I am so glad the IRS addressed this issue in their frequently ask questions….https://t.co/BeqUC7L04J
— S. Davis Tax Consultants (@SDAVISTAX) January 3, 2018
If you recall, I sent an email on Christmas Eve regarding strategies when ‘planning’ for 2018 tax law changes.
Prepayment of state and local income taxes were specifically addressed and not allowed by Congress. However, treatment for prepayment of state and local property taxes were not specified.
This has been a major source of discussion among tax professionals.
The IRS has finally issued guidance (and examples) on December 27, 2017, see IR-2017-210.
In short, if your state and local officials have ASSESSED the 2018 real property tax prior to the end of 2017 AND that tax has been paid by the end of 2017 – then the ‘prepayment’ is deductible.
If not, prepayment of any tax not yet assessed will not be deductible on your 2017 Individual Income Tax Return.
See What Massachusetts says about Prepayment of Property Taxes – click here.
** Individuals (including Married Couples) subject to AMT (Alternative Minimum Tax) will not receive benefit from prepayment of property taxes.**
Contact your tax professional to see if your ‘prepayment‘ will qualify for 2017 itemized deduction (before the limits kick in).
- Medical Expenses
- State and Local Tax Deductions
- Mortgage Interest Deduction
- Alternative Minimum Tax (AMT)
- Standard Deduction/Personal Exemptions
This is not a complete summary of the proposed changes. Check out this article to learn more. It also has the complete PDF of the conference bill at the end of the article.
Erb, Kelly Phillips. “It’s Beginning To Look A Lot Like Tax Reform: Here’s What’s In The Final Version.” Forbes, Forbes Magazine, 16 Dec. 2017, http://www.forbes.com/sites/kellyphillipserb/2017/12/15/its-beginning-to-look-a-lot-like-tax-reform-heres-whats-in-the-final-version/#20924c4c4d63.
photo credit: Business Insider- Trump tax plan chart
What is the process for proposed tax reform???
There is a lengthy process before tax law (or any proposed changes) can be enacted.
“The Constitution says that “all bills for raising revenue shall originate in the House of Representatives” and that “Congress shall have the power to lay and collect taxes.” Presidents can, and frequently do, recommend changes to current tax laws, but only Congress can make the changes.
As the [Ways and Means] Committee [is the tax writing committee of the House of Representatives] reaches tentative decisions on the proposals, they draft them into legislative language. It also prepares a detailed report on the proposed Legislation. The report can be longer than the bill itself, and presents the Committee’s (the ‘House’) reasons for recommending the bill. The Internal Revenue Service and the courts may use this Committee report as an interpretation of the legislation. Once the bill and the report are completed, they get introduced in the House of Representatives for consideration
The [Senate Finance] Committee begins its formal work on the legislation after the House has passed its version of the bill. It holds hearings similar to those held earlier by the House Ways and Means Committee. Instead of considering the tax proposals made by the [the President] Administration, however, it considers the bill passed by the House.
Witnesses appear at the Committee hearings in the same order as in the Ways and Means Committee. They direct their testimony to the House version of the bill.
After the hearings are finished, the (Senate Finance) Committee marks up the House bill, similar to the markup by the Ways and Means Committee (the House). When the (Senate Finance) Committee completes its markup, the bill is usually very different from the one passed by the House. It then gets reported to the full Senate for floor action.
A report gets filed along with the bill. The report explains in detail the amendments made by the (Senate) Finance Committee.
The entire Senate debates the bill as reported by the Committee. During the debate, the Senators may further amend the bill before they bring it to a vote.
If the Senate passes the House version of the bill, without amendments, it gets sent directly to the President.”
There was a law passed, sometime ago now, that allows your tax issues to affect your international travel plans.
The Internal Revenue Service is set to enforce the directives beginning January of 2018.
Under this law, governed by Internal Revenue Code Section 7345, the IRS will notify the State Department to revoke your current passport and/or deny passport applications due to ‘certain’ tax delinquencies.
The law also gives the IRS discretionary enforcement options.
The State Department generally will not issue a passport to you after receiving certification from the IRS.
What does this mean for your current or future travel plans?
If you already have a U.S. passport, you can use your passport until you are notified by the State Department that it has been revoked.
What if I need my passport to keep my job?
You must fully pay the balance, or make an alternative payment arrangement to have your certification reversed.
How will I know if my passport is revoked?
The IRS will send written notice by regular mail to your last known address. This is usually the address provided on your last filed tax return.
However, Taxpayer Advocate Service has identified cases in which taxpayers affected are not receiving proper written notification of revocation status.
“The passport language in the broader [Collection Due Process] notice is delivered at a time when the taxpayer is focusing on resolution of the debt and claiming [Collection Due Process] rights – thus the language is buried among the other information and may not constitute effective notice.’ – National Taxpayer Advocate. (2017, July 7). The IRS’s New Passport Program: Why Notice to Taxpayers Matters (Part 1 of 2). Retrieved November 07, 2017, from https://taxpayeradvocate.irs.gov/news/the-irs-s-new-passport-program-why-notice-to-taxpayers-matters-part-1-of-2
What if I satisfied or ‘settled’ my tax debt?
The IRS will make this reversal within 30 days and provide notification to the State Department as soon as practical.
Because revocation will not be reversed automatically, there are cases in which an application of reversal may be required. You should receive a written notice of reversal in the mail.
Contact your tax professional to determine actions appropriate to ‘settle’ your seriously delinquent tax debt.
Once you ‘settle’ your tax debt or make appropriate arrangements, there are remedies to reverse the delinquent status with the State Department and remove restrictions for your passport.
