- The Sharing Economy and your Taxes
- Scam Alerts: Hurricane Charities and Ransomware
- SIMPLE IRA Plans for Small Business
- Avoiding Penalties on Early Withdrawals from IRAs
- States Require Online Retailers to Collect Sales Tax
- Don't Wait to File an Extended Return
- Tax Relief for Victims of Hurricane Harvey
- It's Time for a Premium Tax Credit Checkup
- A Name Change Could Affect your Taxes
- Seven Facts about Dependents and Exemptions
Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If desired, we would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services.
The Sharing Economy and your Taxes
Uber, Lyft, Airbnb, Etsy, Rover, TaskRabbit. If you've used any of these services-or provided services for them to others-you're a member of the sharing economy.
If you've only used these services (and not provided them), then there's no need to worry about the tax implications but if you've rented out a spare room in your house through a company like Uber or Airbnb then you're probably collecting a fee--a portion of which goes to the provider (in this example, Airbnb) and a portion that you keep for providing the service. But whether it's your full-time gig or a part-time job to make some extra cash, you need to be aware of the tax consequences.
Millennials are the number one users of the sharing economy but Gen X and Boomers use it too; and a recent PWC study found that 24 percent of boomers, age 55 and older, are also providers. While many people are looking to earn a bit of extra income, some dive into it full-time hoping they can make a living, and still, others simply enjoy meeting new people or providing a service that helps people. What most people don't realize is that this extra cash could impact their taxable income--especially if they have a full-time job with an employer.
In other words, that extra income might turn into a tax liability once you figure out your tax bill. To avoid surprises at tax time, it's more important than ever to be proactive in understanding the tax implications of your new sharing economy gig and seek the advice of a competent tax professional.
Tip: If you have a job with an employer make sure your withholding reflects any extra income derived from your side gig (e.g. boarding pets at your home through Rover or driving for a ride-share company like Uber on weekends). Use Form W-4, Employee's Withholding Allowance Certificate, to make any adjustments and submit it to your employer who will use it to figure the amount of federal income tax to be withheld from pay.
New Business Owner
While you may not necessarily think of yourself as a newly self-employed business owner, the IRS does. So, even though you work through a company like Airbnb or Rover, you are considered a business owner and are responsible for your own taxes (including paying estimated taxes if you need to). It's up to you to keep track of income and expenses--and of course, to keep good records that substantiate your income and expenses (more on this below).
Note:If you receive income from a sharing economy activity, it's generally taxable even if you don't receive a Form 1099-MISC, Miscellaneous Income, Form 1099-K, Payment Card and Third Party Network Transactions, Form W-2, Wage and Tax Statement, or some other income statement.
And now, for the good news. As a business owner, you are entitled to certain deductions (subject to special rules and limits) that you cannot take as an employee. Deductions reduce the amount of rental income that is subject to tax. You might also be able to deduct expenses directly related to enhancements made exclusively for the comfort of your guests. For instance, if you rent out a room in your apartment through Airbnb, amounts you spend on window treatments, linens, or even a bed, could be deductible.
Pitfalls: It's more complicated than it seems
At first glance renting out a spare room through Airbnb or pet sitting through Rover seems like an easy thing to do, but as with most things, it's more complicated than it seems and you'll need to keep an eye out for the following pitfalls:
- Insurance requirements
- Business license registration (state or municipal)
- Room and lodging, or tourist taxes
Many municipalities charge room, occupancy, or tourist taxes on the amount of rental paid for short term stays (less than 30 days). Noncompliance may result in penalties, fees, and payment of back taxes owed.
- Failure to set aside money for taxes and/or estimated tax payments
Estimated tax payments apply toward both income tax and self-employment tax (Social Security and Medicare). If you don't pay enough tax, through either withholding or estimated tax (or a combination of both) you may have to pay a penalty. Estimated tax payments are due quarterly. The payment of estimated tax for the income for the first quarter of the calendar year (that is, January through March) is due on April 15. Payments for subsequent quarters are due on June 15, September 15 and January 15. If you don't pay enough by these dates you may be charged a penalty even if you're due a refund when you file your tax return.
Tip: If you also work as an employee, you can often avoid needing to make estimated tax payments by having more tax withheld from your paycheck.
- Not receiving Forms 1099-MISC or 1099-K from a company you provide services for
As a sole proprietor, you may receive a Form 1099-MISC (employees receive a Form W-2) or a 1099-K. Form 1099-K, Payment Card and Third Party Network Transactions, is an information return that reports the gross amount of reportable payment card and third party network transactions for the calendar year to you and the IRS. If you receive a Form 1099-K, you should retain it and use the information reported on the Form 1099-K in conjunction with your other tax records to determine your correct tax.
