A taxpayer’s AGI and tax rate are important factors in figuring their taxes. AGI is their income from all sources minus any adjustments or deductions to their income. Generally, the higher the AGI, the higher their tax rate, and the more tax they pay.
Tax planning can include making changes during the year that can lower a taxpayer’s AGI. The taxpayer could:
Contribute to a Health Savings Account - HSA
Claim educator expenses if they’re a qualifying educator
The Internal Revenue Service confirmed that it will process tax returns beginning January 28, 2019 and provide refunds to taxpayers as scheduled. For taxpayers who usually file early in the year and have all of the needed documentation, there is no need to wait to file. They should file when they are ready to submit a complete and accurate tax return.
The filing deadline to submit 2018 tax returns is Monday, April 15, 2019 for most taxpayers. Because of the Patriots’ Day holiday on April 15 in Maine and Massachusetts and the Emancipation Day holiday on April 16 in the District of Columbia, taxpayers who live in Maine or Massachusetts have until April 17, 2019 to file their returns.
• The taxpayer owes Alternative Minimum Tax. • The taxpayer owes household employment taxes. • The taxpayer owes additional taxes on a retirement plan (an individual retirement arrangement (IRA) or other tax-favored account) or health savings account. • The taxpayer owes Social Security and Medicare taxes on unreported tip income. • The taxpayer had net self-employment income of $400 or more. • The taxpayer earned $108.28 or more from a tax-exempt church or church-controlled organization. The taxpayer received distributions from an Medical Savings Account (MSA) or Health Savings Account (HSA).
Here are some important things for taxpayers to know about the changes to the credit.
• Credit amount. The new law increases the child tax credit from $1,000 to $2,000. Eligibility for the credit has not changed. As in past years, the credit applies if all of these apply: o the child is younger than 17 at the end of the tax year, December 31, 2018 o the taxpayer claims the child as a dependent o the child lives with the taxpayer for at least six months of the year • Credit refunds. The credit is refundable, now up to $1,400. If a taxpayer doesn’t owe any tax before claiming the credit, they will receive up to $1,400 as part of their refund. • Earned income threshold. The income threshold to claim the credit has been lowered to $2,500 per family. This means a family must earn a minimum of $2,500 to claim the credit. • Phase-out. The income threshold at which the child tax credit begins to phase out is increased to $200,000, or $400,000 if married filing jointly. This means that more families with children younger than 17 qualify for the larger credit. Dependents who can’t be claimed for the child tax credit may still qualify the taxpayer for the credit for other dependents. This is a non-refundable credit of up to $500 per qualifying person. These dependents may also be dependent children who are age 17 or older at the end of 2018. It also includes parents or other qualifying relatives supported by the taxpayer.
The Internal Revenue Service announced that interest rates will increase for the calendar quarter beginning January 1, 2019. The rates will be:
Six (6) percent for overpayments [five (5) percent in the case of a corporation];
three and one-half (3.5) percent for the portion of a corporate overpayment exceeding $10,000;
Six (6) percent for underpayments; and
Eight (8) percent for large corporate underpayments.
Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.
Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.
Take full advantage of their employer’s health flexible spending arrangement (FSA) during 2019.
FSAs provide employees a way to use tax-free dollars to pay medical expenses not covered by other health plans. Because eligible employees need to decide how much to contribute through payroll deductions before the plan year begins, many employers are offering their employees the option to sign up for an FSA this fall for participation that begins in 2019.
Interested employees wishing to contribute during the New Year must make this choice again for 2019, even if they contributed in 2018. Self-employed individuals are not eligible.
An employee who chooses to participate can contribute up to $2,700 during the 2019 plan year. That’s a $50 increase over 2018. Amounts contributed are not subject to federal income tax, Social Security tax or Medicare tax. If the plan allows, the employer may also contribute to an employee’s FSA.
Throughout the year, employees can then use funds to pay qualified medical expenses not covered by their health plan, including co-pays, deductibles and a variety of medical products and services ranging from dental and vision care to eyeglasses and hearing aids. Interested employees should check with their employer for details on eligible expenses and claim procedures.
Under the use-or-lose provision, participating employees often must incur eligible expenses by the end of the plan year or forfeit any unspent amounts. But under a special rule, employers may, if they choose, offer participating employees more time through either the carryover option or the grace period option.
Under the carryover option, an employee can carry over up to $500 of unused funds to the following plan year — for example, an employee with $500 of unspent funds at the end of 2019 would still have those funds available to use in 2020. Under the grace period option, an employee has until two and a half months after the end of the plan year to incur eligible expenses — for example, March 15, 2020, for a plan year ending on Dec. 31, 2019. Employers can offer either option, but not both, or none at all.
