

There are two types of structures in which LLCs operate. There are member-managed and manager-managed LLCs. In member-managed LLCs, the members of the company manage the company by voting in accordance with each member’s interest. In manager-managed LLCs, members appoint one or more managers to conduct business activities that fall within the scope authorized by the company’s members.

There is no requirement for a manager to be a member of the LLC. Even in a member-managed LLC, the members may appoint a manager to be responsible for the daily business operations, but nevertheless be prevented from exercising any decision-making management authority.

A managing entity is recommended for a variety of reasons. First, as opposed to an individual, a managing entity does not have the same limitations as a human being might have, including disability and death. Since managers generally answer to members, the level of control over investment decisions can be set by the members in accordance with the manager’s fiduciary duty to the LLC. The level of control may vary from how much income to distribute or reinvest to being limited to only managing simple day-to-day operations.

An LLC formed in California must have an Operating Agreement. The Operating Agreement sets forth the scope of authority of members and managers. It can also provide restrictions on the transferability of membership interests and determine the form of compensation of its managers. A membership interest can be in the form of percentage or membership units. Membership units are analogous to owning shares in a corporation.

There are generally four ways members can receive compensation from the LLC. First, the General Members can receive management fees for managing the company. Such compensation can even be in the form of “preferred equity interest,” whereby a certain percentage of income is paid to the individual or entity holding that interest.

The second way is for the LLC to make distributions to the members. In such a scenario, the limited members will generally be entitled to a pro rata share from the distributions. The third way is for the LLC to make loans to the members. This strategy should be implemented with extreme caution. The fourth way provides an option to the limited members to potentially purchase a more significant share in the LLC from the owners, thereby resulting in more direct income for the owners.

Funding the LLC

Funding is the process of transferring assets to the LLC. Funding is an essential step in order for the LLC to be legally enforceable. An LLC must have a business purpose. If the LLC does not have any assets or is not otherwise funded, it follows that it does not have a business purpose.

The similar concept of funding applies to revocable living trusts. If a revocable living trust does not have any assets, it can be the most potent trust instrument ever written, but it will generally have no legal effect. Therefore, an LLC must also be properly funded, for among other things, to potentially grant limited liability to its members.

The means for funding the LLC may vary from asset to asset. For example, different standards apply when real estate is transferred onto the LLC as opposed to a publicly traded security company. As a baseline rule, the transfer of an asset to the LLC must happen in the same manner in which title to the particular type of property is held. In case of real estate, such transfers may only be effectuated by deeds, regardless of whether the transfer is from person to person, or from (or to) an LLC.

Notwithstanding the type of asset being transferred, the value of the asset must be determined at the time of transfer. Determining the valuation of real estate and business interests in firmly held companies or LLCs is not an exact science. Consequently, such assets may be required to be appraised by a qualified appraiser (someone with an excellent reputation in the field of appraisals and a successful track record for audits). To justify any valuation discounts in the event of litigation or potential challenges by taxing authorities, qualified appraisals should also value the interest in the LLC at the time the member’s interest is either sold or gifted or when one of the members dies.

The transfer of stocks, bonds, and other securities to an LLC is accomplished by a stockbroker, the issuing company, or a third party agent. If a stockbroker is used to facilitate the transfer, it’s recommended for the stocks to be held in a “nominee securities” account. In other words, the brokerage account will be in the name of the LLC, however, the actual stocks will be held in the brokerage company’s name.

One final point concerning funding to keep in mind when it comes to stocks and investment assets are the “anti-diversification rules.” Generally, the transfer of an asset to the LLC is not a taxable event unless the transfer triggers an immediate tax consequence within the meaning of diversification of securities.

Several standards are used to determine issues related to diversification. First, “The 80% Rule” states that if 80% or more of the assets of the LLC are marketable securities, the LLC can be classified as an “investment company.” As a result, the anti-diversification rules may apply and tax may be due on the transfer. Therefore, if 20% or more of the assets are made up of real estate, the anti-diversification rules will not be triggered and no tax would be due on the transfer provided that real estate assets remain at 20% or more in the LLC after the transfer.

Second, “The Non-Identical Assets Rule” applies in a scenario where one person contributes one type of stock and another person contributes another type of stock, the anti-diversification rule may be triggered. However, if the same two people were to contribute two of the same stock or if one person contributes all of the assets (even if they are not identical), the anti-diversification rules will generally not be triggered.

Third, “The 25% Test and 50% Test” states that no diversification can occur when the transferor transfers a diversified portfolio of securities to the LLC which contains no more than 25% of the value of all securities from one issuer and no more than 50% of the value of all securities from five or fewer issuers. In this instance, the portfolio itself is considered diversified since it does not contain any one issuer which represents more than 25% of the value of the total securities nor five or fewer issuers which represent more than 50% of the securities in the same portfolio. Similar to mutual funds, diversification rules generally do not apply to a portfolio that is being contributed to the LLC that is already diversified.

The crux of the matter regarding the anti-diversification rules is that if an LLC owns securities and the LLC itself is in fact performing the functions of an investment company within the context of securities, then any asset being transferred (including cash) to the LLC may be subject to tax. The application of these rules can be pernicious and planning around them must be done with extreme caution to minimize the likelihood of a tax being due on a transfer.

Final Thoughts

The rigorous legal standards surrounding LLCs increase the likelihood for the LLC to lose its asset protection status against creditors or to be successfully challenged by taxing authorities. The LLC provides tremendous benefits to its members: asset protection, intergenerational transfers, tax saving strategies, flexible management structures, and wealth preservation. In order to enjoy all the benefits that an LLC has to offer, it’s important to be in constant contact with qualified advisors, including attorneys, CPAs, tax specialists, and financial advisors to make sure that all applicable legal matters are properly addressed in advance.

Remember that an LLC is a business, it must have a business purpose, and it must be operated as a business. Problems are bound to occur when the owners of LLCs deviate from these standards and become overconfident in the notion that their LLC is an enforceable legal entity that is unequivocally protected against creditors and taxing authorities by virtue of its existence.

Important Note: Chilingaryan Law or its affiliates are not rendering legal, financial, or tax advice by providing the content above. No attorney-client relationship is formed based on the information provided above. The above content is designated only for educational use. Accordingly, Chilingaryan Law assumes no liability whatsoever in reliance on its use. Additionally, certain changes in law may affect on the legality of the information provided above and certain circumstances of the reader may vary the applicability of the above content to his or her situation.

About Chilingaryan Law

Our law firm focuses its practice on serving professionals and business owners who, among other things, seek counsel on matters relating to Estate Planning and Business Planning with an emphasis on tax efficiency.  We work with of counsel attorneys, financial advisors, tax specialists, and accountants to provide the most optimal services for our clients. We recognize that some clients wish to minimize their tax consequences, others are more concerned about posterity, yet many others are concerned about their financial security and lifestyle needs once they retire.

Our main office is in Glendale, California. We also have offices in Downtown Los Angeles, West Los Angeles, and Sherman Oaks. Tel: 818.442.7777

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EY Report: State of the Tax Industry and Tax Education

Posted by William Byrnes on March 21, 2016


“The central function of the tax office has evolved from strategy and planning into risk management”, says William Byrnes, professor of law and associate dean at Texas A&M University.  Read Full Report here E&Y tax industry report

E&Y reports that “According to a 2015 report by the Institute of Management Accountants (IMA), which launched a Competency Crisis website to deal with the talent gap in 2013, 90% of North American organizations cannot find the entry-level management accounting and finance talent they need.”

“The educational curriculum isn’t keeping up with the needs of business, and employers expect more advanced skills at entry level, according to the report.”

E&Y finds: “Texas A&M University is among the pioneers of change in tax education. …the State of Texas not only established a new law school at the university but also gave it carte blanche to create a new education model.”

 

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Deciding Whether to Itemize Deductions or Use the Standard Deduction?

Posted by William Byrnes on February 17, 2016


Most people claim the standard deduction when they file their federal tax return, but you may be able to lower your tax bill if you itemize. You can find out which way saves you the most by figuring your taxes both ways. The IRS offers these six tips to help you choose:

 

Figure Your Itemized Deductions. Add up deductible expenses you paid during the year. These may include expenses such as:

  • Home mortgage interest
  • State and local income taxes or sales taxes (but not both)
  • Real estate and personal property taxes
  • Gifts to charities
  • Casualty or theft losses
  • Unreimbursed medical expenses
  • Unreimbursed employee business expenses

Special rules and limits apply to each type of itemized expense which may lead to less of a tax deduction than the actual expense.

Know Your Standard Deduction. If you don’t itemize, your basic standard deduction for 2015 depends on your filing status:

  • Single $6,300
  • Married Filing Jointly $12,600

If you’re 65 or older or blind, your standard deduction is higher than these amounts. If someone can claim you as a dependent, your deduction may be limited.

IRS YouTube Videos: Standard vs. Itemized DeductionsEnglish

Tax Facts Online is the premier practical, useful, actionable, and affordable reference on the taxation of insurance, employee benefits, investments, small tax-facts-online
business and individuals. This advisory service provides expert guidance on hundreds of the most frequently asked client questions concerning their most important tax issues.

Many ongoing, significant developments have affected tax law and, consequently, tax advice and strategies. Tax Facts Online is the only source that is reviewed daily and updated regularly by our expert editors.

In addition to completely current content not available anywhere else, Tax Facts Online gives you exclusive access to:

  • Robust search capabilities that enable you to locate detailed answers—fast
  • Time-saving calculators, tables and graphs
  • A copy/paste capability that speeds the production of presentations and enables you to easily incorporate Tax Facts content into your workPlus, the recent addition of current news, case studies, commentary and competitive intelligence serves our customers well as the only tax reference that a non-professional tax expert will ever need.

Tax Facts Online Core Content

Tax Facts on Insurance provides definitive answers to your clients’ most important tax-related insurance questions, while offering insightful analysis and illustrative examples. Numerous planning points direct you to the most recent and important insurance solutions.

Tax Facts on Employee Benefits provides current in-depth coverage of important client-related employee benefits questions. Employee benefits affect most everyone2015_tf_triple_combo_cover-m, and your clients must know how to deal with often complex issues and problems. Tax Facts on Employee Benefits provides the answers in a direct, concise, and practical manner.

Tax Facts on Investments provides clear, detailed answers to your difficult tax questions concerning investments. You must know what investments best suit your clients from a tax standpoint. You will discover questions that directly provide insightful answers, comparison of investment choices, as well as how investments have changed in recent years.

Tax Facts on Individuals & Small Business focuses exclusively on what individuals and small buisnesses need to know to maximize opportunities under today’s often complex tax rules.  It is the essential tax reference for financial advisors, & planners; insurance professionals; CPAs; attorneys; and other practitioners advising small businesses and individuals.

  • Charles Calello Enterprise/Group Inquiries 201-526-1259 Email Me
  • Customer Service 800-543-0874 8am – 6pm ET Monday – Thursday 8am – 5pm ET Friday Email Customer Service

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Tax Facts about Taxable and Non-Taxable Income

Posted by William Byrnes on February 16, 2016


All income is taxable unless a law specifically says it isn’t. Here are some basic rules you should know to help you file the 2015 – 1040 tax return due April 15, 2016.

  • Taxable income.  Taxable income includes money you earn, like wages and tips. It also includes bartering, an exchange of property or services. The fair market value of property or services received is normally taxable.

Some types of income are not taxable except under certain conditions, including:

  • Life insurance.  Proceeds paid to you upon the death of an insured person are usually not taxable. However, if you redeem a life insurance policy for cash, any amount you get that is more than the cost of the policy is taxable.
  • Qualified scholarship.  In most cases, income from a scholarship is not taxable. This includes amounts used for certain costs, such as tuition and required books. On the other hand, amounts you use for room and board are taxable.
  • Other income tax refunds.  State or local income tax refunds may be taxable. You should receive a Form 1099-G from the agency that paid you. They may have sent the form by mail or electronically. Contact them to find out how to get the form. Report any taxable refund you got even if you did not receive Form 1099-G.

Here are some items that are usually not taxable:

  • Gifts and inheritances
  • Child support payments
  • Welfare benefits
  • Damage awards for physical injury or sickness
  • Cash rebates from a dealer or manufacturer for an item you buy
  • Reimbursements for qualified adoption expenses

Tax Facts Online is the premier practical, useful, actionable, and affordable reference on the taxation of insurance, employee benefits, investments, small tax-facts-online
business and individuals. This advisory service provides expert guidance on hundreds of the most frequently asked client questions concerning their most important tax issues.

Many ongoing, significant developments have affected tax law and, consequently, tax advice and strategies. Tax Facts Online is the only source that is reviewed daily and updated regularly by our expert editors.

In addition to completely current content not available anywhere else, Tax Facts Online gives you exclusive access to:

  • Robust search capabilities that enable you to locate detailed answers—fast
  • Time-saving calculators, tables and graphs
  • A copy/paste capability that speeds the production of presentations and enables you to easily incorporate Tax Facts content into your workPlus, the recent addition of current news, case studies, commentary and competitive intelligence serves our customers well as the only tax reference that a non-professional tax expert will ever need.

Tax Facts Online Core Content

Tax Facts on Insurance provides definitive answers to your clients’ most important tax-related insurance questions, while offering insightful analysis and illustrative examples. Numerous planning points direct you to the most recent and important insurance solutions.

Tax Facts on Employee Benefits provides current in-depth coverage of important client-related employee benefits questions. Employee benefits affect most everyone2015_tf_triple_combo_cover-m, and your clients must know how to deal with often complex issues and problems. Tax Facts on Employee Benefits provides the answers in a direct, concise, and practical manner.

Tax Facts on Investments provides clear, detailed answers to your difficult tax questions concerning investments. You must know what investments best suit your clients from a tax standpoint. You will discover questions that directly provide insightful answers, comparison of investment choices, as well as how investments have changed in recent years.

Tax Facts on Individuals & Small Business focuses exclusively on what individuals and small buisnesses need to know to maximize opportunities under today’s often complex tax rules.  It is the essential tax reference for financial advisors, & planners; insurance professionals; CPAs; attorneys; and other practitioners advising small businesses and individuals.

  • Charles Calello Enterprise/Group Inquiries 201-526-1259 Email Me
  • Customer Service 800-543-0874 8am – 6pm ET Monday – Thursday 8am – 5pm ET Friday Email Customer Service

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Tax Facts for Choosing the Right Tax Filing Status

Posted by William Byrnes on December 14, 2015


Using the correct filing status is very important when filing a tax return. The right status affects how much is owed in taxes. It may even affect whether a tax return must be filed.

When choosing a filing status, keep in mind that marital status on Dec. 31 is the status for the entire year.  If more than one filing status applies, choose the one that will result in the lowest tax.

Note for same-sex married couples that new rules apply if legally married in a state or foreign country that recognizes same-sex marriage.  The same sex spouses generally must use a married filing status on the 2015 federal tax return and forward.  This is true even if the same sex spouses now live in a state or foreign country that does not recognize same-sex marriage.

Here is a list of the five filing statuses to help you choose:

1. Single.  This status normally applies if you aren’t married or are divorced or legally separated under state law.

2. Married Filing Jointly.  A married couple can file one tax return together. If your spouse died in 2013, you usually can still file a joint return for that year.

3. Married Filing Separately.  A married couple can choose to file two separate tax returns instead of one joint return. This status may be to your benefit if it results in less tax. You can also use it if you want to be responsible only for your own tax.

4. Head of Household.  This status normally applies if you are not married. You also must have paid more than half the cost of keeping up a home for yourself and a qualifying person. Some people choose this status by mistake. Be sure to check all the rules before you file.

5. Qualifying Widow(er) with Dependent Child.  If your spouse died during 2014 or 2015 and you have a dependent child, this status may apply. Certain other conditions also apply.

Tax Facts Online is the premier practical, useful, actionable, and affordable reference on the taxation of insurance, employee benefits, investments, small tax-facts-online
business and individuals. This advisory service provides expert guidance on hundreds of the most frequently asked client questions concerning their most important tax issues.

Many ongoing, significant developments have affected tax law and, consequently, tax advice and strategies. Tax Facts Online is the only source that is reviewed daily and updated regularly by our expert editors.

In addition to completely current content not available anywhere else, Tax Facts Online gives you exclusive access to:

  • Robust search capabilities that enable you to locate detailed answers—fast
  • Time-saving calculators, tables and graphs
  • A copy/paste capability that speeds the production of presentations and enables you to easily incorporate Tax Facts content into your workPlus, the recent addition of current news, case studies, commentary and competitive intelligence serves our customers well as the only tax reference that a non-professional tax expert will ever need.

Tax Facts Online Core Content

Tax Facts on Insurance provides definitive answers to your clients’ most important tax-related insurance questions, while offering insightful analysis and illustrative examples. Numerous planning points direct you to the most recent and important insurance solutions.

Tax Facts on Employee Benefits provides current in-depth coverage of important client-related employee benefits questions. Employee benefits affect most2015_tf_triple_combo_cover-meveryone, and your clients must know how to deal with often complex issues and problems. Tax Facts on Employee Benefits provides the answers in a direct, concise, and practical manner.

Tax Facts on Investments provides clear, detailed answers to your difficult tax questions concerning investments. You must know what investments best suit your clients from a tax standpoint. You will discover questions that directly provide insightful answers, comparison of investment choices, as well as how investments have changed in recent years.

Tax Facts on Individuals & Small Business focuses exclusively on what individuals and small buisnesses need to know to maximize opportunities under today’s often complex tax rules.  It is the essential tax reference for financial advisors, & planners; insurance professionals; CPAs; attorneys; and other practitioners advising small businesses and individuals.

  • Charles Calello Enterprise/Group Inquiries 201-526-1259 Email Me
  • Customer Service 800-543-0874 8am – 6pm ET Monday – Thursday 8am – 5pm ET Friday Email Customer Service

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Deducting Moving Expenses

Posted by William Byrnes on December 9, 2015


If you move because of your job, you may be able to deduct the cost of the move on your tax return. You may be able to deduct your costs if you move to start a new job or to work at the same job in a new location. The IRS offers the following tips about moving expenses and your tax return.

In order to deduct moving expenses, your move must meet three requirements:

1. The move must closely relate to the start of work.  Generally, you can consider moving expenses within one year of the date you start work at a new job location. Additional rules apply to this requirement.

2. Your move must meet the distance test.  Your new main job location must be at least 50 miles farther from your old home than your previous job location. For example, if your old job was three miles from your old home, your new job must be at least 53 miles from your old home.

3. You must meet the time test.  After the move, you must work full-time at your new job for at least 39 weeks the first year. If you’re self-employed, you must meet this test and work full-time for a total of at least 78 weeks during the first two years at the new job site. If your income tax return is due before you’ve met this test, you can still deduct moving expenses if you expect to meet it.

If you can claim this deduction, here are a few more tips from the IRS:

  • Travel.  You can deduct transportation and lodging expenses for yourself and household members while moving from your old home to your new home.  BUT you cannot deduct your travel meal costs.
  • Household goods and utilities.  You can deduct the cost of packing, crating and shipping your things. You may be able to include the cost of storing and insuring these items while in transit. You can deduct the cost of connecting or disconnecting utilities.
  • Nondeductible expenses.  You cannot deduct as moving expenses any part of the purchase price of your new home, the cost of selling a home or the cost of entering into or breaking a lease. See Publication 521 for a complete list.
  • Reimbursed expenses.  If your employer later pays you for the cost of a move that you deducted on your tax return, you may need to include the payment as income. You report any taxable amount on your tax return in the year you get the payment.
  • Address Change.  When you move, be sure to update your address with the IRS and the U.S. Post Office. To notify the IRS file Form 8822, Change of Address.

Tax Facts Online is the premier practical, useful, actionable, and affordable reference on the taxation of insurance, employee benefits, investments, small tax-facts-online
business and individuals. This advisory service provides expert guidance on hundreds of the most frequently asked client questions concerning their most important tax issues.

Many ongoing, significant developments have affected tax law and, consequently, tax advice and strategies. Tax Facts Online is the only source that is reviewed daily and updated regularly by our expert editors.

In addition to completely current content not available anywhere else, Tax Facts Online gives you exclusive access to:

  • Robust search capabilities that enable you to locate detailed answers—fast
  • Time-saving calculators, tables and graphs
  • A copy/paste capability that speeds the production of presentations and enables you to easily incorporate Tax Facts content into your workPlus, the recent addition of current news, case studies, commentary and competitive intelligence serves our customers well as the only tax reference that a non-professional tax expert will ever need.

Tax Facts Online Core Content

Tax Facts on Insurance provides definitive answers to your clients’ most important tax-related insurance questions, while offering insightful analysis and illustrative examples. Numerous planning points direct you to the most recent and important insurance solutions.

Tax Facts on Employee Benefits provides current in-depth coverage of important client-related employee benefits questions. Employee benefits affect most2015_tf_triple_combo_cover-meveryone, and your clients must know how to deal with often complex issues and problems. Tax Facts on Employee Benefits provides the answers in a direct, concise, and practical manner.

Tax Facts on Investments provides clear, detailed answers to your difficult tax questions concerning investments. You must know what investments best suit your clients from a tax standpoint. You will discover questions that directly provide insightful answers, comparison of investment choices, as well as how investments have changed in recent years.

