Important Information: What's New
Use this checklist for 2018 tax year (filing 2019): PDF.
WASHINGTON — The Internal Revenue Service today issued the 2019 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
Beginning on Jan. 1, 2019, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
The business mileage rate increased 3.5 cents for business travel driven and 2 cents for medical and certain moving expense from the rates for 2018. The charitable rate is set by statute and remains unchanged.
It is important to note that under the Tax Cuts and Jobs Act, taxpayers cannot claim a miscellaneous itemized deduction for unreimbursed employee travel expenses. Taxpayers also cannot claim a deduction for moving expenses, except members of the Armed Forces on active duty moving under orders to a permanent change of station. For more details see Notice-2019-02.
The standard mileage rate for business use is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.
Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.
A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously. These and other limitations are described in section 4.05 of Rev. Proc. 2010-51.
Notice 2019-02, posted today on IRS.gov, contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.
WASHINGTON ? Despite the government shutdown, the Internal Revenue Service today confirmed that it will process tax returns beginning January 28, 2019 and provide refunds to taxpayers as scheduled.
“We are committed to ensuring that taxpayers receive their refunds notwithstanding the government shutdown. I appreciate the hard work of the employees and their commitment to the taxpayers during this period,” said IRS Commissioner Chuck Rettig.
Congress directed the payment of all tax refunds through a permanent, indefinite appropriation (31 U.S.C. 1324), and the IRS has consistently been of the view that it has authority to pay refunds despite a lapse in annual appropriations. Although in 2011 the Office of Management and Budget (OMB) directed the IRS not to pay refunds during a lapse, OMB has reviewed the relevant law at Treasury’s request and concluded that IRS may pay tax refunds during a lapse.
The IRS will be recalling a significant portion of its workforce, currently furloughed as part of the government shutdown, to work. Additional details for the IRS filing season will be included in an updated FY2019 Lapsed Appropriations Contingency Plan to be released publicly in the coming days.
“IRS employees have been hard at work over the past year to implement the biggest tax law changes the nation has seen in more than 30 years,” said Rettig.
As in past years, the IRS will begin accepting and processing individual tax returns once the filing season begins. 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.
Software companies and tax professionals will be accepting and preparing tax returns before Jan. 28 and then will submit the returns when the IRS systems open later this month. The IRS strongly encourages people to file their tax returns electronically to minimize errors and for faster refunds.
The Indiana Department of Revenue has issued a bulletin discussing recent amendments to the law concerning the taxability of software as a service, cloud computing, and various other matters related to remotely accessed software. Effective July 1, 2018, prewritten computer software sold, rented, leased, or licensed for consideration that is remotely accessed over the internet, over private or public networks, or through wireless media, is not considered an electronic transfer of computer software and is not considered a retail transaction Therefore, the purchase, rental, lease, or license of such software is not subject to Indiana sales or use tax. Specifically, the exemption is applicable to transactions for prewritten computer software that is remotely accessed from a hosted computer or server or through a pool of shared resources from multiple computers and servers (“cloud computing”), without having to download the software to the user’s computer. Since the amendment is applicable only to transactions occurring after June 30, 2018, transactions involving remotely accessed software occurring prior to July 1, 2018, will not be subject to the new law. Thus, any payments made prior to July 1, 2018, (for remotely accessed software) are not eligible for the refund, including payments encompassing periods occurring after July 1, 2018, unless the taxpayer provides a valid reason, including that the software was used for an exempt purpose such as being used directly in the direct manufacturing of tangible personal property.
Information for taxpayers and employers about changes from the Tax Cuts and Jobs Act: LINK.
Most taxpayers will claim the standard deduction: LINK.
How will federal tax reform impact you? LINK.
How the new plan may affect your bottom line when you file in 2019: LINK.
Read this from the recent IRS bulletin: PDF.
General tax information for the 2017 tax year (filing 2018): PDF.
Accountants are known to take on long nights and sweat more than a few deadlines during the first quarter of each year. In 2018, they will need to plan for an even busier January.
As CPA’s already know well(!), employers must provide their employees with a W-2, and each independent contractor with a 1099-MISC (if they were paid $600 or more during the year). However, this year, not only are employers required to provide employees with their W-2 and 1099-MISC forms by January 31, 2018, but ACA forms, including 1095-C and 1095-B, are also due on the same date.
Due to the Protecting Americans from Tax Hikes (PATH) Act enacted last December, the IRS’ effort to fight fraud and identity theft, employers also now have new deadlines for W-2 and 1099-MISC reporting. But what’s the reason for the earlier filing deadline? The IRS says, “Having these W-2s and 1099s earlier will make it easier…to verify the legitimacy of tax returns and properly issue refunds to taxpayers eligible to receive them.”
Check out the list of ACA forms and filing deadlines below to avoid penalties for late filing.
|W-2 & 1099-MISC Forms Due Date||Requirements|
|January 31, 2018||W-2 and 1099-MISC copies to recipients and/or employees|
|January 31, 2018||Paper format: W-2 and 1099-MISC federal (SSA / IRS) filing|
|January 31, 2018||E-File format: W-2 and 1099-MISC federal (SSA / IRS) filing|
|ACA Forms Due Date||Requirements|
|January 31, 2018||Form 1095 copies to recipients and/or employees|
|February 28, 2018||Paper copies of form 1095 to IRS|
|April 2, 2018||E-file form 1095 to IRS|
Since ACA forms require information from HR, payroll and benefits systems, businesses need to play close attention this year in order to properly track and record the data or else it could mean big financial fines. Paired with the early deadlines, accountants handling reporting on behalf of their clients need to start now rather than wait until January when deadlines will begin to stack up.
It’s important to note that some employers have the option to file their ACA reporting by paper or electronically. However, any filing of more than 250 forms MUST file ACA information returns electronically. Businesses planning to file less than 250 forms may file by paper, though the IRS encourages electronic filing.
In case accountants need any more motivation to prepare for a busy January, the IRS has increased penalties for tax reporting for the following issues:
While the IRS has extended the ACA reporting deadlines for all employers in previous years, this generosity should not be expected in 2018. In fact, failure to file complete and accurate Forms 1094-C by the form deadline will result in penalties equal to $250 per form, not to exceed $3 million per year. Even more, failure to file and furnish correct information on Form 1095-C could result in a $500 per-form penalty for employers.
Even still, sometimes the best laid plans don’t work out. Accountants should expect more business this year as it is likely that many will need help meeting the new deadlines. The end of January will come quickly, so it’s important to be prepared for the deadlines now vs. later.
Here's a calculator to estimate the Obamacare penalty that one might have in 2017. To see if it may be a helpful tool for you, click here.
As reported in Accounting Today publication, some tax deductions and credits may be traded for lower overall rates in the reform plans of the Trump administration and the Republic congressional leadership, so taxpayers may want to make the most of them now, recommends tax research and software provider Wolters Kluwer.
“With tax reform on the agenda for 2017, several tax deductions and credits might be sacrificed in order to lower tax rates, so make sure that you claim all of the tax breaks to which you are entitled before they disappear,” said Mark Luscombe, JD, LLM, CPA and principal federal tax analyst for Wolters Kluwer Tax & Accounting. “Consulting a tax professional about potential deductions and credits that you may not be aware of is a good idea.”
With that in mind, the company assembled the following primer of “need-to-know” deductions and tax credits. (A listicle of this article is available at "Grab these tax breaks before they disappear.")
Home Office Deduction
A simplified safe-harbor method for this deduction was introduced in 2013 for those who are self-employed and work out of their homes. It is based on the size of home office and is designed to be a simple calculation.
Here’s how it works: Eligible taxpayers can deduct $5 for every square foot of workspace used – up to a maximum of 300 square feet. So, if the taxpayer uses a den or spare bedroom at home as their home office and it measures 18 X 15 feet for a total of 270 square feet – multiply that by $5 for a total home office tax deduction of $1,350.
The simplified safe-harbor option saves time compared to the standard home office tax deduction calculation of figuring related expenses and how they are apportioned over the course of the year to a home office. One taxpayer-friendly benefit is that one may choose which calculation, either the safe-method or the standard method, to use each year to provide the largest tax deduction.
Mortgage Interest Deduction
As a result of a recent court decision, the IRS has changed its position and now allows the mortgage interest deduction limits to be applied on a per-taxpayer rather than a per-residence basis. This means that two unrelated owners of a home can now each claim a mortgage interest deduction related to up to $1 million in mortgage debt related to purchase, construction or improvement of the home and up to $100,000 for a line of credit secured by the home.
Mortgage Debt Exclusion
The PATH Act, enacted in December 2015, prevents forgiveness of mortgage debt from suddenly being counted as additional taxpayer income, since the mortgagor no longer is making payments on the forgiven portion, but not pocketing the savings in cash. Those who qualify may benefit on a principal residence of up to $2 million ($1 million for a married taxpayer filing a separate return) through 2016. The act also modifies the exclusion to apply to qualified principal residence indebtedness discharged in 2017 if the discharge is made under a binding written agreement in 2016.
In other words, taxpayers who enter into a foreclosure, short sale or home loan adjustment in writing before Dec. 31, 2016, but do not complete the transaction until after Jan. 1, 2017, may qualify for the exclusion. Because the forgiven portion is not considered added income, taxpayers will not vault into a higher tax bracket or be taxed on that amount within their current bracket.
Home Mortgage Insurance Premium Deduction
It’s one of the more popular deductions that was extended through 2016 with passage of the PATH Act — allowing most homeowners to write off their home mortgage insurance premium as interest paid on a mortgage. Taxpayers can deduct mortgage interest paid on their primary home and on a second or vacation home. In addition, mortgage interest on a line of credit or home equity loan, which is secured by the home, is also deductible.
Taxpayers who donate money or non-cash property to qualified charities may be entitled to a tax deduction. While charitable gifts via a check may be easiest to track, a receipt or official acknowledgement of the donation from the charitable organization is a mandatory requirement for tax reporting.
Additional documentation is required to establish the fair market value of non-cash items. Also:
Medical, Dental Expense Deductions
Expenses related to diagnoses and treatment of medical and dental conditions may also be deducted from your income taxes, depending on how much you paid out of pocket compared to how much you earned.
The general rule is that qualified medical and dental costs that exceed 10 percent of a taxpayer’s AGI may be deducted (7.5 percent for people age 65 or over before January 1, 2017). Typical expenses may include unreimbursed medical and dental bills, and the unreimbursed costs of equipment, supplies and devices prescribed by a physician or dentist for use in treating a condition.
Medicare Premium Deductions, Self-Employed
Business owners and self-employed taxpayers may deduct health insurance premiums. Those who are old enough to qualify for Medicare and are also business owners or self-employed may deduct premiums paid for Medicare Part B, Part D and supplemental Medicare policies to guard against health care coverage gaps. However, the deduction is not available for anyone who is already covered under their or their spouse’s employer’s health plan.
Business Expense Tax Deductions
For sole proprietors, self-employed workers, contractors and others incurring qualified business expenses related to their occupation, income tax deductions are available. In most cases, eligible business expenses must both be ordinary, something common and acceptable in that particular business, as well as necessary, something appropriate and helpful to the business or trade.
The IRS requires that business expenses should be separated from other expenses used to figure the cost of goods sold, capital expenses and personal expenses. Furthermore, business expense deductions can only be taken once, either on an individual’s income tax return or a separate business tax return – but not on both.
Child Tax Credit
The maximum child tax credit of $1,000 per child age 17 or younger is now permanent. For taxpayers with nominal tax liability, a portion of the child tax credit may be refundable. However, the amount of the credit may be less, depending on income level.
Child and Dependent Care Credit
This credit may be claimed by eligible taxpayers who paid work-related expenses for the care of a qualifying individual in order for an eligible taxpayer to be able to work or look for employment. It is a percentage of the amount paid to a care provider and depends on a taxpayer’s AGI. A dependent child must be under 13-years-old when care was provided to qualify.
Newly adoptive parents are eligible to claim up to $13,460 per child for 2016 taxes ($13,570 for 2017). However, the credit decreases for those with a modified adjusted gross income of more than $201,920 ($203,540 in 2017). Plus, taxpayers with a MAGI of more than $241,920 ($243,540 in 2017) cannot claim the credit.
The adoption credit was also made permanent in 2013 and it’s the largest nonrefundable tax credit available to individuals. Those claiming the credit on their income taxes must file Form 8839, Qualified Adoption Expenses. Documentation of qualified adoption expenses, including any adoption decree or court order, should be retained with copies of the tax return.
Earned Income Tax Credit
The PATH Act made permanent the EITC increase ($5,000) in phase-out amounts for joint tax return filers. The act also made permanent the increased credit of 45 percent for taxpayers with three or more qualifying children. Without the changes, both enhancements were set to expire in 2017.
The EITC is a refundable federal tax credit aimed at helping low- and moderate-income workers keep more of their paychecks. It was enacted in 1975 to offset Social Security taxes for those who qualify and as an incentive for more people to join the workforce. When the EITC exceeds the amount of taxes to be paid, it can then generate a tax refund for eligible taxpayers who claim the credit.
(Keep in mind that the floor for medical expenses remains 10% of adjusted gross income (AGI) for most taxpayers.)
The Internal Revenue Service (IRS) has announced the annual inflation adjustments for a number of provisions for the year 2016, including tax rate schedules, tax tables and cost-of-living adjustments for certain tax items.
These are the applicable numbers for the tax year 2016 - in other words, effective January 1, 2016. They are NOT the numbers and tax rates that you’ll use to prepare your 2015 tax returns in 2016 (you'll find them here). These numbers and tax rates are those you’ll use to prepare your 2016 tax returns in 2017.
If you aren't expecting any significant changes, you can use the updated tax tables to estimate your liability for the 2016 tax year. If, however, you are expecting to make more money, get married, buy a house, have a baby or other life change, you'll want to consider adjusting your withholding or tweaking your estimated tax payments.
Tax Brackets. The big news is, of course, the tax brackets and tax rates for 2016:
In final regulations (TD 9793) issued Nov. 9, 2016, the IRS announced that a 36-month period without any payments on a delinquent debt no longer will require financial institutions or federal agencies to issue a Form 1099-C, “Cancellation of Debt.” The final rules apply to information returns that have to be filed in 2017.
The previous rules that were released in 2009 required financial institutions or federal agencies to file Form 1099-C if a borrower had gone 36 months without making any payment on a debt if the debt had not otherwise been discharged or satisfied. In the recently released final regulations, the IRS stated that the 36-month requirement doesn’t necessarily reflect a true cancellation of debt but instead creates confusion for taxpayers and the IRS. Because the regulations apply to information returns that are required to be filed in 2017, lenders will need to review their systems to eliminate any loans that previously had been identified to receive a 1099-C as a result of not receiving payments during a 36-month period ending in 2016.
Under the modified regulations, Form 1099-C should be issued upon any of these situations: