What do you get when you put the words “THE” and “IRS” together. THEIRS. They will get THEIRS one way or another, but you do have a say in the matter, even when you owe them. Here is a primer.

Whatever you do, file your return on time.

Even if you can’t pay what you owe. The failure-to-file penalty is the most onerous of all: 5% of the tax due for any month, or fraction of a month it is late, up to 25%.

Make a partial payment.

Even if you can’t pay the whole tax bill, pay as much as you can. As long as you owe, the interest and penalties keep adding up. But, it also depends on the length of time, amount and where the money is coming from. Consider IRS does not report what you owe to credit bureaus as long as no liens are filed.

Request a payment extension.

If you haven’t applied for a payment extension before, this could be another option. After you file your tax forms without payment, the IRS will contact you to ask whether you would be able to pay within 120 days. If you choose this option, the agency will charge you a monthly fee of 0.5 percent of the amount owed.

Consider an installment plan.

This is a good option if you need more than 120 days to pay your tax bill and you owe less than $50,000. When you file your tax return, fill out an online payment agreement or Form 9465. The IRS will then set up a payment plan, which can last up to six years. You’ll incur a setup fee, which ranges from about $31 to $225 depending on how much you owe.

Ask for leniency due to hardship.

You’ll need to prove that paying your tax debt would cause you a tremendous burden, perhaps forcing you to sell your home. But this could get you more time to make your payment, and in some cases, the IRS will also waive any payment penalties. If the delays are for illness, or other relevant reasonable causes, and not due to neglect on your part, you may be able to have the penalties removed from your record. However, they usually require that you pay them first and then request abatement.

Apply for an “Offer in Compromise.”

This is a way to reduce your tax debt permanently. The IRS says that an offer in compromise allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can’t pay your full tax liability or if doing so creates a financial hardship. Before applying for an offer in compromise, the IRS requires applicants to have filed all their tax returns. So, if you didn’t file in previous years, you will need to finish those missing returns. It also requires that you pay the current year’s estimated tax payments.

The post Tax Series Part 3: What to do if you owe money to the IRS appeared first on The Accountancy.

When my kids were younger, we wanted to modernize their bathroom without a complete remodel. The first priority was to swap out old faucets made of the kind of plastic that turns yellow. When my wife and I agreed, we then disagreed (married readers will understand). She expected me to call a plumber and I was expecting to do it myself. How difficult could it be? Initially, I prevailed and was committed to proving her wrong. We went to Home Depot and picked out the replacement faucets. I went back home and, armed with my tool chest, proceeded to scope out the project. It should be noted that I seldom used my own tools, and trepidations aside, it was too late to turn back. “I got this!” was my valiant refrain, that is, if I could find a wrench that would fit underneath the sink. After 30 minutes of futility and frustration, I tried disconnecting the faucets from the top, only to see, to my horror, the plastic break and water start gushing everywhere. Only then did I suffer the indignity of asking my wife to shut off the water main, after which I called a plumber. I was happy to pay to get it done right.

1. You all know I am a CPA, but I assure you this cautionary tale is not meant to be self-serving. It is simply intended to share the conclusions I came to:
2. What seems simple on the surface could have underneath several layers of complexity that are not visible to the untrained eye. You don’t know what you don’t know. Literally.
3. You should not approach a task unless you are prepared and confident, and have the right tools to do it properly.
   Don’t do your own plumbing, or hair, car repair, construction, and especially not your taxes!

The benefits, both tangible and intangible, to using a CPA more than outweigh their cost. It is important to distinguish between the mechanical process of filling out a tax return versus working with an objective advisor who can be part of the team and collaborate with your financial planner, attorney, insurance and mortgage professionals, and bankers, and integrate their advice to your financial strategies. The more financial complexity you have, the more important it is for you to do this.

Since this is Part I of a series, here is the outline of the next parts coming up:

Part 2 – Demystifying the Tax Benefits of IRA’s and ROTH IRA’s

Part 3 – What to do if You Owe Money to the IRS

The post Tax Series Part 1: Why You Should NOT Do Your Own Taxes! appeared first on The Accountancy.

1. Alternative Minimum Tax (AMT) did NOT go away! The starting point at which the AMT affects taxpayers has been increased slightly, so fewer will be affected by the AMT. MIXED!
2. State and Local Tax deduction reduced to $10,000. HURTS for those in high cost locations.
3. Mortgage Interest limited to loans of $750,000 on your primary and second residence.  Home equity loan interest is no longer deductible.  HURTS in California and high costs locations where loans often exceed this amount.
4. Standard deduction increases to $24,000 for married couples and $12,000 for single individuals.  For each spouse 65 and older there is an additional standard deduction of $1,300 and an additional $1,300 if blind.  For single individuals 65 and older the additional standard deduction will be $1,600 and an additional $1,600 if blind.  GOOD if you currently claim the standard deduction!
5. Personal exemption goes away.  HURTS!
6. Child Tax Credit increases.  The child tax credit increases from $1,000 to $2,000 and up to $1,400 is refundable if one does not have a tax liability.  The child tax credit begins phasing out once income exceeds $200,000 for a single individual and $400,000 for a married couple.  A credit of $500 will be available for dependents other than children.  GOOD!
7. Moving Expenses gone, except for members of the military.  HURTS if you have to move for your job or business.  Employers will have to add reimbursements to your W-2.
8. Alimony payments for divorces ending in 2019 and later will no longer be deductible by the spouse paying the alimony and not considered income to the recipient.  MIXED!
9. Tax rates drop slightly with the top rate at 37%, down slightly from the current 39.6% rate.  For the most part, the brackets are similar, but with tax rates at 10%, 12%, 22%, 24%, 32%, 35% & 37%.  GOOD!
10. Estate Tax threshold doubles to $11.2 Million per individual.  GOOD!
11. Corporate tax rates drop to 21%.  GOOD for large corporations!  Does not help closely held corporations.  Beware that profits taken out as dividends are subject to the double taxation rule when in addition to the corporation paying tax the individual receiving the dividends, pay tax at their individual tax rates bringing the combined rates close to the top tax rate.
12. Tax rates for pass-through entities like S-Corporations and LLC’s gets a partial reduction.  The final version allows a deduction of 20% of the income, but subject to limits based on a combination of wages paid and capital invested.  This does not apply to those in the professional service industry when income exceeds $315,000 for a married couple and $157,500 for a single individual.  GOOD for some! 
13. Section 179 write off expensing the purchase of equipment allowed up to $1 Million of purchases.  GOOD for closely held businesses!
14. Net Operating Losses limited to 80% of taxable income. HURTS when recovering from a devastating loss!
15. The penalty for not purchasing health insurance goes away beginning in 2019.  MIXED as this means that health insurance will likely become more expenses because fewer healthy individuals participate.

There have been a lot of experts looking at the potential impact of these changes on individuals and there is one clear winner, the ultra-wealthy, who are most likely to benefit from the tax proposals.  There will be those who save and those who pay more in tax in all tax brackets.

There are some tax provisions that Congress or the Senate wanted to eliminate, but were allowed to remain.  Those include:

1. Sale of Residence – $250,000/$500,000 exclusion on sale of primary residence will continued to be allowed if one lives in the home for 2 out of 5 years. 
2. Medical Expenses – The threshold for 2018 & 2019 will drop to 7.5% of Adjusted Gross income, but then goes back to 10% after that.
3. Teacher’s Deduction for the purchase of classroom supplies & expenses up to $250 will continue to be allowed.
4. Student Loan Interest deduction of up to $2,500 will continue.
5. Itemized deductions for high income taxpayers will continue to be limited.
6. Tax Credits for Students continues.  The American Opportunity Tax Credit and Lifetime Learning Credits continue to be available for parents or students.
7. Tax credits for electric vehicles continue.
8. Work Opportunity and other credits continue.

Last minute actions you can take during 2017 to minimize the impact of the new tax law:

1. Unless you are paying the AMT, prepay all state and local taxes for 2017 by December 31.  This includes property taxes due during the first few months of 2018. 
2. Unless you are paying the AMT, prepay Misc. deductions that we historically have claimed for you.
3. If your itemized deductions have been less than $24,000 for a married couple or $12,000 for an individual, prepay charitable donations for 2018 along with state and local taxes mentioned above.

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