Month: April 2018

The Bipartisan Budget Act of 2018 (BBA) retroactively extended a number of tax provisions through 2017 for individual taxpayers. Let’s take a look at five of them.

1. Mortgage Insurance Premiums
Homeowners with less than 20 percent equity in their homes are required to pay mortgage insurance premiums (PMI). For taxpayers whose income is below certain threshold amounts, these premiums were deductible in tax years 2013, 2014, 2015, 2016 and now, once again in 2017. Mortgage insurance premiums are reported on Schedule A (1040), Itemized Deductions, under “Interest You Paid.”

2. Exclusion of Discharge of Principal Residence Indebtedness
Typically, forgiven debt is considered taxable income in the eyes of the IRS; however, this tax provision was retroactively extended through 2017. Homeowners whose homes have been foreclosed on or subjected to short sale are able to exclude from gross income up to $2 million of canceled mortgage debt.

3. Energy Saving Home Improvements
If you made your home more energy efficient in 2017, you have another chance to take advantage of this tax credit on your tax return. This credit reduces the amount of tax owed as opposed to a deduction that reduces your taxable income. The credit is worth up to 10 percent of the cost (excluding installation) of qualified improvements to a taxpayer’s main home to make it more energy efficient such as insulation materials, energy-efficient exterior windows and doors, and certain types of roofs, e.g., metal roof or asphalt roofs specifically designed to reduce the heat gain of your home.

Note: This tax credit is cumulative and has been around for more than 10 years. As such, if you’ve taken the credit in any tax year since 2006, you will not be able to take the full $500 tax credit this year. For example, if you took a credit of $150 in 2016, the maximum credit you could take this year (2017) is $350.Furthermore, taxpayers should also note that they can only use $200 of this limit for windows.

4. Qualified Tuition and Expenses
The deduction for qualified tuition and fees was also extended through 2017 and is an above-the-line tax deduction. In other words, you don’t have to itemize your deductions to claim the expense. Qualified education expenses are defined as tuition and related expenses required for enrollment or attendance at an eligible educational institution. Related expenses include student-activity fees and expenses for books, supplies, and equipment as required by the institution.

Taxpayers with income of up to $130,000 (joint) or $65,000 (single) can claim a deduction for up to $4,000 in expenses. Taxpayers with income over $130,000 but under $160,000 (joint) and over $65,000 but under $80,000 (single) are able to take a deduction of up to $2,000. Taxpayers with incomes above these threshold amounts are not eligible for the deduction.

5. Deductible Expenses for Live Theatrical Productions
Section 181 refers to special expensing rules for certain film and television productions that allows taxpayers to treat the costs of any qualified film or television production as a deductible expense. This provision also applies to production costs for qualified live theatrical productions with certain restrictions.

Only the owner of a film, television production or a live theatrical production can make a Section 181 election and if you want to take the deduction on your 2017 tax return your first paid performance must have taken place in 2017. Furthermore, Section 181 only applies to live stage productions where the seating capacity for the performance is less than 3,000 seats and the production must be based on a written play (or book in the case of a musical). This tax provision is complicated. Please call if you need clarification.

Don’t miss out on the tax breaks you are entitled to.

If you’re wondering whether you should be taking advantage of these and other tax credits and deductions, don’t hesitate to call the office. If you’ve already filed your 2017 federal tax return want to claim one or more of these retroactive tax breaks, please call for assistance in filing an amended tax return.

• By Leon Clinton
• April 8, 2018

Estimated tax is the method used to pay tax on income that is not subject to withholding. This includes income from self-employment, interest, dividends, and rent, as well as gains from the sale of assets, prizes and awards. You also may have to pay estimated tax if the amount of income tax being withheld from your salary, pension, or other income is not enough.

Filing and Paying Estimated Taxes

Both individuals and business owners may need to file and pay estimated taxes, which are paid quarterly. In 2018, the first estimated tax payment is due on April 17, the same day tax returns are due. If you do not pay enough by the due date of each payment period you may be charged a penalty even if you are due a refund when you file your tax return.

If you are filing as a sole proprietor, partner, S corporation shareholder, and/or a self-employed individual, you generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return.

If you are filing as a corporation you generally have to make estimated tax payments for your corporation if you expect it to owe tax of $500 or more when you file its return.

If you had a tax liability for the prior year, you may have to pay estimated tax for the current year; however, if you receive salaries and wages, you can avoid having to pay estimated tax by asking your employer to withhold more tax from your earnings.

Note: There are special rules for farmers, fishermen, certain household employers, and certain higher taxpayers. Please call if you need more information about any of these situations.

Who does not have to pay estimated tax:

You do not have to pay estimated tax for the current year if you meet all three of the following conditions:

• You had no tax liability for the prior year
• You were a U.S. citizen or resident for the whole year
• Your prior tax year covered a 12-month period

If you receive salaries and wages, you can avoid having to pay estimated tax by asking your employer to withhold more tax from your earnings. To do this, file a new Form W-4 with your employer. There is a special line on Form W-4 for you to enter the additional amount you want your employer to withhold.