Tax Facts on Individuals & Small Business focuses exclusively on what individuals and small buisnesses need to know to maximize opportunities under today’s often complex tax rules.  It is the essential tax reference for financial advisors, & planners; insurance professionals; CPAs; attorneys; and other practitioners advising small businesses and individuals.

  • Charles Calello Enterprise/Group Inquiries 201-526-1259 Email Me
  • Customer Service 800-543-0874 8am – 6pm ET Monday – Thursday 8am – 5pm ET Friday Email Customer Service

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New Lexis Advance® Tax Platform Now Available to Law School Faculty & Students; Cutting-Edge International Tax Titles

Posted by William Byrnes on October 22, 2015


On June 1, LexisNexis launched its new online tax research platform called Lexis Advance® Tax.

Already available to America’s law school faculty and students, it includes a rich, comprehensive package of nearly 1,400 sources, including tax news, primary law, journals and nearly 300 treatises, practice guides and forms products for both tax and estates lawyers.

Along with news, another strong area for L.A. Tax is its subpage devoted to International Tax. There, users will find a selection01701_11_1_cover of titles examining hot, cutting-edge issues like: Lexis Guide to FATCA Compliance, the Lexis global guide to anti-money laundering laws around the world, and the recently-revised Foreign Tax & Trade Briefs, 2nd Ed, which provides summaries of each country’s tax system and laws.

All of these titles are produced by a team of tax experts led by Professor William H. Byrnes, Associate Dean, International Financial Law, at Texas A&M University Law School, in Fort Worth, the newest law school in Texas. See https://law.tamu.edu/

Looking for Lexis Advance Tax?
Sign in to www.lexisadvance.com, look for the pull-down menu called “Lexis Advance Research” in the upper-left corner. Click the down arrow and select Lexis Advance Tax.

If you have questions or would like to schedule a short training, please contact your LexisNexis® Account Executive.

– See more at: http://www.lexisnexis.com/lextalk/legal-content-insider/f/21/t/2525.aspx?utm_content=2015-10-20+15:00:04#sthash.szct2yk6.dpuf

Posted in BEPS, FATCA, Financial Crimes, Money Laundering, Taxation, Transfer Pricing | Tagged: , , , | Leave a Comment »

Taxable or Not?

Posted by William Byrnes on March 16, 2015


9dc30-6a00d8341bfae553ef01bb07b43355970d-piAll income is taxable unless the law excludes it. Here are some basic rules you should know to help you file an accurate tax return:

  • Taxed income.  Taxable income includes money you earn, like wages and tips. It also includes bartering, an exchange of property or services. The fair market value of property or services received is taxable.

Some types of income are not taxable except under certain conditions, including:

  • Life insurance.  Proceeds paid to you because of the death of the insured person are usually not taxable. However, if you redeem a life insurance policy for cash, any amount that you get that is more than the cost of the policy is taxable.
  • Qualified scholarship.  In most cases, income from this type of scholarship is not taxable. This means that amounts you use for certain costs, such as tuition and required books, are not taxable. On the other hand, amounts you use for room and board are taxable.
  • State income tax refund.  If you got a state or local income tax refund, the amount may be taxable. You should have received a 2014 Form 1099-G from the agency that made the payment to you. If you didn’t get it by mail, the agency may have provided the form electronically. Contact them to find out how to get the form. Report any taxable refund you got even if you did not receive Form 1099-G.

Here are some types of income that are usually not taxable:

  • Gifts and inheritances
  • Child support payments
  • Welfare benefits
  • Damage awards for physical injury or sickness
  • Cash rebates from a dealer or manufacturer for an item you buy
  • Reimbursements for qualified adoption expenses

Tax Facts on Individuals & Small Business

2014_tf_on_individuals_small_businesses-m_1Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor.  Financial advisors are continually looking for competitive information to help them provide the best answers for their clients and to obtain new clients.  National Underwriter’s Tax Facts series is the only resource written specifically for the financial advisor and producer providing fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts has been famous over 50 years.

Anyone interested can try Tax Facts Online risk-free for 30 days, with a 100% guarantee of complete satisfaction.  Call 1-800-543-0874.

Posted in Taxation | Tagged: , | 1 Comment »

Obtaining and Claiming a Health Coverage Exemption

Posted by William Byrnes on March 2, 2015


In its 9th Health Care Tax Tip, the IRS emphasized how a taxpayer may obtain and claim exemption from health care coverage required by law under the 9dc30-6a00d8341bfae553ef01bb07b43355970d-piAffordable Care Act (Obama Care).  The Affordable Care Act requires you and each member of your family to have minimum essential coverage, qualify for an insurance coverage exemption, or make an individual shared responsibility payment when you file your federal income tax return.

If a taxpayer meets certain criteria, then the taxpayer may claim to be exempt from the requirement to have “qualifying health coverage”.  If the taxpayer is found to be exempt, then the taxpayer will not have to pay the tax penalty called a “shared responsibility payment” when filing the 2014 federal income tax return.  But for any month that the taxpayer does not qualify for the exemption, then the taxpayer will need to have minimum essential coverage for that month or pay a month’s worth of penalty.

A taxpayer may seek exemption from coverage depending upon the type of exemption for which the taxpayer may be eligible.  A taxpayer can obtain some exemptions only from the Health Care Marketplace, while others exemptions may be claimed when filing the annual tax return.

A taxpayer may be exempt if:

  • The minimum amount for the annual premium is more than eight percent of the taxpayer’s household income
  • The Taxpayer has a gap in coverage that is less than three consecutive months
  • A taxpayer may qualify for an exemption for one of several other reasons, including having a hardship that prevents the taxpayer from obtaining coverage, or belonging to a group explicitly exempt from the requirement

A taxpayer must claim or report coverage exemptions on Form 8965, Health Coverage Exemptions, and attach it to Form 1040, Form 1040A, or Form 1040EZ.

Health Care Marketplace Exemption Certificate Number If a coverage exemption is granted from the Health Care Marketplace, then the Market Place will send a notice with a unique Exemption Certificate Number (ECN).  The taxpayer must enter the ECN in Part I, Marketplace-Granted Coverage Exemptions for Individuals, of Form 8965 in column C.  If the Marketplace has not sent the ECN before a taxpayer files a tax return, then the taxpayer must complete Part I of Form 8965 and enter “pending” in Column C for each person listed.

If a taxpayer claims the exemption on the tax return, then the taxpayer does not need an ECN from the Marketplace.  With the tax filing season underway, most exemptions for 2014 are only available by claiming them on the tax return.

If the taxpayer’s income is below the tax filing threshold and thus the taxpayer is not required to file a tax return, then the taxpayer is eligible for an exemption and does not have to file a tax return to claim it.  But if the taxpayer chooses to file a tax return, the taxpayer must use Part II, Coverage Exemptions for Your Household Claimed on Your Return, of Form 8965 to claim a health coverage exemption.

Other IRS-granted coverage exemptions may be claimed on your tax return using Part III, Coverage Exemptions for Individuals Claimed on Your Return, of Form 8965.

Tax Facts on Individuals & Small Business

2014_tf_on_individuals_small_businesses-m_1Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor.  Financial advisors are continually looking for competitive information to help them provide the best answers for their clients and to obtain new clients.  National Underwriter’s Tax Facts series is the only resource written specifically for the financial advisor and producer providing fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts has been famous over 50 years.

Anyone interested can try Tax Facts Online risk-free for 30 days, with a 100% guarantee of complete satisfaction.  Call 1-800-543-0874.

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IRS Checklist of Credits and Deductions for Children

Posted by William Byrnes on February 25, 2015


In Tax Tip 2015-14, the IRS discussed the potential reduction of the amount of taxes owed for a year that tax credits and deductions associated with children may provide to the parents.

9dc30-6a00d8341bfae553ef01bb07b43355970d-pi

• Dependents.  In most cases, a taxpayer can claim a child as a dependent.  For each dependent, the taxpayer may deduct $3,950 from taxable income.  However, for high income taxpayers, the amount of allowed deduction decreases.

• Child Tax Credit.  A taxpayer may be able to claim the Child Tax Credit for each of the qualifying children under the age of 17. The maximum credit is $1,000 per child.  However, if a taxpayer receives less than the full amount of the Child Tax Credit, then the taxpayer may be eligible for the “Additional Child Tax Credit”.

• Child and Dependent Care Credit. A taxpayer may be able to claim this credit if the taxpayer paid for the care of one or more qualifying persons. Dependent children under age 13 are among those who qualify.  The care must be paid for so that the taxpayer could work or could look for work.

• Earned Income Tax Credit (EITC).  If in 2014 a taxpayer earned less than $52,427 from work, the taxpayer may qualify for the EITC.  The EITC may be worth as much as $6,143.  The EITC is available regardless of whether the taxpayer has children.

• Adoption Credit.  A taxpayer may be eligible to claim a tax credit for certain costs paid for adoption of a child.

• Education tax credits.  An education credit can help a taxpayer with the cost of higher education.  There are two credits that are available. The American Opportunity Tax Credit and the Lifetime Learning Credit may both reduce the amount of tax owed.

If the credit reduces the tax owed to less than zero, the taxpayer may receive a refund of the extra amount.  Even if the taxpayer does not owe any taxes for the year, the taxpayer may still qualify.

• Student loan interest.  A taxpayer may be able to deduct interest paid on a qualified student loan.  This benefit is available even for taxpayers that do not itemize tax deductions.

• Self-employed health insurance deduction.  If a taxpayer was self-employed in 2014 and paid for health insurance, then the taxpayer may be able to deduct premiums paid during the year. This may include the cost to cover children under age 27, even if they are not claimed as a dependent!

Tax Facts on Individuals & Small Business

2014_tf_on_individuals_small_businesses-m_1Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor.  Financial advisors are continually looking for competitive information to help them provide the best answers for their clients and to obtain new clients.  National Underwriter’s Tax Facts series is the only resource written specifically for the financial advisor and producer providing fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts has been famous over 50 years.

Anyone interested can try Tax Facts Online risk-free for 30 days, with a 100% guarantee of complete satisfaction.  Call 1-800-543-0874.

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Are My Tips Taxable?

Posted by William Byrnes on February 23, 2015


9dc30-6a00d8341bfae553ef01bb07b43355970d-piThe IRS disclosed certain tax tips in a recent publication (2015-13) that may help a taxpayer file and report “tip” income correctly.

• Show all tips on the 1040 tax return.  All tips received during a calendar year must be added up and included on the federal tax return.  This even includes the value of tips that are not in cash.  Examples of non-cash tips include items such as tickets, passes or other items when provided by a customer for work or service.

