Practical IRS Tax Insights – March 2019 Newsletter
IRS Matters: Letters are a bit slow at this time. Those of you waiting for the IRS to go after you hoping you will slip through the cracks are making a big mistake. Most of the cases we get are from people who have waited too long. I always propose a proactive approach to IRS tax issues. I always advise never to approach the IRS for any matter unless you know what they have on you from the appropriate transcripts. This year, with all the new changes, it behooves you even more so to wait till the extension date to file. However, you should know what your liability is if any NOW. Don’t’ make assumptions based on prior years. Those of you who rely on the “employee business expense” on sch C will be very disappointed to find out that the deduction is gone for 2018. What else will you be disappointed to find out. You might as well know it now. I can make it easier to handle. Call Stephanie at 713-774-4467 and let’s see what needs to be done.
In the Tax arena, there is a lot of things that are not settled. This month I am sharing parts of my copy of the Kiplinger Tax Letter, rather than just summarizing parts of it. I think it’s pretty good the way it is.
What is going on with the tax extenders? Many of Kiplinger’s readers keep asking about the fate of the 26 tax breaks that expired at the end of 2017. They include the private mortgage insurance write-off, the $2-million exclusion for forgiven debt on a home,
the deduction for college tuition, faster depreciation for motor sports complexes, the biodiesel credit, plus lots of other business and energy tax incentives. It’s still a wait-and-see game, unfortunately. Senate taxwriters are urging a speedy fix. There’s a bill to renew all the breaks for 2018 and 2019. But the House isn’t in as big a hurry. Taxwriters will start to hold hearings next week on the temporary provisions in the tax law, which will touch on extenders. One holdup is the number of new members who need to get up to speed on the issue.
They still believe it’s a matter of when, and not if, the breaks will be renewed. At the end of the day, they see passage of a two-year extension of all the provisions. But it wouldn’t surprise them to see this drag into summer. In the meantime, affected taxpayers and their preparers need to weigh the circumstances and decide whether to file returns and amend later or wait and apply for a filing extension.
What are other tax items on Congress’s plate that might see action this year?
A fix for slipups in the tax reform law. Republicans continue to clamor for a slew of technical corrections to the legislation. Democrats aren’t so keen on this, but they’re getting increasing pressure from lobbyists and businesses to act.
Enhanced tax advantages for retirement savings. This is a priority for Richard Neal (D-MA), the new chairman of the House Ways & Means Com.
Relief for individuals and businesses affected by major natural disasters, similar to the 2017 easings given to victims of hurricanes Harvey, Irma and Maria.
Also, a delay of the 2.3% tax on medical device sales. This Obamacare tax is now slated to take effect in 2020. There’s a bipartisan push to get rid of it. That likely won’t happen, but another one- or two-year delay is in the cards.
What do we see languishing in Congress?
Tax relief for marijuana firms, which currently can’t write off most expenses…even those businesses located in states in which it is legal to sell or use the drug for recreational or medicinal purposes. Support for legal pot firms to claim deductions is growing, but it’s an uphill battle.
A tax on financial transactions. Newly introduced bills in the House and Senate would impose a 0.1% excise tax on stock, bond and derivative trades. This is a no-go. Similar proposals have failed to gain any traction in the past.
Federal legislation on online sales taxes. Congress will let states sort this out in light of last year’s Supreme Court decision that upheld S.D.’s tax on remote sales.
Long-requested state tax relief for people who work briefly in another state. Sen. Chuck Schumer (D-NY) opposes a bill that would bar states from taxing wages paid to nonresidents working in a state unless they worked there over 30 days.
An abused ex-spouse qualifies for equitable relief from bills for back taxes, the Tax Court says. A couple who neglected to file four years of returns submitted them to IRS after they had divorced. The Service went after the couple for the unpaid taxes, and the ex-wife requested innocent spouse relief. She claimed that she was a victim of spousal abuse and her ex-husband left her little to live on.
Based on these and other factors, the Tax Court let her off the hook for the taxes, saying it was inequitable to hold her liable (Contreras, TC Memo. 2019-12).
IRS can go after heirs for unpaid estate tax, a district court confirms. The decedent transferred property to his adult kids a few months before he died. The children also inherited cash and property upon the decedent’s death. The estate failed to pay its estate tax liability, and IRS sought to recoup the tax from the heirs. Each person is liable for his or her portion of the unpaid estate tax, based on the value of the property received by him or her (Ringling, D.C., S.D.).
The popular sharing, or gig, economy will be under the watchful eye of IRS. As freelance service gigs from online sites such as Uber, Etsy, DoorDash, TaskRabbit and Rover expand, a growing number of individuals who get paid for these services are unaware of their tax obligations. Many don’t see themselves as self-employed. They fail to make quarterly estimated tax payments or pay self-employment tax.
The Service is trying to raise public awareness. A page on its website is devoted to helping people who get paid for their activities in the sharing economy. IRS is also turning toward social media to increase communication and outreach. But the agency needs to do more. It is now developing a compliance strategy specifically targeted to this sector. It plans to do demographic research and use data
to identify and address noncompliance, such as erroneous income tax returns, worker classification issues, self-employment tax and information reporting.