What About Tax Planning?
The political uncertainty surrounding President Trump might have an impact on individual tax planning in 2017 and beyond. It is still unclear how and when Trump’s tax plan will be implemented and whether it will be approved by the House Republican leadership. Adding to tax planning uncertainty are other variables including the 2017 tax rate structure and the possible repeal of Obamacare. Another unknown is the impact on limitations for deductions dictated by the alternative minimum tax (AMT). Trump and the House of Representatives have vowed to abolish the AMT, which was originally implemented to target the wealthy but now impacts more than 4 million upper-middle class taxpayers each year. While the Trump tax plan along with the abolishment of the AMT could alleviate this burden on the middle class, it would likely mean a significant shortage in Treasury funding. Thus, individuals should be prepared for tax changes elsewhere to mitigate this loss in revenue.
Key proposed changes (at press time)
- Income Tax: Reduce the number of tax brackets from seven to three, and lower the top rate to 35%.
- Itemized Deductions: Limit deductions to $200,000 for joint filers and $100,000 for single filers under Trump’s plan.
- Healthcare Tax: The proposal to repeal Obamacare could eliminate the 3.8% net investment income tax as well as the 0.9% Medicare hospital insurance tax.
- Capital Gains Tax: Long-term capital gains and qualified dividends could be capped at 20% under Trump’s plan. The GOP plan would tax gains (50% of the top rate of 35%, which works out to 17.5% maximum).
- Estate Tax: Trump and the GOP both support repealing the estate tax. Trump’s plan calls for a capital gains tax on estate assets over $10 million. Furthermore, Trump has proposed reducing corporate taxes from 35% to 15% providing repatriation of corporate profits held offshore at a one-time rate of 10%, pass-through entities to also be taxed at 15%. Carried interest income, now taxed as capital gains, will be taxed as ordinary income.
If these changes do in fact occur, we don’t know when they would take effect. With so many unknown factors, tax planning and preparation for the year ahead becomes increasingly complex. Stay tuned for updates in tax law proposals and changes as they occur.
April 18 Has Come And Gone… Can We Relax?
Your return or Request for Extension has been filed. BUT, you may not be completely finished with all of the steps related to your 2016 tax return.
October 16 is the extended return filing deadline but April 18 was the deadline for your tax payments. Continue to gather documents that were missing earlier and search for any items necessary to verify Schedules with incomplete information. Let’s file as soon as we have all of your information. If you owe any additional tax, the IRS will add some interest and penalty to the bill.
Still Searching For That Refund?
You may contact the IRS Website www.irs.gov at the “Where’s my Refund?” link to check the status of your refund. Another option is calling the IRS Tax Hotline at 800-829-1954. Both the Website and Hotline are updated every 24 hours. You will need to know your social security number, filing status and refund amount when inquiring about your refund status. Note that E-Filed returns are now tracked by the IRS in hours, however paper filed returns can take as long as 4-6 weeks before tracking even begin.
Owe IRS? Some Suggestions.
The IRS will send a bill. The bill will show your balance plus any interest and/or penalty. Pay as soon as possible to avoid additional charges.
IRS offers installment plans with fee of up to $225 to set up. Available if the amount owed for tax, penalties and interest is $50,000 or less and all tax returns have been filed timely. I can help.
Credit Card Payments.
A “convenience fee” up to 2.00% applies plus any interest until the balance is paid off. Minimum fees apply. Call 1-888-PAY1040 to set up a plan.
Oh No! I Forgot…
If you forgot some key information, I can file an amended return. You have 3 years after the filing deadline to change your return. Most 2013 & earlier returns have passed their deadline for filing an amendment. Call me if you have discovered tax documents or information that you originally omitted from a previously filed Tax Return.
What If I Get A Letter From The IRS?
If you get a letter from the IRS, try not to panic, just call me. The letters can be confusing. Don’t risk making a simple issue a full blown problem. We can handle it together.
Will I Be Audited?
There’s no sure-fire way to know. Your chance of an audit is less than 1%. That 1 in 100 chance is reduced to 1 in 250 if your return doesn’t include income from a business, rental real estate or employee business expenses. Almost 70% of all “audits” are really done by a computer. The IRS compares various forms like W2s and 1099 forms from your employer, banks and brokers with what’s on your return. When they spot enough of a discrepancy, an IRS letter is generated that appears to be a bill. Don’t pay it yet! Send it to me and we will assess the situation. The IRS is not always right!
Keep Me Posted!
Throughout 2017 be alert for any changes that could create a tax surprise. Let me know about any new income items or changes in the members of your household.
Myth vs. Truth
Illegal activity is not taxable.
The Supreme Court ruled in 1927 that income acquired through illegal activity is taxable income. The IRS doesn’t care how an individual obtains the funds. As long as the money is being made, the government is still entitled to their piece of the action. Illegal activity and not reporting taxable income is not a good idea on so many levels – just ask Al Capone.
The IRS will file a return for you.
The IRS does have the right to verify your return. The IRS can compile a return on your behalf if they suspect fraud, but you as a taxpayer must file your own return.
Students don’t have to pay taxes.
Generally, a dependent student is not required to pay federal income taxes if they earned less than $6,350 during the 2017 tax year. However, the student should file their taxes anyway, because if they had an employer who withheld tax, the student is probably due a refund.
Money made over the Internet is not taxable.
This myth is just plain false. It’s not hard to see how this myth might have gotten started. There isn’t a third party submitting documentation to the IRS to substantiate money made online. Regardless of how you make money, if you sell a product or service, you’re required to declare that income on your tax return.
You can claim pets as dependents.
No matter how much you love your pets, you can’t claim them as dependents. Hundreds of people each year attempt to count Burt, Max or Rover as actual dependents. While there’s no denying that pets do meet the requirement of getting more than half their financial support from their owners, there’s still one small technicality…they’re not humans! Falsely claiming a dependent is considered fraud and should be avoided at all costs.
Tax Tips For You… Now!
Earnings Limits Have Increased
The annual earnings limit for those who both work and claim Social Security benefits will increase to $16,920 in 2017 for individuals who opt to receive benefits early (ages 62 through 65). For those who turn 66 in 2017, the earning limit increases to $44,880.
Max Wages Subject to Social Security Tax
The Social Security Administration (SSA) announced that there will be a very small increase (0.2% to 0.5%) in monthly Social Security benefits in 2017, and that the maximum amount of wages subject to Social Security taxes will increase from $118,500 in 2016 to $127,200 in 2017. Earnings above the $127,200 amount are not subject to the Social Security portion of the payroll tax or used to calculate retirement payouts.
Take Advantage of Inflation Tax Adjustments
Inflation will have a normal effect on approximately 40 tax provisions in 2017. Most notably income brackets widened slightly. This means you can earn a bit more in 2017 without being bumped into a higher tax bracket. Most people claim the standard deduction. Those amounts for each filing status in 2017 are increased, as is the personal exemption amount. However, the amounts you can contribute to your workplace pension plan and individual retirement account in 2017 will remain the same as in 2016.
Adjust Withholding Taxes
Most taxpayers get a Federal tax refund every year. For many of you, it’s an easy way to save money for a major project or special purchase. This year many refunds were received later than in previous years. You can eliminate this annual wait from the IRS for your refund by not getting one in the first place. Simply adjust your withholding taxes from your paycheck, unemployment checks, pension checks or social security checks. It’s easy. Call the payer of your check (your payroll department for paychecks) and fill out the paperwork. The IRS even has an online calculator to help you www.irs.gov/irs-withholding-calculator. Or, call me. I can help with your calculation. On the flip side, if you owed significant taxes for 2016, you may want to increase your withholding amounts on your paycheck, pension or social security check. Pay the IRS as you go along or be hit again with a large tax balance due. It’s ultimately up to you. You can stop the stress on your wallet by acting sooner rather than later.
IRS Penalties Can Be Avoided!
If you owe federal tax on your 2017 tax return, you do not have to pay an underpayment penalty if either:
- Your total tax is less than $1,000, or
- You had no tax liability in 2016.
In general if neither of the above apply, you may owe a penalty for 2017 if the total of your withholding.