• All tips are taxable.  Tips paid directly by a customer and tips added by a customer to a credit card are both to be included in taxable income. As well, tips received under a tip-splitting agreement with other employees, such as in a restaurant, are to be included.

• Report tips to the employer.  If an employee receives $20 or more in tips in any one month, the employee must report the tips for that month to the employer.  Tips reported to the employer include cash, check and credit card tips but does not include the value of any noncash tips.  The employer must withhold federal income, Social Security and Medicare taxes on these reported tips.

Daily tip log.  Use the IRS’ Publication 1244, Employee’s Daily Record of Tips and Report to Employer, to record your tips.

Tax Facts on Individuals & Small Business

2014_tf_on_individuals_small_businesses-m_1Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor.  Financial advisors are continually looking for competitive information to help them provide the best answers for their clients and to obtain new clients.  National Underwriter’s Tax Facts series is the only resource written specifically for the financial advisor and producer providing fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts has been famous over 50 years.

Anyone interested can try Tax Facts Online risk-free for 30 days, with a 100% guarantee of complete satisfaction.  Call 1-800-543-0874.

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IRS Provides Obamacare Relief With Removal of Tax Penalties for Advanced Premium Tax Credit Payment

Posted by William Byrnes on January 27, 2015


Notice 2015-09 provides limited relief for taxpayers who have a balance due on their 2014 income tax return as a result of reconciling advance payments of the premium tax credit against the premium tax credit allowed on the tax return.

9dc30-6a00d8341bfae553ef01bb07b43355970d-piThis Notice provides limited relief for taxpayers who have a balance due on their 2014 income tax return as a result of reconciling advance payments of the premium tax credit against the premium tax credit allowed on the tax return. Specifically, this Notice provides relief from the penalty under § 6651(a)(2) of the Internal Revenue Code for late payment of a balance due and the penalty under § 6654(a) for underpayment of estimated tax. To qualify for the relief, taxpayers must meet certain requirements.  This relief applies only for the 2014 taxable year.

This relief does not apply to any underpayment of the individual shared responsibility payment resulting from the application of § 5000A because such underpayments are not subject to either the § 6651(a)(2) penalty or the §6654(a) penalty.

A taxpayer may receive assistance in paying premiums for coverage in a qualified health plan through advance payments of the premium tax credit. Advance credit payments are made directly to the insurance provider. The amount of the advance credit payments is determined when an individual enrolls in a qualified health plan through an Exchange and is based on projected household income and family size for the year of coverage. A taxpayer claims the premium tax credit on the income tax return for the taxable year of coverage. The amount of the credit is based on actual household income an family size for the year reflected on the tax return. Under § 36B(f)(2) and § 1.36B- 4(a)(1)(i) of the Income Tax Regulations, a taxpayer must reconcile, or compare, the amount of premium tax credit allowed on the tax return with advance credit payments.

Changes in the circumstances on which the advance credit payments are based could result in a difference between the amount of advance credit payments and the premium tax credit to which the taxpayer is entitled. If advance credit payments are more than the premium tax credit allowed on the return, the difference (excess advance payments) is treated as additional tax and may result in either a smaller refund or a larger balance due (or, if the premium tax credit allowed is more than the advance credit payments made, the excess credit amount may result in a larger refund or lower balance due).

Taxable year 2014 is the first year for which taxpayers will be required to reconcile advance credit payments with the premium tax credit.

The Service will abate the § 6651(a)(2) penalty for taxable year 2014 for taxpayers who (i) are otherwise current with their filing and payment obligations; (ii) have a balance due for the 2014 taxable year due to excess advance payments of the premium tax credit; and (iii) report the amount of excess advance credit payments on their 2014 tax return timely filed, including extensions (Line 46 of Form 1040 or Line 29 of Form 1040A).

Further, the Service will waive the § 6654 penalty for taxable year 2014 for an underpayment of estimated tax for taxpayers who have an underpayment attributable to excess advance credit payments if the taxpayers (i) are otherwise current with their filing and payment obligations; and (ii) report the amount of the excess advance credit payments on a 2014 tax return timely filed, including extensions.

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Premium Tax Credit Brings Changes to Your 2014 Income Tax Returns

Posted by William Byrnes on January 26, 2015


When filing your 2014 federal income tax return, you will see some 457c5-6a00d8341bfae553ef01b7c7029b32970b-pichanges related to the Affordable Care Act. Millions of people who purchased their coverage through a health insurance Marketplace are eligible for premium assistance through the new premium tax credit, which individuals chose to either have paid upfront to their insurers to lower their monthly premiums, or receive when they file their taxes. When you bought your insurance, if you chose to have advance payments of the premium tax credit, the Marketplace estimated the amount based on information you provided about your expected household income and family size for the year.

If you received the benefit of advance credit payments, you must file a federal tax return and reconcile the advance credit payments with the actual premium tax credit you are eligible to claim on your return.  You will use IRS Form 8962Premium Tax Credit (PTC) to make this comparison and to claim the credit. If your advance credit payments are in excess of the amount of the premium tax credit you are eligible for, based on your actual income, you must repay some or all of the excess when you file your return, subject to certain caps.

If you purchased your coverage through the Health Insurance Marketplace, you should receive Form 1095-A, Health Insurance Marketplace Statement from your Marketplace. You should receive this form by early February.

Form 1095-A will provide the information you need to file your taxes, including the name of your insurance company, dates of coverage, amount of monthly insurance premiums for the plan you and other members of your family enrolled in, amount of any advance payments of the premium tax credit for the year, and other information needed need to compute the premium tax credit.

Tax Facts on Individuals & Small Business

2014_tf_on_individuals_small_businesses-m_1Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor.  Financial advisors are continually looking for competitive information to help them provide the best answers for their clients and to obtain new clients.  National Underwriter’s Tax Facts series is the only resource written specifically for the financial advisor and producer providing fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts is famous.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction.  Call 1-800-543-0874.

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Tax Season: Ready, Set, Go !

Posted by William Byrnes on January 16, 2015


IRS Starts 2015 Tax Season; Free File Opens Today, 

IRS YouTube Videos:

9dc30-6a00d8341bfae553ef01bb07b43355970d-piThe nation’s 2015 tax filing season begins today and a growing array of online services is available to assist taxpayers.  Understanding the Affordable Care Act and how this impacts a taxpayer will be a popular feature this year.

Taxpayers have until Wednesday, April 15, 2015 to file their 2014 tax returns and pay any tax due. The IRS expects to receive about 150 million individual income tax returns this year. Like each of the past three years, more than four out of five returns are expected to be filed electronically.

The IRS Free File program, available at IRS.gov, will open Friday for taxpayers, and the IRS will begin accepting and processing all tax returns on Tuesday, Jan. 20.

This year’s return will include new questions to incorporate provisions of the Affordable Care Act (or ACA). The majority of taxpayers – more than three out of four – will simply need to check a box to verify they have health insurance coverage. For the minority of taxpayers who will have to do more, www.IRS.gov/aca features useful information and tips regarding the premium tax credit, the individual shared responsibility requirement and other tax features of the ACA.

“Our employees will be working hard again this season to help the nation’s taxpayers,” IRS Commissioner John Koskinen said. “We encourage people to use the tools and information available on IRS.gov, particularly given the long wait times we anticipate on our phone lines. As always, taxpayers can benefit by filing electronically.”

Koskinen announced that taxpayers can begin preparing their returns using the Free File system on Friday, Jan. 16. Available only at IRS.gov, Free File offers two filing options:

• Brand-name software, offered by IRS’ commercial partners to about 100 million individuals and families with incomes of $60,000 or less; or

• Online fillable forms, the electronic version of IRS paper forms available to taxpayers at all income levels and especially useful to people comfortable with filling out their own returns.

E-file, when combined with direct deposit, is the fastest way to get a refund. More than three out of four refund recipients now choose direct deposit. People who e-file make fewer mistakes, and it costs nothing for those who choose Free File.  In all, 14 software companies will be participating in this year’s Free File program.

Taxpayers who purchase their own software can also choose e-file, and most paid tax preparers are now required to file their clients’ returns electronically. In addition to Free File, commercial software companies also are currently available for taxpayer use.

The IRS will begin accepting and processing all returns – whether e-file, Free File or paper tax returns — on Jan. 20.

Like last year, the IRS expects to issue more than nine out of 10 refunds within 21 days. Again, the fastest way to get a refund is to e-file and choose direct deposit. It takes longer to process paper returns, it will likely take an additional week or more to process paper returns meaning that those refunds are expected to be issued in seven weeks or more.

Health Care Basics

The Affordable Care Act requires that a taxpayer and each member of their family either has qualifying health insurance coverage for each month of the year, qualifies for an exemption , or makes an individual shared responsibility payment when filing their federal income tax return.  Some moderate-income taxpayers may also qualify for financial assistance to help cover the cost of health insurance purchased through the Health Insurance Marketplace. Taxpayers will fall into one or more of the following categories:

• Check the box. Most taxpayers will simply check a box on their tax return to indicate that each member of their family had qualifying health coverage for the whole year. No further action is required.

Qualifying health insurance coverage includes coverage under most, but not all, types of health care coverage plans. Taxpayers can use the chart on IRS.gov/aca to find out if their insurance counts as qualifying coverage.

• Exemptions. Taxpayers may be eligible to claim an exemption from the requirement to have coverage.  Eligible taxpayers need to complete the new IRS Form 8965, Health Coverage Exemptions, and attach it to their tax return.  Taxpayers must apply for some exemptions through the Health Insurance Marketplace. However, most of the exemptions are easily obtained from the IRS when filing a return.

• Individual Shared Responsibility Payment. Taxpayers who do not have qualifying coverage or an exemption for each month of the year will need to make an individual shared responsibility payment with their return for choosing not to purchase coverage. Examples and information about figuring the payment are available on the IRS Calculating the Payment page.

• Premium Tax Credit.  Taxpayers who bought coverage through the Health Insurance Marketplace should receive Form 1095-A, Health Insurance Marketplace Statement, from the Marketplace by early February. This form should be saved because it has important information needed to complete a tax return.

If the Form 1095-A is not received by early February, contact the Marketplace where coverage was purchased. Do not contact the IRS because IRS telephone assistors will not have access to this information.

Taxpayers who benefited from advance payments of the premium tax credit must file a federal income tax return. These taxpayers need to reconcile those advance payments with the amount of premium tax credit they’re entitled to based on their actual income. As a result, some people may see a smaller or larger tax refund or tax liability than they were expecting.  Use IRS Form 8962, Premium Tax Credit (PTC), to calculate the premium tax credit and reconcile the credit with any advance payments.

The IRS also reminded taxpayers that a trusted tax professional can also provide helpful information about the health care law. A number of tips about selecting a preparer and national tax professional groups is available on IRS.gov.

