Tax Lawyer Blog

A Blog written by the Tax Attorneys for Individuals and Businesses

March 2017: Client Alert

March 2017: Client Alert

 

It's tax season and we are hard at work preparing returns and answering tax questions.   If you have tax questions or concerns, please do not hesitate to contact us.     You also may enjoy Frequently Asked Questions with Chip Franklin on KGO radio.

Sincerely,

Steve Moskowitz, Esq.
Founding Partner

 

Tax Calendar

Tax return filing season has arrived, which means it's time to mark your calendar for these 2017 tax deadlines.

March 2

  • Large employers and others must furnish Form 1095-B or Form 1095-C to employees.

March 15

  • 2016 calendar-year S corporation Form 1120S income tax returns are due.
  • 2016 calendar-year partnerships Form 1065 income tax returns are due.

March 31

  • Forms 1095-B and 1095-C due to the IRS, if filing electronically. Employers who have 250 or more employees are required to file electronically.

What's Inside

Hot Topics

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Reminder: Partnership Tax Returns Due One Month Earlier

Remember, partnership tax returns are now due on March 15. This is a month earlier than last year. The change is important to note, as filing the tax return late could result in unexpected penalties. The new due date now aligns filing Form 1065 with other flow-through entities like S corporation Form 1120S. If you get caught by surprise with this earlier filing date, contact Moskowitz LLP immediately.


2016 Proof of Health Insurance: the Form 1095 Wrinkle

Under the current Affordable Care Act (ACA), all Americans must have health insurance. If you receive your health insurance through the ACA marketplace or from your employer, you will receive a Form 1095. This form is used as documentation that you have adequate insurance and is used for other ACA reporting and potential tax benefits.

What’s happening now

Prior to filing your tax return you should receive your Form 1095 and review it for accuracy. If you receive your health insurance through a state or federal marketplace you will receive Form 1095-A. Otherwise your version of the form will be either Form 1095-B or Form 1095-C. Unfortunately, some providers of the “B and C” versions of Form 1095 are still having trouble issuing the forms on time. Because of this, the IRS has issued a notice backing off on this “receive the form before you file” requirement. While you will still need to prove you have adaquate health insurance, the suppliers of the Form 1095-B and Form 1095-C were given until as late as March 2 to get the form out to you.

What to do

  •  If you have health insurance through a state or federal marketplace, you will receive a Form 1095-A. You should have already received this form, and you must have it prior to filing your tax return.
  •  If you receive health insurance through your employer, or another program that generates Form 1095-B or 1095-C, for 2016 only, you can still file a tax return without receiving the form. Just make sure you can prove health insurance coverage for you, your spouse, and your dependents for the year.
  •  Place Form 1095 in your tax files. Even though some Forms 1095-B and Forms 1095-C will be received later, you must still retain the form in your files.
  •  If you file your tax return and then discover an error in your reporting based on a Form 1095-B or Form 1095-C received after February 1, there is penalty relief from the IRS if you need to amend your tax return.

Remember, this applies to the 2016 tax year only. For the 2017 tax year, unless changed, you will be required to use a Form 1095 as proof of health insurance prior to filing your tax return.

 

Current Tax Law Requires Health Insurance

During his first week in office, President Trump signed an executive order asking federal agencies to reduce the economic burden the Patient Protection and Affordable Care Act (ACA) puts on American citizens.

Unfortunately, this executive order is causing confusion. Many people are left wondering if fines will no longer be imposed or rules no longer need to be followed. Until the agencies impacted by this executive order publish their intent, act as though current laws are still in play. This includes:

  •  The requirement to have health insurance.
  •  The requirement to pay a shared responsibility tax if you do not have continuous health insurance coverage.
  •  The ability to receive a health insurance premium credit, if you qualify.
  •  Possible health insurance credits for qualifying small businesses.

It’s important to realize that unless tax laws actually change, you are expected to follow the laws as they are currently written.

 

More Credits Require Questions

Common errors have helped to make the Earned Income Tax Credit (EIC) a major source of what the IRS calls “improper payments.” The agency estimates that of the $66 billion in EIC funds paid in 2015, nearly a quarter were collected by filers who didn’t qualify to receive them. To help combat this problem, the IRS now requires additional confirmation of information regarding the EIC and three new credits beginning in 2016.

