Tax Reform and What it Means for Your Personal Taxes

The Tax Cuts and Jobs Act was signed into law by the President Trump on December 22, 2017. The new law makes many changes to the tax code. Every taxpayer is impacted. A highlight of the changes follows:

Tax rates. Tax rates are reduced. The top rate is reduced from 39.6% to 37%. Lower rates are also reduced.

Exemptions and the child tax credit. The deduction for personal exemptions is eliminated. An expanded child tax credit will help make up for the loss of personal exemptions for some families. The credit is increased to $2,000 (from $1,000) for qualifying children under 17. For children 17 and older and for other dependents, the credit is $500.

Standard deduction. The new tax reform law doubles the standard deduction. The higher standard deduction ($12,000 for singles, $18,000 for heads of household, and $24,000 for married filing joint) means that fewer taxpayers will benefit from itemizing deductions.

Itemized deductions. Itemized deductions for all state and local taxes, including property taxes, are capped at $10,000. The limit on mortgage debt for purposes of the mortgage interest deduction is reduced from $1,000,000 to $750,000 for loans made after Dec. 15, 2017. Loans made before Dec. 15, 2017 are grandfathered at the $1,000,000 debt limit. The interest on home equity borrowing is no longer deductible. The threshold for medical expense deductions is lowered to 7.5% of adjusted gross income (from 10%) for tax years 2017 and 2018. Miscellaneous itemized deductions subject to the 2% of AGI limitation are not allowed. Miscellaneous itemized deductions lost because of the new law include employee business expenses, investment adviser fees, union dues, and tax preparation fees. Personal casualty losses are not allowed unless the losses were suffered in a federally declared disaster area.

Alimony. The new tax reform law eliminates the alimony deduction for agreements signed after Dec. 31, 2018. Alimony income is not taxable for agreements signed after Dec. 31. 2018. There is no change to the law for agreements signed before Jan. 1, 2019.

Moving expenses. The new tax reform law eliminates the moving expense deduction and makes employer reimbursement of moving expenses taxable to the employee beginning in 2018.

AMT. The new tax reform law temporarily increases the alternative minimum tax (AMT) exemption for tax years 2018 through 2025. The increase in the exemption, as well as the elimination of major tax preferences (exemptions, state taxes above $10,000 and miscellaneous itemized deductions), means that fewer people will be subject to AMT under the new law.

Education. The new tax reform law modifies qualified tuition programs – §529 plans. Funds in the 529 plan can now be used to pay for grades K to 12 private school tuition. The above-the-line deduction for college
tuition expenses was renewed in later legislation, but only for 2017. The American Opportunity and the Lifetime Learning credits continue to be available.

Roth IRA conversions. The new tax reform law repeals the special rule permitting recharacterization of Roth IRA conversions. A conversion of a traditional IRA to a Roth IRA may still be advisable, but once the conversion is completed, it can’t be undone.
These are just a few of the changes included in the Tax Cuts and Jobs Act. Your 2018 taxes will be affected. That’s guaranteed by the scope of the changes. The degree of impact depends on your personal situation.

Questions we can answer for you.
o Will the new tax reform law help me or hurt me?
o Is my withholding enough so that I won’t have any surprises next Apr. 15th?
o Is there anything I can do now that will make my taxes less under the new tax reform law?

Please give us a call for answers and planning suggestions.

 

 

 

 

Disclaimer: This post has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

Automated IRS System Helps College Students Apply for Financial Aid

The IRS is working to help take the grief out of the college financial aid process.  By using the Internal Revenue Service Data Retrieval Tool (IRS DRT), all necessary tax data can be automatically transferred from a federal tax return to your FAFSA form.  This tool is free, secure, and can take a lot of the time and uncertainty out of your application.

To make use of the IRS DRT in completing a 2012-2013 FAFSA form, an applicant must meet all of the following criteria:

  • The applicant must have filed a 2011 federal tax return.  If the applicant filed an amended tax return, a Puerto Rican or foreign tax return, or if the status of the tax return was “married filing separately,” the IRS DRT cannot be used for a 2012 FAFSA application.
  • The applicant must have a valid Social Security Number (SSN).
  • The applicant must have a Federal Student Aid PIN.  If you do not have a PIN, you will be able to apply for one through the FAFSA process.
  • The applicant cannot have changed marital status since December 31st, 2011.