Employers are not required to offer FSAs. Accordingly, interested employees should check with their employer to see if they offer an FSA.
Tax reform now defines a small business taxpayer as a taxpayer that has average annual gross receipts of $25 million or less for the three prior tax years and is not a tax shelter.
Here’s how last year’s legislation changed the rules for small business taxpayers. The law:
Expands the number of small business taxpayers eligible to use the cash method of accounting by increasing the average annual gross receipts threshold from $5 million to $25 million, indexed for inflation.
Allows small business taxpayers with average annual gross receipts of $25 million or less for the three prior tax years to use the cash method of accounting.
Exempts small business taxpayers from certain accounting rules for inventories, cost capitalization and long-term contracts.
Allows more small business taxpayers to use the cash method of accounting for tax years beginning after Dec. 31, 2017.
1. Claiming Personal Exemptions. On a joint return, taxpayers can claim one exemption for themselves and one for their spouse. If a married taxpayer files a separate return, they can only claim an exemption for their spouse if their spouse meets all of these requirements. The spouse:
Had no gross income.
Is not filing a tax return.
Was not the dependent of another taxpayer.
2. Claiming Exemptions for Dependents. A dependent is either a child or a relative who meets a set of tests.
3. Dependents Cannot Claim Exemption. If a taxpayer claims an exemption for their dependent, the dependent cannot claim a personal exemption on their own tax return.
4. Dependents May Have to File a Tax Return. This depends on certain factors like total income, whether they are married, and if they owe certain taxes.
5. Exemption Phase-Out. Taxpayers earning above certain amounts will lose part or all the $4,050 exemption.
Most taxpayers can claim one personal exemption for themselves and, if married, one for their spouse. This helps reduce their taxable income on their 2017 tax return. They may also be able to claim an exemption for each of their dependents. Each exemption normally allows them to deduct $4,050 on their 2017 tax return.
Taxpayers who are not required to file a tax return may want to do so. They might be eligible for a tax refund and don’t even know it. Here is information about four tax credits that can mean a refund for eligible taxpayers:
Grandparents who work and are also raising grandchildren might benefit from the earned income credit (EITC).
The EITC is a refundable tax credit. This means that those who qualify and claim the credit could pay less federal tax, pay no tax, or even get a tax refund. Grandparents who are the primary caretakers of their grandchildren should remember these facts about the credit:
A grandparent who is working and has a grandchild living with them may qualify for the EITC, even if the grandparent is 65 years of age or older.
Generally, to be a qualified child for EITC purposes, the grandchild must meet the dependency and qualifying child requirements for EITC.
The rules for grandparents claiming the EITC are the same for parents claiming the EITC.
Special rules and restrictions apply if the child’s parents or other family members also qualify for the EITC.
There are also special rules for individuals receiving disability benefits and members of the military.
To qualify for the EITC, the grandparent must have earned income either from a job or self-employment and meet basic rules.
Determine eligibility and estimate the amount of credit.
Eligible grandparents must file a tax return, even if they don’t owe any tax or aren’t required to file.
Who is Required to File. In most cases, income, filing status and age determine if a taxpayer must file a tax return. Other rules may apply if the taxpayer is self-employed or if they are a dependent of another person. For example, if a taxpayer is single and younger than age 65, they must file if their income was at least $10,400. There are other instances when a taxpayer must file. Go to IRS.gov/filing for more information.
Filing to get a refund. Even if a taxpayer doesn’t have to file, they should file a tax return if a taxpayer answers “yes” to any of these questions, they could be due a refund:
Did my employer withhold federal income tax from my pay?
Did I make estimated tax payments?
Did I overpay last year and have it applied to this year’s tax?
Adoptive parents around the country may qualify for a tax credit. Parents who either adopted a child or tried to adopt a child may claim the adoption credit.
Here are nine facts….
Credit. The credit is nonrefundable.
Credit carryover. Taxpayers can carry any unused credit forward to the next year.
Exclusion. If the taxpayer’s employer helped pay for the adoption through a qualified adoption assistance program, the taxpayer may qualify to exclude that amount from tax.
Eligibility. An eligible child is an individual under age 18. It can also be an individual of any age who is physically or mentally unable to care for themselves.
Special needs child. Special rules apply to taxpayers who adopted an eligible U.S. child with special needs. The taxpayers may be able to take the exclusion even if they didn't pay any qualified adoption expenses.