The IRS urges all taxpayers, especially those claiming the premium tax credit, to make sure they have all their year-end statements in hand before they file their return. This includes Forms W-2 from employers, Forms 1099 from banks and other payers, and, for those claiming the premium tax credit, and Form 1095-A from the Marketplace. Doing so will help avoid refund delays and the need to file an amended return later.

Tax Facts on Individuals & Small Business

2014_tf_on_individuals_small_businesses-m_1Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor.  Financial advisors are continually looking for competitive information to help them provide the best answers for their clients and to obtain new clients.  National Underwriter’s Tax Facts series is the only resource written specifically for the financial advisor and producer providing fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts is famous.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please call 1-800-543-0874.

Posted in Taxation, Uncategorized | Leave a Comment »

Health Care Law Brings Changes to IRS Tax Forms

Posted by William Byrnes on January 14, 2015


The IRS announced that the tax forms for the 2014 tax year have some dramatic modifications to allow for enforcement of Obama Care (aka the “Affordable Care Act” and “ACA”).

Existing forms have new lines integrated and the IRS has created two new forms that some taxpayers must now file with the tax return.

Many taxpayers will only need to check a box on their tax return if they had the requisite health coverage for all of 2014 as require by the ACA so as to avoid penalties.  Forms 1040, 1040A, and 1040EZ also have new lines to complete related to the health care law.

Two New Tax Forms for Taxpayers 

Form 8965, Health Coverage Exemptions

  • Complete this form to report a Marketplace-granted coverage exemption or claim an IRS-granted coverage exemption on the return.
  • Use the worksheet in the Form 8965 Instructions to calculate the shared responsibility payment.

Form 8962, Premium Tax Credit

  • Complete this form to reconcile advance payments of the premium tax credit, and to claim this credit on the tax return.

Additionally, if individuals purchased coverage through the Health Insurance Marketplace, they should receive Form 1095-A, Health Insurance Marketplace Statement, which will help complete Form 8962.

Modifications of Existing 2014 Tax Forms

Form 1040

  • Line 46: Enter advance payments of the premium tax credit that must be repaid
  • Line 61: Report health coverage and enter individual shared responsibility payment
  • Line 69: If eligible, claim net premium tax credit, which is the excess of allowed premium tax credit over advance credit payments

Form 1040A

  • Line 29: Enter advance payments of the premium tax credit that must be repaid
  • Line 38: Report health coverage and enter individual shared responsibility payment
  • Line 45: If eligible, claim net premium tax credit, which is the excess of allowed premium tax credit over advance credit payments

Form 1040EZ

  • Line 11: Report health coverage and enter individual shared responsibility payment
  • Form 1040EZ cannot be used to report advance payments or to claim the premium tax credit

Tax Facts on Individuals & Small Business

2014_tf_on_individuals_small_businesses-m_1Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor.  Financial advisors are continually looking for competitive information to help them provide the best answers for their clients and to obtain new clients.  National Underwriter’s Tax Facts series is the only resource written specifically for the financial advisor and producer providing fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts is famous.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to http://www.nationalunderwriter.com/2015-tax-facts-on-individuals-small-business.html or call 1-800-543-0874.

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2014 Tax Extenders Last Minute Passage

Posted by William Byrnes on December 17, 2014


9dc30-6a00d8341bfae553ef01bb07b43355970d-piReports PwC, the spending bill provides $10.6 billion in funding for the IRS – a reduction of $345.6 million from the fiscal year 2014.

Tax Increase Prevention Act of 2014Title I: Certain Expiring Provisions – Amends the Internal Revenue Code to extend certain expiring tax provisions relating to individuals, businesses, and the energy sector.

Subtitle A: Individual Tax Extenders – Extends through 2014:

  • the tax deduction of expenses of elementary and secondary school teachers;
  • the tax exclusion of imputed income from the discharge of indebtedness for a principal residence;
  • the equalization of the tax exclusion for employer-provided commuter transit and parking benefits;
  • the tax deduction of mortgage insurance premiums;the tax deduction of state and local general sales taxes in lieu of state and local income taxes;
  • the tax deduction of contributions of capital gain real property for conservation purposes;
  • the tax deduction of qualified tuition and related expenses; and
  • the tax exemption of distributions from individual retirement accounts for charitable purposes.

Subtitle B: Business Tax Extenders – Extends through 2014:

  • the tax credit for increasing research activities;
  • the low-income housing tax credit rate for newly constructed non-federally subsidized buildings;
  • the Indian employment tax credit;
  • the new markets tax credit;the tax credit for qualified railroad track maintenance expenditures;
  • the tax credit for mine rescue team training expenses;
  • the tax credit for differential wage payments to employees who are active duty members of the Uniformed Services;
  • the work opportunity tax credit;
  • authority for issuance of qualified zone academy bonds;
  • the classification of race horses as three-year property for depreciation purposes;
  • accelerated depreciation of qualified leasehold improvement, restaurant, and retail improvement property, of motorsports entertainment complexes, and of business property on Indian reservations;
  • accelerated depreciation of certain business property (bonus depreciation);
  • the special rule allowing a tax deduction for charitable contributions of food inventory by taxpayers other than C corporations;
  • the increased expensing allowance for business assets, computer software, and qualified real property (i.e., leasehold improvement, restaurant, and retail improvement property);
  • the election to expense advanced mine safety equipment expenditures;
  • the expensing allowance for film and television production costs and costs of live theatrical productions;
  • the tax deduction for income attributable to domestic production activities in Puerto Rico;
  • tax rules relating to payments between related foreign corporations and dividends of regulated investment companies;
  • the treatment of regulated investment companies as qualified investment entities for purposes of the Foreign Investment in Real Property Tax Act (FIRPTA);
  • the subpart F income exemption for income derived in the active conduct of a banking, financing, or insurance business;
  • the tax rule exempting dividends, interest, rents, and royalties received or accrued from certain controlled foreign corporations by a related entity from treatment as foreign holding company income;
  • the 100% exclusion from gross income of gain from the sale of small business stock;
  • the basis adjustment rule for stock of an S corporation making charitable contributions of property;
  • the reduction of the recognition period for the built-in gains of S corporations;
  • tax incentives for investment in empowerment zones;
  • the increased level of distilled spirit excise tax payments into the treasuries of Puerto Rico and the Virgin Islands; and
  • the tax credit for American Samoa economic development expenditures.

Amends the Housing Assistance Tax Act of 2008 to extend through 2014 the exemption of the basic military housing allowance from the income test for programs financed by tax-exempt housing bonds.

Subtitle C: Energy Tax Extenders – Extends through 2014:

  • the tax credit for residential energy efficiency improvements;
  • the tax credit for second generation biofuel production;
  • the income and excise tax credits for biodiesel and renewable diesel fuel mixtures;
  • the tax credit for producing electricity using Indian coal facilities placed in service before 2009;
  • the tax credit for producing electricity using wind, biomass, geothermal, landfill gas, trash, hydropower, and marine and hydrokinetic renewable energy facilities;
  • the tax credit for energy efficient new homes;
  • the special depreciation allowance for second generation biofuel plant property;
  • the tax deduction for energy efficient commercial buildings;
  • tax deferral rules for sales or dispositions of qualified electric utilities; and
  • the excise tax credit for alternative fuels and fuels involving liquefied hydrogen.

Subtitle D: Extenders Relating to Multiemployer Defined Benefit Pension Plans – Extends through 2015 the automatic extensions of amortization periods for multiemployer defined benefit pension plans and for multiemployer funding rules under the Pension Protection Act of 2006.

Title II: Technical Corrections – Tax Technical Corrections Act of 2014Makes technical and clerical amendments to:

  • the American Taxpayer Relief Act of 2012;
  • the Middle Class Tax Relief and Job Creation Act of 2012;
  • the FAA Modernization and Reform Act of 2012;
  • the Regulated Investment Company Modernization Act of 2010;
  • the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010;
  • the Creating Small Business Jobs Act of 2010;
  • the Hiring Incentives to Restore Employment Act;
  • the American Recovery and Reinvestment Tax Act of 2009;
  • the Energy Improvement and Extension Act of 2008;
  • the Tax Extenders and Alternative Minimum Tax Relief Act of 2008;
  • the Housing Assistance Tax Act of 2008;
  • the Heroes Earnings Assistance and Relief Tax Act of 2008;
  • the Economic Stimulus Act of 2008;
  • the Tax Technical Corrections Act of 2007;
  • the Tax Relief and Health Care Act of 2006;
  • the Safe, Accountable, Flexible, Efficient Transportation Equity Act of 2005: A Legacy for Users;
  • the Energy Tax Incentives Act of 2005; and
  • the American Jobs Creation Act of 2004.

Eliminates provisions in the Internal Revenue Code that are not used in computing current tax liabilities (referred to as deadwood provisions).

Title III: Joint Committee on Taxation – Provides that any refund or credit in excess of $5 million due to a C corporation taxpayer may not be made until the Secretary of the Treasury submits a report to the Joint Committee on Taxation providing information on such refund or credit.

Title IV: Budgetary Effects – Prohibits the entry of the budgetary effects of this Act on certain PAYGO scorecards.

JCX-107-14R (December 03, 2014) Estimated Revenue Effects Of H.R. 5771, The “Tax Increase Prevention Act Of 2014,”

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Must Santa Claus Pay Tax? End of Year Gift Tax Facts

Posted by William Byrnes on December 15, 2014


Find out which of your clients need to pay the federal gift tax and what the annual exclusion amount is for 2014 and 2015

2014_tf_on_individuals_small_businesses-m_1Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor. Financial advisors are continually looking for updated tax information that can help them provide the right answers to the right people at the right time. This book provides fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts is famous.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to http://www.nationalunderwriter.com/2015-tax-facts-on-individuals-small-business.html or call 1-800-543-0874.

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New IRS Standard Mileage Rates – Business Rate Rise in 2015

Posted by William Byrnes on December 12, 2014


The IRS issued the 2015 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

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Beginning on Jan. 1, 2015, the standard mileage rates for the use of a car, van, pickup or panel truck will be:

  • 57.5 cents per mile for business miles driven, up from 56 cents in 2014
  • 23 cents per mile driven for medical or moving purposes, down half a cent from 2014
  • 14 cents per mile driven in service of charitable organizations

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile, including depreciation, insurance, repairs, tires, maintenance, gas and oil. The rate for medical and moving purposes is based on the variable costs, such as gas and oil. The charitable rate is set by law.

Taxpayers always have the option of claiming deductions based on the actual costs of using a vehicle rather than the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after claiming accelerated depreciation, including the Section 179 expense deduction, on that vehicle. Likewise, the standard rate is not available to fleet owners (more than four vehicles used simultaneously). Details on these and other special rules are in Revenue Procedure 2010-51, the instructions to Form 1040and various online IRS publications including Publication 17, Your Federal Income Tax.