- Renting out a home for more than two weeks
If you rent your home out for 15 days or more during a calendar year and you receive rental income for the use of a house or an apartment, including a vacation home, that rental income must be reported on your return in most cases. You may deduct certain expenses such as mortgage interest, real estate taxes, maintenance, utilities, and insurance and depreciation, that reduce the amount of rental income that is subject to tax.
If you use the dwelling unit for both rental and personal purposes, you generally must divide your total expenses between the rental use and the personal use based on the number of days used for each purpose. You won't be able to deduct your rental expense in excess of the gross rental income limitation.
Tip: Generally, if you rent out your home for less than 15 days, then you do not need to report any of the rental income and you don't deduct any expenses as rental expenses.
It's important to keep good records and to choose a recordkeeping system suited to your business that clearly shows your income and expenses. The type of records you need to keep for federal tax purposes depends on what kind of business you operate; however, at a minimum, your recordkeeping system should include a summary of your business transactions (i.e. income and expenses) using a cash basis of accounting. Your records must also show your gross income, as well as your deductions and credits.
Tax Rules are Complicated: Don't get Caught Short
If you have any questions or would like more information about the sharing economy and your taxes, please contact the office.
Scam Alerts: Hurricane Charities and Ransomware
While The IRS, state tax agencies and numerous people in the tax and accounting industry are working together to warn tax professionals and their clients about phishing scams, they are still all too common. Here's what you need to know about the two most recent scams: fake charities that take advantage of people's generosity during times of natural disasters and IRS/FBI-themed ransomware.
Fake Charity Scams Relating to Hurricane Harvey
With Houston still reeling from the devastating effects of Hurricane Harvey, many people are wondering how they can help. One of the best ways to do this is by donating to a charity that helps victims affected by natural disasters. Unfortunately, however, due to the prevalence of tax scams, taxpayers need to make sure the organization they donate to is not a fake charity set up by unscrupulous criminals looking to make a fast buck or get people's personal information.
How the Fake Charity Scam Works
These types of fraudulent schemes usually involve contact by telephone, social media, email or in-person solicitations. Criminals typically send emails that steer recipients to bogus websites that appear to be affiliated with legitimate charitable causes. These sites frequently mimic the sites of, or use names similar to, legitimate charities, or claim to be affiliated with legitimate charities in order to persuade people to send money or provide personal financial information that can be used to steal identities or financial resources.
What to Watch out for
Follow these tips if you want to make a disaster-related charitable donation but avoid falling victim to scam artists:
- Donate to recognized charities. IRS.gov has the tools people need to quickly and easily check the status of charitable organizations.
- Be wary of charities with names that are similar to familiar or nationally known organizations. Some phony charities use names or websites that sound or look like those of respected, legitimate organizations. The IRS website at IRS.gov has a search feature, "Exempt Organizations Select Check" which people can use to find qualified charities; donations to these charities may be tax-deductible.
- Don't give out personal financial information--such as Social Security numbers or credit card and bank account numbers and passwords--to anyone who solicits a contribution. Scam artists may use this information to steal a donor's identity and money.
- Never give or send cash. For security and tax record purposes, contribute by check or credit card or another way that provides documentation of the donation.
- Consult IRS Publication 526, Charitable Contributions, available on IRS.gov. This free booklet describes the tax rules that apply to making legitimate tax-deductible donations. Among other things, it also provides complete details on what records to keep.
Taxpayers suspecting fraud by email should visit IRS.gov and search for the keywords "Report Phishing." More information about tax scams and schemes may be found at IRS.gov using the keywords "scams and schemes." Details on available relief can be found on the disaster relief page on IRS.gov as well.
Don't hesitate to call the office if you have any questions or concerns or believe you have been a victim of a fake charity scam.
IRS/FBI-Themed Ransomware Scams
There's also a new phishing scheme that impersonates the IRS and the FBI as part of a ransomware scam to take computer data hostage. The scam email uses the emblems of both the IRS and the Federal Bureau of Investigation. It tries to entice users to select a "here" link to download a fake FBI questionnaire. Instead, the link downloads a certain type of malware called ransomware that prevents users from accessing data stored on their device unless they pay money to the scammers.
What to do if you are a Victim of a Ransomeware Scam
Do not pay a ransom. Paying it further encourages the criminals, and frequently the scammers won't provide the decryption key even after a ransom is paid. Victims should immediately report any ransomware attempt or attack to the FBI at the Internet Crime Complaint Center (www.IC3.gov). Forward any IRS-themed scams to firstname.lastname@example.org. For more information about IRS Tax Scams and Consumer Alerts visit the IRS website
People should stay vigilant against email scams that try to impersonate the IRS and other agencies that try to lure you into clicking a link or opening an attachment. As a reminder, the IRS does not use email, text messages or social media to discuss personal tax issues, such as those involving bills or refunds.
