Practical IRS Tax Insights – April 2019 Newsletter
No More Excuses!
You can have quality accounting and tax work from our firm and pay monthly to manage your budget better. This also applies to payments on IRS cases, for when you need to make another payment and you don’t have the whole payment right away. Call 713-774-4467 and ask Stephanie about it.
Excerpts from the Kiplinger Tax Letter:
The American Opportunity Tax Credit is worth up to $2,500 per student
for each of the first four years of college. It phases out for couples with a modified AGI above $160,000…$80,000 for individuals…and ends when modified AGI tops $180,000 and $90,000, respectively. Eligible expenses include tuition, books and supplies.
A popular break has lapsed: The above-the-line deduction for college tuition. In the past, eligible taxpayers could write off up to $4,000 in college tuition and fees. This provision is part of the package of tax extenders that expired at the end of 2017, although there remains a glimmer of hope that it will be revived by Congress.
Coordinating the various education tax breaks can be somewhat tricky.
That’s because you can’t use the same college expenses for multiple benefits. IRS Publication 970 delves into these rules and lots of other education tax incentives, such as the lifetime learning credit and the deduction for student loan interest.
Here’s a tip if you changed your name because of marriage, divorce, etc.
Be sure to timely report the change to the Social Security Admin.
and apply for a new Social Security card by filing Form SS-5 with the SSA.
Call 800-772-1213 or go to https://www.ssa.gov/ssnumber to get the details.
Names shown on tax returns must match Social Security records. A mismatch can delay the processing of your return and your refund.
Calling IRS with a tax law question? You won’t always get the right answer,
even if you can get through to a live operator, the National Taxpayer Advocate says. Her office conducted a test by calling the agency’s toll-free help line to pose questions on the new tax law changes. In many instances, the operator gave an incorrect reply. For example, one set of calls asked about claiming the dependency exemption, which was repealed under tax reform. In no case did the caller get the correct response.
Joe says, “This is why you call us to do your work.”
IRS telephone scams are surging during this filing season, the agency warns. The callers, who claim to be agency employees, alter the caller ID readout to show IRS, or, in some of the more recent scams, the agency’s Taxpayer Advocate Service offices. Victims are told they owe taxes and must pay up through a wire transfer, gift card or prepaid debit card. They’re threatened with arrest, foreclosure or deportation. Seniors and low-income individuals are especially at risk from these scams. If you get one of these calls, don’t give out information. Hang up immediately and notify Treasury inspectors at 800-366-4484 and IRS at email@example.com.
A reminder on IRS’s voluntary correction program for retirement plans.
Under the VCP, sponsors can disclose errors in plan documents or operations, pay a fee, and work with IRS to fix the mistakes and keep the plan’s tax-favored status. Beginning April 1, IRS won’t accept paper filings. Applicants must use www.pay.gov to electronically file their VCP submissions and pay the applicable user fees.
IRS reverses course on pension plans that cash out retirees in pay status.
Prior to 2015, IRS privately approved plan sponsors’ requests to amend their plans to offer retirees in pay status a limited, one-time window to take the actuarial value of their monthly benefits in a lump sum. Then, in 2015, in a published notice, the Revenue Service announced it would issue new regulations banning this practice by declaring that these types of lump sum payments violate the minimum payout rules. IRS has now made a U-turn and will not issue those regs after all. Note that IRS won’t revive its prior practice of privately ruling on lump sum payment windows.
The $10,000 cap on state and local tax deductions will affect lots of filers…
Close to 10.9 million taxpayers in 2018 alone, Treasury inspectors estimate. These people will have about $323 billion in excess state and local tax levies in 2018 that they can’t deduct on Schedule A of their 1040s because of the new $10,000 limit. Taxpayers in high-tax states such as Calif., N.J. and N.Y. are hit hardest by the cap.
S corporations that file returns late face a stiff fine…$200 for each month, up to a maximum of 12 months, multiplied by the number of shareholders. S corporations can seek an extension of the March 15 due date by filing Form 7004. A couple who wholly owned an S corporation found this out the hard way. The firm filed its Form 1120S six months late. The couple, who got a filing extension for their 1040 return, didn’t seek a similar extension for their company’s return. The company argued that the 1040 extension should have covered the firm’s return. And it said the late filing was harmless because the couple were the firm’s sole owners.
The Tax Court shot down these two arguments and upheld IRS’s assessment
of penalties for the late-filed 1120S return (ATL & Sons Holding, 152 TC No. 8).
The income tax exclusion for the parsonage allowance is constitutional.
In 2017, a district court ruled that the exclusion was unconstitutional
because the exemption for clergy housing allowances was akin to support of religion by the federal government. An appeals court has now reversed that decision, saying the exclusion doesn’t result in excessive government entanglement with religion and the statute has a secular legislative purpose (Gaylor, 7th Cir.).
Nonprofits seek relief from a change to the unrelated business income tax.
Tax reform now requires them to include in unrelated business taxable income the value of employer-provided employee transportation and parking benefits. Churches and other groups call the change a tax hike and want it gone. But repeal efforts face an uphill climb, despite some support in Congress.
The Social Security wage base is projected to rise to $136,800 for 2020,
a $3,900 increase from this year. That’s President Trump’s budget forecast,
based on data from the Social Security Admin. If you’re doing longer-range planning, the estimates are $141,000 for 2021, $147,000 for 2022 and $154,200 for 2023. The final number, based on national average wage-index growth, comes in mid-Oct.
Filers who claim excess Social Security tax credits are on IRS’s radar.
If your total pay from two or more employers exceeds the annual wage base,
you can claim a credit on your Form 1040 for the excess Social Security tax withheld. Lots of people claim this credit. For 2016 income tax returns that were due in 2017, over 1.5 million filers claimed more than $3.1 billion in these excess credits. IRS pulls returns that claim the credit but have only one W-2 form attached, or that have several W-2s but an income total that is less than the wage base. But the agency can do more in policing the credit, Treasury inspectors say, such as sending notices to taxpayers in cases in which it identifies discrepancies
between the credit claimed on the return and withheld taxes reported by employers. Joe says, “Another reason why we order wage and income transcripts.”