If you do not qualify for the IRS DRT, you may need to acquire an official return transcript from the IRS.  Such transcripts are available after your appropriate tax return has been processed and can be requested through the official IRS site here.  You can also call for a transcript toll-free at 1-800-908-9946.

Lapse of Air Transportation Excise Taxes after July 22, 2011: Frequently Asked Questions

July 27, 2011

Q. How are federal passenger air transportation excise taxes (commonly referred to as “ticket taxes”) collected?

A. The tax generally is imposed on the “amount paid” for commercial air transportation. When a person purchases a ticket for air transportation, the airline collects the federal passenger air transportation excise taxes from the purchaser and then later pays the collected amount over to the IRS. The amount of tax collected from the purchaser is shown on the purchaser’s receipt as a separate line item, often labeled “federal taxes.”

Q. Which federal air transportation excise taxes expired at the end of July 22, 2011?

A. Until they are reinstated by Congress, the following federal air transportation excise taxes do not apply to transportation beginning on or after July 23, 2011:

The 7.5 percent tax on the base ticket price;
The domestic segment tax of $3.70 per person per segment (a single takeoff and single landing);
The international travel facilities tax of $16.30 per person for flights that begin or end in the U.S., or $8.20 per person for a flight that begins or ends in Alaska or Hawaii; and
The 6.25 percent tax on the amount paid for transporting property by air.
Caution: Other taxes and fees, such as state taxes, security fees, Passenger Facility Charges (PFCs) and excess baggage fees, are not affected by the expiration of the taxes listed above.

Q. If I purchase my ticket after the tax expired and I travel before it is reinstated, can the airline collect the tax?

A. No, airlines are not authorized to collect the tax during any period in which it does not apply.

Q. If I purchase my ticket at a time when the tax is not in effect but I travel after the tax is reinstated, will I be subject to tax?

A. That depends on how such travel is treated in any legislation reinstating the tax. The legislation could either impose tax on all travel occurring after its enactment or provide an exemption for passengers who purchased tickets during the period when the tax was not in effect.

Q. If I travel on or after July 23, 2011, and I purchased my ticket on or before July 22, 2011, am I entitled to a refund for the federal air transportation excise taxes that I paid when I purchased the ticket? If so, will my airline refund the tax to me?

A. Passengers who paid for tickets on or before July 22, 2011, for travel beginning on or after July 23, 2011, may be entitled to a refund of the tax. Airlines are permitted to refund the tax to the passenger, just as they do in the ordinary course of business when issuing refunds for unused refundable tickets (including the associated taxes). Because the airlines and travel service providers already have the information about passenger ticket purchases and travel, and in many cases have payment card information that may facilitate streamlined refunds, the IRS has asked the airlines to provide refunds to eligible passengers when requested. However, passengers who are unable to obtain a refund from the airline may obtain a refund by submitting a claim to the IRS. Because the IRS has no information about passenger ticket purchases or travel dates, travelers who are unable to obtain a refund from the airline will be required to submit proof of taxes paid and travel dates to the IRS under procedures that are under development. The IRS will provide additional guidance at a later date.

Q. What rules apply to the collection and refund of taxes on air freight during the period in which the aviation taxes are not in effect?

A. In general, the rules for the collection and refund of taxes on air freight are the same as the rules with respect to the ticket taxes. In some cases, however, tax is imposed on the amount paid by an affiliate of the company providing the air freight service (rather than on the customer shipping the package). In those cases, only the shipper or its affiliate can obtain a refund from the IRS. The customer may contact the shipper or its affiliate about its policy of rebating such refunds to customers.

(Note: Neither the ticket tax nor the tax on air freight applies to excess baggage fees. Accordingly, tax on those fees was not collected and will not be refunded.)

In addition to the expiration of the federal air transportation excise taxes, rates for certain excise taxes on aviation fuels are reduced beginning on July 23, 2011. Starting on July 23, 2011, the tax rates on aviation gasoline and kerosene used in noncommercial aviation are 4.4 cents per gallon.

Q. I am a dealer that purchased taxed aviation fuel before July 23, 2011. If I hold that fuel on July 23, 2011, am I entitled to a refund of the difference between the pre-July 23, 2011, rate and the new, lower rate effective on July 23, 2011?

A. No, dealers that purchased taxed aviation fuel before July 23, 2011, and hold that fuel on July 23, 2011, are not entitled to a refund for the difference between the pre-July 23, 2011, rate and the rate effective on July 23, 2011. The same answer would apply if the dealer had purchased aviation gasoline.