If you believe you've been a victim of a ransomware scam or any other IRS-related scam, please call the office for assistance.
SIMPLE IRA Plans for Small Business
Of all the retirement plans available to small business owners, the SIMPLE IRA plan (Savings Incentive Match PLan for Employees) is the easiest to set up and the least expensive to manage. The catch is that you'll need to set it up by October 1st. Here's what you need to know.
What is a SIMPLE IRA Plan?
SIMPLE IRA Plans are intended to encourage small business employers to offer retirement coverage to their employees. Self-employed business owners are able to contribute both as employee and employer, with both contributions made from self-employment earnings. In addition, if living expenses are covered by your day job (or your spouse's job), you would be free to put all of your sideline earnings, up to the ceiling, into SIMPLE IRA plan retirement investments.
How does a SIMPLE IRA Plan Work?
A SIMPLE IRA plan is easier to set up and operate than most other plans in that contributions go into an IRA you set up. Requirements for reporting to the IRS and other agencies are minimal as well. Your plan's custodian, typically an investment institution, has the reporting duties and the process for figuring the deductible contribution is a bit easier than with other plans.
SIMPLE IRA plans calculate contributions in two steps:
1. Employee out-of-salary contribution
The limit on this "elective deferral" is $12,500 in 2017, after which it can rise further with the cost of living.
Catch-up. Owner-employees age 50 or older can make an additional $3,000 deductible "catch-up" contribution (for a total of $15,500) as an employee in 2017.
2. Employer "matching" contribution
The employer match equals a maximum of three percent of employee's earnings.
Example An owner-employee age 50 or over in 2017 with self-employment earnings of $40,000 could contribute and deduct $12,500 as employee plus an additional $3,000 employee catch up contribution, plus a $1,200 (3 percent of $40,000) employer match, for a total of $16,700.
Are there any Downsides to SIMPLE IRA Plans?
Because investments are through an IRA you must work through a financial institution acting, which acts as the trustee or custodian. As such, you are not in direct control and will generally have fewer investment options than if you were your own trustee, as is the case with a 401(k).
You also cannot set up the SIMPLE IRA plan after the calendar year ends and still be able to take advantage of the tax benefits on that year's tax return, as is allowed with Simplified Employee Pension Plans, or SEPs. Generally, to make a SIMPLE IRA plan effective for a year, it must be set up by October 1 of that year. A later date is allowed only when the business is started after October 1 and the SIMPLE IRA plan must be set up as soon as it is administratively feasible.
Furthermore, once self-employment earnings become significant however, other retirement plans may be more advantageous than a SIMPLE IRA retirement plan.
Example If you are under 50 with $50,000 of self-employment earnings in 2017, you could contribute $12,500 as employee to your SIMPLE IRA plan plus an additional 3 percent of $50,000 as an employer contribution, for a total of $14,000. In contrast, a 401(k) plan would allow a $31,000 contribution.
With $100,000 of earnings, the total for a SIMPLE IRA Plan would be $15,500 and $43,500 for a 401(k).
If the SIMPLE IRA plan is set up for a sideline business and you're already vested in a 401(k) in another business or as an employee the total amount you can put into the SIMPLE IRA plan and the 401(k) combined (in 2017) can't be more than $18,000 or $23,500 if catch-up contributions are made to the 401(k) by someone age 50 or over. So, someone under age 50 who puts $9,000 in her 401(k) can't put more than $9,000 in her SIMPLE IRA plan for 2017. The same limit applies if you have a SIMPLE IRA plan while also contributing as an employee to a 403(b) annuity (typically for government employees and teachers in public and private schools).
How to Get Started Setting up a SIMPLE IRA Plan
You can set up a SIMPLE IRA plan account on your own; however, most people turn to financial institutions. SIMPLE IRA Plans are offered by the same financial institutions that offer any other IRAs and 401(k) plans.
You can expect the institution to give you a plan document and an adoption agreement. In the adoption agreement, you will choose an "effective date," which is the start date for payments out of salary or business earnings. Again, that date can't be later than October 1 of the year you adopt the plan, except for a business formed after October 1.
Another key document is the Salary Reduction Agreement, which briefly describes how money goes into your SIMPLE IRA plan. You need such an agreement even if you pay yourself business profits rather than salary. Printed guidance on operating the SIMPLE IRA plan may also be provided. You will also be establishing a SIMPLE IRA plan account for yourself as participant.
Ready to Explore Retirement Plan Options for your Small Business?
SIMPLE IRA Plans are an excellent choice for home-based businesses and ideal for full-time employees or homemakers who make a modest income from a sideline business and work well for small business owners who don't want to spend a lot of time and pay high administration fees associated with more complex retirement plans.
If you are a business owner interested in discussing retirement plan options for your small business, don't hesitate to contact the office today.
Avoiding Penalties on Early Withdrawals from IRAs
More than half of Millennials and Gen Xers have already or are planning to, withdraw money from their retirement plans to cover unexpected expenses such as medical bills, educational expenses, or buying a house, according to a recent PwC Employee Financial Wellness Survey (April 2017). Most notably, the survey also found that this trend is on the rise for both Millennials and Gen Xers, increasing 14 and 6 percent, respectively, from 2016 to 2017.
When retirement plans such as the 401(k) were introduced, company pensions were still the norm and this "new" retirement savings vehicle was meant to be a supplement to the pension. Fast forward to today, however, and the retirement landscape has changed dramatically. Very few companies offer pensions anymore and most people rely entirely on whatever savings they've accumulated in their retirement account, along with social security) to get them through their golden years. In fact, for many people, retirement accounts are their most significant source of savings.
Because retirement plans such as the 401(k), tax-sheltered annuity plans under section 403(b) for employees of public schools or tax-exempt organizations, and Individual Retirement Accounts (IRAs) were created to help you save money for your retirement years, withdrawals before retirement age (59 1/2) are discouraged. As such, the IRS imposes a penalty of 10 percent for early withdrawals taken from qualified retirement plans before age 59 1/2.
Minimizing Early Withdrawal Penalties
While you should always think carefully about taking money out of your retirement plan before you've reached retirement age, there may be times when you need access to those funds. The downside is that you'll be faced with an IRS penalty on the withdrawal unless you meet one of the exceptions listed below.
For instance, if you withdraw cash from your IRA to pay off credit card debt you will be liable for the 10 percent penalty when you file your tax return. Furthermore, that money is also considered taxable income by the IRS. In other words, you don't want to get into the habit of treating your retirement fund like a cash cow but instead, should focus on building cash reserves in an emergency fund.
That being said, if an early withdrawal is unavoidable because you are suddenly unemployed, disabled, or have outstanding medical expenses, IRS provisions allow a number of exceptions that may be used to minimize or avoid the tax penalty.
The first-time homeowner can be yourself, your spouse, your or your spouse's child or grandchild, parent or another relative. The "date of acquisition" is the day you sign the contract for the purchase of an existing house or the day construction of your new principal residence begins. The amount withdrawn for the purchase of a home must be used within 120 days of withdrawal and the maximum lifetime withdrawal exemption is $10,000. If both you and your spouse are first-time home buyers, each of you can receive distributions up to $10,000 for a first home without having to pay the 10 percent penalty.
- Beneficiary of a deceased IRA owner. If you are the beneficiary of a deceased IRA owner, you do not have to pay the 10 percent penalty on distributions taken before age 59 1/2 unless you inherit a traditional IRA from your deceased spouse and elect to treat it as your own. In this case, any distribution you later receive before you reach age 59 1/2 may be subject to the 10 percent additional tax.
- Totally and permanently disabled. Distributions made because you are totally and permanently disabled are exempt from the early withdrawal penalty. You are considered disabled if you can furnish proof that you cannot do any substantial gainful activity because of your physical or mental condition. A physician must determine that your condition can be expected to result in death or to be of long, continued, and indefinite duration.
- Distributions for qualified higher education expenses. Distributions for qualified higher education expenses are also exempt, provided they are not paid through tax-free distributions from a Coverdell education savings account, scholarships and fellowships, Pell grants, employer-provided educational assistance, and Veterans' educational assistance. Qualified higher education expenses include tuition, fees, books, supplies, and equipment required for the enrollment or attendance of a student at an eligible educational institution, as well as expenses incurred by special needs students in connection with their enrollment or attendance. If the individual is at least a half-time student, room and board are qualified higher education expenses. This exception applies to expenses incurred by you, your spouse, children and grandchildren.
- Distributions due to an IRS levy of the qualified plan. This exception applies if the IRS takes money directly out of your 401(k) plan to satisfy an IRS levy (tax debt).
- Distributions that are not more than the cost of your medical insurance. Even if you are under age 59 1/2, you may not have to pay the 10 percent additional tax on distributions during the year that is not more than the amount you paid during the year for medical insurance for yourself, your spouse, and your dependents. You will not have to pay the tax on these amounts if all of the following conditions apply: you lost your job, you received unemployment compensation paid under any federal or state law for 12 consecutive weeks because you lost your job, you receive the distributions during either the year you received the unemployment compensation or the following year, you receive the distributions no later than 60 days after you have been reemployed.