Besides the standard mileage rates, Notice 2014-79, posted today on IRS.gov, also includes the basis reduction amounts for those choosing the business standard mileage rate, as well as the maximum standard automobile cost   that may be used in computing an allowance under  a fixed and variable rate plan.

2015_tf_on_indiv_sm_business_cover-mTax Facts on Individuals & Small Business focuses exclusively on what individuals and small businesses need to know to maximize opportunities under today’s often complex tax rules.  It is the essential tax reference for financial advisors, & planners; insurance professionals; CPAs; attorneys; and other practitioners advising small businesses and individuals.

Organized in a convenient Q&A format to speed you to the information you need, Tax Facts on Individuals & Small Business delivers the latest guidance on:
• Healthcare & New Medicare Tax and Net Investment Income tax
• Business Deductions and Losses including Home Office
• Contractor vs. Employee — clarified!
• Business Life Insurance
• Small Business Entity Choices & Small Business Valuation
• Capital Gains & Investor Losses
• Accounting — including guidance on how standards change as the business grows

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Year-End Gifts to Charity – IRS Tax Facts

Posted by William Byrnes on December 1, 2014


9dc30-6a00d8341bfae553ef01bb07b43355970d-piThe Internal Revenue Service reminds individuals and businesses making year-end gifts to charity that several important tax law provisions have taken effect in recent years. Some of the changes taxpayers should keep in mind include:

Rules for Charitable Contributions of Clothing and Household Items

Household items include furniture, furnishings, electronics, appliances and linens. Clothing and household items donated to charity generally must be in good used condition or better to be tax-deductible. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return.

Donors must get a written acknowledgement from the charity for all gifts worth $250 or more. It must include, among other things, a description of the items contributed.

Guidelines for Monetary Donations

A taxpayer must have a bank record or a written statement from the charity in order to deduct any donation of money, regardless of amount. The record must show the name of the charity and the date and amount of the contribution. Bank records include canceled checks, and bank, credit union and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.

Donations of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.

These requirements for the deduction of monetary donations do not change the long-standing requirement that a taxpayer obtain an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. However, one statement containing all of the required information may meet both requirements.

Reminders

The IRS offers the following additional reminders to help taxpayers plan their holiday and year-end gifts to charity:

  • Qualified charities. Check that the charity is eligible. Only donations to eligible organizations are tax-deductible. Select Check, a searchable online tool available on IRS.gov, lists most organizations that are eligible to receive deductible contributions. In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations. That is true even if they are not listed in the tool’s database.
  • Year-end gifts. Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of 2014 count for 2014, even if the credit card bill isn’t paid until 2015. Also, checks count for 2014 as long as they are mailed in 2014.
  • Itemize deductions. For individuals, only taxpayers who itemize their deductions on Form 1040 Schedule A can claim deductions for charitable contributions. This deduction is not available to individuals who choose the standard deduction. This includes anyone who files a short form (Form 1040A or 1040EZ). A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceed the standard deduction. Use the 2014 Form 1040 Schedule A to determine whether itemizing is better than claiming the standard deduction.
  • Record donations. For all donations of property, including clothing and household items, get from the charity, if possible, a receipt that includes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property. If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value. Additional rules apply for a contribution of $250 or more.
  • Special Rules. The deduction for a car, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value is more than $500. Form 1098-C or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return.

If the amount of a taxpayer’s deduction for all noncash contributions is over $500, a properly-completed Form 8283 must be submitted with the tax return.

IRS YouTube Videos: 

Year-End Tax Tips: English
Charitable Contributions: English | Spanish | ASL
Exempt Organizations Select Check: English | Spanish | ASL

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Will the IRS Help Pay for Your Retirement ?

Posted by William Byrnes on November 17, 2014


IRS logoIf you are a low-to-moderate income worker, you can take steps now to save two ways for the same amount. With the saver’s credit you can save for your retirement and save on your taxes with a special tax credit. Here are six tips you should know about this credit:

1. Save for retirement.  The formal name of the saver’s credit is the retirement savings contributions credit. You may be able to claim this tax credit in addition to any other tax savings that also apply. The saver’s credit helps offset part of the first $2,000 you voluntarily save for your retirement. This includes amounts you contribute to IRAs, 401(k) plans and similar workplace plans.

2. Save on taxes.  The saver’s credit can increase your refund or reduce the tax you owe. The maximum credit is $1,000, or $2,000 for married couples. The credit you receive is often much less, due in part because of the deductions and other credits you may claim.

3. Income limits.  Income limits vary based on your filing status. You may be able to claim the saver’s credit if you’re a:

• Married couple filing jointly with income up to $60,000 in 2014 or $61,000 in 2015.

• Head of Household with income up to $45,000 in 2014 or $45,750 in 2015.

• Married person filing separately or single with income up to $30,000 in 2014 or $30,500 in 2015.

4. When to contribute.  If you’re eligible you still have time to contribute and get the saver’s credit on your 2014 tax return. You have until April 15, 2015, to set up a new IRA or add money to an existing IRA for 2014. You must make an elective deferral (contribution) by the end of the year to a 401(k) plan or similar workplace program.

If you can’t set aside money for this year you may want to schedule your 2015 contributions soon so your employer can begin withholding them in January.

5. Special rules apply.  Other special rules that apply to the credit include:

• You must be at least 18 years of age.

• You can’t have been a full-time student in 2014.

• Another person can’t claim you as a dependent on their tax return.

IRS Resources

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8 Tax Facts for Deducting Charitable Contributions

Posted by William Byrnes on November 10, 2014


IRS logoIf you are looking for a tax deduction, giving to charity can be a ‘win-win’ situation. It’s good for them and good for you. Here are eight things you should know about deducting your gifts to charity:

1. You must donate to a qualified charity if you want to deduct the gift. You can’t deduct gifts to individuals, political organizations or candidates.

2. In order for you to deduct your contributions, you must file Form 1040 and itemize deductions. File Schedule A, Itemized Deductions, with your federal tax return.

3. If you get a benefit in return for your contribution, your deduction is limited. You can only deduct the amount of your gift that’s more than the value of what you got in return. Examples of such benefits include merchandise, meals, tickets to an event or other goods and services.

4. If you give property instead of cash, the deduction is usually that item’s fair market value. Fair market value is generally the price you would get if you sold the property on the open market.

5. Used clothing and household items generally must be in good condition to be deductible. Special rules apply to vehicle donations.

6. You must file Form 8283, Noncash Charitable Contributions, if your deduction for all noncash gifts is more than $500 for the year.

7. You must keep records to prove the amount of the contributions you make during the year. The kind of records you must keep depends on the amount and type of your donation. For example, you must have a written record of any cash you donate, regardless of the amount, in order to claim a deduction. It can be a cancelled check, a letter from the organization, or a bank or payroll statement. It should include the name of the charity, the date and the amount donated. A cell phone bill meets this requirement for text donations if it shows this same information.

8. To claim a deduction for donated cash or property of $250 or more, you must have a written statement from the organization. It must show the amount of the donation and a description of any property given. It must also say whether the organization provided any goods or services in exchange for the gift.

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In 2015, Various Tax Benefits Increase Due to Inflation Adjustments

Posted by William Byrnes on November 5, 2014


The tax items for tax year 2015 of greatest interest to most taxpayers include the following dollar amounts –IRS logo

  • The tax rate of 39.6 percent affects singles whose income exceeds $413,200 ($464,850 for married taxpayers filing a joint return), up from $406,750 and $457,600, respectively. The other marginal rates – 10, 15, 25, 28, 33 and 35 percent – and the related income tax thresholds are described in the revenue procedure.
  • The standard deduction rises to $6,300 for singles and married persons filing separate returns and $12,600 for married couples filing jointly, up from $6,200 and $12,400, respectively, for tax year 2014. The standard deduction for heads of household rises to $9,250, up from $9,100.
  • The limitation for itemized deductions to be claimed on tax year 2015 returns of individuals begins with incomes of $258,250 or more ($309,900 for married couples filing jointly).
  • The personal exemption for tax year 2015 rises to $4,000, up from the 2014 exemption of $3,950. However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $258,250 ($309,900 for married couples filing jointly). It phases out completely at $380,750 ($432,400 for married couples filing jointly.)
  • The Alternative Minimum Tax exemption amount for tax year 2015 is $53,600 ($83,400, for married couples filing jointly). The 2014 exemption amount was $52,800 ($82,100 for married couples filing jointly).
  • The 2015 maximum Earned Income Credit amount is $6,242 for taxpayers filing jointly who have 3 or more qualifying children, up from a total of $6,143 for tax year 2014. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phaseouts.
  • Estates of decedents who die during 2015 have a basic exclusion amount of $5,430,000, up from a total of $5,340,000 for estates of decedents who died in 2014.
  • For 2015, the exclusion from tax on a gift to a spouse who is not a U.S. citizen is $147,000, up from $145,000 for 2014.
  • For 2015, the foreign earned income exclusion breaks the six-figure mark, rising to $100,800, up from $99,200 for 2014.
  • The annual exclusion for gifts remains at $14,000 for 2015.
  • The annual dollar limit on employee contributions to employer-sponsored healthcare flexible spending arrangements (FSA) rises to $2,550, up $50 dollars from the amount for 2014.
  • Under the small business health care tax credit,  the maximum credit is phased out based on the employer’s number of full-time equivalent employees in excess of 10 and the employer’s average annual wages in excess of $25,800 for tax year 2015, up from $25,400 for 2014.