You had no tax liability for the prior year if your total tax was zero or you did not have to file an income tax return.

Calculating Estimated Taxes

To figure out your estimated tax, you must calculate your expected adjusted gross income, taxable income, taxes, deductions, and credits for the year. If you estimated your earnings too high, simply complete another Form 1040-ES, Estimated Tax for Individuals, worksheet to re-figure your estimated tax for the next quarter. If you estimated your earnings too low, again complete another Form 1040-ES worksheet to recalculate your estimated tax for the next quarter.

Try to estimate your income as accurately as you can to avoid penalties due to underpayment. Generally, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid at least 90 percent of the tax for the current year, or 100 percent of the tax shown on the return for the prior year, whichever is smaller.

Tip: When figuring your estimated tax for the current year, it may be helpful to use your income, deductions, and credits for the prior year as a starting point. Use your prior year’s federal tax return as a guide and use the worksheet in Form 1040-ES to figure your estimated tax. However, you must make adjustments both for changes in your own situation and for recent changes in the tax law.

Estimated Tax Due Dates

For estimated tax purposes, the year is divided into four payment periods and each period has a specific payment due date. For the 2018 tax year, these dates are April 17, June 15, September 17, and January 15, 2019. You do not have to pay estimated taxes in January if you file your 2018 tax return by January 31, 2019, and pay the entire balance due with your return.

Note: If you do not pay enough tax by the due date of each of the payment periods, you may be charged a penalty even if you are due a refund when you file your income tax return.

The easiest way for individuals as well as businesses to pay their estimated federal taxes is to use the Electronic Federal Tax Payment System (EFTPS). Make ALL of your federal tax payments including federal tax deposits (FTDs), installment agreement and estimated tax payments using EFTPS. If it is easier to pay your estimated taxes weekly, bi-weekly, monthly, etc. you can, as long as you have paid enough in by the end of the quarter. Using EFTPS, you can access a history of your payments, so you know how much and when you made your estimated tax payments.

Please call if you are not sure whether you need to make an estimated tax payment or need assistance setting up EFTPS.

• By Leon Clinton
• April 5, 2018

April 2

Electronic filing of Forms 1097, 1098, 1099, 3921, and 3922 – File Forms 1097, 1098, 1099, 3921, and 3922 with the IRS (except a Form 1099-MISC reporting nonemployee compensation). This due date applies only if you file electronically. Otherwise, see February 28. The due date for giving the recipient these forms generally remains January 31.

Electronic Filing of Form W-2G– File copies of all the Form W-2G (Certain Gambling Winnings) you issued for 2017. This due date applies only if you electronically file. Otherwise, see February 28. The due date for giving the recipient these forms remains January 31.

Electronic Filing of Forms 8027 – File copies of all the Forms 8027 you issued for 2017. This due date applies only if you electronically file. Otherwise, see February 28.

Electronic Filing of Forms 1094-C and 1095-C and Forms 1094-B and 1094-B – If you’re an applicable Large Employer, file electronic forms 1094-C and 1095-C with the IRS. For all other providers of essential minimum coverage, file electronic Forms 1094-B and 1095-B with the IRS. Otherwise, see February 28.

April 10

Employees who work for tips – If you received $20 or more in tips during March, report them to your employer. You can use Form 4070.

April 17

Individuals – File an income tax return for 2017 (Form 1040, 1040A, or 1040EZ) and pay any tax due. If you want an automatic 6-month extension of time to file the return, file Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Returnor you can get an extension by phone if you pay part or all of your estimate of income tax due with a credit card. Then file Form 1040, 1040A, or 1040EZ by October 15.

Household Employers – If you paid cash wages of $2,000 or more in 2017 to a household employee, file Schedule H (Form 1040) with your income tax return and report any employment taxes. Report any federal unemployment (FUTA) tax on Schedule H if you paid total cash wages of $1,000 or more in any calendar quarter of 2016 or 2017 to household employees. Also, report any income tax you withheld for your household employees.

Individuals – If you are not paying your 2018 income tax through withholding (or will not pay in enough tax during the year that way), pay the first installment of your 2018 estimated tax. Use Form 1040-ES.

Corporations – File a 2017 calendar year income tax return (Form 1120) and pay any tax due. If you want an automatic 6-month extension of time to file the return, file Form 7004 and deposit what you estimate you owe in taxes.

Corporations – Deposit the first installment of estimated income tax for 2018. A worksheet, Form 1120-W, is available to help you estimate your tax for the year.

Employers – Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in March.

Employers – Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in March.

April 30

Employers – Social Security, Medicare, and withheld income tax. File form 941 for the first quarter of 2018. Deposit any undeposited tax. (If your tax liability is less than $2,500, you can pay it in full with a timely filed return.) If you deposited the tax for the quarter in full and on time, you have until May 10 to file the return.

• By Leon Clinton
• April 2, 2018