- Distributions to qualified reservists. Generally, these are distributions made to individuals called to active duty after September 11, 2001, for a period greater than 179 days or for an indefinite period because you are a member of a reserve component such as the Army National Guard. Distributions taken during the active duty period are not subject to the 10 percent penalty.
- Distributions in the form of an annuity. You can take the money as part of a series of substantially equal periodic payments over your estimated lifespan or the joint lives of you and your designated beneficiary. These payments must be made at least annually and payments are based on IRS life expectancy tables. If payments are from a qualified employee plan, they must begin after you have left the job. The payments must be made at least once each year until age 59 1/2, or for five years, whichever period is longer.
- Medical expenses. If you have out-of-pocket medical expenses that exceed 10 percent of your adjusted gross income, you can withdraw funds from a retirement account to pay those expenses without paying a penalty.
Example: If you had an adjusted gross income of $100,000 for tax year 2017 and medical expenses of $12,500, you could withdraw as much as $2,500 from your pension or IRA without incurring the 10 percent penalty tax. You do not have to itemize your deductions to take advantage of this exception.
- Buy, build, or rebuild a first home. An IRA distribution used to buy, build, or rebuild a first home also escapes the penalty; however, you need to understand the government's definition of a "first time" home buyer. In this case, it's defined as someone who hasn't owned a home for the last two years prior to the date of the new acquisition. You could have owned five prior houses, but if you haven't owned one in at least two years, you qualify.
Questions about Early Withdrawals?
Before withdrawing funds from a retirement account please call the office and speak to a tax professional. While you may be able to minimize or avoid the 10 percent penalty tax using one of the exceptions listed above, remember that you are still liable for any regular income tax that's owed on the funds that you've withdrawn--and you may be liable for more tax than you realize when you file your tax return next spring.
States Require Online Retailers to Collect Sales Tax
From declining sales at local retail establishments to brick and mortar store closings, almost everyone would agree that the rise of Internet sales has transformed the retail landscape. One consequence of this uptick in online sales is lost revenues in states that collect sales (or use) tax.
According to the National Conference of State Legislatures, state revenues declined by $17.2 billion due to lost sales taxes in 2016 alone. As such, states, which derive as much as one-third of their revenues from sales and use taxes, are struggling to find ways to harness this lost revenue. At least two states, North Dakota and Colorado, have turned to the US Supreme Court for relief sparking other states to take action and establish legislation governing payment of sales and use tax.
"Remote Sellers" and the "Physical Presence" Test
Referred to as "remote sales" (e-commerce to most people) retail transactions include catalog and Internet sales where the seller has no "physical presence" in the state where consumers are purchasing the goods. In the early days of Internet sales, several US Supreme Court cases (culminating with Quill v. North Dakota, 1992) ruled that sales tax could not be collected where the seller did not have a physical presence (property or employees, for example). While states do require residents to report sales tax owed on purchases made online or in another state, it is rarely enforced, resulting in lost revenue.
More recently, however, a 2015 US Supreme Court opinion by Justice Anthony Kennedy in Direct Marketing Association v. Brohl, while a major victory for online retailers, suggested that it might be time for the Supreme Court to take another look at the physical presence test.
For legal buffs, here's what the lawsuit entailed according to SCOTUSblog:
A lawsuit by a trade association of retailers, alleging that a Colorado law requiring retailers that do not collect sales or use taxes to notify any Colorado customer of the state's tax requirement and to report tax-related information to those customers and the Colorado Department of Revenue violates the federal and state constitutions, is not barred by the Tax Injunction Act.
And here is the plain language version:
Colorado requires internet retailers like Amazon.com to send it reports about their customers in Colorado. Colorado wants to use those reports to force those customers to pay taxes when they buy online. The district court enjoined the statute, thinking it probably is unconstitutional. Without deciding whether the statute is valid, the Court said that the injunction can stand while the parties litigate about the statute itself.
State Legislative Updates
At the state level, in the years since the Brohl opinion was issued, states have enacted or are planning to enact various regulations governing payment of sales and use tax. Several are already in place (or will be soon) and a few are proposed and/or facing court challenges. These states include Alabama, Indiana, Louisiana, Maine, Massachusetts, North Dakota, Ohio, Pennsylvania, South Dakota, Tennessee, Vermont, Washington, and Wyoming.