Now, if you claim the EIC, the Child Tax Credit (CTC), the Additional Child Tax Credit (ACTC), or the American Opportunity Tax Credit (AOTC), additional information may be requested of you.

For the CTC and ACTC, you may be asked how long your children lived with you over the past year, or whether they lived with an ex-spouse, relatives, or other guardian.

If you are eligible for the AOTC, which is a credit to defray as much as $2,500 in higher education costs for you or your children, you will need to provide Form 1098-T from the college or university. You will also need receipts for related expenses.

You may also be asked to double-check your social security numbers and dates of birth for the dependents on your return, as these are two common sources of errors.

If you get more questions than usual or are asked for additional documents, be aware that this is just a new IRS reporting requirement.

 

February 2017: Client Alert

Tax Calendar

February 28

  • Payers must file informational returns with the IRS. (Except certain Forms 1099-MISC with non-employee compensation payments in box 7, which are due before February 1. Excluding previously outlined Forms 1099-MISC, the deadline is March 31, if filing electronically.)
  • Forms 1095-B and 1095-C due to the IRS, if filing on paper.

March 1

  • Farmers and fishermen who did not make 2016 estimated tax payments must file 2016 tax returns and pay taxes in full.

March 2

  • Large employers must furnish Form 1095-B and Form 1095-C to employees.

March 15

  • 2016 calendar-year S corporation Form 1120S income tax returns are due.
  • 2016 calendar-year partnerships Form 1065 income tax returns are due.

March 31

  • Forms 1095-B and 1095-C due to the IRS, if filing electronically. (Employers who have 250 or more employees are required to file electronically.)

 

2016 Tax Preparation

We hope that 2016 was a happy, healthy, and prosperous year for you and your family. It’s that time of year again when you are receiving your annual income and other statements for the purpose of preparing your 2016 individual, corporate, and/or other entity income tax returns.

As such, we wish to remind you to timely file and pay your 2016 tax returns and any additional taxes or estimates that you may owe.

To have Moskowitz LLP prepare your 2016 tax returns, contact Erin Humbles and begin completing our 2016 Tax Organizer.

Along with Tax Season Come the Scams; Don't Be a Victim

One thing we can count on when tax season begins is the scammers coming out from under their rocks. They come up with schemes to trick you in order to steal your ID and file returns under your Social Security number (SSN). They may even email or call you pretending to be IRS or state tax agents, attempting to intimidate you into sending them money to pay fabricated tax liabilities. These crooks take advantage of individuals’ natural fear of the IRS, coercing their marks into making payments without first verifying the validity of the liability.

ID thieves prize three things: your name, Social Security number, and birth date. You should always be very careful about divulging your birth date and SSN. Don’t use them unless absolutely necessary, and always question the requester’s need to know.

You should also be aware that the IRS never initiates contact in any way other than by U.S. Mail. So, if you receive a phone call from out of the blue demanding payment, you can be assured it is a scam. Simply hang up the phone without providing any information. If you receive an email from the IRS, do not click on embedded links or attachments. Doing so could cause malware to be installed on your computer, allowing scammers to access your computer. Contact Moskowitz LLP, if you believe you are the victim of a tax scam.

Additionally, be aware that the IRS:

  ✓ Never asks for credit card, debit card, or prepaid card information over the telephone.
  ✓ Never insists that taxpayers use a specific payment method to pay tax obligations.
  ✓ Never requests immediate payment over the telephone.
  ✓ Will not take enforcement action immediately following a phone conversation. Taxpayers usually receive prior written notification of IRS enforcement actions involving IRS tax liens or levies.

What to do About Tax Penalties

According to the IRS, in 1955, the Internal Revenue Code contained 14 penalties. Fast forward to today, and the number has increased tenfold. Penalties apply on a per-return basis, vary in size from minimal to astronomical amounts, and can increase each year with inflation.

Penalty Relief
If you have been assessed tax penalties, contact our office to discuss Penalty Relief. Penalties can be abated or reduced for various reasons, Including:

  • Reasonable cause. Penalties may be abated when an error is made despite exercising ordinary business care and prudence.
  • Safe harbor for certain de minimis (small) mistakes.
  • Inconsequential omission.
  • Time sensitive. Penalties may be reduced if filed within specific time frames.
  • Small business limitation. The maximum penalty may be reduced based on gross income.

