Reminder: Third Quarter Estimated Taxes Due Now is the time to make your estimated tax payment
If you have not already done so, now is the time to review your tax situation and make an estimated quarterly tax payment using Form 1040-ES. The third quarter due date is now here.
Due date: Monday, Sept. 17, 2018
SPECIAL NOTICE: With major tax law changes in place for 2018, forecasting your tax obligation is more important than ever. If you need a review of your situation consider doing so immediately to avoid any surprises at tax time.
Remember, you are required to withhold at least 90 percent of your current tax obligation or 100 percent of last year’s obligation.* A quick look at last year’s tax return and a projection of this year’s obligation can help determine if a payment is necessary. Here are some other things to consider:
Underpayment penalty. If you do not have proper tax withholdings during the year, you could be subject to an underpayment penalty. The penalty can occur if you do not have proper withholdings throughout the year. A quick payment at the end of the year may not help avoid the underpayment penalty.
W-2 withholdings have special treatment. A W-2 withholding payment can be made at any time during the year and be treated as if it was made throughout the year. If you do not have enough funds to pay the estimated quarterly payment now, you may be able to adjust your W-2 withholdings to make up the difference.
Self-employed. Remember to account for the need to pay your Social Security and Medicare taxes as well. Creating and funding a savings account for this purpose can help avoid the cash flow hit each quarter when you pay your estimated taxes.
Don't forget state obligations. With the exception of a few states, you are often also required to make estimated state tax payments if you're required to do so for your federal taxes. Consider conducting a review of your state obligations to ensure you meet these quarterly estimated tax payments as well.
* If your income is over $150,000 ($75,000 if married filing separately), you must pay 110 percent of last year’s tax obligation to be safe from an underpayment penalty.
As students gear up to head back to school, there are some changes to education deductions that could save or cost you more in taxes and even raise college tuition costs. Here is what you need to know to get up to speed:
What is gone
Continuing Education as an itemized deduction: In previous years, you could deduct expenses paid for job-related continuing education as a miscellaneous itemized deduction. This deduction has been eliminated. However, if your employer will pay for the education, they can cover up to $5,250 tax-free.
Home equity line of credit (HELOC) interest for education expenses: A popular method of generating cash to pay for school expenses is taking out a HELOC. Beginning in 2018, you can only deduct HELOC interest if you use the loan proceeds to buy, build or substantially improve your home. This means that if you plan to obtain HELOC for purposes of paying for education expenses, the interest will not be deductible.
529 plans cover K-12 tuition: Funds from Section 529 savings plans can now be used tax-free to pay for up to $10,000 in K-12 private school tuition per year. Books, supplies or other K-12 expenses are not included in this change, but they are still eligible as legitimate college expenses. Be careful — not all states have adopted the K-12 inclusion, so they might still be taxable at the state level.
Endowment tax of 1.4 percent on certain private colleges: Congress added an investment income tax on private colleges that have large endowments. The tax is expected to impact roughly 30 schools, including Stanford, Harvard and Notre Dame. The effects of the new tax are yet to be determined. However, tuition may increase or reduced financial aid award amounts may be implemented to offset the cost.
What stays the same
Student loan interest deduction: You may deduct up to $2,500 in student loan interest in 2018 as an adjustment to income. To qualify, your adjusted gross income must be below $80,000 ($165,000 for married couples). Phaseouts start to apply at $65,000 ($135,000 for married couples).
American Opportunity Tax Credit and Lifetime Learning Credit: These two educational tax benefits are available once again. Here's a chart with basic information on these options:
As a reminder, when you make payments for any education expenses, make sure to keep your receipts and retain any Forms 1098T sent to you from qualifying schools.
With unemployment at historically low rates, retaining employees is harder than ever. Here are some tips to help your business maintain a thriving workforce:
Invest in current employees. One of the key opportunities for business success is continual investment in your current workforce. If you have employees with potential to grow, offer training and continuing education to help them realize that potential. With online courses, this is now easy to do without a major disruption in day-to-day activities. These courses can be as general as teaching supervisory skills or obtaining accreditation in a chosen field. Then when there is a need to be filled, often times it can be filled internally with a committed employee.
Convert contractors to employees.Utilizing contractors is a great strategy to handle overflow work. You can then have current employees manage the consultant's work to develop their supervisory skills. At the same time you can vet contractors to see if they could take an expanded role as a full-time employee. Many contractors prefer to be independent, but that is not always the case. Circumstances change and the security of being an employee might be intriguing.
Review compensation and benefits packages. Conduct an annual review to ensure that your company is offering competitive salaries and benefits. This will help protect your business against current employees seeking greener pastures. Consider giving impromptu pay increases and spot awards to top employees to show your appreciation. Also look at being creative with benefits and vacation packages.
Explore the benefits of internships. An internship program can not only help you identify your next employees, it can help develop your current employees. While it can be seen as a hardship by your current workforce, it can be a rewarding way to cement your employee's knowledge and value to the organization as they are seen as a teacher. Plus you may find your next group of potential hires.
Assess your corporate culture. Employees want to enjoy going to work every day. Consider conducting an anonymous survey of your current employees to see what they like and get ideas for possible improvements.
With some planning and a little creativity, keeping your business running efficiently can be achieved even in times when employee retention can be challenging.
Summer is coming to a close and the back-to-school advertising blitz is underway. Hidden in some of those school expenses are tax deductions you can take advantage of. Here are some ways you can save:
Watch for tax deductions on the supply list. Often schools send a list of requested supplies for the school year. Some of the items on the list are clearly for personal use (such as an eraser or a ruler) while other items on the list are often for school use and classroom use (such as 24 pencils or paper towels). Keep track of these non-cash classroom/school donations for possible charitable deductions.
Donate funds versus taking the raffle ticket. Raffles, subscription drives and silent auctions are fun ways schools raise money. To maximize your ability to deduct your donations, forgo the possible prize. Then the entire donation is clearly deductible. Remember to ask for a receipt when making the donation.
Don't forget your out-of-pocket expenses for your volunteer activities. Perhaps you donate your time at school functions, donate books to the school library, or help assist the teaching staff. Your out-of-pocket expenses and your mileage should be tracked for charitable deduction purposes.
Teachers, save your out-of-pocket expenses. A recent survey found that 94 percent of teachers spend their own money on classroom supplies — some as much as $1,000 per school year. Teachers are allowed to deduct $250 on their tax return even if they claim the standard deduction.
Use checks, not cash. If you usually provide donations to the school in the form of cash (like providing additional money to help other kids go on field trips) make those donations in the form of a check. The check will serve to help prove your donation.
Bonus Savings Tip: When you get the school supply list, compare prices from online retailers to local brick-and-morter stores. You might be able to save some money — especially if you are buying for multiple kids. If you don't have time to wait for them to ship, see if a local retailer will match the price.
Finally, don't forget to review state rules for educational expenses. There are often credits available for out-of-pocket school expenses and other educational expenses.
Achieve Tax Resolution with an Offer in Compromise
An offer in compromise is the IRS’ tax resolution debt settlement program. It’s a program for taxpayers who owe the Internal Revenue Service more money than they can afford to pay.
It’s the IRS’s version of a “fresh start” when it comes to tax debt. If approved, the IRS accepts a lesser amount (sometimes a fraction of what’s owed) to settle your debt. However, it isn't always easy to gain approval due to its strict criteria. Your odds for acceptance increase significantly when you have experience negotiating with the IRS.
The IRS considers your income, assets, expenses, ability to pay, and whether paying the full amount would cause financial hardship.
Information You Need to Submit an Application for an Offer in Compromise
It's important to remember that the IRS wants its money and will only accept an offer in compromise if it thinks it wouldn't receive any money otherwise. You must be current with all filing and payment requirements to apply. Additionally, you cannot be in the process of filing bankruptcy.
You can find more information about the IRS Offer in Compromise on the IRS website here. If you want help with your back tax problem, contact us today for a consultation. [https://www.makemytaxes.com]
After supplying the IRS with your name, address, social security number, and the amount of tax debt you would like it to consider for this program, you need to supply details about your income, assets, and expenses. In addition to wages, your personal income can include:
Child support or alimony
Interest on investments
Your assets can include things such as:
Stocks and bonds
Resale value of your personal vehicles
Market value of your home
Balance of your retirement savings accounts
Balance of bank accounts, including checking, savings, and investments
For the expense section, you should only include items you pay regularly. These may include:
Rent or mortgage
Child support or alimony
State and federal taxes
Costs to maintain a vehicle
Auto, health, and life insurance
Compiling this information and completing the application correctly can be challenging even for tax practitioners who don’t have expertise in dealing with the IRS. Your CPA or tax advisor most likely doesn’t have experience with resolving back tax issues. That’s why we recommend working with a specialized tax resolution professional like us to better understand this option and increase your chances of approval
Filing a tax return is a responsibility that all people need to follow to stay compliant with the IRS. While most people will be able to file their taxes and receive a tax return, those with more complex tax situations, or are simply a bit unlucky, could face an audit from the IRS.
If you receive notification that you are to be audited, there are several things that you should do to make the process easier and ensure you get through it without any penalty.
Confirm the Audit
Millions of people every year receive some form of notification from the IRS that is calling something into question. While most people may overreact and assume it requires a full-blown audit, there is a chance that they just need one piece of information to finalize their review. Before doing anything, you should carefully review the letter and confirm with the IRS whether or whether or not you're going through a full audit.
If it turns out you are to be audited, the next thing you need to do is gather and provide as much information as possible. You will need to collect all of your tax-related forms including your W-2 statements, bank account statements, mortgage account statements, and anything else related to income or any form of tax deduction. Having all of this organized and ready for the IRS will lead to a quicker review and determination.
Speak with Accountant
If you hired an accountant to prepare your taxes, or if you paid for an audit support service, you should reach out to them immediately. They will help you to gather the information you need and present it in a format that the IRS is seeking. They will also be able to answer any specific questions that the IRS may have, which can take a lot of the work off your shoulders.
Be Polite and Courteous
Going through an audit with the IRS is a stressful experience. Furthermore, it can be easy to feel defensive and angry towards the IRS agent. However, it would be a big mistake to be rude or not provide all the information they are seeking.
Instead, you should focus on being polite and courteous and give as much information as promptly as possible. That will keep you on good terms with IRS during the entire process and will increase your chances of receiving a satisfactory review.
Undergoing an audit can be stressful and challenging. However, there are several things that you can do after you get your notification of the review that will reduce your risk of penalty and make it a less stressful experience. You should contact your qualified tax professional to see what resources are available for you during an audit.
Common Tax Increase Surprises I did not owe that last year!
Picture this: For the past few years you've received your tax return and have had a small but nice refund. Now imagine your surprise, when next year, you are required to send in a fairly big check to settle your tax bill. Believe it or not, this message is almost as hard to deliver to a taxpayer as it is to hear it. Here are some situations to watch for that can increase your tax liability:
New tax laws. The Tax Cuts and Jobs Act is the most impactful tax reform in years. While the goal of the legislation is to reduce taxes, there are several changes that could cause you to pay more taxes, including:
Removal of the personal exemption
Capping of the state and local tax deduction (SALT) at $10,000
Removal of the deduction for home equity loan interest not used to buy, build or improve your home
Removal of the deduction for unreimbursed employee expenses and other miscellaneous expenses
A spouse passes away. The tax surprise related to this event tends to hit older taxpayers the hardest. In the year of death the tax impact is not usually felt. The year following death, the tax surprise hits hard because of the following tax changes:
Lower standard deductions
You move from a joint filing status to single (or head of household)
A child is no longer eligible. As children get older they grow out of lots of things — clothes, interests and tax credits. Here are some age requirements for popular tax benefits:
Child and Dependent Care Credit: under age 13
$1,000 Child Tax Credit in 2017 (raising to $2,000 in 2018): under age 17
Earned Income Tax Credit: under age 19 (24 if a qualified student)
Earnings with Social Security benefits. If you are recently retired, start collecting Social Security Benefits, and then begin working part-time, you are also in for a tax surprise. These extra earnings could not only make your benefits taxable, it could result in a reduction of benefits received.
Other life events. Other life events could provide a tax surprise for you. While some may have positive tax consequences, like a new birth, or becoming the head of household, others might surprise you and result in additional tax. Other common life events include retirement, death and entering/leaving school.
Capital gains surprises from mutual funds. Often sales of investments are a planned event. Unfortunately, many mutual funds sell assets and then you receive a capital gain statement with a surprise taxable event.
Want to avoid these surprises? Spend some time now reviewing your anticipated tax situation for 2018. By doing so, perhaps a planned “pleasant” surprise can be in store for you next year.