Efforts to require online retailers to collect sales taxes at the federal level have stalled despite approval on both sides of the aisle but at least two new pieces of legislation have been introduced: The Marketplace Fairness Act of 2017 and the No Regulation Without Representation Act of 2017, which attempts to codify what states may and may not define as "physical presence."
The Marketplace Fairness Act grants states the authority to compel online and catalog retailers ("remote sellers"), no matter where they are located, to collect sales tax at the time of a transaction--exactly like local retailers are already required to do. However, States are only granted this authority after they have simplified their sales tax laws in one of two ways:
A state can join the twenty-four states that have already voluntarily adopted the simplification measures of the Streamlined Sales and Use Tax Agreement (SSUTA). Alternatively, states can meet essentially five simplification mandates listed in the bill.
Amazon and other Online Retailers
To further complicate matters, as online retail giants such as Amazon expand warehouse and operational facilities to other states, they are faced with state sales tax collection requirements because they now meet the physical test. In the "good old days" anyone could order online and escape paying state sales tax. Those days are almost over, however.
For example, starting April 1, 2017, Amazon began collecting sales taxes in Hawaii, Idaho, Maine and New Mexico. While they operate in five additional states, four of them--Delaware, Montana, New Hampshire and Oregon--do not have sales tax and the fifth, Alaska, has municipal sales taxes but not statewide sales tax. Currently, items sold by Amazon.com LLC, or its subsidiaries, and shipped to destinations are subject to tax in 46 states.
State and Local Sales Taxes are Complicated
If you're an online retailer with questions about sales tax or are simply wondering whether you should collect sales tax from customers or not--given that legislation could either be rejected by the courts or upheld, don't hesitate to call the office today and speak to a tax and accounting professional you can trust.
Don't Wait to File an Extended Return
If you filed for an extension of time to file your 2016 federal tax return and you also chose to have advance payments of the premium tax credit made to your coverage provider, it's important you file your return sooner rather than later. Here are four things you should know:
- If you received a six-month extension of time to file, you do not need to wait until the October 16, 2017, due date to file your return and reconcile your advance payments. You can--and should--file as soon as you have all the necessary documentation.
- You must file to ensure you can continue having advance credit payments paid on your behalf in future years. If you do not file and reconcile your 2016 advance payments of the premium tax credit by the Marketplace's fall re-enrollment period--even if you filed for an extension--you may not have your eligibility for advance payments of the PTC in 2018 determined for a period of time after you have filed your tax return with Form 8962.
- Advance payments of the premium tax credit are reviewed in the fall by the Health Insurance Marketplace for the next calendar year as part of their annual re-enrollment and income verification process.
- Use Form 8962, Premium Tax Credit, to reconcile any advance credit payments made on your behalf and to maintain your eligibility for future premium assistance.
Help is just a phone call away.
If you have any questions about filing an extended return, don't hesitate to call.
Tax Relief for Victims of Hurricane Harvey
The IRS offers tax relief to affected taxpayers (individuals and businesses) in any area designated by the Federal Emergency Management Agency (FEMA), as qualifying for individual assistance and is part of a coordinated federal response to the damage caused by severe storms and flooding and is based on local damage assessments.
Currently, the following Texas counties are eligible for relief: Aransas, Bee, Brazoria, Calhoun, Chambers, Fort Bend, Galveston, Goliad, Harris, Jackson, Kleberg, Liberty, Matagorda, Nueces, Refugio, San Patricio, Victoria, and Wharton. Taxpayers in localities added later to the disaster area will automatically receive the same filing and payment relief.
The tax relief postpones various tax filing and payment deadlines that occurred starting on August 23, 2017. As a result, affected individuals and businesses will have until January 31, 2018, to file returns and pay any taxes that were originally due during this period. This includes the September 15, 2017, and January 16, 2018, deadlines for making quarterly estimated tax payments.
For individual tax filers, it also includes 2016 income tax returns that received a tax-filing extension until October 16, 2017. The IRS noted, however, that because tax payments related to these 2016 returns were originally due on April 18, 2017, those payments are not eligible for this relief.
A variety of business tax deadlines are also affected including the October 31 deadline for quarterly payroll and excise tax returns. In addition, the IRS is waiving late-deposit penalties for federal payroll and excise tax deposits normally due on or after August 23 and before September 7, if the deposits are made by September 7, 2017. If you believe this applies to your business, please call the office as soon as possible.
The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in a federally declared disaster area. As such, taxpayers do need to contact the IRS to get this relief.
Note: If an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date falling within the postponement period, the taxpayer should call the number on the notice to have the penalty abated. In addition, the IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area. Taxpayers qualifying for relief who live outside the disaster area should contact the IRS at 866-562-5227.
Note: This also includes workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization.
Individuals and businesses who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred (in this instance, the 2017 return normally filed next year) or the return for the prior year (2016).
If you've been affected by a natural disaster and have any questions or need additional information about tax relief, please call.
It's Time for a Premium Tax Credit Checkup
If you or anyone in your family receive advance payments of the premium tax credit, now is a good time to check on whether you need to adjust your premium assistance.
Because advance payments are paid directly to your insurance company (thereby lowering out-of-pocket cost for your health insurance premiums), changes to your income or family size may affect your credit. Therefore, you should report changes that have occurred since the time that you signed up for your health insurance plan.
Changes in circumstances include any of the following and should be reported to your Marketplace when they happen:
- Increases or decreases in your household income including, lump sum payments; for example, lump sum payment of Social Security benefits
- Birth or adoption of a child
- Other changes affecting the composition of your tax family
- Gaining or losing eligibility for government sponsored or employer-sponsored health care coverage
- Moving to a different address
Reporting the changes when they happen helps you to avoid getting too much or too little advance payment of the premium tax credit. Getting too much may mean that you owe additional money or receive a smaller refund when you file your taxes. Getting too little could mean missing out on premium assistance that reduces your out-of-pocket monthly premiums.
Changes in circumstances also may qualify you for a special enrollment period to change or get insurance through the Marketplace. In most cases, if you qualify for the special enrollment period, you generally have 60 days to enroll following the change in circumstances. Information about special enrollment can be found by visiting HealthCare.gov.
You can use the Premium Tax Credit Change Estimator to help you estimate how your premium tax credit will change if your income or family size changes during the year; however, this estimator tool does not report changes in circumstances to your Marketplace. To report changes and to adjust the amount of your advance payments of the premium tax credit you must contact your Health Insurance Marketplace.
Please call if you have any questions about the Premium Tax Credit.
A Name Change Could Affect your Taxes
Did you know that a name change could impact your taxes? Here's what you need to know:
- Report Name Changes. Did you get married and are now using your new spouse's last name or hyphenate your last name? Did you divorce and go back to using your former last name? In either case, you should notify the SSA of your name change. That way, your new name on your IRS records will match up with your SSA records. A mismatch could unexpectedly increase a tax bill or reduce the size of any refund.
- Make Dependent's Name Change. Notify the SSA if your dependent had a name change. For example, this could apply if you adopted a child and the child's last name changed. If you adopted a child who does not have a Social Security number, you may use an Adoption Taxpayer Identification Number on your tax return. An ATIN is a temporary number. You can apply for an ATIN by filing Form W-7A, Application for Taxpayer Identification Number for Pending U.S. Adoptions, with the IRS.
- Get a New Card. File Form SS-5, Application for a Social Security Card, to notify SSA of your name change. You can get the form on SSA.gov or call 800-772-1213 to order it. Your new card will show your new name with the same SSN you had before.
- Report Changes in Circumstances when they happen. If you enrolled in health insurance coverage through the Health Insurance Marketplace you may receive the benefit of advance payments of the premium tax credit. These are paid directly to your insurance company to lower your monthly premium. Report changes in circumstances, such as a name change, a new address and a change in your income or family size to your Marketplace when they happen throughout the year. Reporting the changes will help you avoid getting too much or too little advance payment of the premium tax credit.
Please contact the office if you have any questions related to IRS requirements regarding a name change.
Seven Facts about Dependents and Exemptions
Some tax rules affect everyone who files a federal income tax return. With that in mind, here are seven facts about dependents and exemptions that taxpayers should know about.
- Exemptions lower your income. There are two types of exemptions: personal exemptions and exemptions for dependents. You can usually deduct $4,050 for each exemption you claim on your tax return.
- Personal exemptions. You can usually claim an exemption for yourself. If you're married and file a joint return you can also claim one for your spouse. If you file a separate return, you can claim an exemption for your spouse only if your spouse had no gross income, is not filing a return, and was not the dependent of another taxpayer.
- Exemptions for dependents. You can usually claim an exemption for each of your dependents. A dependent is either your child or a relative that meets certain tests. You can't claim your spouse as a dependent. In addition, you must list the Social Security number of each dependent you claim. If you don't have a social security number, special rules apply. Don't hesitate to call if this is your situation.
- Some people don't qualify. You generally may not claim married persons as dependents if they file a joint return with their spouse. Again, there are some exceptions to this rule, so please call if you have any questions about this.
- Dependents may have to file. People that you can claim as your dependent may have to file their own federal tax return. This depends on many things, including the amount of their income, their marital status and if they owe certain taxes.
- No exemption on dependent's return. If you can claim a person as a dependent, that person can't claim a personal exemption on his or her own tax return. This is true even if you don't actually claim that person as a dependent on your tax return. The rule applies because you have the right to claim that person.
