left

Dawn Hampsey, CPA

Tax and Financial Updates

 

Disclaimer – information below is provided to give general information and start a discussion between my clients and myself.  It is not to be viewed as tax advice.  Please call to discuss your individual concerns and how any of this affects your own situation.

Identity Theft

NYS is requiring driver’s license with issue and expiration dates in all its e-filed tax returns in an effort to help prevent identity theft.

IRS offers resources to “Sharing Economy”

IRS has new page of resources for taxpayers involved in Uber, Taskrabbit, Airbnb, DogVacay and similar organizations.  www.irs.gov/businesses/small-business-self-employed/sharing-econcomy-tax-center

Nonprofit sales subject to tax

IRS privately said, non-profit entities sales were not substantially related to its exempt purpose, so profits are taxable.

Coverdell IRAs

Coverdell IRAs are subject to the same IRA rollover rules.  (One free rollover in a 12 month period.)

R&D Credit for Small Businesses

In 2016 Small Businesses can use R&D credit against payroll taxes instead of income taxes.  Companies in business less than 5 years, gross receipts less than 5 million.

Increase in installment plan fees

As of January 1, 2017 installment plans with IRS will increase from $105 to $225.

Olympic Medals and prize money – taxable

This is similar to other prize and award money given to anyone, not  just Olympians.  Congress is working on a bill that would make this income tax free.  Income from sponsorships and endorsements are taxable as always.

US Individuals working abroad and taking the foreign housing exclusion

Extravagant housing costs when working abroad is likely to get kicked on IRS Audit. Expenses need to be reasonable.

New due date for filing W-2’s & 1099’s

Paper copies filed to Federal Government by Jan 31st.  Efiled Copies due date is March 31st.

IRS Scam/Fraud Phone Calls

More and more people are getting calls.  The fraudsters are coming up with new ways to get to people.  Latest scam involved students telling them they owe a “Student Tax” .  Another required prepaid Itunes cards.  IRS doesn’t call taxpayers on debt – they mail letters. 

To report fraud :  Call Treasury Inspectors at 1-800-366-4484 and

                File a complaint with the Federal Trade Commission at www.ftc.gov

Private Road doesn’t qualify for Tax Exempt Status

A group of homeowners with a common driveway applied for tax exempt status as a homeowners association to cover the upkeep on the road.  IRS denied request.  A tax exempt organization must  provide a public good.  This group operated for the private benefit of it’s members.

Employers Wellness Awards

Employers cash awards given to employees who participate in a wellness program are taxable benefits.

Student Loan Debt

Employers are paying student loan debt as a way to attract talent.  This benefit is taxable compensation.

Funds to move to another state

IRS ruled that funds received from a state for a business to move is not taxable – moving expenses are not deductible either.

Simple IRA’s

Simple Ira’s can now accept tax free rollovers from 401ks and IRAs

Self-directed IRA’s

IRS is being sent more data on self-directed IRAs.  Starting in 2015, Form 5498 will report values of non-publicly traded assets.  Included in this are: real estate, closely held firms and nonpublicly  traded  debt obligations.

Intentionally Defective Trusts – Basis Step up  

These are trusts where the grantor is treated as the owner for income tax purposes but not estate tax purposes.  There is a question about if the trust assets will receive a step up in basis on grantors death.  IRS said they will not rule on it.  

How does the IRS apply payments?

Normally, they apply payment per taxpayers instructions.  (this is assuming taxpayer has more than one type of tax due at a time – say income and payroll).  However, a payment was ordered by the tax court.  IRS did not have to follower taxpayers’ instructions on allocation with the court ordered payment as they do with voluntary payments.

Penalties for filing incorrect information returns increase

Basic fine is $250 per 1099.  Is used to be $100.  Lower penalties if corrected by Aug 1st.  this applies to W-2’s, 1099’s and 1095-C in addition to others

Sports Team Deducting Full Cost of Meals on the Road

Meals on the road are generally 50% deductible.  However, meals provided at your own facility can be 100% deductible.  Boston Bruins has an issue before the courts disputing their meals on the road.  They consider the hotel used when preparing for away games as their facility and want to deduct 100%.  

Identity Theft

Taxpayers who have had their social securities compromised will soon be able to see the false returns filed in their name.  https://www.irs.gov/Individuals/Instructions-for-Requesting-Copy-of-Fraudulent-Returns

Gift Taxes and Statue of Limitations

The normal 3 year statute of limitations does not apply to gift tax returns where information disclosed is inadequate or missing. 

Mortgage Data Reported

Starting in 2016, Mortgage companies will report on 1098, remaining principal of mortgage, address of property securing loan and loan origination date.

No Statue of Limitation if underreporting income by 25%

In the past if taxpayer underreported their income by 25% it was considered fraud and the statue of limitations didn’t end.  It was challenged that if taxpayer overstates their cost basis, therby reporting less income – would that be considered fraud.  Answer from the Supreme Court was no.  However, congress made some changes and IRS has 6 years if taxpayer overstates basis and reports less gain.