.01 Tax Rate Tables. For taxable years beginning in 2015, the tax rate tables under § 1 are as follows:

TABLE 1 – Section 1(a) – Married Individuals Filing Joint Returns and Surviving Spouses

If Taxable Income Is & The Tax Is:

  1. Not over $18,450 10% of the taxable income
  2. Over $18,450 but $1,845 not over $74,900 plus 15% of the excess over $18,450
  3. Over $74,900 but $10,312.50 not over $151,200 plus 25% of the excess over $74,900
  4. Over $151,200 but $29,387.50 not over $230,450 plus 28% of the excess over $151,200
  5. Over $230,450 but $51,577.50 not over $411,500 plus 33% of the excess over $230,450
  6. Over $411,500 but $111,324 not over $464,850 plus 35% of the excess over $411,500
  7. Over $464,850 $129,996.50 plus 39.6% of the excess over $464,850

TABLE 3 – Section 1(c) – Unmarried Individuals (other than Surviving Spouses and Heads of Households)

If Taxable Income Is & The Tax Is:

  1. Not over $9,225 10% of the taxable income
  2. Over $9,225 but $922.50 not over $37,450 plus 15% of the excess over $9,225
  3. Over $37,450 but $5,156.25 not over $90,750 plus 25% of the excess over $37,450
  4. Over $90,750 but $18,481.25 not over $189,300 plus 28% of the excess over $90,750
  5. Over $189,300 but $46,075.25 not over $411,500 plus 33% of the excess over $189,300
  6. Over $411,500 $119,401.25 not over $413,200 plus 35% of the excess over $411,500
  7. Over $413,200 $119,996.25 plus 39.6% of the excess over $413,200

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Job Hunting Expenses

Posted by William Byrnes on November 3, 2014


If you look for a new job in the same line of work, you may be able to deduct some of your job hunting costs.IRS logo

Here are some key tax facts you should know about if you search for a new job:

  • Same Occupation.  Your expenses must be for a job search in your current line of work. You can’t deduct expenses for a job search in a new occupation.
  • Résumé Costs.  You can deduct the cost of preparing and mailing your résumé.
  • Travel Expenses.  If you travel to look for a new job, you may be able to deduct the cost of the trip. To deduct the cost of the travel to and from the area, the trip must be mainly to look for a new job. You may still be able to deduct some costs if looking for a job is not the main purpose of the trip.
  • Placement Agency. You can deduct some job placement agency fees you pay to look for a job.
  • First Job.  You can’t deduct job search expenses if you’re looking for a job for the first time.
  • Work-Search Break.  You can’t deduct job search expenses if there was a long break between the end of your last job and the time you began looking for a new one.
  • Reimbursed Costs.  Reimbursed expenses are not deductible.
  • Schedule A.  You usually deduct your job search expenses on Schedule A, Itemized Deductions. You’ll claim them as a miscellaneous deduction. You can deduct the total miscellaneous deductions that are more than two percent of your adjusted gross income.

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IRS Announces 2015 Pension Plan Limitations; Taxpayers May Contribute up to $18,000 to their 401(k) plans in 2015

Posted by William Byrnes on October 23, 2014


The Internal Revenue Service announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2015.  Many of the pension plan IRS logolimitations will change for 2015 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment.  However, other limitations will remain unchanged because the increase in the index did not meet the statutory thresholds that trigger their adjustment.  Highlights include the following:

  • The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $17,500 to $18,000.
  • The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $5,500 to $6,000.
  • The limit on annual contributions to an Individual Retirement Arrangement (IRA) remains unchanged at $5,500.  The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.
  • The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $61,000 and $71,000, up from $60,000 and $70,000 in 2014.  For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $98,000 to $118,000, up from $96,000 to $116,000.  For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $183,000 and $193,000, up from $181,000 and $191,000.  For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
  • The AGI phase-out range for taxpayers making contributions to a Roth IRA is $183,000 to $193,000 for married couples filing jointly, up from $181,000 to $191,000 in 2014.  For singles and heads of household, the income phase-out range is $116,000 to $131,000, up from $114,000 to $129,000.  For a married individual filing a separate return, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
  • The AGI limit for the saver’s credit (also known as the retirement savings contribution credit) for low- and moderate-income workers is $61,000 for married couples filing jointly, up from $60,000 in 2014; $45,750 for heads of household, up from $45,000; and $30,500 for married individuals filing separately and for singles, up from $30,000.

Below are details on both the adjusted and unchanged limitations.

Section 415 of the Internal Revenue Code provides for dollar limitations on benefits and contributions under qualified retirement plans.  Section 415(d) requires that the Secretary of the Treasury annually adjust these limits for cost of living increases.  Other limitations applicable to deferred compensation plans are also affected by these adjustments under Section 415.  Under Section 415(d), the adjustments are to be made under adjustment procedures similar to those used to adjust benefit amounts under Section 215(i)(2)(A) of the Social Security Act.

Effective January 1, 2015, the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) remains unchanged at $210,000.  For a participant who separated from service before January 1, 2015, the limitation for defined benefit plans under Section 415(b)(1)(B) is computed by multiplying the participant’s compensation limitation, as adjusted through 2014, by 1.0178.

The limitation for defined contribution plans under Section 415(c)(1)(A) is increased in 2015 from $52,000 to $53,000.

The Code provides that various other dollar amounts are to be adjusted at the same time and in the same manner as the dollar limitation of Section 415(b)(1)(A).  After taking into account the applicable rounding rules, the amounts for 2015 are as follows:

The limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) is increased from $17,500 to $18,000.

The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $260,000 to $265,000.

The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan remains unchanged at $170,000.

The dollar amount under Section 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a 5 year distribution period is increased from $1,050,000 to $1,070,000, while the dollar amount used to determine the lengthening of the 5 year distribution period remains unchanged at $210,000.

The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) is increased from $115,000 to $120,000.

The dollar limitation under Section 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over is increased from $5,500 to $6,000.  The dollar limitation under Section 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over is increased from $2,500 to $3,000.

The annual compensation limitation under Section 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost of living adjustments to the compensation limitation under the plan under Section 401(a)(17) to be taken into account, is increased from $385,000 to $395,000.

The compensation amount under Section 408(k)(2)(C) regarding simplified employee pensions (SEPs) is increased from $550 to $600.

The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts is increased from $12,000 to $12,500.

The limitation on deferrals under Section 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations is increased from $17,500 to $18,000.

The compensation amount under Section 1.61 21(f)(5)(i) of the Income Tax Regulations concerning the definition of “control employee” for fringe benefit valuation remains unchanged at $105,000.  The compensation amount under Section 1.61 21(f)(5)(iii) is increased from $210,000 to $215,000.

The Code also provides that several retirement-related amounts are to be adjusted using the cost-of-living adjustment under Section 1(f)(3).  After taking the applicable rounding rules into account, the amounts for 2015 are as follows:

The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for married taxpayers filing a joint return is increased from $36,000 to $36,500; the limitation under Section 25B(b)(1)(B) is increased from $39,000 to $39,500; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $60,000 to $61,000.

The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for taxpayers filing as head of household is increased from $27,000 to $27,375; the limitation under Section 25B(b)(1)(B) is increased from $29,250 to $29,625; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $45,000 to $45,750.

The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for all other taxpayers is increased from $18,000 to $18,250; the limitation under Section 25B(b)(1)(B) is increased from $19,500 to $19,750; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $30,000 to $30,500.

The deductible amount under Section 219(b)(5)(A) for an individual making qualified retirement contributions remains unchanged at $5,500.

The applicable dollar amount under Section 219(g)(3)(B)(i) for determining the deductible amount of an IRA contribution for taxpayers who are active participants filing a joint return or as a qualifying widow(er) is increased from $96,000 to $98,000.  The applicable dollar amount under Section 219(g)(3)(B)(ii) for all other taxpayers (other than married taxpayers filing separate returns) is increased from $60,000 to $61,000.  The applicable dollar amount under Section 219(g)(3)(B)(iii) for a married individual filing a separate return is not subject to an annual cost-of-living adjustment and remains $0.  The applicable dollar amount under Section 219(g)(7)(A) for a taxpayer who is not an active participant but whose spouse is an active participant is increased from $181,000 to $183,000.

The adjusted gross income limitation under Section 408A(c)(3)(B)(ii)(I) for determining the maximum Roth IRA contribution for married taxpayers filing a joint return or for taxpayers filing as a qualifying widow(er) is increased from $181,000 to $183,000.  The adjusted gross income limitation under Section 408A(c)(3)(B)(ii)(II) for all other taxpayers (other than married taxpayers filing separate returns) is increased from $114,000 to $116,000.  The applicable dollar amount under Section 408A(c)(3)(B)(ii)(III) for a married individual filing a separate return is not subject to an annual cost-of-living adjustment and remains $0.

The dollar amount under Section 430(c)(7)(D)(i)(II) used to determine excess employee compensation with respect to a single-employer defined benefit pension plan for which the special election under Section 430(c)(2)(D) has been made is increased from $1,084,000 to $1,101,000.

 

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Ten Things to Know About the Taxpayer Advocate Service

Posted by William Byrnes on October 20, 2014


Taxpayer AdvocateTen Things to Know About the Taxpayer Advocate Service

1. The Taxpayer Advocate Service (TAS) is an independent organization within the IRS and is your voice at the IRS.

2. We help taxpayers whose problems are causing financial difficulty. This includes businesses as well as individuals.

3. You may be eligible for our help if you’ve tried to resolve your tax problem through normal IRS channels and have gotten nowhere, or you believe an IRS procedure just isn’t working as it should.

4. The IRS has adopted a Taxpayer Bill of Rights that includes 10 fundamental rights that every taxpayer has when interacting with the IRS:

Taxpayer Bill of Rights

  • The Right to Be Informed.
  • The Right to Quality Service.
  • The Right to Pay No More than the Correct Amount of Tax.
  • The Right to Challenge the IRS’s Position and Be Heard.
  • The Right to Appeal an IRS Decision in an Independent Forum.
  • The Right to Finality.
  • The Right to Privacy.
  • The Right to Confidentiality.
  • The Right to Retain Representation.
  • The Right to a Fair and Just Tax System.

Our TAS Tax Toolkit at TaxpayerAdvocate.irs.gov can help you understand these rights and what they mean for you. The toolkit also has examples that show how the Taxpayer Bill of Rights can apply in specific situations.

5. If you qualify for our help, you’ll be assigned to one advocate who will be with you at every turn. And our service is always free.

6. We have at least one local taxpayer advocate office in every state, the District of Columbia, and Puerto Rico.  You can call your advocate, whose number is in your local directory, in Pub. 1546, Taxpayer Advocate Service — Your Voice at the IRS, and on our website at irs.gov/advocate. You can also call us toll-free at
877-777-4778.

7. The TAS Tax Toolkit at TaxpayerAdvocate.irs.gov has basic tax information, details about tax credits (for individuals and businesses), and much more.

8. TAS also handles large-scale or systemic problems that affect many taxpayers. If you know of one of these broad issues, please report it to us at www.irs.gov/sams.

9. You can get updates at

10. TAS is here to help you, because when you’re dealing with a tax problem, the worst thing you can do is to do nothing at all.

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Miscellaneous Deductions Can Cut Taxes

Posted by William Byrnes on October 15, 2014


IRS logoMiscellaneous Deductions Can Cut Taxes

You may be able to deduct certain miscellaneous costs you pay during the year. Examples include employee expenses and fees you pay for tax advice. If you itemize, these deductions could lower your tax bill. Here are some things the IRS wants you to know about miscellaneous deductions:

Deductions Subject to the Two Percent Limit.  You can deduct most miscellaneous costs only if their total is more than two percent of your adjusted gross income. These include expenses such as:

  • Unreimbursed employee expenses.
  • Expenses related to searching for a new job in the same line of work.
  • Certain work clothes and uniforms.
  • Tools needed for your job.
  • Union dues.
  • Work-related travel and transportation.

Deductions Not Subject to the Two Percent Limit.  Some deductions are not subject to the two percent limit. They include:

  • Certain casualty and theft losses. Generally, this applies to damaged or stolen property that you held for investment. This includes items such as stocks, bonds and works of art.
  • Gambling losses up to the amount of your gambling winnings.
  • Losses from Ponzi-type investment schemes.

There are many expenses that you can’t deduct. For example, you can’t deduct personal living or family expenses. You claim allowable miscellaneous deductions on Schedule A, Itemized Deductions.

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4 Tax Facts about Hobbies

Posted by William Byrnes on September 29, 2014


IRS logo“Millions of people enjoy hobbies that are also a source of income. Some examples include stamp and coin collecting, craft making, and horsemanship.” the IRS stated in its Summertime Tax Tip 2014-15.

A taxpayer must report on the tax return the income earned from a hobby.  The rules for how a taxpayer reports the income and expenses depend on whether the activity is a hobby or a business.  There are special rules and limits for deductions a taxpayer can claim for a hobby.  Five tax tips  about hobbies:

1. Is it a Business or a Hobby?  A key feature of a business is that a taxpayer do it to make a profit.  Taxpayers often engage in a hobby for sport or recreation, not to make a profit. A taxpayer should consider nine factors when to determine whether an activity is a hobby.  A taxpayer must base the determination on all the facts and circumstances of the situation.

2. Allowable Hobby Deductions.  Within certain limits, a taxpayer can usually deduct ordinary and necessary hobby expenses. An ordinary expense is one that is common and accepted for the activity. A necessary expense is one that is appropriate for the activity.

3. Limits on Hobby Expenses.  Generally, a taxpayer can only deduct your hobby expenses up to the amount of hobby income.  If hobby expenses are more than the hobby’s income, then a loss results from the activity.  That loss is not deductible from other income.

4. How to Deduct Hobby Expenses.  A taxpayer must itemize deductions on a tax return in order to deduct hobby expenses.  Expenses may fall into three types of deductions, and special rules apply to each type.  See of Publication 535 for the rules about how you claim them on Schedule A, Itemized Deductions.

2014_tf_on_individuals_small_businesses-m_1Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor. Financial advisors are continually looking for updated tax information that can help them provide the right answers to the right people at the right time. This book provides fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts is famous.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.

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IRS Video Helps Same-Sex Couples

Posted by William Byrnes on September 24, 2014


The new video, less than two minutes long, is designed to help same-sex couples file their federal income tax returns.

 

 

 

 

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Four Things to Know about Net Investment Income Tax

Posted by William Byrnes on September 17, 2014


IRS Tax Tip 2014-48

Starting in 2013, some taxpayers may be subject to the Net Investment Income Tax. You may owe this tax if you have income from investments and your income for the year is more than certain limits. Here are four things from the IRS that you should know about this tax:

1. Net Investment Income Tax.  The law requires a tax of 3.8 percent on the lesser of either your net investment income or the amount by which your modified adjusted gross income exceeds a threshold amount based on your filing status.

2. Net investment income.  This amount generally includes income such as:

  • interest
  • dividends
  • capital gains
  • rental and royalty income
  • non-qualified annuities

This list is not all-inclusive. Net investment income normally does not include wages and most self-employment income. It does not include unemployment compensation, Social Security benefits or alimony. Net investment income also does not include any gain on the sale of your main home that you exclude from your income.

After you add up your total investment income, you then subtract your deductions that are properly allocable to this income. The result is your net investment income. Refer to the instructions for Form 8960, Net Investment Income Tax for more on how to figure your net investment income or MAGI.

3. Income threshold amounts.  You may owe the tax if you have net investment income and your modified adjusted gross income is more than the following amount for your filing status:

Filing Status                            Threshold Amount
Single or Head of household            $200,000
Married filing jointly                        $250,000
Married filing separately                  $125,000
Qualifying widow(er) with a child       $250,000

4. How to report.  If you owe this tax, you must file Form 8960 with your federal tax return. If you had too little tax withheld or did not pay enoughestimated taxes, you may have to pay an estimated tax penalty.

2014_tf_on_individuals_small_businesses-m_1Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor. Financial advisors are continually looking for updated tax information that can help them provide the right answers to the right people at the right time. This book provides fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts is famous.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.

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Back-to-School Tax Credits

Posted by William Byrnes on September 15, 2014


IRS logoThe IRS revealed in its Summertime Tax Tip 2014-23 that some of the costs a taxpayer pays for higher education can lead to a taxpayer owing less tax.  Here are several important tax facts about “education tax credits” from the IRS:

  • American Opportunity Tax Credit.  The AOTC can be up to $2,500 annually for an eligible student. This credit applies for the first four years of higher education. Forty percent of the AOTC is refundable. That means a taxpayer may be able to get up to $1,000 of the credit as a refund payment from the IRS, even if no tax is owed.
  • Lifetime Learning Credit.  With the LLC, a taxpayer may be able to claim a tax credit of up to $2,000 on the federal tax return. There is no limit on the number of years the LLC can be claimed for an eligible student.
  • One credit per student.  A taxpayer may claim only one type of education credit per student on the federal tax return each year. If more than one student qualifies for a credit in the same year, then the taxpayer can claim a different credit for each student.
  • Qualified expenses.  A taxpayer may include qualified expenses to calculate the credit.  This may include amounts paid for tuition, fees and other related expenses for an eligible student.
  • Eligible educational institutions.  Eligible schools are those that offer education beyond high school. This includes most colleges and universities. Vocational schools or other postsecondary schools may also qualify.
  • Form 1098-T.  In most cases, a taxpayer will receive Form 1098-T, Tuition Statement, from the school.  This form reports the qualified expenses to the IRS and to the taxpayer. A taxpayer may notice that the amount shown on the form is different than the amount actually paid.  Some of the paid costs may not appear on Form 1098-T.  For example, the cost of textbooks may not appear on the form, but these textbook costs still may be able to be claimed as part of the credit.
  • Nonresident alien.  A F-1 student visa usually files a federal tax return as a nonresident alien.  A nonresident alien may not claim an education tax credit for any part of the tax year unless electing to be treated as a resident alien for federal tax purposes.
  • Income limits. These credits are subject to income limitations and may be reduced or eliminated, based on the taxpayer’s income.

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2014_tf_on_individuals_small_businesses-m_1Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor. Financial advisors are continually looking for updated tax information that can help them provide the right answers to the right people at the right time. This book provides fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts is famous.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.

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Tax Information for Students Who Had a Summer Job

Posted by William Byrnes on September 3, 2014


In IRS Special Edition Tax Tip 2014-13, it discussed the tax issues of students who work summer jobs.  Many students take a job in the summer after school lets out. The IRS provided eight tax tips for students who take a summer job.

1. The IRS stated that a student should not be surprised when an employer withholds taxes from the paycheck.  But if the student is self-employed, then he or she may have to pay estimated taxes directly to the IRS on certain dates during the year. This is called a “pay-as-you-go” tax system.

2. As a new employee, a student must complete a Form W-4, Employee’s Withholding Allowance Certificate.  An employer will use it to figure how much federal income tax to withhold from the paycheck. The IRS Withholding Calculator tool on IRS.gov can help a student fill out the form.

3. Keep in mind that all tip income is taxable. If a student receives tips, then the student must keep a daily log so that he or she can report them to the IRS.  A student must report $20 or more in cash tips in any one month to the employer.  All yearly tips must be reported on the tax return.

4. Money earned doing work for others is taxable.  Some work may count as self-employment. This can include jobs like baby-sitting and lawn mowing. Keep good records of expenses related to this work.  Some expenses may be deducted from the income on the tax return. A deduction may help lower the final tax due.

5. If a student is ROTC, then active duty pay, such as pay received for summer camp, is taxable.  But the subsistence allowance while in advanced training is not taxable.

6. A student may not earn enough from a summer job to owe income tax.  But an employer usually must withhold Social Security and Medicare taxes from any pay. If a student is self-employed, then the student must pay these directly to the IRS.  Yet, these count toward coverage under the Social Security system.

7. If a student is a newspaper carrier or distributor, special rules apply. If certain conditions, then the student is considered self-employed.  But if those conditions are not met and the student is under age 18, then the student is usually exempt from Social Security and Medicare taxes.

8. The student may not earn enough money from a summer job to be required to file a tax return. Even if that is true, the student will probably want to file.  For example, if an employer withheld income tax from the paycheck, then the employee will need to file a return to receive a refund of those taxes.  The student can prepare and e-file a tax return for free using IRS Free File.

Finally, see tax rules for students.

2014_tf_on_individuals_small_businesses-m_1Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor. Financial advisors are continually looking for updated tax information that can help them provide the right answers to the right people at the right time. This book provides fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts is famous.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.

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Tax Facts for Travel For Charities

Posted by William Byrnes on September 1, 2014


In the IRS Summertime Tax Tip 2014-06, it discussed the tax tips associated with travelling for a charity.  The IRS directed the tax tips to taxpayers that plan to donate services to charity this summer, such as travel as part of the service.

The IRS disclosed five tax tips to assist with using the travel expenses to help lower taxes when filing the tax return for 2014.

1. A taxpayer cannot deduct the value of your services that is provided to charity.  the taxpayer may be able to deduct some out-of-pocket costs paid to provide the services.  This can include the cost of travel.

The out-of pocket costs must be:

• unreimbursed,

• directly connected with the services,

• expenses you had only because of the services you gave, and

• not personal, living or family expenses.

2. The volunteer work must be for a qualified charity. Most groups other than churches and governments must apply to the IRS to become qualified.  Ask the group about its IRS status before donating services that include out-of-pocket expenses. The Select Check tool on IRS.gov can be used to check a charity’s IRS status.

3. Some types of travel do not qualify for a tax deduction. For example, a taxpayer cannot deduct costs if a significant part of the trip involves recreation or a vacation.

4. A taxpayer can deduct travel expenses if the work is real and substantial throughout the trip.  But the expenses may not be deducted if the taxpayer only has nominal duties or does not have any duties for significant parts of the trip.

5. Deductible travel expenses may include:

• air, rail and bus transportation,

• car expenses,

• lodging costs,

• the cost of meals, and

• taxi or other transportation costs between the airport or station and your hotel.

2014_tf_on_individuals_small_businesses-m_1Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor. Financial advisors are continually looking for updated tax information that can help them provide the right answers to the right people at the right time. This book provides fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts is famous.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.

Posted in Taxation, Uncategorized | Tagged: , , , | Leave a Comment »

 
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