- Exemption phase-out. The $4,050 per exemption is subject to income limits. This rule may reduce or eliminate the amount depending on your income. Please call if you need additional information about the exemption phase-out.
Questions about dependents and exemptions? Call the office today.
What Sales Orders Are and When to Use Them
When you want to document sales that you can't (or won't) fulfill immediately, but you plan to do so in the future, you can't create an invoice just yet. This is where sales orders come in.
You may never need to create a sales order for a customer. Perhaps you have a service-based business, or you never run out of inventory. Or you simply don't enter an order unless you know you have the item(s) in stock.
But if you plan to use sales orders, you must first make sure QuickBooks is set up to accommodate them. Open the Edit menu and select Preferences, then Sales & Customers. Click the Company Preferences tab to open that window.
Figure 1: Before you can use sales orders, you'll need to make sure that QuickBooks is set up for them.
Sales Orders Are Required for Some Tasks
There are a few situations where you must use a sales order:
- If you have a customer who orders very frequently, you may not want to create an invoice for absolutely every item. You could use a sales order to keep track of these multiple orders, and then send an invoice at the end of the month.
- If you're missing one or more items that a customer wanted, you can create a sales order that includes everything, but only note the in-stock items on an invoice. The sales order will keep track of the portion of the order that wasn't fulfilled. Both forms will include the back-ordered quantity.
Warning: Working with back orders can be challenging. In fact, working with inventory-tracking itself may be problematic for you. If your business stocks enough of multiple types of items that you want to use those QuickBooks features, let us help you get started to ensure that you understand these rather complex concepts.
Creating a Sales Order
Creating sales orders in QuickBooks is actually quite simple and similar to filling out an invoice. Click the Sales Orders icon on the home page, or open the Customers menu and select Create Sales Orders.
Figure 2: A sales order in QuickBooks looks much like an invoice.
Click the down arrow in the field next to Customer: Job and choose the correct one. If you use Classes, select the correct one from the list that drops down, and change the Template if you've created another you'd like to use.
Tip: Templates and Classes are totally optional in QuickBooks. Templates provide alternate views of forms containing different fields and perhaps a different layout. Classes are like categories. You create your own that work for your business; they can be very helpful in reports. Please call the office if you need help understanding these concepts.
If the shipping address is different from the customer's main address, click the down arrow in the field next to Ship To, and either select an alternate you've created or click Add New. Make sure the Date is correct, and enter a purchase order number (P.O. No.) if appropriate.
The rest of the sales order is easy. Click in the fields in the table to make your selections from drop-down lists, and enter data when needed. Pay special attention to the Tax status. If you haven't set up sales tax and need to, just call.
When everything is correct, save the sales order. When you're ready to convert it to an invoice, open it and click the Create Invoice icon in the toolbar. QuickBooks will ask whether you want to create an invoice for all the items or just the ones you select. You'll be able to specify quantities, too, in the window that opens.
Figure 3: When you create an invoice from a sales order, you can select all the items ordered or a subset.
As you can see, sales orders are easy to fill out in QuickBooks but they involve some complex tracking. You may want to call the office to schedule a "how-to" session before you attempt them. As with most things, it's always better to understand sales orders ahead of time rather than to try to troubleshoot problems later.
Tax Due Dates for September 2017
Employees Who Work for Tips - If you received $20 or more in tips during August, report them to your employer. You can use Form 4070.
Individuals - Make a payment of your 2017 estimated tax if you are not paying your income tax for the year through withholding (or will not pay in enough tax that way). Use Form 1040-ES. This is the third installment date for estimated tax in 2017.
Partnerships - File a 2016 calendar year income tax return (Form 1065). This due date applies only if you were given an additional 6-month extension. Provide each shareholder with a copy of Schedule K-1 (Form 1065) or a substitute Schedule K-1.
S corporations - File a 2016 calendar year income tax return (Form 1120S) and pay any tax due. This due date applies only if you made a timely request for an automatic 6-month extension. Provide each shareholder with a copy of Schedule K-1 (Form 1120S) or a substitute Schedule K-1.
Electing Large Partnerships - File a 2016 calendar year income tax return (Form 1065-B) and pay any tax due. This due date applies only if you timely requested an automatic 6-month extension. Otherwise, see March 15. Provide each partner with a copy of Schedule K-1 (Form 1065-B) or a substitute Schedule K-1.
Corporations - Deposit the third installment of estimated income tax for 2017. A worksheet, Form 1120-W, is available to help you make an estimate of your tax for the year.
Employers - Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in August.
Employers - Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in August.