Marsha Elliott, CPA, P.C.

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Individual tax rates

TAX UPDATES

 

Just a reminder…

1)      Tax scams to watch out for… The IRS continues to hear from taxpayers who have received unsolicited calls from individuals demanding payment while fraudulently claiming to be from the IRS. Here are five common things to look for to avoid getting scammed:

The IRS will never

·         Call you about taxes you owe without first mailing you an official notice.

·         Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.

·         Require you to use a specific payment method for your taxes, such as a prepaid debit card.

·         Ask for credit or debit card numbers over the phone.

·         Threaten to bring in local police or other law-enforcement groups to have you arrested for not paying.

 

2)      Under new policies announced by the IRS, taxpayers may receive a letter when the service stops suspicious tax returns that have indications of involving identity theft but contain legitimate taxpayer’s name and/or Social Security number.  Victims may now ask for redacted copies of fraudulent returns. Responses may take quite a bit of time, especially if your identity theft case hadn’t yet been resolved at the time of your request. It could take three months before you get the return or a request for further information from the IRS. This program is available only for individual returns. Businesses are not able to get copies of false returns filed under their tax ID numbers.

 

The Service is taking another step toward thwarting tax identity theft with a pilot program to authenticate W-2 information reported on electronically filed returns. A small group of payroll service providers will add a verification code to 2015 W-2s. Taxpayers will include the code when they e-file their income tax returns. Individuals that are making up numbers on fraudulently filed returns won’t have access to this code.

 

Thresholds and limit changes

3)      The maximum elective deferral to a 401(k) plan remains at $18,000, but individuals born before 1967 can put in an extra $6,000. These payin limits apply to 403(b) and 457 plans, too. The cap on SIMPLEs will stay at $12,500 and $15,500 for taxpayers age 50 or older. The 2016 payin limits for IRAs and Roth IRAs will also stay the same at $5,500 plus $1,000 as an additional catch-up contribution for individuals age 50 and up.

 

President Obama’s myRA plan has expanded nationwide. Under the program, individuals can set up retirement accounts akin to a Roth IRA accounts and contribute funds. Account balances will be invested in interest bearing, short-term Treasury securities, and the principal won’t go down. Similar to a Roth account, annual payins may not exceed $5,500 ($6,500 for folks 50 or over), and the yearly income caps on contributions apply. Once an account hits $15,000, the funds will be rolled over tax-free to a Roth IRA.

 

Savers have three ways to make contributions: Employees of companies that offer direct deposit of paychecks can set up automatic deposits of part of their pay. Individuals can set up onetime or recurring transfers from their bank accounts.

Or they can direct some or all of their federal income tax refunds to their myRA. Go to www.myra.gov for additional details on funding options and to sign up.

 

Deduction phase outs for regular IRAs will start at the same levels in 2016, from AGIs of $98,000 to $118k000 for married filing joint and $61,000 to $71,000 for single tax payers. If only one spouse is covered by a qualified plan, the phase-out zone for deducting a contribution for the uncovered spouse rises a tad. It’ll start at $184,000 of AFI and end at $194,000. But the income caps on Roth contributions will increase. Payins phase out at AGIs of $184 to $194,000 for couples and $117,000 to $132,000 for singles.

 

v  Individuals with over $50,000 in overdue federal taxes could risk losing their passports. A revenue raiser in the highway funding proposal would allow the State Deptartment to deny or revoke passports of individuals on whom a notice of lien or levy has been filed. This provision would not include those who are paying their taxes under an installment agreement.

 

 

 

v  New filing deadlines: In observance of Emancipation Day on Friday, April 15, 2016, taxpayers will have until April 18, 2016, to file their 2015 individual returns and make their first 2016 estimated tax payment.

 

v  There will be no increase in the Social Security wage base for 2016. It will stay at $118,500.

Health Insurance

4)      Supreme Court ruling on ACA: Millions of people will now continue to have access to affordable health care in the states which did not establish marketplace healthcare exchanges. The individual mandate penalty increases to the higher of 2 percent of yearly household income or $325 per person per year, with a maximum penalty per family for those using this method of $975. In addition, federal poverty level guidelines, used to determine if the individual qualifies for subsidy, have increased.

 

Businesses with arrangements to reimburse employees for premiums paid for individual health policies or Medicare could be nailed by an excise tax of $100 a day per employee.  The agency waived the tax through June 30, 2015 for employers with fewer than 50 full-time employees.

 

Proposed Compensation Change

5)      Under new rules proposed by the Obama administration, the Department of Labor would require most SALARIED workers earning less than $50,440 annually to be paid 1.5 times their normal pay for time worked beyond 40 hours. This is slated to take effect, if passed, on Jan. 1, 2016.

Marriage

6)      Supreme Court ruling on same-sex marriage: All states must now recognize all married couples in the same way for state income tax purposes, regardless of gender. This impacts the ability to file joint income tax returns, the ability to transfer property to each other tax-free, the ability to leave an estate to the spouse without gift tax implications, and spousal treatment of inherited IRAs.

Tax Program

7)      Lawmakers will soon reinstate a private tax-debt-collection program as a way to raise revenue for highway projects. The proposal calls for the Service to turn over many inactive receivables to private companies. Backlash from cristics, who say a similar program from 2006-2009 lost money, won’t be enough to derail it.

 

8)      Safe Harbor Rules

9)      Good news for retailers and restaurants that remodeled their premises: They will be able to deduct 75% of their remodeling costs and can be written off as repairs and 25% are capital expenditures. The safe harbor applies for tax years beginning on or after Jan. 1, 2014. Rev. Proc. 2015-56 has the details, including a list of qualifying remodeling activities. Other news related to the recently enacted repair regulations relate to the safe harbor amounts.  Firms with audited financial statements could elect to deduct items costing up to $5,000, while those without audited statements had a $500 ceiling. In response to pleas from tax pros and lobbying groups, the Service is boosting the $500 cap to $2,500. The relief is for tax years after 2015 but IRS won’t challenge earlier years.

 

Last Notes of Interest……….

10)  Individual audits are declining! According to IRS statistics, the exam rate for the 2015 fiscal year declined to 0.84%. That’s 13,700 fewer audits than in 2014. Audits by mail were up slightly, but the number of face-to-face exams fell, likely because the Revenue Service has 22% fewer revenue agents than five years ago.

 

IRS is easing rules for states that establish ABLE accounts for the disabled. These accounts, akin to 529 plans, allow people to make nondeductible payins of up to $14,000 a year to help the disabled maintain their health and quality of life. ABLE accounts can be opened for people who became blind or disabled before age 26. Distributions of earnings are tax-free if used for housing, job training, education, etc. Regulations proposed in June are now being relaxed at the behest of stakeholders. ABLE programs needn’t establish safeguards to categorize distributions between those used to pay for qualified expenses and payouts for other things. This will now be left up to the beneficiary, who is the owner of the account.

And FINALLY! The new tax deal was just enacted making $500,000 of section 179 expensing permanent along with the R& D credit.  In addition, the 50% bonus depreciation was extended through 2017 but will fall to 40% in 2018 and 30% in 2019.  Two provisions of the Affordable Health Care Act were delayed or given a temporary moratorium, the 40% excise tax on “Cadillac” plan put off til 2020 and the 2.3% tax on medical device sales was suspended for 2016 and 2017.

S-corp shareholders…don’t forget to add your health insurance premiums into box 1 of your form w-2…..