Health Insurance

Are Your Prepared for These Year End Income Tax Issues?

Over the course of the yr, I’m positive you have observed the ridiculous approach our Congress has acted to replace our tax legal guidelines. By together with tax code provisions in a freeway invoice, a mass transit invoice, and a commerce bundle bill- plus throughout the Bipartisan Budget Act and the PATH (Protecting Americans from Tax Hikes) Acts. (Those final two had been, certainly, logical locations to control taxes.)

There is an opportunity that the lame duck Congressional session might act on some tax laws, however on condition that these people work about 1 day a week- after which complain what number of lazy people are out throughout the US not coming into the workforce (that’s the pot calling the kettle black)- I’m not sanguine they are going to. So, until they do- this would be the final yr that mortgage insurance coverage can be deductible and foreclosed residence debt won’t be a taxable state of affairs, amongst just a few different objects that expire this calendar yr.

But, I figured it might be useful if I mixed all these adjustments right into a coherent mass (which our legislators clearly haven’t), so that you may be ready for the 2019 tax season. (Remember, you file your taxes for 2019 by April 2019. Oh- and in case you are a enterprise, the chances are the date your taxes are due, additionally modified. More on that beneath.)

Students and Teachers (PATH Act provisions)

Students received a everlasting change for deductibility of tuition through the American Opportunity Tax Credit. This gives as much as $ 2500 of tax credit score for lower-income filers for the primary 4 years of upper schooling (with a chance of 40% of the unused credit score being acquired as a refund- if no different taxes are owed). As lengthy as the scholars are enrolled at the very least half time for one time period of the yr and never convicted of drug violations. The actual change is that filers should embody the EIN of the school or college involved- and reveal that they paid the schooling and charges they claim- not what the establishments might listing on the 1098-T kind.

On the opposite hand, the schooling deduction for different college students will expire on the finish of this yr. Oh, and that beneficiant (sic) deduction lecturers get for getting provides for his or her college students that faculties do not provide is now permanent- all $ 250 of it. (Most lecturers spend at the very least twice that!)

Pensions and IRA

Folks older than 70.5 years of age now not need to rush to switch their IRA (or parts thereof) to charity, as a result of that provision is everlasting. (PATH) Please word that the IRS calls for that these transfers not be rollovers. One should make use of a trustee to switch the funds; and that trustee can’t hand you the funds to ship to the charity. If they do, you lose the exemption. No surprises I’m positive after I remind you that there have to be a contemporaneous acknowledgement (meaning a well timed receipt) from the charity for that deductible donation or switch.

Heirs and Estates

While nonetheless within the fallacious venue, the Highway Bill did repair an enormous downside. Folks (or entities) that inherit property from an property are actually required to make use of the premise filed within the 706 kind for their very own calculations. (Just so you realize, the principles stipulate that estates can worth objects as per the date of dying, or by alternate selection 9 months after that date. Too many “cheaters” would use a special foundation for the property they inherited, thereby dishonest the tax authorities with different valuations.)

To preserve this rule in place, executors are actually required to stipulate (i.e., file for 8971 and Schedule A of the 706) stated worth to all heirs and to the IRS. Which means anybody who inherits property- and thought they did not must file Form 706 as a result of the worth of the property was beneath the edge for Estate Tax higher rethink. Otherwise, the heirs could also be hit with a penalty for utilizing the fallacious foundation for that inherited asset once they get rid of similar.

Why? Because if a 706 kind is rarely filed, the premise of all property inherited is now outlined as ZERO!!!!! It will get worse. Because if an asset had been omitted from Form 706, the premise of that property is now decided to even be ZERO. (Unless the statute of limitations remains to be opened, when an Amended 706 may be filed to appropriate this omission.)

Another kicker. If the 706 kind is filed LATE, the premise of all property that ought to have been included are additionally set at ZERO. Some tax advisors really feel this one little provision might be challenged in courtroom. But, let’s simply be prudent and file all these 706 Estate Tax returns in a well timed vogue. (Filing a 706 when the property worth is beneath the submitting threshold is named a Protective 706 Filing; we have been doing these for years. And, we strenuously look at the property usually to the consternation of the heirs- to make sure that all of the non-worthless property are included. You know, that 36 diamond tennis bracelet your grandma promised you’ll inherit once you turned 16.)

Oh, yeah. Another actually huge kicker for this little merchandise. Under IRC 6501, the IRS has three years to catch cheaters who misstate sure objects (like revenue taxes [except for continuing fraud], employment taxes, excise taxes, and for this provision- property taxes and the outcomes therefrom). No extra. If an asset from an property is misstated in order that it may well have an effect on greater than 25% of the gross revenue on a tax return will now have a SIX yr statute of limitation.

Mileage Rates

Not surprisingly, the mileage charges for 2019 are decrease than they had been final yr. Business mileage is now deducted as 54 cents a mile; driving for causes which can be medical or transferring are solely price 19 cents every. When we drive to assist a charity, we solely get 14 cents a mile.

As is generally true, we now have no clue what these charges can be for 2019. The IRS usually prepares these nicely into the calendar yr.

Real Estate

The PATH ACT made everlasting the flexibility of taxpayers to contribute actual property to certified conservation charities.

Health and Health Insurance

The Highway Bill (yup) got here up with a bouquet of flowers for our veterans and people at the moment serving within the army. No longer will they be unable to contribute or use HSA (Health Savings Accounts) ought to they obtain VA or armed service advantages.

Along that very same vein, the Highway Bill enabled all those that purchase- or are offered by their employers- excessive deductible insurances (about $ 1500 for a single individual) to make use of HSAs, too.

Oh, and assuming Obamacare just isn’t overturned, there’s a everlasting exemption from penalties for these receiving VA or TriCare Health Benefits. (For employers, the Highway Bill additionally exempts all such workers from being included in figuring out the 50 worker (full-time or equal) threshold provisions.)


There had been various adjustments for employers. More than the exemption for the VA and armed service personnel from inclusion in Obamacare provisions talked about above.

Like ALL 1099s and W-2 are actually due by 31 January. That’s an enormous change for a lot of people who barely get their stuff collectively to file 1099’s. It signifies that firms must contact their tax professionals actually early- to allow them to confirm that each one related contractors and consultants obtain these 1099s on time. Because the penalties have additionally elevated.

The Work Opportunity Credit has been prolonged by way of 2019. This applies to Veterans (which is why you retain listening to Comcast promoting its dedication to rent some 10,000 veterans over the subsequent few years- they’re no dummies). Other focused teams embody what are termed these receiving Temporary Assistance for Needy Families (TANF), SNAP (what was termed Food Stamp) recipients, ex-felons, and a few of these residing in “empowerment zones”.

Families and Individuals

The PATH ACt made the improved baby tax credit score (as much as $ 1000, revenue dependent) a everlasting provision of the code. As nicely because the Earned Income Tax Credit provisions that had been to run out.

Social Security taxes should not going up per se- however the revenue foundation upon which one pays them is. For the final two years, there was a tax vacation for all wage revenue (or self-employed revenue) that exceeded $ 118,500. Next yr (2019), the taxes can be collected for totals of as much as $ 127,200.

If an worker is working abroad and has revenue and/or a housing allowance, the exclusion provisions have additionally modified. For 2019, international revenue of $ 101,300 might be excluded from taxation, as may housing advantages that had been $ 16,208 or much less. Starting 2019, these exclusions turn into $ 102,100 and $ 16,336, respectively.

There is also additional clarification of those international exclusions. In specific, these will have an effect on these within the service provider marine or working aboard cruise strains. Because the IRS now holds that when one is in a international port, then one is ready to declare international revenue. But… when somebody operates in worldwide waters, that’s NOT a international nation. That revenue have to be computed (by the variety of days one is on stated waters) and isn’t excludable!

Individuals, Businesses, Trusts, Non-Profits which have Foreign Accounts

Some huge adjustments have an effect on those that should file these FBARs (Foreign Bank and Financial Accounts). It was you needed to report any holdings in a financial institution, inventory account, commodities or future accounts, mutual funds, or [pay attention to this one] poker, playing or gaming web site account that was not a US domicile by 30 June. (This additionally means a international insurance coverage coverage that has a money worth or international retirement accounts [including inheritances] is a international account.) It additionally covers latest immigrants to the US! These filings are due similtaneously your revenue tax return. But, whereas there by no means was an extension doable for these varieties, now there may be – for a similar six months that obtains in your private tax filings.

A international account doesn’t imply that utilizing the Royal Bank of Scotland to deal with funds in New York City; however having a Citicorp account that’s primarily based in Jerusalem or London does. The vital consideration is the place the native department is located, the place the account was opened. By the best way, accessing international funds through PayPal means you’ve gotten a international account.

The FBAR submitting makes use of Form 114 and have to be now filed electronically. The requirement to file applies to all taxable entities (people and companies) which have $ 10,000 or extra of worth on any given day in the course of the tax yr. And, the conversion price for stated worth is now not allowed to be daily- however decided by the worth on the final day of the tax yr.

There is a brand new interpretation, too. The requirement to file applies not simply to the account proprietor(s), however to anybody with signature authority. So, meaning folks like me that keep shopper accounts abroad will now need to file these varieties, as a result of I can concern checks on these accounts. (I’m not accountable for about 100 of them the place I write the checks for the clients- however don’t have any signature authority.) It additionally means workers of companies or companies or estates which have international funds and have signature authority should additionally file Form 114.

All enterprise entities (and trusts and non-profits) ought to acknowledge that each one entities – and people who work for or at these entities- which have signature authority for a international checking account, inventory account, gaming or playing account are topic to those provisions. In different phrases, all international cash holdings might topic workers, not simply officers of the establishments, to those provisions.

Oh. The IRS additionally requires these international entities the place you could or might not have cash to file Form 8938, a FATCA (Foreign Account Tax Compliance Act) submitting. This covers these monetary accounts, shares, securities, contracts, interests- something that exceeds the submitting threshold. These guidelines additionally apply to American entities (people, companies, trusts, and many others. which have such pursuits in extra of the submitting threshold! (If one resides within the US, these thresholds are $ 50Okay for people, $ 75$ for married people on the final day of the year- or $ 100Okay and $ 150Okay at any time in the course of the tax yr. Those numbers enhance by an element of Four if one does not reside within the US; the thresholds are $ 200Okay, $ 300Okay, $ 400Okay, and $ 600Okay, respectively.)


The PATH Act modified the 179 (the capital purchases write-off provisions) Election. For good. The most Section 179 write-off is now everlasting. (It had been prolonged for a yr or two every time Congress had made a change for some time.) That most can be to be adjusted for inflation beginning this yr, which is why it’s now $ 510,000. Moreover, there’s a phaseout when the quantity of latest capitalized property exceeds $ 2.03 million, however to not zero.

Real Estate

For actual property purchases, the utmost Section 179 exclusion is now additionally $ 500Okay. (Last yr, it was capped at $ 250Okay.) This contains HVAC (heating, air flow, and air-con), which is a brand new change. Any recapture of this credit score (attributable to an early sale) is now thought of topic to bizarre revenue taxes.

The time to depreciate actual property is now 15 years for certified leasehold enhancements, eating places, and retail enhancements. Bonus depreciation can be allowed for the primary half of stated enchancment worth (by way of 2019), lowering in 2019 to solely 40%, 30% in 2019 and eliminated fully by 2020. The PATH Act additionally let bonus depreciation apply to 39 yr property (for enhancements that had been already in service by the entity).

Automobiles (Luxury)

The depreciation limits for autos is restricted to $ 3160 or 20% of the premise in 2019. However, this yr one can write off as much as $ 8000 in bonus deprecation (which is diminished to $ 6400 in 2019, $ 4800 in 2019 after which eliminated endlessly by 2020) for brand new (not used) cars. Of course, these numbers apply solely to autos which can be used fully for enterprise. There is a discount for car use that isn’t absolutely attributed to enterprise utilization.


The Bipartisan Budget Act (the one which taxes would usually be addressed) has introduced a sea change to the best way partnerships can be handled, ought to the IRS discover issues with their tax submissions. The adjustments don’t take impact for just a few years- however the time to deal with the adjustments is admittedly now.

Basically, the Act stipulates that any change that comes about by an audit are to be collected immediately from the partnership- until the partnership elects out of TEFRA (Tax Equity and Fiscal Responsibility Act of 1982). So, it signifies that partnership formation, operations, new associate admissions, and many others. will all need to be reconsidered.

What modified is this- the partnership can resolve to simply accept an IRS choice that the underpayment is due from the partnership itself or it may well elect to have that call divided up among the many companions, in line with their proportion possession or legal responsibility proportion. Most advisors are telling partnerships to elect the latter course of. If the partnership doesn’t so select, then the IRS will assess the partnership on the highest tax price allowed- 39.6%. Of course, if the partnership can show (to the satisfaction of the IRS) {that a} decrease price is suitable, primarily based upon the person tax charges of the companions, then a decrease price could also be allowed. (Don’t financial institution on the IRS doing so.) However, this underpayment won’t be allowed to alter the premise of every of the associate’s pursuits, if the partnership is taxes for the legal responsibility.

If the partnership pushes the problems right down to the associate degree, then every associate is assessed for the tax at its personal price. And, the partnership can concern an adjusted (amended) Okay-1 for the IRS revisions that can change the premise and keep away from the double taxation chance. The partnership has 45 days from the date of the IRS discover of change to make this election.

There is one other change that impacts partnerships- the PAL (passive energetic loss) concern. Why? Because most companions and partnerships don’t keep pristine time information. (This additionally impacts actual property leases which can be reported on Schedule E, web page 1.) There are varied definitions that set the PAL issues- for actual property professionals it’s a minimal of 750 hours of labor a yr. The IRS has allowed different partnerships to make use of completely different designations, akin to 500 hours, or the truth that a selected associate does all of the work (even when lower than 500 hours), and even when a associate spends 100 hours or extra on the partnership and nobody else does extra.

But, the principles to show how a lot participation are gelling. One can use a document of mobile phone name information, eMails, or bank card expenses. Travel itineraries and receipts can show how a lot participation was concerned. Even affidavits from prospects and shoppers can be utilized to show the time one participated within the enterprise.

Payments Due

The IRS has been starved to dying for years by Congress. Partly as a result of one celebration was indignant that the IRS was not robotically granting these “social welfare” organizations (learn as political collections and donation farms) tax exemptions with out scrutiny. Partly as a result of the IRS is accountable for amassing the penalties for individuals who do not adjust to Obamacare. (Hoping that this lack of funds would make it tougher for them to take action.)

But, in my humble opinion, the answer Congress got here up with sucks. The IRS has now been approved to rent these backside feeders- the surface assortment brokers, that harass and topic people to all kinds of intimidation. The logic behind this selection? After all, people who owe the IRS have to be the scum of the earth. (Of course, nobody ever considers the truth that the IRS makes errors, chooses random numbers to evaluate non-filing taxpayers who may very well owe nothing, and many others.)

Many shoppers fall wanting having adequate funds to pay their taxes when due. This entails the taxpayer submitting a kind 9465 (Installment Agreement Request). These have to be robotically authorized if the taxpayer [individual] owes (or will owe) the IRS $ 50,000 or much less, with the addition of this request- and all tax varieties have been well timed submitted. (Businesses are restricted to a $ 25,000 most, with the identical provisos.) However, the charges concerned to have the IRS course of the request have been elevated to $ 120, until the taxpayer agrees to have the IRS zap their checking account robotically every month. Then, the charges are diminished to $ 52. (The IRS has approach too many taxpayers “forgetting” to make well timed funds. This is a option to incur fewer manpower points for the service.) However, irrespective of how the fee is to be processed by the IRS, all low-income taxpayers (a household of 4, with $60Okay or much less in revenue) will not need to pay greater than $ 43 to institute a fee plan.

The largest concern? Any taxpayer who just isn’t in compliance with IRS code, who has no installment settlement in place, and owes $ 50,000 in taxes, penalties, and curiosity can discover his passport revoked IMMEDIATELY. (If one just isn’t but issued, do not count on the Department of State to concern one, both.)

Filing Dates


There has been no change within the due date for 1040 submitting, in that it’s nonetheless due on 15 April (or the subsequent enterprise day, ought to the 15th fall on a weekend or authorized vacation). Unless you’ll be able to show you had been overseas on 15 April- then you’ve gotten the correct to increase the submitting date to 15 June. Or, you filed an extension request- that offers you till 15 October (with the identical proviso for when it falls on a weekend or authorized vacation).


Here’s the place the massive adjustments arrive. And, it’s about time. Because too many pass-through entities have been screwing over their companions, their stockholders by delaying their submitting. Oh, positive, they could pay a penalty, however that does not assist the multitudes who cannot file their taxes in a well timed vogue as a result of lassitude of those entities.

So, any longer, all cross by way of entities- these are partnerships, LLCs, and S entities should no file their tax returns by the 15th day of the third month after the top of their tax yr. Recognize that the IRS permits firms which have “good” causes to not use a pure yr (i.e., 1 January to 31 December) to selected one other month to finish their tax yr. But, for many entities, the due date will now be 15 March. Which offers the companions or the stockholders a month to complete their very own tax returns. (Firms that function on the US Government yr, which ends 30 September, for instance, should file their taxes by 15 November.)

Regular Corporations (C entities) now not need to file by the 15th day of the third month, however now have till the 4th month. So, for these firms working on a pure yr foundation, the due date has been prolonged (completely) from 15 March to 15 April. (An identical 15th day of the 4th month after year-end applies for these not working on a pure yr foundation.)

Business, Trusts, Non-Profits, and Pension Plan Extensions

There is another change for C companies. Their extension is now not 6 months long- however 5 months. In different phrases, earlier than once they needed to file by 15 March, however may lengthen the due date till 15 September… nonetheless have that very same last prolonged due date, regardless that the unique submitting date is now 15 April.

Partnerships and S entities nonetheless have a 6 month extension- which additionally falls (for individuals who use a pure yr) on 15 September.

Trusts and Estates of the Deceased file kind 1041. The solely extension request offered 5 months past the due date. Now, the due date is 5.5 months. That means the due date for submitting is 15 April, however an extension means the due date may be 30 September.

Non-Profit entities file kind 990 on 15 May- or the 15th day of the fifth month after the top of their fiscal yr. Extensions was offered for three months; they now have extra time- six month extensions are the brand new guidelines.

Employee Benefit Plans (Pension Plans, 401(okay), welfare plans) should file their tax returns with the IRS by the final day of the seventh month after their yr finish. (For pure yr plans, meaning 31 July). Before the plans may lengthen that deadline by 2.5 months; now the rule gives for a further month to three.5 months.

Late Filing Penalties

The minimal penalty for submitting late (greater than 60 days) has been elevated from $ 135 to $ 205. Except in sure instances, that penalty may be diminished to the quantity of tax owed, which ever is smaller. (By 2019, the penalty will go as much as $ 210.)

Which entities are affected by this transformation? Individuals (all varieties 1040, together with non-citizens). Estates and Trusts (Form 1041). Corporate Files (all types of the 1120 submitting). And, Non-Profit entities that may file a 990-T (they’ve unrelated enterprise revenue of $ 1000 or extra.)

There are extra penalties, too. These had been included within the Trade Package Legislation. The act included late submitting of 1099 varieties, W-2s, and 1095 (Health Care Reporting). You will word that the deadlines for a few of these varieties have been moved up- so listen and file them on time. Because the penalties may be $ 1060 for every delinquent 1099 form- as a result of you’ve gotten deliberately filed late to the federal government AND to the payee!

Of course, should you file the 1099 solely 30 days late, the penalty is $ 50 (again- for every – the payee and the federal government). If you get your act collectively by 1 August, the penalty is $ 100 (once more, for every). And, should you miss that date, the penalty is $ 250 each- until the IRS feels it was intentional (and you realize that quantity is $ 530).

There you’ve gotten the massive adjustments for the yr. Now, you have to be able to file your taxes comes the 1rst of the yr. But, do not count on actually quick refunds (as one would have anticipated earlier than). Because the IRS goes to be checking to ensure the taxpayer is legit- they do not need all these identification theft and tax fraud conditions to acquire.

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