Q. I am a general aviation pilot who purchased previously taxed aviation fuel on July 23, 2011. Am I entitled to a refund of the difference between the pre-July 23, 2011, rate and the new, lower rate effective on July 23, 2011?

A. No, pilots who purchase previously taxed aviation fuel after July 22, 2011, are not entitled to a refund of the difference between the pre-July 23, 2011, rate and the rate effective on July 23, 2011. The same answer would apply if the pilot had purchased aviation gasoline.

Two-Year Limit No Longer Applies to Many Innocent Spouse Requests

IR-2011-80, July 25, 2011

WASHINGTON — The Internal Revenue Service today announced that it will extend help to more innocent spouses by eliminating the two-year time limit that now applies to certain relief requests.

“In recent months, it became clear to me that we need to make significant changes involving innocent spouse relief,” said IRS Commissioner Doug Shulman. “This change is a dramatic step to improve our process to make it fairer for an important group of taxpayers. We know these are difficult situations for people to face, and today’s change will help innocent spouses victimized in the past, present and the future.”

The IRS launched a thorough review of the equitable relief provisions of the innocent spouse program earlier this year. Policy and program changes with respect to that review will become fully operational in the fall and additional guidance will be forthcoming. However, with respect to expanding the availability of equitable relief:

  • The IRS will no longer apply the two-year limit to new equitable relief requests or requests currently being considered by the agency.
  • A taxpayer whose equitable relief request was previously denied solely due to the two-year limit may reapply using IRS Form 8857, Request for Innocent Spouse Relief, if the collection statute of limitations for the tax years involved has not expired. Taxpayers with cases currently in suspense will be automatically afforded the new rule and should not reapply.
  • The IRS will not apply the two-year limit in any pending litigation involving equitable relief, and where litigation is final, the agency will suspend collection action under certain circumstances.

The change to the two-year limit is effective immediately, and details are in Notice 2011-70, posted today on IRS.gov.

Existing regulations, adopted in 2002, require that innocent spouse requests seeking equitable relief be filed within two years after the IRS first takes collection action against the requesting spouse. The time limit, adopted after a public hearing and public comment, was designed to encourage prompt resolution while evidence remained available. The IRS plans to issue regulations formally removing this time limit.

By law, the two-year election period for seeking innocent spouse relief under the other provisions of section 6015 of the Internal Revenue Code, continues to apply. The normal refund statute of limitations also continues to apply to tax years covered by any innocent spouse request.

Available only to someone who files a joint return, innocent spouse relief is designed to help a taxpayer who did not know and did not have reason to know that his or her spouse understated or underpaid an income tax liability. Publication 971, Innocent Spouse Relief, has more information about the program.

IRS Statement on Airline Ticket and Other Aviation-Related Taxes

July 22, 2011

The laws authorizing the airline ticket tax and other aviation-related taxes expired at midnight on Friday, July 22. The IRS continues to monitor pending legislation related to this issue. The IRS will continue to work with the airline industry to address issues relating to the collection and payment of the taxes involved. Taxpayers do not need to take any action at this time. The IRS will provide further guidance on this issue in the near future.

Tax Refund Withholdings and Offsets

If you owe money because of certain delinquent debts, the IRS or the Department of Treasury’s Financial Management Service (FMS), which issues IRS tax refunds, can offset or reduce your federal tax refund or withhold the entire amount to satisfy the debt.
Here are seven important facts the IRS wants you to know about tax refund offsets:

1. If you owe federal or state income taxes your refund will be offset to pay those taxes. If you had other debt such as child support or student loan debt that was submitted for offset, FMS will take as much of your refund as is needed to pay off the debt, and send it to the agency authorized to collect the debt. Any portion of your refund remaining after an offset will be refunded to you.

2. You will receive a notice if an offset occurs. The notice will reflect the original refund amount, your offset amount, the agency receiving the payment, and the address and telephone number of the agency.

3. You should contact the agency shown on the notice if you believe you do not owe the debt or you are disputing the amount taken from your refund.

4. If you filed a joint return and you’re not responsible for the debt, but you are entitled to a portion of the refund, you may request your portion of the refund by filing IRS Form 8379, Injured Spouse Allocation. Attach Form 8379 to your original Form 1040, Form 1040A, or Form 1040EZ or file it by itself after you are notified of an offset.

5. If you file a Form 8379 with your return, write “INJURED SPOUSE” at the top left corner of the Form 1040, 1040A, or 1040EZ. IRS will process your allocation request before an offset occurs.

6. If you are filing Form 8379 by itself, it must show both spouses’ social security numbers in the same order as they appeared on your income tax return. You, the “injured” spouse, must sign the form. Do not attach the previously filed Form 1040 to the Form 8379. Send Form 8379 to the Service Center where you filed your original return.

7. The IRS will compute the injured spouse’s share of the joint return for you. Contact the IRS only if your original refund amount shown on the FMS offset notice differs from the refund amount shown on your tax return.
Follow the instructions on Form 8379 carefully and be sure to attach the required forms to avoid delays. If a notice is not received contact the Financial Management Service at 800–304–3107, Monday through Friday from 7:30AM to 5 PM (Central Time).
For assistance with completing Form 8379, call the IRS toll-free number 800-829-1040.

Link:
Form 8379, Injured Spouse Allocation

IRS to Start Processing Delayed Returns on Feb. 14

IRS to Start Processing Delayed Returns on Feb. 14; Most People Unaffected and Can File Now

IR-2011-7, Jan. 20, 2011

WASHINGTON — The Internal Revenue Service plans a Feb. 14 start date for processing tax returns delayed by last month’s tax law changes. The IRS reminded taxpayers affected by the delay they can begin preparing their tax returns immediately because many software providers are ready now to accept these returns.

Beginning Feb. 14, the IRS will start processing both paper and e-filed returns claiming itemized deductions on Schedule A, the higher education tuition and fees deduction on Form 8917 and the educator expenses deduction. Based on filings last year, about nine million tax returns claimed any of these deductions on returns received by the IRS before Feb. 14.

People using e-file for these delayed forms can get a head start because many major software providers have announced they will accept these impacted returns immediately. The software providers will hold onto the returns and then electronically submit them after the IRS systems open on Feb. 14 for the delayed forms.

Taxpayers using commercial software can check with their providers for specific instructions. Those who use a paid tax preparer should check with their preparer, who also may be holding returns until the updates are complete.

Most other returns, including those claiming the Earned Income Tax Credit (EITC), education tax credits, child tax credit and other popular tax breaks, can be filed as normal, immediately.

The IRS needed the extra time to update its systems to accommodate the tax law changes without disrupting other operations tied to the filing season. The delay followed the Dec. 17 enactment of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, which extended a number of expiring provisions including the state and local sales tax deduction, higher education tuition and fees deduction and educator expenses deduction.

Related Items:

  • IR-2011-1, IRS Kicks Off 2011 Tax Season with Deadline Extended to April 18; Taxpayers Impacted by Recent Tax Breaks Can File Starting in Mid- to Late February
  • IR-2011-4, IRS e-file Launches Today; Most Taxpayers Can File Immediately

Issue Number: RP-2010-44

Revenue Procedure 2010-44 provides two safe harbor methods of accounting for certain motor vehicle dealerships to
(1) treat certain sales facilities as retail sales facilities for purposes of § 263A, and (2) be treated as resellers without production activities for purposes of § 263A.

Revenue Procedure 2010-44 will be published in Internal Revenue Bulletin 2010-49 on December 6, 2010.

2010 IRPAC Report Made Available

IR-2010-105, Oct. 20, 2010

WASHINGTON — The Information Reporting Program Advisory Committee (IRPAC) today released its 2010 Report, which is an annual report that includes recommendations on a wide range of tax administration issues.

IRPAC provides a public forum for the IRS and members of the information reporting community in the private sector to discuss relevant information reporting issues. The IRPAC is administered by the National Public Liaison Office of the IRS. IRPAC draws its members from the tax professional community

Based on its findings and discussions, IRPAC reviewed 30 issues and made recommendations on a broad array of issues and concerns, including the following:

  • Health care reporting (Form W-2) for 2011.
  • Information reporting (Form 1099-MISC) under the Patient Protection and Affordable Care Act of 2010.
  • Cost basis reporting by financial institutions of customer cost basis in securities transactions.
  • Payment reporting (Section 6050W) made in settlement of payment card and third party transactions.
  • Withholding and tax information reporting of payments of U.S. source income to foreign financial institutions and non-financial foreign entities, under Foreign Account Tax Compliance Act (FATCA).

Source: IRS News Room