Month: March 2018

The Importance of a ‘Paycheck Checkup’

Posted by Maria T. Rollins on

The Importance of a Paycheck CheckupThe Internal Revenue Service is urging taxpayers to do a “paycheck checkup.”

To help understand the implications of the Tax Cuts and Jobs Act, the IRS unveiled several new features to navigate the issues affecting withholding in their paychecks. The effort includes a new series of plain language Tax Tips which detail the importance of reviewing withholding as soon as possible.

The new tax law could affect how much tax you should have your employer withhold from your paycheck. To help with this, taxpayers can use the IRS’ Withholding Calculator. The Withholding Calculator can help prevent you from having too little or too much tax withheld from their paycheck. Having too little tax withheld can mean an unexpected tax bill or potentially a penalty at tax time next year. With the average refund topping $2,800, some taxpayers might prefer less tax withheld up front and receive more in their paychecks.

Individuals can use the Withholding Calculator to estimate their 2018 income tax. The Withholding Calculator compares that estimate to your current tax withholding and can help you decide if you need to change your withholding with your employer.  When using the calculator, it’s helpful to have a completed 2017 tax return available.

Those who need to adjust their withholding must submit a new Form W-4 to their employer. If you need to adjust your withholding, doing so as quickly as possible means there’s more time for tax withholding to take place evenly during the rest of the year. If you wait until later in the year, it could have a bigger impact on each paycheck and your 2018 return.

The Tax Cuts and Jobs Act increased the standard deduction, removed personal exemptions, increased the child tax credit, limited or discontinued certain deductions, and changed the tax rates and brackets. Those who should especially check their withholding are:

  • Two-income families
  • People working two or more jobs or who only work for part of the year
  • People with children who claim credits such as the Child Tax Credit
  • People with older dependents, including children age 17 or older
  • People who itemized deductions in 2017
  • People with high incomes and more complex tax returns
  • People with large tax refunds or large tax bills for 2017

We’ve got your back

At KRS, we’re working to help our clients understand and navigate these tax law changes. We strongly encourage all taxpayers to do a paycheck checkup to ensure they’re having the right amount of tax withheld for their unique personal situation. Contact managing partner Maria Rollins at mrollins@krscpas.com or 201.655.7411 for a complimentary initial consultation.

Tax Cuts & Jobs Act and Section 199A

Posted by Simon Filip on

Tax Cuts & Jobs Act and Section 199AFor taxable years beginning after December 31, 2017 and before January 1, 2026, non-corporate taxpayers (individuals, trusts, and estates) may take a deduction equal to 20 percent of Qualified Business Income (QBI) from partnerships, S corporations, and sole proprietorships.

QBI includes the net domestic business taxable income, gain, deduction, and loss with respect to any qualified trade or business.

The deduction is available without limitation to individuals as well as trusts and estates where taxable income is below $157,500 if single and $315,000 if married filing jointly. There is a phase-out when taxable income from all sources exceeds $157,500 to $207,500 for single filers and $315,000 to $415,000 if married filing jointly. The deduction is 20 percent of the qualified business income, further limited of 20 percent of taxable income.

For example: Amy is a small business owner and files a schedule C.

  • Amy made $100,000 net income from her business in 2018.
  • Amy files a single return and her taxable income is $70,000.
  • Amy’s Sec. 199A deduction is 20% of $70,000, or $14,000.

QBI is determined for each trade or business of the taxpayer. The determination of accepted trades takes into account these items only to the extent included or allowed in the taxable income for the year. This figure cannot be deducted on the business return. There are two different categories in which trades and business can classified, Specified Service and Qualified.

Specified service means any trade or business involving the performance of services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, including investing and investment management, trading, or dealing in securities, partnership interests, or commodities, and any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its employees. Engineering and architecture, originally included as specified service trades or businesses, were omitted in the final version of the TCJA.

Qualified means any trade or business other than a specified service trade or business and other than the trade or business of being an employee. Industry types include manufacturing, distribution, real estate, construction, retail, food and restaurants, etc.

The Section 199A deduction for individuals above the taxable income threshold is limited to the greater of either:

  • 50 percent of the taxpayer’s allocable share of W-2 wages paid by the business, or
  • 25 percent of the taxpayer’s allocable share of W-2 wages paid by the business plus 2.5% of the taxpayer’s allocable share of the unadjusted basis immediately after acquisition of all qualified property

Taxpayers should run the numbers through both provisions to ensure they received the best possible deduction.

We’ve got your back

The new tax code is complex and every taxpayer’s situation is different – so don’t go it alone! Contact Simon Filip at sfilip@krscpas.com or 201.655.7411 to discuss your situation.

2018 Pension Plan Limitations Not Affected by Tax Cuts and Jobs Act

Posted by Maria T. Rollins on

2018 Pension Plan Limitations Not Affected by Tax Cuts and Jobs Act

The Internal Revenue Service announced that the Tax Cuts and Jobs Act of 2017 does not affect the tax year 2018 dollar limitations for retirement plans announced in IR 2017-177 and detailed in Notice 2017-64.

The tax law provides dollar limitations on benefits and contributions under qualified retirement plans, and it requires the Treasury Department to annually adjust these limits for cost of living increases. Those adjustments are to be made using procedures that are similar to those used to adjust benefit amounts under the Social Security Act.

As the recently enacted tax legislation made no changes to the section of the tax law limiting benefits and contributions for retirement plans, the qualified retirement plan limitations for tax year 2018 previously announced in the news release and detailed in guidance remain unchanged. This is good news for individuals contributing to their qualified retirement plans.

Cost of living adjustments

The tax law also specifies that contribution limits for IRAs, as well as the income thresholds related to IRAs and the saver’s credit, are to be adjusted for changes in the cost of living using procedures that are used to make cost-of-living adjustments that apply to many of the basic income tax parameters.

Although the new law made changes to how these cost of living adjustments are made, after taking the applicable rounding rules into account, the amounts for 2018 in the news release and the guidance remain unchanged.

We’ve got your back on the new tax code

The new tax code is complex and every taxpayer’s situation is different – so don’t go it alone! Check out the New Tax Law Explained! For Individuals page, then contact KRS managing partner Maria Rollins at mrollins@krscpas.com or 201.655.7411 to discuss your situation.

What You Need to Know About Individual Tax Extensions

Posted by Simon Filip on

What You Need to Know About Individual Tax ExtensionsBasic Rules for Individuals

For individual taxpayers, the Internal Revenue Service (IRS) grants a six month extension to file your taxes each year as long as you complete Form 4868.

Filing an extension does not remove a taxpayer’s obligation to pay their income tax by April 15th. Taxpayers are expected to pay income tax to the IRS on time or they will be subject to late fees, penalties, and interest. This means taxes owed should be remitted by April 15th, regardless of an extension request.

Taxpayers have a few extra days this filing season. April 15th falls on a Sunday and Emancipation Day in the District of Columbia is observed on April 16th, resulting in a due date of April 17, 2018 for 2017 returns.

The extension allows taxpayers to gather all information needed to file a complete and accurate return without being assessed a late filing penalty. Taxpayers with complicated tax returns and those who have invested in partnerships or S Corporations and do not receive their K-1s until after the original April 15th due date should request extensions. The entities may have extended their own due dates, resulting in returns not being required to file until September 15th, with extensions.

A Federal income tax extension is good for six months, which extends an individual taxpayer’s filing deadline from April 15th to October 15th.

Penalties

Regardless of when an individual files a tax return, if the tax owed is not paid by the original  filing deadline (April 15th for individuals), the IRS will assess penalties.  The IRS will charge 0.5% each month of the amount of tax owed after the deadline.

When a taxpayer fails to file a return by the extension date, the penalty increases to 5 percent per month and subject to a maximum penalty of 25 percent.

State Extensions

The rules on state extensions are similar to those of the Federal. If the taxes are not paid by the original due date, there may be late payment penalties and interest. Some states do not require a separate extension to be filed if there is no tax due. For example, New Jersey grants an automatic extension of 6 months if there is no balance due and a Federal extension is filed. New York, on the other hand, requires an extension filing even if there is not a tax due with the return.

If you’re interested in learning more about how to manage your taxes, contact KRS today for a complimentary initial consultation.

IRS 2018 Tax Myths

Posted by Maria T. Rollins on

With the 2018 filing season in full swing, the Internal Revenue Service offered taxpayers some basic tax and refund tips to clear up some common misbeliefs.

Myth 1: All Refunds Are Delayed

IRS 2018 Tax Myths
The IRS issues more than nine out of 10 refunds in less than 21 days. Eight in 10 taxpayers get their refunds faster by using e-file and direct deposit. It’s the safest, fastest way to receive a refund and is also easy to use.

While more than nine out of 10 federal tax refunds are issued in less than 21 days, some refunds may be delayed, but not all of them. By law, the IRS cannot issue refunds for tax returns claiming the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit (ACTC) before mid-February. The IRS began processing tax returns on Jan. 29.

Other returns may require additional review for a variety of reasons and take longer. For example, the IRS, along with its partners in the state’s and the nation’s tax industry, continue to strengthen security reviews to help protect against identity theft and refund fraud.

