New Tax Bill

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Late on December 1, 2017, the Senate passed their version of the “Tax Cuts and Jobs Act” (H.R. 1). Next, a conference committee will work to consolidate the House and Senate proposals, in a form that will pass both legislative bodies.

Following is a summary of the two bill versions. At this point, it is fair to assume that some combination of the proposals will be enacted. Where the two bills are substantively identical, this leads one to strongly know what the final bill will propose in that area. Unless otherwise stated, these provisions would begin in 2018.

One key difference is that Senate budget rules require that the bill either get 60 votes (not going to happen) or not increase the deficit beyond ten years. This requirement means that the individual tax provisions expire after 2025 (the corporate provisions are permanent). This sunset will have to remain in a final bill, again unless, 60 Senate votes can be obtained or the bill does not increase the deficit in the long term.

Individual tax provisions

Tax rates.

  • Current rule. For ordinary income, seven graduated tax rates apply to individuals – 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. The special long-term capital gains and qualified dividends, the rate is 0% for a taxpayer otherwise in the 10% or 15% rate. For a taxpayer otherwise in the 25% to 35%, the special rate is 15%. For those in the top 39.6% rate, the special rate is 20%.
  • House bill. Replace the seven rates with four – 12%, 25%, 35%, and 39.6%. The top rate applies at approximately twice the current amount of income. Long-term capital gains and qualified dividends rates are retained, and the 20% rate would apply at current rate brackets. The benefit of the lowest rate is recaptured for those at the 39.6% rate, making that marginal rate even higher.
  • Senate bill. Replace the seven rates with a different, slightly lower, seven – 10%, 12%, 22%, 24%, 32%, 35%, and 38.5%. Greatly increase the amount of income subject to each bracket. Long-term capital gains and qualified dividends – same as current law. No recapture of the lowest rate. Again, these rates sunset after 2025, reverting to current law.
  • Observation. The size of the House brackets means that the cuts are more aggressive as compared to the Senate, and accordingly, the revenue loss. House members will feel that the Senate proposal is the status quo, not reform. The brackets will be indexed for inflation in the future.

 

Standard deduction.

  • Current rule. Single – $6,350; Married-filing-jointly – $12,700; Head of household –$9,350.
  • House bill. Single – $12,200; Head of household – $18,300; Married-filing-jointly – $24,400.
  • Senate bill. Single – $12,000; Head of household – $18,000; Married-filing-jointly – $24,000.
  • Observation. Bill-writers believe that the large interest in the standard deduction, coupled with the restriction on itemized deductions, will result in 90% of taxpayers being able to avoid itemizing. Also, this cushions the blow for many specific itemized deductions that have been eliminated.

Personal exemptions.

  • Current rule. An exemption from tax applies to $4,050 of income, for the taxpayer, spouse, and any dependents.
  • House bill. Repealed.
  • Senate bill. Repealed.
  • Observation. Bill-writers say that the much larger standard deduction and an expanded child tax credit will address this loss, with simplification as a side effect. Lower to middle income taxpayers with many dependent children though will be adversely affected.

Child tax credit.

  • Current rule. A credit of $1,000 per dependent child under age 17 is allowed. The credit phases out beginning at $75,000 of single income ($110,000 joint).
  • House bill. Increase the credit to $1,600 per child and move the phase-out starting point to $115,000 single ($230,000 joint). Also, an additional credit of $300 is allowed for non-child dependents through 2022 only.
  • Senate bill. Increase the credit to $2,000 per child and move the phase-out starting point to $500,000. No supplemental credit for non-children.
  • Observation. The increased phase-outs and credit will make the credit much more valuable to most taxpayers than under current law.

Itemized deductions.

  • Current rule. Popular itemized deductions include medical expenses, state and local taxes (sales or income, but not both), real estate taxes, mortgage interest expense, charitable contributions, casualty losses, unreimbursed employee expenses, and tax preparation expenses. For mortgage interest, you can deduct interest on up to $1,000,000 of acquisition debt on a principal residence and one second home, plus interest on up to $100,000 of home equity debt from whatever source.
  • House bill. Eliminates medical, state and local income or sales taxes, casualty losses (unless a federal disaster), unreimbursed employee expenses, and tax preparation fees. Retains deductions for local property taxes (capped at $10,000), charitable contributions (some technical changes), and mortgage interest. Current mortgages for a principal residence are grandfathered, but new mortgages would be limited to the first $500,000 of acquisition debt. No deduction for equity loans, and vacation homes – without grandfathered protection.
  • Senate bill. Same as House for deduction of taxes. Retains the medical deduction, in fact, providing an improved 7.5% floor for medical expenses (currently 10%) for 2017 and 2018 only. For mortgage interest, only the home equity interest deduction would be repealed, with no other changes. Same as House for loss of miscellaneous deductions.
  • Observation. These changes would greatly reduce the need and ability to itemize deductions. Depending on your specific situation, the changes can have a minor effect or dramatically impact your income tax obligation.

Other deductions.

  • Current rule. Deductions allowed without the need to itemize for alimony, student loan interest, an educator deduction (up to $250), and moving expenses. Employer moving allowances are not included in income.
  • House bill. All are eliminated. Alimony income would not be taxable, and employer moving allowances would not be excluded from income.
  • Senate bill. The educator deduction is not only retained, but doubled. Only the moving expense and allowance is eliminated, the others retained.
  • Observation. A further move towards simplicity, again with winners and losers, depending on your facts.

 Gain on sale of a residence.

  • Current rule. A single taxpayer can exclude up to $250,000 of gain from the sale of a principal residence. Joint filers get up to $500,000 if both meet the requirements. Two key rules. One – you can claim this only once every two years. Two – the house must have been your principal residence for some two of the prior five years.
  • House bill. The two-out-of-five rule is replaced with a five-out-of-eight rule. The exclusion is available once every five years. Also, once income exceeds $500,000, the maximum exclusion phases out. The end result is that a married couple making $1 million is not eligible for an exclusion, regardless of other facts.
  • Senate bill. Same as House, except that the exclusion does not phase out for upper incomers.
  • Observation. The move to five-out-of-eight rule will keep home “flippers” from using the exclusion, but the House income test would represent the first limitation on using a home sale exclusion for upper-incomers.

Alternative minimum tax.

  • Current rule. Imposed on all taxpayers.
  • House bill. Repealed.
  • Senate bill. Retained with an increase in the exemption of about 40%.
  • Observation. Repealing the AMT is stalwart GOP position, but the Senate bill found it too expensive to get enough votes to pass. This will surely disappoint House members, who campaigned on AMT as a core belief. Expect them to fight to keep a full repeal.

Estate and gift tax.

  • Current rule. Estates over $5.5 million ($11 million married) are taxed at 40% of the excess. Lifetime gifts are taxed against this same limitation.
  • House bill. Doubles the exemption to over $10 million, and after 2024, repeal it entirely. The gift tax remains.
  • Senate bill. Double the exemption for both the estate and gift tax, without future repeal.
  • Observation. The estate tax currently affects only 0.2% of taxpayers under the present system.

Some other specific personal tax rules.

  • Roth IRA recharacterizations. Currently, income from the conversion of a regular IRA to Roth is taxable income. However, by October 15 of the subsequent year, the taxpayer can change his/her mind and return the IRA to its regular status, and amend their tax return to remove the income. This “undoing” is known as a recharacterization.
    • House bill. Repeals the right to a recharacterization.
    • Senate bill. Same as House.
  • Graduate student income. Currently, tuition waivers are not taxable income.
    • House bill. Taxes the value of the tuition waiver.
    • Senate bill. No change from current law.
  • Cost basis of securities sold. Currently, the taxpayer can use the FIFO method to account for which securities were sold (“first-in, first-out”), or the taxpayer can specifically identify which securities were sold. OR, in the case of a mutual fund only, average cost can be used.
    • House bill. No change from current law.
    • Senate bill. Would require the use of the FIFO method.

Business tax provisions

 Corporate income tax.

  • Current rule. Taxed at graduated rates from 15% to 35%. Personal service corporations (“PSCs”) are taxed at the top marginal rate.
  • House bill. Taxed at a flat 20%, beginning in 2018. PSCs are taxed at a flat 25%.
  • Senate bill. Taxed at a flat 20%, beginning in 2019. No special rate for PSCs.
  • Observation. The date will be the key difference to reconcile.

Tax rate on business income from partnerships, LLCs, and S corporations.

  • Current rule. Taxed as ordinary income at marginal tax rates.
  • House bill. Impose a maximum tax rate of 25%, where the income is based on capital investment. Where the income is also compensatory in nature, some ratio of income will qualify for the 25% while the rest is taxed at top marginal rates. Owners of PSC-type businesses will be considered entirely compensation and thus not eligible for this break. Smaller businesses could be taxed as low as 9% if the taxpayer was otherwise in the new 12% rate.
  • Senate bill. These owners will get a deduction for 23% of their “qualified business income”, limited to 50% of the wages paid by the business to its employees. PSC-type businesses are eligible to the extent that taxable income does not exceed $250,000 single, $500,000 married-filing-jointly. Note that this is a generalized response for a complicated concept.
  • Observation. Very different approaches, either of which, if enacted, would be one of the most complicated provisions in this bill.

Section 179 – depreciation expensing.

  • Current rule. Can deduct up to $500,000 per year, but it cannot create a loss. Begin to lose the ability to claim the deductions at $2 million of eligible additions in that year.
  • House bill. Deduction increased for up to $5 million, with a phase out beginning at $20 million.
  • Senate bill. Deduction increased for up to $1 million, with a phase out beginning at $2.5 million.
  • Observation. A significant tax incentive for small to medium-sized businesses, with a very different scope between the two bills. Taxpayers should expect that states will not follow this.

Section 168(k) – “bonus” depreciation.

  • Current rule. Can deduct 50% of the 2017 cost of certain “new” additions per year, no cap. Phases down to 40% in 2018, and ends with 30% in 2019.
  • House bill. Can deduct 100% of the cost for acquisitions after 9/27/2017. No longer required to be “new”. Effective 2018 through 2022.
  • Senate bill. Same as House except that provision phases out by 20% a year beginning in 2023. Also, the Senate does not change the current “new” requirement.
  • Observation. Another significant tax incentive for all businesses, beginning before 2018. Taxpayers should expect that states will not follow this treatment.

Some specific business tax rules set to change.