Also, executors must give basis to heirs.  If heirs use a basis that is higher, they will get hit with a 20% understatement penalty.

Tax return Deadlines changed

Starting for tax years beginning after 2015, Calendar year Partnerships will be due 3/15.  Formerly, they were due 4/15.  Calendar year S Corporations due date remains unchanged at 3/15.  Calendar C Corporations are not due 4/15 and not 3/15 as previously.

Fbar Reporting now called FinCin 114 has previously been due 6/30.  The due date now is 4/15.  However, taxpayers can now request a 6 month extension.

Retiree Medical Expenses

Firms are now allowed to tap overfunded pension plans to pay for retiree’s medical expenses.

Retiree use of unpaid sick days into HRA

Retirees can put unused sick days into their HRA accounts.  Tax Free.  Employer plan must allow it.  It must me mandatory to be tax free.  If retiree has option to take cash, then benefit will not be tax free.

Gift Basket Assembling – DPAD Deduction

Taxpayer took Section 199 deduction for producing gift baskets.  IRS disagreed saying they were not producing anything, but taking products already made and putting them into a gift basket.  Federal Court disagreed with the IRS and allowed the deduction.  IRS is not acquiescing on the issue.  They added another example in the regulations of what doesn’t qualify for the deduction.

Employer Provided Clothing

Employer provided Tshirts, Polo Shirts, Hats etc with company logo’s can be a deminimus tax free benefit if employers requires them to be worn as a condition of employment and prohibits the wearing of the clothing when off duty.

Penalties for late filing – S Corporation

Penalty for filing S Corporations returns late is $195 per month per partner up to a maximum of 12 months.  Tax court just upheld this penalty in Roshdieh MD Corporation  (TC Memo 2014-113)

NY now requires peddlers in bitcoin to get a license to operate in New York

FBAR Filings

IRS is using another avenue to find taxpayers not reporting foreign bank accounts.  They are sending Summons to the delivery companies, Fed Ex, UPS and DHL in its probe of Sovereign Management & Legal LTD.

Veterinary costs for service dog = medical expense for owner

Costs of purchase, vet bills, food, grooming & training qualify for medical expense of owner per IRS. 

Free meals by employer
Meals provided by employer on their own premises are tax free to employees.  However, certain employers are providing lavish meals.  IRS is looking at its regulations to limit tax-free meals.

Sales tax  and out of state vendors
States would like companies to collect sales tax on out of state sales for a while now.  However, companies that do not have a presence in a state are not required to.  Senate passed a bill to allow this but the House has not.

Form 1099-K being used for audit leads
IRS is using the 1099-K forms to generate estimates of industry credit sales and cash sales.  It’s not known exactly how they are calculating their figures but  they are being used to audit companies that report  a higher percentage of credit sales than the industry average.

IRS Revising Form 1098 – The form you receive from your mortgage company with mortgage interest and LOC interest.  Their plan is to receive better information from the mortgage companies on the debt designed to help IRS determine if any filers are deducting interest on HELOC’s with balances over $100,000.

Net Investment Income Tax – Taxpayers Living Abroad
It’s unclear at this time whether the NII tax is considered an income tax or a social security tax.  When US Citizens or green card holders live abroad, they have a tax reporting obligation in the US.  To help combat the double taxation of being taxed in both countries, a Foreign Tax Credit exists on the US return.  However, it’s for income tax not Social Security Tax.  If you find yourself in this situation, you will need to review your situation with your accountant to determine how you proceed and what planning opportunities exist.

When corporations reincorporate abroad
When you own a stock that reincorporates in another country and you get your old corporation shares reissued in the name of the new corporation, you may have to pay tax on the paper profits.    Burger King is in the news with the corporate office move to Canada.  We’ll see how this plays out for their shareholders.

Summer day camp can qualify for child care
School age kids (under 13) that attend day camps during the summer may qualify for the dependent care credit.   Camp cannot be an overnight camp and it must be for the parents to work.

Form 1023-EZ has been released
It’s a short form  that can be used by small non-profits to obtain non-profit status with the IRS.  It must be e-filed.  Applicants pay a $400 user fee.

Longevity Annuities
New rules allow IRA & 401K owners to use the lower of $125,000 or 25% of their account balance to obtain an annuity that doesn’t start until the taxpayer is much older and the annuity amount is not used in calculating the RMD.

Direct Deposit of more than 3 refunds into 1 account – not allowed by IRS anymore
If a taxpayer has more than 3 deposits into the same account, IRS will issue a paper check.  Intent is curb identity theft.  Parents also sometimes have their kids refunds deposited into their own bank accounts instead of opening an account for the kids.

Foreign Bank Accounts
Foreign online poker accounts qualify as a foreign bank account under the Foreign Bank Accounting Rules.

Gifts
Each individual is allowed to gift another $14,000 each year.  However, a planning technique is to pay any college tuition costs directly to the college or medical expenses directly to the hospital.  These payments do not qualify toward the $14,000 annual gift limit.

 

 

 

Tax Topics