IRS Waives Penalty for Many

The IRS has announced that it will be waiving the penalty for the underpayment of estimated tax for many taxpayers whose estimated tax payments and federal income tax withholdings came up short for the 2018 tax year.

The underpayment penalty relief is intended to provide assistance to taxpayers that were unable to properly adjust withholding and estimated payments to reflect the numerous changes made to the income tax law under the Tax Cuts and Jobs Act (TCJA).

Generally, the IRS will be waiving the underpayment penalty for taxpayers who have paid at least 85% of their total tax liability during the year. These payments could have been made through federal income tax withholding, quarterly estimated tax payments or a combination of the two methods.

The typical percentage of current year tax that must be paid to avoid an underpayment penalty is 90%.

If you have any additional questions, please contact Brian Reed at breed@bwtpcpa.com or 314-576-1350.

Amending Your Individual Income Tax Return

Individuals that have discovered they made an error on their tax returns after they have been filed can file an amended return (Form 1040X) to correct the error. Amended tax returns can be filed to correct most errors regarding income tax returns; however, they do not need to be filed to correct math errors or the omission of a required form or schedule. In this care, the IRS will request this information through the mail.

Amended returns should be filed within three years of the date of timely filing to claim a refund. It is okay to cash the refund check from the original return, however the taxpayer should wait until the original refund is received before filing an amended return. If a taxpayer is filing an amended return because they owe more tax, payment should be made as soon as possible to limit interest and penalty charges. If an error affects multiple tax years, a separate amended tax return will need to filed for each tax year that is affected. Amended returns can take up to 16 weeks to be processed by the IRS.

If you have any additional questions, please contact Brian Reed at breed@bwtpcpa.com or 314-576-1350.

Tax Law Changes: Meals and Entertainment

One of the many changes to the tax code modifies the deductibility of meals and entertainment expenditures by businesses. The following modifications apply to tax year beginning after December 31, 2017.

Below is a list of updated provisions for meal and entertainment expenditures under the new tax law:

  • Entertainment expenses are not deductible unless specific exceptions are satisfied.
  • Office holiday parties remain 100% deductible under the new tax law.
  • Meals paid for while entertaining clients remain 50% deductible.
  • Meals provided for the convenience of the employer are reduced to 50% deductible. After 2025, these meals will no longer be deductible.
  • Expenses for meals incurred by an employee while traveling remain 50% deductible under the new law.

 

Please consult your tax advisor for specific issues regarding your personal tax situation. If you have any additional questions, please contact Brian Reed at 314.576.1350.

Does Your Dependent Need to File a Tax Return?

Whether or not your dependent is required to file a tax return depends on a few factors. When deciding if your dependent is required to file their amount of income, type of income, and dependency status should all be taken into consideration.

Types of income and taxes:

Earned income only: A dependent is required to file a separate tax return if their earned income is above the standard deduction – $6,350 for 2017. If they earned less than that, they would not be required to file. However, if federal income tax was withheld, they might be entitled to a refund.

Unearned income only: If a dependent has unearned income in excess of $1,050 for 2017, a tax return is necessary. However, the choice can be made to either file a separate return for your dependent or report that income on your own return.

Combination of earned and unearned income: In this situation, both the earned income and unearned income rules are applicable. Additionally, your teen will be required to file if their combined income is greater than the larger of: $1,050, or earned income plus $350.

Self Employment: If your dependent’s compensation was reported on a Form 1099-MISC, they are considered to be self-employed for tax purposes. Self employment tax is required when any self-employed persons net earnings are in excess of $400.

Kiddie Tax: Your dependents unearned income less than $1,050, for 2017, is not taxed. Unearned income between $1,050 and $2,100, for 2017 is taxed at the dependents rate. Unearned income above $2,100, for 2017 is taxed at the parent’s highest income tax rate.

If you have any additional questions, please contact Brian Reed at 314-576-1350 or at breed@bwtpcpa.com.

Maximizing Your Charitable Contributions

Here are some helpful points to consider when making charitable contributions to ensure you get the most for your contribution.

Verify nonprofit status

For charitable contributions to be deductible they must be made to qualified organizations. The organization must be recognized as a 501(c)(3) organization with the IRS in order for your contribution to qualify. Contributions made to individuals or political parties do not qualify for deduction.

Noncash contributions

In order to claim the maximum value for donated property, it is important to maintain descriptive records of what was donated, when it was donated, and the fair market value of the goods at the time of donation. Items must generally be in good condition in order to qualify for a deduction. In addition to your records, request receipts from all organizations you make contributions to; keep these with your tax documents.

Special rules

If you donated your vehicle this year, there are special rules that determine what the value of your contribution is. The value is generally the amount the organization is able to sell the vehicle for, however, there are some exceptions. If the value of the vehicle exceeds $250, the organization should send you written communication that will detail the amount to report on your tax return.

Mileage

Miles driven for charitable purposes are deductible. While the rate for charitable mileage is only 14 cents per mile, compared to the business rate of 53.5 cents per mile (for 2017), these miles are still an eligible deduction that many pass on.

Benefit from contribution

If you’ve received anything in return for your contribution, the value of your contribution must be reduced by the fair market value of the goods or services you received.

 

If you have any additional questions, please contact Brian Reed at 314-576-1350 or at breed@bwtpcpa.com.