  • Deduction of interest expense.
    • Current rule. No limit.
    • House bill. Limited to 30% of EBITDA, with the excess available for up to five years. Does not apply to small taxpayers under $25 million gross receipts.
    • Senate bill. Limited to 30% of “adjusted taxable income”, with a non-expiring carryover of the excess. The 30% is applied to net business income before NOL and the 23% pass-through deduction, if applicable. Does not apply to those under $15 million gross receipts.
  • Alternative minimum tax.
    • Current rule. Imposed on corporations.
    • House bill. Fully repealed.
    • Senate bill. No change from current law.
  • Entertainment deduction
    • Current rule. Generally 50% deductible.
    • House bill. Not deductible.
    • Senate bill. Same as House.
  • Real estate depreciation.
    • Current rule. Residential real estate is depreciated over 27.5 years; commercial over 39 years.
    • House bill. No provision.
    • Senate bill. Life reduced to 25 years, allowing for a faster recovery of the investment.
  • Net operating losses (“NOLs”).
    • Current rule. Can carry back for two years, and/or carry forward for up to twenty years.
    • House bill. No further carry backs after 2017. Carry forwards are limited to 90% of income (still must pay tax on 10% even if you have plenty of NOLs).
    • Senate bill. Same as House, except the limit becomes 80% after 2022.
  • Like-kind exchanges.
    • Current rule. Allowed for real and personal property used for investment or in a business.
    • House bill. Repealed for all assets except real property.
    • Senate bill. Same as House.
  • Domestic production deduction.
    • Current rule. Deduction of 9% of production activity income.
    • House bill. Repealed after 2017.
    • Senate bill. Repealed after 2017 for pass-through, after 2018 for others.
  •  “C” corporations forced to use the accrual method of accounting.
    • Current rule. At $5 million gross receipts.
    • House bill. At $25 million gross receipts.
    • Senate bill. At $15 million gross receipts.
  • Required to comply with Section 263A capitalization rules.
    • Current rule. At $10 million for resellers, no threshold for manufacturers.
    • House bill. At $25 million gross receipts.
    • Senate bill. At $15 million gross receipts.
  • Local lobbying expenses.
    • Current rule. Deductible.
    • House bill. Deduction repealed.
    • Senate bill. Same as House.
  • Work Opportunity Tax Credit.
    • Current rule. Provides a tax credit for a percentage of the wages paid to certain disadvantaged groups.
    • House bill. Repealed.
    • Senate bill. No provision.
  • Technical termination rule.
    • Current rule. A partnership (or an entity taxed as a partnership) is considered terminated and a new partnership started where there is a sale or exchange of more than 50% of the ownership interests in a 12-month period.
    • House bill. Repeal the rule.
    • Senate bill. No provision.

This information above was shared with us by Milton Howell, CPA, the tax partner with DMJ in Greensboro, NC.  DMJ & Co. is a CPA and accounting firm located North Carolina specializing in tax preparation, financial planning and wealth management.

For more information on how these tax changes affect you or your business, please contact Kevin Sayed, 252-321-2020.

House Passes Tax Reform

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House Passes Tax Reform

See this link for the tax changes that have been approved by the U.S. House:   House Passes Tax Reform

Employee or Independent Contractor? Know the Rules

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All material below original issued by the Internal Revenue Service. If you need help with employment or contracts, business or corporate matters, or business tax optimization, call Kevin M. Sayed, J.D., LL.M. Taxation at Colombo Kitchin Attorneys, 252-321-2020.

Issue Number:    IRS Small Business Week Tax Tip 2017-02

Inside This Issue

The IRS encourages all businesses and business owners to know the rules when it comes to classifying a worker as an employee or an independent contractor.

An employer must withhold income taxes and pay Social Security, Medicare taxes and unemployment tax on wages paid to an employee. Employers normally do not have to withhold or pay any taxes on payments to independent contractors.

Here are two key points for small business owners to keep in mind when it comes to classifying workers:

  1. Control. The relationship between a worker and a business is important. If the business controls what work is accomplished and directs how it is done, it exerts behavioral control. If the business directs or controls financial and certain relevant aspects of a worker’s job, it exercises financial control. This includes:
  • The extent of the worker’s investment in the facilities or tools used in performing services
  • The extent to which the worker makes his or her services available to the relevant market
  • How the business pays the worker, and
  • The extent to which the worker can realize a profit or incur a loss
  1. Relationship. How the employer and worker perceive their relationship is also important for determining worker status. Key topics to think about include:
  • Written contracts describing the relationship the parties intended to create
  • Whether the business provides the worker with employee-type benefits, such as insurance, a pension plan, vacation or sick pay
  • The permanency of the relationship, and
  • The extent to which services performed by the worker are a key aspect of the regular business of the company
  • The extent to which the worker has unreimbursed business expenses

The IRS can help employers determine the status of their workers by using form Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. IRS Publication 15-A, Employer’s Supplemental Tax Guide, is also an excellent resource.