You may contact the State Department at the National Passport Information Center to verify if your passport status: 1.877.487.2778.
If you have tax issues – obtaining representative may be crucial. Review our blog on benefits of tax representation.
Did you know you could purchase Savings Bonds with your Tax Refund?
The option to purchase savings bonds via tax refund, for yourself or another person became available in 2010.
This is a great gift to your children, grandchildren, nieces or nephews. The bonds will be mailed to your address with the beneficiary’s name on the bond.
Do I have to use all of my refund to purchase bonds?
- You can use all or part of your tax refund to purchase I bonds.
- Your request for bonds must be in increments of $50.
- Any remaining refund amount not used to purchase bonds will be mailed to you as a paper check or you may elect to have the remaining amount directly deposited into a checking or savings account.
Can I buy savings bonds for a child, grandchild or someone else using this tax refund method?
- Yes. You can use your refund to buy savings bonds and designate ownership or co-ownership for someone else, such as a child, grandchild or anyone, or elect a beneficiary using form 8888.
If you are a client and interested in purchasing Savings Bonds this upcoming tax season, let us know or contact our office at 508.203.1676.
When selecting a licensed professional to handle your tax filings and issues, make sure their area of focus has or is in taxation.
Larry bird’s business partner, Christopher Cooke, learned this lesson the hard way.
When attempting to take deductions for a property used as a Bed & Breakfast, his response, upon examination, to the Tax Court was that he relied on the advice of his CPA. The Tax Court determined that his deductions would be disallowed and subject to accuracy related penalties.
“[Mr. Cooke] offered no evidence of the CPA’s competence as a tax professional or that he provided the CPA with all the necessary and accurate information required to provide proper advice. Thus, the Tax Court found that he was liable for the penalties.” – Howard, Beth. “Deductions Disallowed for Operator of Larry Bird’s Former House as a B&B.” Tax Matters, Journal of Accountancy, 1 Aug. 2017, www.journalofaccountancy.com/issues/2017/aug/operating-deductions-disallowed-larry-bird-former-house.
When seeking advice, ensure you are dealing with a licensed tax professional.
The following are things to consider when making a deductible charitable contribution, depending on the type of charity, type of property contributed and the Adjusted Gross Income of the individual donor (depending on filing status).
As an individual, all charitable contributions, whether cash or noncash items, are subject to income limits. In most cases, donations are limited to 50% of your income. There are instances, however, in which your donations are limited to 20% or 30% of your income. Charitable contributions are beneficial only when individuals itemize their deductions (Reported on Schedule A).
As a corporation, charitable contributions are limited to 10% of the entity’s taxable income (before taking into consideration other deductions).
In either case, charitable donations that exceed the income limits are eligible to be carryforward for 5 years. ‘Carryover of a qualified conservation contribution can be carried forward for 15 years.’
In the wake of Hurricane Harvey (and Irma) and its devastating effects, taxpayers need to be aware of charitable contributions made to eligible organizations and if they can reap the benefit(s) on their tax return.
Not every organization is considered an eligible organization for tax purposes.
You can not take a deduction for ‘value of your time or services’ contributed. Donations to INDIVIDUALS are NEVER DEDUCTIBLE, no matter how good the cause. The money must be given to eligible organizations. Depending on the amount donated, there may be tax implications to the donor.
In the era of fundraising via social media and online networks – these contributions should be made with caution, especially if you are looking for a deduction at tax time.
Maintain Proper Records:
Be sure to obtain and keep proper records. In every case, I always recommend (though it is not required) my clients make donations via a check or debit/credit where contributions can be traced.
To claim a deduction for cash contribution(s) of $250 or more, you must receive an acknowledgement for each contribution from the qualified organization.
For deduction of noncash contributions, you must submit Form 8283, Noncash Contributions with your Form 1040, Schedule A to ensure certain information is reported.
To claim a deduction for noncash contributions, you must maintain records regardless of the amount.
In general, you should have written records that include: date purchased, amount paid when purchased (also known as your cost basis), detailed description of items (I’ve had cases where the IRS asked for pictures of items contributed), value of property on date contributed and method used to determine value.
There are special rules depending on the value of the property donated and if it has been enhanced, was inherited, received as a gift, traded securities, vehicles and certain other items.
You can review Publications issued for Individuals:
You may review Publication issued for Corporations:
We are continuously working to provide relevant information on a variety of platforms. Our goal is to advise you of tax issues that may ultimately impact you and your life decisions.
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An Enrolled Agent (EA) is a tax expert that can handle the same issues as a Certified Public Accountant (CPA) or Tax Attorney, when it comes to representation before the Internal Revenue Service (IRS).
“EA’s tend to focus on preparing taxes, and many specialize in tax resolution. An EA is authorized by the U.S. Department of the Treasury to represent taxpayers before the IRS for audits, collections, and appeals.” – Kulp, Kayleigh. “EA vs. CPA: Which is Right for You?” Fox Business. Fox Business, 26 Mar. 2012. Web. 6 July 2017.
While a CPA may perform many accounting and financial services, some may not specialize in taxation.
An Enrolled Agent is a federally authorized tax practitioner who may also handle many state tax issues with a duly authorized Power of Attorney. See our blog on “Why do I need a Power of Attorney?”
Like CPAs, Enrolled Agents must maintain a certain number of hours of continuing education to maintain their license.
There are factors to consider when determining which licensed tax professional to hire.
To learn more about my professional credential, as an EA, and experiences select the link below.
Principal Owner @ S. Davis Tax Consultants