Moskowitz LLP Aggressively Contests FBAR Penalties

Moskowitz LLP will be very active this year litigating FBAR penalties assessed to taxpayers. We currently have three cases that will soon be filed in District Court suing the United States for FBAR penalties, as well as a case to be filed in the United States Court of Federal Claims as to FBAR penalties.

What to do if You Owe Taxes and Cannot Pay Them

We routinely help clients devise delinquent tax liability strategies with the primary goal of resolving a tax dispute with authorities.

For example: When taxes are not paid in full, a bill is received from the IRS. This bill initiates a collection process, which only ends when the bill is paid in full, the government agrees to another settlement, or the taxing agency can no longer legally collect the tax (e.g. the statute of limitations has run). In addition to the original tax bill, various penalties and interest will accrue.

Listen to our recent Podcast regarding your rights and options when it comes to Tax Debts.

Important Tax Changes for Small Businesses

Tax legislation passed late in December 2015 (the Protecting Americans from Tax Hikes Act) extended a number of favorable business provisions and made some others permanent. The provisions can have a significant impact on a business’s taxes for 2016. Here is a rundown of the changes to consider when preparing your 2016 and 2017 returns.

Section 179 Expensing - The Internal Revenue Code, Sec. 179, allows businesses to expense, rather than depreciate, personal tangible property other than buildings or their structural components used in a trade or business in the year the property is placed into business service. The annual limit is inflation-adjusted, and for 2017, that limit is $510,000, up from $500,000 in 2016. The limit is reduced by one dollar for each dollar when the total cost of the qualifying property placed in service in any given year exceeds the investment limit, which is $2,030,000 for 2017, a $20,000 increase from the 2016 amount.

Bonus Depreciation - Bonus depreciation is extended through 2019 and allows first-year depreciation of 50% of the cost of qualifying business assets placed in service through 2017. After 2017, the bonus depreciation will be phased out, with the bonus rate 40% in 2018 and 30% in 2019. After 2019, the bonus depreciation will no longer apply. Qualifying business assets generally include personal tangible property other than real property with a depreciable life of 20 years or fewer, although there are some special exceptions that include qualified leasehold property. Generally, qualified leasehold improvements include interior improvements to non-residential property made after the building was originally placed in service, but expenditures attributable to the enlargement of the building, any elevator or escalator, and the internal structural framework of the building do not qualify.

In addition, the bonus depreciation will apply to certain trees, vines, and plants bearing fruits and nuts that are planted or grafted before January 1, 2020.

Vehicle Depreciation - The first-year depreciation for cars and light trucks used in business is limited by the so-called luxury-auto rules that apply to highway vehicles with an unloaded gross weight of 6,000 pounds or less. The first-year depreciation amounts for cars and small trucks change slightly from time to time; they are currently set at $3,160 for cars and $3,560 for light trucks. However, a taxpayer can elect to apply the bonus depreciation amounts to these amounts. The bonus-depreciation addition to the luxury-auto limits is $8,000 through 2017, after which it will be phased out by dropping it to $6,400 in 2018 and $4,800 in 2019. After 2019, the bonus depreciation will no longer apply.

Can Bartering be an Effective Business Strategy?

Have you ever thought about bartering as a way to get the goods and services you need for your business? A growing number of businesses are finding ways to use the bartering system as a means to avoid using up their company’s cash.

A simple bartering arrangement involves two parties trading items of similar value. For example, let’s say your business owns a building located next to a telephone company. An internet service provider might be interested in storing its equipment in an unused portion of your basement. Instead of paying rent, they offer to provide you with a high-speed internet connection and website.

Complicated bartering may now take place through bartering clubs that give members credits for items or services they contribute. Members can then use the credits to pay for goods or services offered by other club members. This service offers a convenience to businesses, as it can be difficult to find the businesses that offer what you are looking for when searching on your own.

It’s important to note that there are income tax consequences to bartering. To be safe, view your trades as if cash changed hands, since the goods and services are valued, for tax purposes, at their fair market values and taxed accordingly. Also, a bartering arrangement does not always result in a deduction immediately equal to the income you recognized. You might provide a service and recognize income immediately in exchange for some equipment you will end up depreciating over several years.

Call Moskowitz LLP for more information about implementing bartering as a strategy to help your business.