 

 

Employers Must File Forms W-2 by Jan. 31 This Year

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All material below original published by IRS. For help with tax law for personal or business matters, call Kevin M Sayed, J.D., LL.M. taxation at 252-321-2020.

Issue Number:  IR-2017-13

The Internal Revenue Service today reminds employers that the due date for filing Forms W-2, the Wage and Tax Statement for their employees for calendar year 2016, is now Jan, 31, 2017. Also, those who hire contract workers and have to file Form 1099-MISC now must file by Jan. 31.

The new deadline applies whether an employer e-files or files a paper Form W-2. Employers who pay an employee $600 or more for the year must file a Form W-2 for each employee with the Social Security Administration.

The new deadline is part of legislation signed into law at the end of 2015 to combat identity-theft related refund fraud.

The Social Security Administration encourages all employers to e-file their Forms W-2 by using its Business Services Online.  Employers who file paper Forms W-2 should file them with the Social Security Administration, Data Operations Center, Wilkes-Barre, PA 18769-0001.

E-filing can save time and effort and helps ensure accuracy. Employers must e-file if they file 250 or more Forms W-2 or W-2c. Employers who are required to e-file but fail to do so may incur a penalty. E-filing can save time and effort and helps ensure accuracy.

The IRS projects that employers will file more than 250 million Forms W-2 this year; the vast majority will be e-filed.

The new rule does not affect the filing deadline for other types of Form 1099 or Forms 1097, 1098, 3921, 3922, or W-2G, which are filed on paper by Feb. 28, 2018, or by April 2, 2018 if filed electronically.

IRS to Strengthen Anti-Fraud Effort with Form W-2 Verification Code

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If you have questions about filing your 2017 taxes, or questions about how to report income, deductions or gifts, contact Kevin M. Sayed at Colombo Kitchin Attorneys, 252-321-2020. All material below originally published by the Internal Revenue Service.

IRS, Partners Move to Strengthen Anti-Fraud Effort with Form W-2 Verification Code

When you get your Form W-2 in early 2017, you may notice a new entry – a 16-digit verification code. This is part of an effort conducted by the Internal Revenue Service to protect taxpayers and strengthen anti-fraud efforts.

The expanded use of the W-2 Verification Code is a way to validate the wage and tax withholding information on the tax form. For taxpayers, taking a moment to add this code when filling out their taxes helps the IRS authenticate the information. This in turn helps protect against identity theft and unnecessary refund delays.

For 2017, the IRS and its partners in the payroll service provider industry will place the code on 50 million Forms W-2. This is up from two million forms in 2016.

The IRS, state tax agencies and the nation’s tax industry – partners in combating identity theft – ask for your help in their efforts. Working in partnership with you, we can make a difference.

That’s why we launched a public awareness campaign that we call Taxes. Security. Together. We’ve also launched a series of security awareness tips that can help protect you from cybercriminals.

One area where we need your help is with the W-2 Verification Code. If your W-2 contains the code, please enter it when prompted if using software to prepare your return. Or, please make sure your tax preparer enters it.

If the code is not included, your tax return will still be accepted. However, initial results indicate the verification code shows promise in reducing tax fraud. It helps IRS processing systems authenticate the real taxpayer. Identity thieves sometimes file false Forms W-2 to support their fraudulent tax returns.

This initiative will affect only those Forms W-2 prepared by payroll service providers. The verification code’s location on the form will vary. Enter the code on electronically filed returns only. Most software providers will prompt you to enter the code.

To learn additional steps you can take to protect your personal and financial data, visit Taxes. Security. Together. Also read Publication 4524, Security Awareness for Taxpayers.

Share this tip on social media — IRS, Partners Move to Strengthen Anti-Fraud Effort with Form W-2 Verification Code. http://go.usa.gov/x9r7F #IRS

IRS Gives Tax Relief to Victims of Hurricane Matthew

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All material below original published by IRS. For help with tax law for personal or business matters, call Kevin M Sayed, J.D., LL.M. taxation at 252-321-2020.