Myth 2: Delayed Refunds, those Claiming EITC and/or ACTC, will be Delivered on Feb. 15

By law, the IRS cannot issue EITC and ACTC refunds before mid-February. The IRS expects the earliest EITC/ACTC related refunds to be available in taxpayer bank accounts or debit cards starting Feb. 27, 2018, if these taxpayers chose direct deposit and there are no other issues with their tax return. The IRS must hold the entire refund, not just the part related to these credits. See the Refund Timing for Earned Income Tax Credit and Additional Child Tax Credit Filers page and the Refunds FAQs page for more information.

Myth 3: Ordering a Tax Transcript a “Secret Way” to Get a Refund Date

Ordering a tax transcript will not help taxpayers find out when they will get their refund. The IRS notes that the information on a transcript does not necessarily reflect the amount or timing of a refund. While taxpayers can use a transcript to validate past income and tax filing status for mortgage, student and small business loan applications, they should use “Where’s My Refund?” to check the status of their refund.

Myth 4: Calling the IRS or a Tax Professional Will Provide a Better Refund Date

Many people mistakenly think that talking to the IRS or calling their tax professional is the best way to find out when they will get their refund. In reality, the best way to check the status of a refund is online through the “Where’s My Refund?” tool or via the IRS2Go mobile app. The IRS updates the status of refunds once a day, usually overnight, so checking more than once a day will not produce new information. “Where’s My Refund?” has the same information available as IRS telephone assistors so there is no need to call unless requested to do so by the refund tool.

Myth 5: The IRS will Call or Email Taxpayers about Their Refund

The IRS doesn’t initiate contact with taxpayers by email, text messages or social media channels to request personal or financial information. Recognize the telltale signs of a scam. See also: How to know it’s really the IRS calling or knocking on your door.

The IRS will NEVER:

  • Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer. Generally, the IRS will first mail a bill if taxes are owed.
  • Threaten to immediately bring in local police or other law enforcement groups to have people arrested for not paying.
  • Demand that taxes be paid without giving the taxpayer opportunity to question or appeal the amount owed.
  • Ask for credit or debit card numbers over the phone.

For more information on tax scams see Tax Scams/Consumer Alerts. For more information on phishing scams see Suspicious e-Mails and Identity Theft.

We’ve Got Your Back

A trusted tax professional can provide helpful information and advice about the ever-changing tax code. Check out the New Tax Law Explained! For Individuals page and then contact managing partner Maria Rollins at mrollins@krscpas.com or 201.655.7411 for a complimentary initial consultation.

The New Tax Law and Business Interest Expense

Posted by Simon Filip on

The New Tax Law and Business Interest Expense

The tax legislation known as the Tax Cuts and Jobs Act (the Act) places a new limit on the amount of interest expense businesses can deduct on their tax returns. This new limit will punish over-leveraged companies and discourage companies from becoming too leveraged.

Starting in 2018, businesses can only deduct interest based upon a formula contained within the act.

Business Interest Deduction

Under the new tax law, a business’s net interest expense deduction is limited to 30 percent of EBITDA (Earnings before Income Taxes, Depreciation, and Amortization). Beginning in 2022 the net interest expense deduction limitation is 30 percent of EBIT (Earnings before Income Taxes).

Businesses with average annual gross receipts of $25 million or less for the prior three years are exempt from this provision. The amount of business interest not allowed as a deduction for any taxable year is treated as business interest paid or accrued in the succeeding taxable year. Business interest may be carried forward indefinitely, subject to certain restrictions.

Real Estate Exception

Real estate is both illiquid and capital intensive, making leverage and the ability to deduct interest important to the industry.  A real property trade or business can elect out of the net interest expense deduction limitations if they use the Alternative Depreciation System (ADS) to depreciate business-related real property.

Taxpayers electing to use the real estate exception to the interest limit must depreciate real property under longer recovery periods prescribed by ADS. Those recovery periods are 40 years for nonresidential property, 30 years for residential rental property, and 20 years for qualified interior improvements. This is compared to recovery periods of 39 years for nonresidential property, 27.5 years for residential rental property, and 15 years for qualified interior improvements.

Application to Partnerships

Most real estate investment vehicles are structured as pass-through entities. The limitations on current interest expense is applied at the operating entity level, and any allowable deduction is included in the non-separately stated income or loss on each partner’s Form K-1. However, any disallowed interest will be carried forward at the partner level.

Aggregation Rules

In groups of related entities, it appears aggregation rules will apply in determining whether the $25 million gross receipts threshold has been exceeded. Additional guidance is anticipated on calculations of the limitation as well as explanations as to how this section will interact with other sections of the Internal Revenue Code.

We’ve Got Your Back

Rather than guessing at how the business interest rules apply to your situation, why not let the experts at KRS CPAs help? Check out the New Tax Law Explained! For Real Estate Investors page and then contact partner Simon Filip at sfilip@krscpas.com or 201.655.7411 for a complimentary initial consultation.