‘S. Davis Loves Taxes’ (Blog)

Let’s Look at Tax Reform: Conference Bill Changes

Much of the tax reform won’t take effect until January 2018 and likely will not affect 2017 filing season.  However, there are some planning factors that may affect what is done during this final month of 2017.
  • Medical Expenses
The common deduction (the bill is over 1000 pages long, so there may be others) that is retroactively affected by the tax reform is medical expenses.
  • State and Local Tax Deductions
This itemized deduction has been a hot topic over the last few weeks.  The elimination of this deduction has caused concern. States have attempted to accommodate prepayment of 2018 income and property taxes.  However, it appears that under the conference bill, prepayment of state and local income taxes will not circumvent the new $10,000 cap.
  • Mortgage Interest Deduction
This itemized deduction was put in place to encourage home ownership.  Caps are already placed on the mortgage and equity debt amounts. The concern was for the elimination or reduction of one of the deductions.
The conference bill, will (temporarily) reduce the mortgage cap for loans taken after yesterday, December 15, 2017 (also known as grandfathered in).  Any home equity debt deduction will be eliminated starting in 2018.
Both of those deductions and respective reductions are slated to return in 2026.
  • Alternative Minimum Tax (AMT)
Alternative Minimum Tax exemptions are increased for individuals; therefore it applies to fewer taxpayers.
  • ObamaCare 
The ObamaCare minimum coverage mandate penalty for individuals that do not have minimum health care coverage has been eliminated.  I’m not clear if this is for 2017 or applies beginning 2018.
  • Standard Deduction/Personal Exemptions
The standard deduction is applied when taxpayers opt to not itemize their deductions.  Many of the itemized deductions are eliminated or reduced in the new bill.  The increased standard deduction will be more beneficial for those taxpayers affected by the new rules for itemized deductions.  However, the personal exemptions will affect those with multiple dependents on their returns.  Although the personal exemptions have been considered ‘consolidated’ with the higher standard deduction rates – single parents (claiming Head of Household) will lose out if they have more than 1.1 children.  This is also the case if married individuals (claiming Married Filing Jointly) have more than 1 child.

 

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.

 

Use your Tax Refund to Buy Savings Bonds

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.


  1. https://www.irs.gov/refunds/using-your-income-tax-refund-to-save-by-buying-us-savings-bonds
  2. https://www.treasurydirect.gov/indiv/products/prod_ibonds_glance.htm

 

What is an Enrolled Agent (EA)?

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.

https://www.irs.gov/tax-professionals/enrolled-agents/enrolled-agent-information

To learn more about my professional credential, as an EA, and experiences select the link below.

Shanikwa Davis, EA, MST

Principal Owner @ S. Davis Tax Consultants

S. Davis is now licensed as a CPA in Massachusetts

Congratulations Shanikwa on passing the CPA exam!!

Shanikwa Davis brings over 12 years of tax consulting experience to those who find tax time difficult.  Her knowledge of tax law changes, along with her clients’ needs, makes her a one-of-a-kind consultant.

In addition to her professional prowess, Shanikwa provides clarity and honesty to each client as well as personalized time and attention.  Regardless of your needs, individual or business, she will meet them.

Furthermore, Shanikwa is also an Online Tax Instructor at Northeastern University.

VAN_7709

You may learn more about Shanikwa and her background here.

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To Prepay or Not to Prepay Property Taxes

 

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).

 

2017 TCJA Proposed Tax Reform

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.”

– Resource Center. “Writing and Enacting Tax Legislation.” Taxes, U.S. Department of the Treasury, 5 Dec. 2010, 10:28am, www.treasury.gov/resource-center/faqs/Taxes/Pages/writing.aspx.

Passport may be Revoked if you have Tax Issues

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.

Read more: https://www.irs.gov/businesses/small-businesses-self-employed/revocation-or-denial-of-passport-in-case-of-certain-unpaid-taxes

Taxpayer learns a lesson: Deductions Disallowed

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.

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