Qualified expenses. Adoption expenses must be directly related to the adoption of the child.
Domestic or foreign adoptions. In most cases, taxpayers can claim the credit whether the adoption is domestic or foreign.
No double benefit. Depending on the adoption’s cost, taxpayers may be able to claim both the tax credit and the exclusion. However, they can’t claim both a credit and exclusion for the same expenses.
Income limits. The credit and exclusion are subject to income limitations.
Taxpayers should consider direct deposits for their refunds due. This is why…
Is Fast. The quickest way for taxpayers to get their refund is to electronic file their federal tax return and use direct deposit.
Is Secure. Since refunds go right into a bank account, there’s no risk of having a paper check stolen or lost.
Is Easy. Direct deposit is requested and indicated when the return is e-filed. For paper returns, the tax form instructions serve as a guide. Make sure to enter the correct bank account and routing number.
Has Options. Taxpayers can specified and split a refund into several financial accounts. These include checking, savings, health, education and certain retirement accounts.
Taxpayers should deposit refunds into accounts in their own name, their spouse’s name or both. Avoid making a deposit into accounts owned by others. Some banks require both spouses’ names on the account to deposit a tax refund from a joint return. Taxpayers should check with their bank for direct deposit rules.
There is a limit of three electronic direct deposit refunds made into a single financial account or pre-paid debit card.
The Internal Revenue Service announced that the tax season will begin Monday, Jan. 29, 2018 and it will begin accepting tax returns on that date. Also, reminded taxpayers claiming certain tax credits that refunds won’t be available before late February. The tax deadline will be April 17 this year – so taxpayers will have two additional days to file beyond April 15.
Many tax professionals will be accepting tax returns before Jan. 29 and then will submit the returns when IRS systems open. Although the IRS will begin accepting both electronic and paper tax returns Jan. 29, paper returns will begin processing later in mid-February as system updates continue. The IRS strongly encourages people to file their tax returns electronically for faster refunds. The IRS reminds taxpayers that, by law, the IRS cannot issue refunds claiming the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC) before mid-February. The IRS expects the earliest EITC/ACTC related refunds to be available in taxpayer bank accounts or on debit cards starting on Feb. 27, 2018, if they chose direct deposit and there are no other issues with the tax return. The IRS also reminds taxpayers that they should keep copies of their prior-year tax returns for at least three years.
Executive Order signed 12/22 allows 2018 property tax prepayment
Governor Andrew M. Cuomo has signed an emergency Executive Order that will allow New Yorkers to prepay next year’s property taxes this year, before the new tax law takes effect. Payments must be postmarked by December 31, 2017.
The order authorizes localities to issue warrants for the collection of early property tax payments and to accept partial payment—allowing New Yorkers to pay a portion or all of their 2018 property taxes before the end of the year to keep the deductibility.
Deadline for prepayment: Payments made by mail and postmarked on or before December 31, 2017, will be considered timely. If their county accepts online payments, your clients may pay online until 11:59 p.m., Sunday, December 31, 2017.
The updated withholding information, posted today on www.irs.gov shows the new rates for employers to use during 2018. Employers should begin using the 2018 withholding tables as soon as possible, but not later than Feb. 15, 2018. They should continue to use the 2017 withholding tables until implementing the 2018 withholding tables.
Many employees will begin to see increases in their paychecks to reflect the new law in February. The time it will take for employees to see the changes in their paychecks will vary depending on how quickly the new tables are implemented by their employers and how often they are paid — generally weekly, biweekly or monthly. The new withholding tables are designed to work with the Forms W-4 that workers have already filed with their employers to claim withholding allowances. This will minimize burden on taxpayers and employers. Employees do not have to do anything at this time.
This month, the IRS will begin implementation of new procedures affecting individuals with “seriously delinquent tax debts.” These new procedures implement provisions of the Fixing America’s Surface Transportation (FAST) Act. The FAST Act requires the IRS to notify the State Department of taxpayers the IRS has certified as owing a seriously delinquent tax debt.
The FAST Act also requires the State Department to deny their passport application or deny renewal of their passport. In some cases, the State Department may revoke their passport.
Taxpayers affected by this law are those with a seriously delinquent tax debt. A taxpayer with a seriously delinquent tax debt is generally someone who owes the IRS more than $51,000 in back taxes, penalties and interest for which the IRS has filed a Notice of Federal Tax Lien and the period to challenge it has expired or the IRS has issued a levy.