Tax-Filing Myths for Individual Returns

Here’s what the IRS considers the most prevalent tax-filing myths and what taxpayers should know about them

Myth – All refunds are delayed.

They aren’t, and most taxpayers get their refunds in less than three weeks. It’s even faster if taxpayers use electronic filing and direct deposit, according to the IRS. By law, the agency can’t issue refunds for returns that claim the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit (ACTC) before mid-February. The IRS began processing tax returns Jan. 29.

Still, some returns take longer to process for several reasons. For one, the IRS and its Security Summit partners are strengthening security reviews to thwart fraudsters.

Myth- Delayed refunds, those claiming EITC and/or ACTC will be sent Feb.15.

Just because the IRS can’t issue refunds that include these credits before mid-February doesn’t mean taxpayers will get those refunds in mid-February. Schedule Feb. 27 instead for taxpayers who opted for direct deposit with problem-free returns.

Myth – Order a tax transcript to find out a refund date.

Nice try, but… nope. According to the IRS, the transcript information doesn’t necessarily indicate the refund amount or when it will be received. Clients can use a transcript to validate past income and tax-filing status for mortgage, and student and small-business loan applications, but they should use the agency’s “Where’s my Refund?” to check on their refund status.

Myth – A call to the IRS or tax preparer will reveal a refund date.

Taxpayers should go to “Where’s My Refund” at IRS.gov or use the IRS2G0 mobile app. Refund status is updated once a day, typically overnight. “Where’s my refund” has the same info that the IRS phone reps do.

Myth – Call the IRS.

If taxpayers ever tried this, they probably can skip this one because they know it’s pretty much hopeless. IRS.gov has a lot of information that can help.

Myth – The IRS will call or email taxpayers about refunds.

An emphatic NO on this one. By now, taxpayers should know that the IRS does NOT call, text, email or use social media to give or request personal and financial information. If anyone does call saying they are from the IRS, clients should know that they are being scammed and should report the incident.

The agency will never call to demand immediate payment that requires a specific method, such as a prepaid debt card, gift card or wire transfer; threaten to bring in the cops; demand tax payments without allowing the taxpayer time for an appeal; or ask for credit or debit card numbers over the phone.

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2017 Year-End Tax Planning — General

2017 Year-End Tax Planning — General
2017 Year-End Tax Planning — General

Year-end tax planning can provide most taxpayers with a good way to lower a tax bill that will otherwise be waiting for them when they file their 2017 tax return in 2018. Since tax liability is primarily keyed to each calendar tax year, once December 31, 2017 passes, your 2017 tax liability for the most part— good or bad– will mostly be set in stone.

Year-end 2017 presents a unique set of challenges for many taxpayers because of current efforts by Congress and the Trump Administration to enact tax reform legislation, the scope of which has not been seen since 1986, according to supporters. Whether this ambitious plan will be successful by the end of this year remains uncertain; but the reasons to prepare to maximize any benefits if it does happen are indisputable. Both talk of lower tax rates, and fewer deductions, requires careful monitoring at this time, with “contingency” plans ready to go before yearend should these changes occur retroactively to 2017, or starting in 2018, either immediately or under phased-in schedules.

Tax reform, although important, is not the only reason to engage in year-end tax planning this year. Other changes in the tax law, made by the IRS and the courts, have already taken place in 2017. Opportunities and pitfalls within these recent changes —as they impact each taxpayer’s unique situation—should not be overlooked. This particularly rings true as we approach year-end 2017.

Life-cycle changes. External influences such as changes in the tax law, however, may be only part of the reason for taking some action before year’s end. Changes in your personal and financial circumstances — marriage, divorce, a newborn, a change in employment, a new business venture, investment successes and downturns—may require a change-in-course tax-wise since last year. As with any ‘life-cycle” change, your tax return for this year may look entirely different from what it looked like for 2016. Accounting for that difference now, before year-end 2017 closes, should be an integral part of your year-end planning.

Other developments: How tax law has changed over the past year by the IRS, the Treasury Department and the courts should be integrated into specific 2017 year-end considerations. This strategy-focused review of 2017 events includes, among many other developments critical to year-end transactions:

  • Growing interest by the IRS in the responsibilities and liabilities of participants within the “sharing” or “gig” economy;
  • Disaster relief both through legislation and relaxed IRS compliance rules;
  • Changing responsibilities of individuals and employers under revised rules implementing the Affordable Care Act;
  • Payroll tax credit option for small start-up companies otherwise unable to make full use of the research tax credit;
  • Changing schedules for business tax incentives that have been temporarily renewed while others have been allowed to sunset;
  • “Repair regulation” elections on equipment purchases to be made for the 2017 tax year; and
  • The reset by the Trump Administration of certain rules affecting debt/equity issues, foreign income reporting, recourse partnership liabilities, and estate tax valuation issues, among others.

Timing rules. Timing, and the skilled use of timing rules to accelerate and defer certain income or deductions, is the linchpin of year-end tax planning. For example, timing year-end bonuses or year-end tax payments, or timing sales of investment properties to maximize capital gains benefits should be considered. So, too, sometimes fairly sophisticated “like-kind exchange,” “installment sale” or “placed in service” rules for business or investment properties come into play. In other situations, however, implementation of more basic concepts are just as useful. For example, taxpayers can write a check or can charge an item by credit card and treat these actions as payments. It often does not matter for tax purposes when the recipient receives a check mailed by the payer, when a bank honors the check, or when the taxpayer pays the credit card bill, as long as done or delivered “in due course.”

Please feel free to contact one of our Professional Tax Advisors if you have any questions about how year-end tax planning might help you save taxes. Our tax laws operate largely within the
confines of “the tax year.” Once 2017 is over, tax savings that are specific to this year may be gone forever.

For more information, contact by phone or email
(314) 205-9595 or toll free 888-809-9595
INFO@ADVISORYGROUPASSOCIATES.COM

ADVISORY GROUP ASSOCIATES’ Tax & Advisory Firms
Trusted Advisors & devoted professional experts providing tax, accounting, compliance and business solutions.

Our Mission: Sharing Solutions that deliver real value.

Visit our website:
www.advisorygroupassociates.com

REASONS NOT TO USE AN IRA TO INVEST IN REAL PROPERTY

Apparently reality TV shows are now providing tax advice! The number one questions across the country this year are from clients attending “real estate” seminars and being told to use their IRA to buy and flip homes. Technically legal, the use of an IRA to buy real property is a classic example of promoters misleading taxpayers into horrible tax problems. Here are listed some reasons why putting an IRA in real estate is such a bad idea.

Flipping houses in an IRA creates trade or business income inside the IRA. Trade or business income inside an IRA is subject to a 35% UBIT rate on profits >$1,000.

Performing maintenance on the property inside the IRA is a disqualified self-dealing transaction under IRC Sec. 4975(e)(2)(C) which then treats the IRA as if it has distributed the entire FMV of the property as a taxable distribution.

You cannot use it to buy an office building that you are going to use yourself, even if you pay fair rental value or it is treated as a complete withdrawal at FMV and subject to penalty if you are under 59 and 1/2.

You cannot use it to buy a vacation property if you plan on using it yourself, including at FMV. You can’t rent from it or to it, nor can your family!

If the real estate is leveraged with debt in the IRA and income from the leveraged amount (rental or sale) is taxed to the IRA as unrelated business income at 39.6%. Form 990-T is required and if tax is owed it is treated as a taxable distribution when paid!

If the IRA owes unrelated business income and the tax is paid out of the IRA it is treated as an early withdrawal subject to tax and potential penalty.

Owning real estate outside the IRA will generate capital gains on sale, while inside the IRA it creates ordinary income. (Just like with stock). Real estate sold at a loss outside the IRA is deductible, but real estate sold at a loss inside the IRA is not deductible.

Because land is considered an illiquid or non¬traditional investment it must be valued by the trustee or custodian every year.

For more information, contact by phone or email

(314) 205-9595 or toll free 888-809-9595

INFO@ADVISORYGROUPASSOCIATES.COM

ADVISORY GROUP ASSOCIATES’ Tax & Advisory Firms

Trusted Advisors & devoted professional experts providing tax, accounting, compliance and business solutions.

Our Mission:   Sharing Solutions that deliver real value.

Visit our website:

www.advisorygroupassociates.com

Proposed House Bill: Repeals & Replaces Obamacare

The bill’s passage isn’t guaranteed, and even if it makes it to the Senate, that chamber is likely to make substantial revisions.

Still, the American Health Care Act goes a long way to fulfilling the Republicans’ seven-year pledge to repeal former President Obama’s landmark health reform law. And it would erase the coverage gains of the last few years and leave 24 million more people uninsured by 2026 than under Obamacare, according to a Congressional Budget Office analysis of an earlier version of the bill.

Obamacare subsidies replaced with refundable tax credits based mainly on age

The GOP’s plan would eliminate the Obamacare subsidies, which are refundable tax credits based on a person’s income and cost of coverage in their area. More than eight in 10 enrollees on the Obamacare exchanges receive this assistance, but individuals making more than $47,500 and families of four earning more than $97,200 do not qualify.

Instead, the Republicans want to issue refundable tax credits to help people afford coverage on the individual market, but these credits will be based mainly on a person’s age.

The credits will range from $2,000 for 20-somethings to $4,000 for those in their early 60s. The credits will also have an income cap. Those making more than $75,000 would see their tax credits start to phase out, and an enrollee making more than $215,000 would not be eligible. Families with incomes above $150,000 would see their credits dwindle, while those earning more than $290,000 would not be qualify.

The bill would also kill the additional help that individuals earning less than roughly $30,000 a year receive to cover their out-of-pocket costs. More than half of the enrollees on the Obamacare exchanges receive these cost-sharing subsidies.

Exchange individual and employer mandates for continuous coverage requirements

The GOP’s bill would get rid of the Obamacare requirement that people have health coverage or face a tax penalty. It would also eliminate the mandate that employers with at least 50 employees provide health insurance to their workers.

Under Obamacare, these companies had to provide affordable insurance to staffers who work more than 30 hours a week. They would face a penalty if they did not meet this criteria and their employee sought subsidies on the exchanges.

Instead, the Republican plan seeks to allow insurers to impose a 30% surcharge on the premiums of those who let their coverage lapse for at least 63 days. The plan would enable insurers to levy this surcharge for one year, but it would only apply to policies bought in the individual or small group markets.

Under a recent amendment, states that seek waivers could replace this provision with one that allows insurers to charge consumers who have had a gap in coverage based on their health status.

Change Obamacare’s protections for people with pre-existing conditions

States could get waivers that would allow carriers to set premiums based on enrollees’ medical backgrounds under several circumstances. Those enrollees would have to have let their coverage lapse, and the state would have to set up a risk program — such as a high-risk pool –that, in some cases, could provide help to those being charged higher premiums.

States could also seek waivers that would allow insurers to sell plans that don’t include all the essential health benefits mandated by the Affordable Care Act. Under Obamacare, carriers must provide outpatient care, emergency services, hospitalization, maternity, mental health and substance abuse, prescription drugs, rehabilitation services, lab work, preventative care and pediatric services.

The bill would provide $138 billion through 2026 to help states and insurers lower premiums and set up high-risk pools to cover those with pre-existing conditions.

Revamp Medicaid funding

The House bill would significantly overhaul Medicaid.

It would send the states a fixed amount of money per Medicaid enrollee, known as a per-capita cap. States could also opt to receive federal Medicaid funding as a block grant for the adults and children in their program. Under a block grant, states would get a fixed amount of federal funding each year, regardless of how many participants are in the program.

Either option would limit federal responsibility, shifting that burden to the states. However, since states don’t have the money to make up the difference, they would likely reduce eligibility, curtail benefits or cut provider payments. The block grant would be more restrictive since the funding level would not adjust for increases in enrollment, which often happens in bad economic times.

The legislation would also end the enhanced match rate for Medicaid expansion for new enrollees starting in 2020. Those already in the program could stay as long as they remain continuously insured. States that have not already expanded would not be allowed to do so, starting immediately.

States could also require able-bodied Medicaid recipients to work, participate in job training programs or do community service.

The Congressional Budget Office projects that bill would cut the federal government’s spending on Medicaid by 25% by 2026 as compared to current law.

Widen the age-band so insurers can charge older folks more

Under Obamacare, insurers could only charge older enrollees three times more than younger policy holders. The bill would widen that band to five-to-one, which would hike premiums for those in their 50s and early 60s, but reduce them for younger folks.

States would also be allowed to seek waivers to allow insurers to charge older consumers even more than five times younger ones.

Repeal Obamacare taxes

The Republican legislation would eliminate the taxes the law levied on wealthy Americans, insurers, prescription drug makers, device manufacturers and others.

 

For more information, contact by phone or email

(314) 205-9595 or toll free 888-809-9595 INFO@ADVISORYGROUPASSOCIATES.COM

ADVISORY GROUP ASSOCIATES’ Tax & Advisory Firms

Trusted Advisors & devoted professional experts providing tax, accounting, compliance and business solutions.

Our Mission:   Sharing Solutions that deliver real value.  

Visit our website: www.advisorygroupassociates.com