IRS Gives Tax Relief to Victims of Hurricane Matthew; Many Extension Filers in North Carolina Now Affected; Relief for Other States Expected Soon

Updated 10/14/16 to include Dare, Duplin, Gates, Hyde, Jones, Pender counties.

Updated 10/13/16 to include Greene, Harnett and Sampson counties.

Updated 10/12/16 to include Bertie, Johnston, Wayne and Wilson counties.

IR-2016-131, Oct. 11, 2016

WASHINGTON –– North Carolina storm victims will have until March 15, 2017, to file certain individual and business tax returns and make certain tax payments, with similar relief expected soon for Hurricane Matthew victims in other states, the Internal Revenue Service announced today. All workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization also qualify for relief.

Following this week’s disaster declaration for individual assistance issued by the Federal Emergency Management Agency (FEMA), the IRS said that affected taxpayers in Beaufort, Bladen, Columbus, Cumberland, Edgecombe, Hoke, Lenoir, Nash, Pitt and Robeson counties will receive this and other special tax relief. Locations in other states are expected to be added in coming days, based on damage assessments by FEMA.

The tax relief postpones various tax filing and payment deadlines that occurred starting on Oct. 4, 2016. As a result, affected individuals and businesses will have until March 15, 2017, to file returns and pay any taxes that were originally due during this period. This includes the Jan. 17 deadline for making quarterly estimated tax payments. For individual tax filers, it also includes 2015 income tax returns that received a tax-filing extension until Oct. 17, 2016. The IRS noted, however, that because tax payments related to these 2015 returns were originally due on April 18, 2016, those are not eligible for this relief.

A variety of business tax deadlines are also affected including the Oct. 31 and Jan. 31 deadlines for quarterly payroll and excise tax returns. It also includes the special March 1 deadline that applies to farmers and fishermen who choose to forgo making quarterly estimated tax payments.

In addition, the IRS is waiving late-deposit penalties for federal payroll and excise tax deposits normally due on or after Oct. 4 and before Oct. 19 if the deposits are made by Oct. 19, 2016. Details on available relief can be found on the disaster relief page on IRS.gov.

The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. Thus, taxpayers need not contact the IRS to get this relief. However, 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 need to contact the IRS at 866-562-5227.

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 2016 return normally filed next year), or the return for the prior year (2015). See Publication 547 for details.

The tax relief is part of a coordinated federal response to the damage caused by severe storms and flooding and is based on local damage assessments by FEMA. For information on disaster recovery, visit disasterassistance.gov.

 

Five Tax Tips for Starting a Business

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For business planning and tax advice, or personal and business tax disputes, call Kevin Sayed, J.D., LL.M. Taxation, at 252-321-2020. All materials below originally published by the Internal Revenue Service.

 IRS Tax Tips:

Five Tips for Starting a Business

Understanding your tax obligation is one key to business success. When you start a business, you need to know about income taxes, payroll taxes and much more. Here are five IRS tax tips that can help you get your business off to a good start:

  1. Business Structure. An early choice you need to make is to decide on the type of structure for your business. The most common types are sole proprietor, partnership and corporation. The type of business you choose will determine which tax forms you file.
  2. Business Taxes.  There are four general types of business taxes. They are income tax, self-employment tax, employment tax and excise tax. In most cases, the types of tax your business pays depends on the type of business structure you set up. You may need to make estimated tax payments. If you do, you can use IRS Direct Pay to make them. It’s the fast, easy and secure way to pay from your checking or savings account.
  3. Employer Identification Number (EIN).  You may need to get an EIN for federal tax purposes. Search “do you need an EIN” on IRS.gov to find out if you need this number. If you do need one, you can apply for it online.
  4. Accounting Method.  An accounting method is a set of rules that you use to determine when to report income and expenses. You must use a consistent method. The two that are most common are the cash and accrual methods. Under the cash method, you normally report income and deduct expenses in the year that you receive or pay them. Under the accrual method, you generally report income and deduct expenses in the year that you earn or incur them. This is true even if you get the income or pay the expense in a later year.
  5. Employee Health Care.  The Small Business Health Care Tax Credit helps small businesses and tax-exempt organizations pay for health care coverage they offer their employees. You’re eligible for the credit if you have fewer than 25 employees who work full-time, or a combination of full-time and part-time. The maximum credit is 50 percent of premiums paid for small business employers and 35 percent of premiums paid for small tax-exempt employers, such as charities. For more information on your health care responsibilities as an employer, see the Affordable Care Act for Employers page on IRS.gov.

Don’t Forget to Report Certain Foreign Accounts to Treasury by June 30 Deadline

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All material originally published by the Internal Revenue Service. For help with reporting foreign bank accounts, penalty relief, or other tax matters call Kevin M. Sayed, J.D., LL.M. Taxation, at 252-321-2020

Issue Number:    IR-2016-90

Inside This Issue

________________________________________

Don’t Forget to Report Certain Foreign Accounts to Treasury by the June 30 Deadline

WASHINGTON—The Internal Revenue Service today reminded taxpayers who have one or more bank or financial accounts located outside the United States, or signature authority over such accounts that they may need to file an FBAR by Thursday, June 30.

By law, many U.S. taxpayers with foreign accounts exceeding certain thresholds must file Form 114, Report of Foreign Bank and Financial Accounts, known as the “FBAR.” It is filed electronically with the Treasury Department’s Financial Crimes Enforcement Network (FinCen).

“Robust growth in FBAR filings in recent years shows we are getting the word out regarding the importance of offshore tax compliance,” said IRS Commissioner John Koskinen. “Taxpayers here and abroad should take their foreign account reporting obligations very seriously.”

In general, the filing requirement applies to anyone who had an interest in, or signature or other authority over foreign financial accounts whose aggregate value exceeded $10,000 at any time during 2015. Because of this threshold, the IRS encourages taxpayers with foreign assets, even relatively small ones, to check if this filing requirement applies to them. The form is only available through the BSA E-Filing System website.

In 2015, FinCen received a record high 1,163,229 FBARs, up more than 8 percent from the prior year. FBAR filings have grown on average by 17 percent per year during the last five years, according to FinCen data.

The IRS is implementing the Foreign Account Tax Compliance Act (FATCA), which mandates third-party reporting of foreign accounts to foster offshore tax compliance. FATCA created a new filing requirement: IRS Form 8938, Statement of Specified Foreign Financial Assets, which is filed with individual tax returns. The filing thresholds are much higher for this form than for the FBAR.

The International Taxpayers page on IRS.gov provides the best starting place to get answers to important questions. The website has a directory that includes overseas tax preparers. International taxpayers will find the online IRS Tax Map and the International Tax Topic Index to be valuable resources.

Six Facts You Should Know Before Deducting a Charitable Donation

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If you need assistance with charitable giving and charitable donations, or non-profits, contact Kevin M. Sayed, J.D., LL.M. Taxation, with Colombo Kitchin Attorneys at 252-353-1096.  All materials below originally published by the Internal Revenue Service.

Issue Number:  IRS Tax Tip 2016-47

Inside This Issue

If you gave money or goods to a charity in 2015, you may be able to claim a deduction on your federal tax return. Here are six important facts you should know about charitable donations.

  1. Qualified Charities. You must donate to a qualified charity. Gifts to individuals, political organizations or candidates are not deductible. An exception to this rule is contributions under the Slain Officer Family Support Act of 2015. To check the status of a charity, use the IRS Select Check tool.
  2. Itemize Deductions. To deduct your contributions, you must file Form 1040 and itemize deductions. File Schedule A, Itemized Deductions, with your federal tax return.
  3. Benefit in Return. If you get something in return for your donation, you may have to reduce your deduction. You can only deduct the amount of your gift that is more than the value of what you got in return. Examples of benefits include merchandise, meals, tickets to an event or other goods and services.
  4. Type of Donation. If you give property instead of cash, your deduction amount is normally limited to the item’s fair market value. Fair market value is generally the price you would get if you sold the property on the open market. If you donate used clothing and household items, they generally must be in good condition, or better, to be deductible. Special rules apply to cars, boats and other types of property donations.
  5. Form to File and Records to Keep. You must file Form 8283, Noncash Charitable Contributions, for all noncash gifts totaling more than $500 for the year. If you need to prepare a Form 8283, you can prepare and e-file your tax return for free using IRS Free File. The type of records you must keep depends on the amount and type of your donation. To learn more about what records to keep see Publication 526.
  6. Donations of $250 or More. If you donated cash or goods of $250 or more, you must have a written statement from the charity. It must show the amount of the donation and a description of any property given. It must also say whether you received any goods or services in exchange for the gift.

 

 

Top 10 Tax Tips about Debt Cancellation

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All material below originally published by the Internal Revenue Service. For help with debt related income, interest income, debt write-offs, or other business or personal debt tax matters, contact Kevin M. Sayed, J.D., LL.M. Taxation at 252-321-2020, at Colombo Kitchin Attorneys.

Issue Number:    IRS Tax Tip 2016-30

Inside This Issue

Top 10 Tax Tips about Debt Cancellation

If your lender cancels part or all of your debt, it is usually considered income and you normally must pay tax on that amount. However, the law allows an exclusion that may apply to homeowners who had their mortgage debt cancelled in 2015. Here are 10 tips about debt cancellation:

  1. Main Home. If the cancelled debt was a loan on your main home, you may be able to exclude the cancelled amount from your income. You must have used the loan to buy, build or substantially improve your main home to qualify. Your main home must also secure the mortgage.
  2. Loan Modification. If your lender cancelled part of your mortgage through a loan modification or ‘workout,’ you may be able to exclude that amount from your income. You may also be able to exclude debt discharged as part of the Home Affordable Modification Program, or HAMP. The exclusion may also apply to the amount of debt cancelled in a foreclosure.
  3. Refinanced Mortgage. The exclusion may apply to amounts cancelled on a refinanced mortgage. This applies only if you used proceeds from the refinancing to buy, build or substantially improve your main home and only up to the amount of the old mortgage principal just before refinancing. Amounts used for other purposes do not qualify.
  4. Other Cancelled Debt. Other types of cancelled debt such as second homes, rental and business property, credit card debt or car loans do not qualify for this special exclusion. On the other hand, there are other rules that may allow those types of cancelled debts to be nontaxable.
  5. Form 1099-C. If your lender reduced or cancelled at least $600 of your debt, you should receive Form 1099-C, Cancellation of Debt, by Feb. 1. This form shows the amount of cancelled debt and other information.
  6. Form 982. If you qualify, report the excluded debt on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. File the form with your federal income tax return.
  7. IRS.gov Tool. Use the Interactive Tax Assistant tool on IRS.gov to find out if your cancelled mortgage debt is taxable.
  8. Exclusion Extended. The law that authorized the exclusion of cancelled debt from income was extended through Dec. 31, 2016.
  9. IRS Free File.  IRS e-file is fastest, safest and easiest way to file. You can use IRS Free File to e-file your tax return for free. If you earned $62,000 or less, you can use brand name tax software. The software does the math and completes the right forms for you. If you earned more than $62,000, use Free File Fillable Forms. This option uses electronic versions of IRS paper forms. It is best for people who are used to doing their own taxes. Free File is available only on IRS.gov/freefile.
  10. More Information. For more on this topic see Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments.