​THE TREASURY DEPARTMENT ANNOUNCED THIS MORNING THAT THE IRS WILL ISSUE REFUNDS, DESPITE THE GOVERNMENT SHUTDOWN.  However, any refunds for returns claiming the Earned Income Tax Credit (EITC) and/or the Additional Child Tax Credit (ACTC) will not be issued before mid-February.

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How will the government shutdown impact the 2019 filing season?  Will it delay the filing of tax returns, or, more importantly, how and when refunds are issued?

Because the IRS was only funded through December 22, 2018, the shutdown will create multiple changes at the agency.  Congressional negotiators are currently working on a continuing spending resolution that would fund the federal government through Feb. 8, 2019.

The IRS has announced that preparation for the 2019 filing season will not be affected by the shutdown.  This means that yes, you still need to file your 2018 tax return by April 15th.

Almost 90% of the IRS personnel is now on leave of absence without pay.  Certain employees identified as “excepted/exempt” employees have not been furloughed.

Certain IRS activities will continue during a shutdown, including continuing to complete and test upcoming filing year programs; processing electronic returns, up to the point of refund; processing paper tax returns through “batching”; processing remittances; and maintaining criminal law enforcement operations.

However, most IRS activities will stop during a shutdown. These “non-excepted” activities under the plan include:

• Issuing refunds;
• Processing Form 1040X amended returns;
• All audit functions and examinations of returns;
• Processing paper tax returns that do include remittances; and
• Taxpayer services, such as answering taxpayer questions.

In other words…. You still have to file your return, but if you are due a refund, it will not be issued until the government shutdown has ended.
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When funds are appropriated to the IRS, furloughed employees will return to work (they are expected to return within four hours after the reactivation is announced if it occurs on a scheduled work day).

Make it a point to review your beneficiaries, both primary and contingent, for your qualified retirement plans and IRAs. It’s important that the designations have been updated to reflect major changes in your life or significant events like a birth, death, marriage or divorce.  Note that these designations supersede a will.
 
Changes For 2018 Retirement Plans:

• The 401(k) contribution limit has increased to $18,500 (age 50 can contribute an additional $6,000).  The same limits apply to 403(b) & 457 plans.
• The contribution cap on SIMPLEs remains at $12,500 (age 50 can contribute and extra $3,000).
• Roth IRA - contribution limit is $5,500 (plus an extra $1000 for age 50).  The income ceiling on Roth IRA contributions begins phasing out at AGIs of $189,000 to $199,000 for couples; and $120,000 to $135,000 for singles.
• Traditional IRA - contribution limit is $5,500 (plus an extra $1000 for age 50).  If you are covered by a retirement plan at work, the phaseout range for a tradition IRA deduction is an AGI between $101,000 to $121,000 for couples filing jointly and $63,000 to $73,000 for single filers. If married filing jointly with one spouse who is covered by a plan at work, the phaseout zone for deducting a contribution for the uncovered spouse will range from an AGI of $189,000 to $199,000. If neither spouse has a retirement plan at work, the contribution can be deducted fully.
• The SEP contribution limit is $53,000.  An employer contribution is capped at 25% of wages, and a self-employed contribution is capped at 20% of net self-employment income less 50% of SE tax

​New York State Department of Taxation and Finance released guidance on July 3rd relating to the Employer Compensation Expense Program (ECEP) that was created as a part of the 2018-19 budget package. ECEP is an optional program under which employers can elect to pay the newly created Employer Compensation Expense Tax (ECET). The ECET applies to the electing employer's payroll expense incurred for New York wages and compensation that exceeds $40,000 per covered employee for the calendar year subject to New York withholding.
 
The applicable rates of the ECET phase in over the next three years as follows:
·         1.5% in 2019
·         3% in 2020
·         5% in 2021 and after
 
Employers choosing to participate in the ECEP must do so by making an affirmative election annually by December 1st to opt in for the next calendar year. The initial annual employer election for 2019 must be made no later than December 1, 2018 via the web-based registration system to be provided by NYS Department of Taxation and Finance.
 
The tax must be paid electronically on the same dates that the electing employer's withholding tax payments are required to be made. The quarterly ECET returns are due on the same dates as the withholding tax returns. No change will be made to the withholding tables for electing employers but the 2019 form IT – 2104 will be updated to allow employees with wages subject to the new tax to adjust their income tax withholding.
 
Employers may not deduct or withhold any portion of the tax from the employee's wages. Covered employees will receive a portion of the ECET as credit to offset their NYS personal income tax liability. The new credit will correspond to the value of the tax to avoid a reduction in take-home pay to the employees. Although the employer is prohibited from deducting or withholding this tax from an employee's wages under this new law, it does not address the possibility of employers adjusting or reducing the compensation to account for the tax savings to the employee. The ECET is intended to be deductible by the employer for federal income tax purpose. It remains to be seen if the IRS will challenge the validity of the employer deductions for this new payroll tax. Further, employers are likely to face administrative challenges in the implementation of the program dealing with collective bargaining agreements, state minimum wage laws, employment contracts, etc., which will influence their participation in the program.

As a reminder: while the ECEP was one of the measures adopted by New York to reduce the impact of the $10,000 cap on the State and Local Tax deduction imposed by the federal Tax Cuts and Jobs Act; the other was the creation of two new state operated Charitable Contribution Funds one for improving healthcare and the other for improving education in New York. These funds are intended to enable the taxpayers to claim itemized deductions for their contributions to these funds on their federal and state tax returns for the current year. The tax payers will also get a credit of 85% of the contribution amount to offset their NYS personal income tax liability in the subsequent year. The budget also authorizes local governments to establish funds to receive charitable contributions and offer a percentage of those contributions as credits to offset property taxes. However, on May 23, 2018 the IRS issued Notice 2018-54 stating that it intends to propose new regulations to address the federal tax treatment of contributions to funds controlled by the state and local governments. The notice further states that substance-over-form principles will determine the tax treatment of such contributions.

​It seems like every time you turn on the news these days, you hear about another cyber-security breach.  Last week, the ransomware “Wannacry” affected users in more than 150 countries, crippling hospitals, banks… even government entities.  What is the small business owner to do?
 
Turns out there are some important steps every business, no matter the size, should take.  And personal computer users need to take heed, too.
 
No one is immune.  We are all “connected” – so we are all vulnerable.  The US Department of Justice recently released a study that showed that 17.6 million Americans will experience some form of identity theft each year – much of it through cyber-attacks.
 
So - what steps can you take today to make sure you’re not a victim of the next attack?

• Understand your data.  Know where it resides:  is it on a server?  A PC?  In the cloud?  If you don’t know where it is, you’re going to have a lot more trouble recovering it if the worst should happen

 

• Back up, back up, back up!  You can’t back up too much or too often.  I use an external hard drive to back up my most critical data every night - it’s the last think I do before I leave the office.  Then I use a cloud-based backup service to back up everything on my PC every 24 hours (my pictures of my dog are important too!)

 

• Use an encryption program to safeguard your email.  This is sometimes available through your email service (like Gmail or Outlook) or can be accomplished using third-party software.  The use of unencrypted email may be the number one security threat facing small businesses today

 

• Implement the appropriate controls and procedures.  Make sure everyone in your organization uses strong passwords and changes them periodically.  Have a system in place in the event your data is breached.  Limit the programs that can be loaded onto company computers.

 

• Hire a professional.  I’m a sole proprietor, and I have an IT person.  You don’t need to a whole department – but you DO need someone who makes it their business to make sure your data is safe.  It is worth the investment so that I can focus on my job, and not on my data

 

• Purchase a cyber insurance policy.  One local practitioner learned the hard way… a breach of his client data in the middle of tax season cost him hundreds of thousands of dollars to rectify.  Depending on the nature of your business, you may need to purchase credit protection for your clients if sensitive date is breached (remember the Anthem breach?  It was reported that it cost them well in excess of $100 million).  You will likely incur additional IT costs if you are impacted.  The insurance is relatively inexpensive, but the benefits, should you ever need them, will be huge

 
Be smart.  Be safe.  Be skeptical of emails from unknown users or anything with an attachment.  By taking a few simple steps, you can go a long way towards protecting your business and your clients.

Stop Tax Identity Theft in Its Tracks 

Imagine after sending in your annual tax return, you receive a notice from the Internal Revenue Service saying that another return has already been filed using your name and Social Security number—and claiming a refund. Sound impossible? It can happen if you become one of a growing number of victims of tax return identity theft. According to one estimate, tax-related identity theft cases have soared more than 650% since 2008. At the least, this crime can lead to a delay in your refund, but the consequences may be much more serious. In addition, you may face a larger problem with identify theft if the scammer is also running up credit card debt or taking out loans in your name.

To avoid becoming a victim, we recommend steps such as safeguarding your Social Security number and other financial information, keeping an eye on changes to your credit ratings and taking precautions with electronic transfers of confidential information. Be sure to contact us if you believe you have been a victim of identity theft or would like advice on the best ways to secure your financial information.

Beware of Tax Scams!

Did you know that con artists posing as Internal Revenue Service representatives frequently try to scam people out of their money? While this is a long-standing problem, the IRS has issued a new warning against thieves who may contact people on the phone or via email or a letter and try to trick them into divulging personal financial information, such as their Social Security or bank account numbers, or sending cash. And the scams can be tough to spot. Potential victims may see a fake caller ID that identifies the call as coming from the IRS or receive mail or email that appears to have the IRS letterhead or one like this that resembles the IRS website. The scammers typically try to intimidate victims into acting quickly—by, say, sending a payment to what they claim is an IRS address—by threatening arrest or some other consequence.

If you receive an IRS communication that seems suspicious or doesn’t make sense, please call our office. Whether you are facing a legitimate tax issue or a scam, we can help you sort through the details and determine how to respond. You can report incidents to the Treasury Inspector General for Tax Administration at 800-366-4484 or online. Remember, too, that the IRS website is www.irs.gov, so be on alert if you’re directed to another similar site that ends in .com or .net instead of .gov.  

Are you aware of the nature of all your investments, domestic and international? Do you know if you have foreign accounts with an aggregate value higher than $10,000 at any time during the calendar year? U.S. taxpayers (including individuals and business entities) are required to report on foreign assets or investments they hold in offshore accounts. Under the Bank Secrecy Act, you may be required to e-file what is known as the FBAR directly with the Financial Crimes Enforcement Network (FinCEN), a bureau of the Treasury Department. Given the diversity of assets that many people hold, we advise against assuming that the FBAR rules don’t apply to you.  If you’re not sure, we can help you determine the answers.     

As is often the case with tax laws, there are some exceptions and intricacies to the FBAR rules, so be sure to contact our office for more details. We can help you understand whether the rules apply to you and what you need to do to comply with them.

2016 Post-Election Tax Update

Any change in Presidential Administration brings the possibility – if not the likelihood - of tax law changes, and the election of Donald Trump as the 45th President of the United States is no exception. During the campaign, President-elect Trump outlined a number of tax proposals for individuals and businesses.

A Presidential candidate’s proposals can, and often do, change over the course of a campaign and after taking office. However, here are some of the general tax proposals made by the President-elect during the campaign:

Campaign proposals

During the campaign, President-elect Trump called for reducing the number of individual income tax rates, lowering the individual income tax rates for most taxpayers, lowering the corporate tax rate, creating new tax incentives, and repealing the Affordable Care Act (ACA or “Obama-Care”) (including presumably the ACA’s tax-related provisions). The President-elect, in his campaign materials, highlighted several goals of tax reform:

—Tax relief for middle class Americans

—Simplify the Tax Code

—Grow the American economy

—Do not add to the debt or deficit

First 100 days

President-elect Trump also identified during the campaign those proposals that he intends to pursue during his first 100 days in office:

—The Middle-Class Tax Relief and Simplification Act:  This proposal would provide middle class families with two children a 35 percent tax cut and lower the “business tax rate” from 35 percent to 15 percent.

—Affordable Childcare and Eldercare Act: A proposal described by Trump during the campaign that would allow individuals to deduct childcare and elder care from their taxes, incentivize employers to provide on-site childcare and create tax-free savings accounts for children and elderly dependents.

—Repeal and Replace Obamacare Act: A proposal made by Trump during the campaign to fully repeal the ACA.

—American Energy & Infrastructure Act: A proposal described by Trump during the campaign that “leverages public-private partnerships, and private investments through tax incentives, to spur $1 trillion in infrastructure investment over 10 years.”

Individual income taxes

The current individual income tax rates are 10, 15, 25, 28, 33, 35, and 39.6 percent. During the campaign, President-elect Trump proposed a new rate structure of 12, 25 and 33 percent:

—Current rates of 10 percent and 15 percent = 12 percent under new rate structure.

—Current rates of 25 percent and 28 percent = 25 percent under new rate structure.

—Current rates of 33 percent, 35 percent and 39.6 percent = 33 percent under new rate structure.

This rate structure mirrors one proposed by House Republicans earlier this year. During the campaign, President-elect Trump did not detail the precise income levels within which each bracket percentage would fall, instead generally estimating for joint returns a 12-percent rate on income up to $75,000; a 25-percent rate for income between $75,000 and $225,000; and 33 percent on income more than $225,000 (brackets for single filers will be half those dollar amounts) and “low-income Americans” would have a 0-percent rate.

Closely-related to the individual income tax rates are the capital gains and dividend tax rates. The current capital gains rate structure, imposed based upon income tax brackets, would presumably be re-aligned to fit within President-elect Trump’s proposed percent income tax bracket levels.

Other proposals made by President-elect Trump during the campaign would limit itemized deductions, eliminate the head-of-household filing status and eliminate all personal exemptions. He has also called for increasing the standard deduction. Under Trump’s plan, the standard deduction would increase to $15,000 for single individuals and to $30,000 for married couples filing jointly. In contrast, the 2017 standard deduction amounts under current law are $6,350 and $12,700, respectively, as adjusted for inflation

Business taxes

On the business front, President-elect Trump stressed the simplification and reduction of business taxes. 

For small businesses, Trump has proposed a doubling of the Code Sec. 179 small business expensing election to $1 million. Trump has also proposed the immediate deduction of all new investments in a business, which has also been endorsed by Congressional tax reform/simplification advocates.

President-elect Trump called during the campaign for a reduction in the corporate tax rate to 15 percent. He also proposed sharing that rate with owners of “pass through” entities (sole proprietorships, partnerships and S corporations), but only for profits that are put back into the business.

Based on campaign materials, a one-time reduced rate would also be available to encourage companies to repatriate earnings of foreign subsidiaries that are held offshore. Many more details about these corporate and international tax proposals are expected.

Other taxes

President-elect Trump proposed during the campaign to repeal the alternative minimum tax (AMT) and the federal estate and gift tax. The unified federal estate and gift tax currently starts for estates valued at $5.490 million for 2017; Trump, however, also proposed a “carryover basis” rule for inherited stock and other assets from estates of more than $10 million. This additional proposal has already been criticized by some Republican members of Congress, while some Democrats have raised repeal of the federal estate tax as a non-starter.

Health care

The Affordable Care Act (ACA) created several new taxes that impact individuals and businesses. These taxes range from an excise tax on medical devices to taxes on high-dollar health insurance plans. The ACA also created the net investment income (NII) tax and the Additional Medicare Tax, both of which generally impact higher-income taxpayers. The ACA also made significant changes to the medical expense deduction and other rules that affect individuals. For individuals and employers, the ACA created new mandates to carry or offer insurance, or otherwise pay a penalty.

President-elect Trump made repeal of the ACA one of the centerpieces of his campaign. During the campaign, the President-elect said he would call a special session of Congress to repeal the ACA. Just how a total repeal may move through Congress, however, remains to be seen. Lawmakers could vote to repeal the entire ACA or just parts.

Working with Congress

When the 115th Congress convenes in January 2017, it will find the GOP in control of both the House and Senate, therefore allowing Trump to move forward on his proposals more easily. It remains to be seen, however, what compromises will be necessary between Congress and the Trump Administration to find common ground. Compromise will likely be needed to bring onboard both GOP fiscal conservatives who will want revenue offsets to pay for tax reduction, and Senate Democrats who have the filibuster rule to prevent passage of tax bills with fewer than 60 votes. And beyond considering tax proposals one tax bill at a time, it remains to be seen whether proposals can be packaged within a broader mandate for “tax reform” and “tax simplification.”

Each year, more than half of all taxpayers pay a professional to handle the preparation of their tax return… and since married couples count as one filer, the individual total is actually much higher.  It is no secret that the U.S. tax system is difficult to navigate, a situation unlikely to change despite repeated efforts to simplify the tax laws. The last major effort to overhaul the system, the Tax Reform Act of 1986, was promoted with simplification as one of the key goals, yet despite significant major changes to the law, the system's overall level of complexity changed very little. In fact, by some measures it is more complicated now than it was in 1985.

Each person will have their own reasons for choosing to use a professional preparer, but one common concern is the time requirements. The IRS estimates that the average individual tax return will require about 16 hours per year to deal with preparing his or her own return. If you are self-employed or rent property to others, the average jumps to 24 hours.  And if you are preparing a business return, you can plan on spending an average of 56 hours completing the necessary forms!

The desire to avoid expensive mistakes another motivating factor for many people. Each year, the IRS finds many tax returns where errors caused filers to underpay their tax bill, resulting in penalties and interest. However, many people do not realize that the IRS is generally not proactive in seeking out errors where people have overpaid their taxes.

Of course, hiring a professional preparer is not without a level of risk. Preparers must access some of your most sensitive financial information and must be dedicated enough to stay informed on our ever-changing tax laws. On their website, the IRS provides some tips on choosing a preparer you can rely on.

So – how do you know you’re hiring the right person to help you prepare your taxes?

First, ask about your preparer’s credentials and continuing education. Certified Public Accountants (CPAs) have met minimum education requirements (a Masters degree is now required by most States), have passed the rigorous Uniform CPA Examination and are required to take 40 hours of continuing education every year.  An Enrolled Agent (EA) has passed an IRS competency exam and is required to spend an average of 24 hours each year on tax-related education.. Find out what designation your preparer has and how much tax-related education they attended in the previous year.

Make sure that your preparer has obtained an IRS identification number (a “PTIN”) and that he or she will be including his information, including his identification number, in the “paid preparer” block of your return. If you pay someone to prepare your return and they leave this block blank (or it says “self prepared”), you should find a new preparer immediately.

Before you begin, make sure you understand how you will be charged for your tax return. Avoid preparers who base their fee on a percentage of your refund or who promise to get you a larger refund than other preparers. Also, make sure you understand what is claimed on your return before it is filed. Your preparer should explain to you everything that it contains, because you are the person ultimately responsible for everything claimed on your return, whether you used a preparer or not.

The law requires that virtually all professional preparers file your return electronically, which is the safest and most accurate way to file. If a preparer insists that you file your return on paper, it may be a red flag. (Some preparers are exempt from “e-filing” on religious grounds or other narrow exceptions, and there are certain cases where a return must be filed on paper.) Preparers are also legally prohibited from depositing your refund (or any portion of it) directly into their own bank account.

Finally, never sign a blank return or tax form, including an electronic filing authorization, and never sign anything before you have received a copy of your completed return. You should also make sure that your preparer is available year-round to answer questions or provide assistance in the event you receive an IRS or state tax notice.