Three Popular Tax Breaks are Gone

Expense paperwork

As you make plans for the 2017 tax year, take note that three popular tax breaks expired last year and won’t be available unless Congress acts to extend them.

1 Tuition and fees deduction. You used to be able to deduct as much as $4,000 in college tuition and fees as an adjustment to taxable income. This provision was popular because it provided an alternative to other credits and did not require you to itemize deductions to receive the tax benefit. While this tax benefit is currently expired, several tax breaks geared toward students still exist:

student loan interest expense deductions
student education savings plans (529 plans)
education credits such as the American opportunity credit and the lifetime learning credit
1 Mortgage insurance premiums. The ability to deduct the cost of mortgage insurance premiums as an itemized deduction expired last year. This expired benefit used to phase out for taxpayers with more than $100,000 in adjusted gross income. Mortgage insurance is typically required of homeowners with a less than 20 percent down payment on their home purchase.
1 Lower senior threshold for medical expense deductions. The threshold for deducting itemized medical expenses raises to 10 percent of adjusted gross income for all taxpayers beginning in 2017. Prior to this, those age 65 or older had a lower 7.5 percent threshold. Only unreimbursed, qualified medical expenses in excess of 10 percent of your adjusted gross income can now be taken as an itemized deduction. For example, if a 70 year old taxpayer has $50,000 in adjusted gross income, he could have deducted his medical expenses that exceeded $3,750 as an itemized deduction. This year that number rises to $5,000 with the same income, putting it that much further out of reach for seniors.

Remember to plan for these changes. But also keep an eye on future action from Congress that could bring these dead tax deductions back to life.

2017 Standard Mileage Rates

The IRS recently announced mileage rates to be used for travel in 2017. The business mileage rate decreases by 0.5 cents while medical and moving mileage rates are lowered by 2 cents. Charitable mileage rates are unchanged.

2017 Standard Mileage Rates
Mileage Rate/Mile
Business Travel 53.5¢
Medical/Moving 17.0¢
Charitable Work 14.0¢
Mileage Rates

Here are the 2016 rates for your reference as well.

2016 Standard Mileage Rates
Mileage Rate/Mile
Business Travel 54.0¢
Medical/Moving 19.0¢
Charitable Work 14.0¢
Mileage Rates

Remember to properly document your mileage to receive full credit for your miles driven.

Last Year’s Tax Bill Makes This Year’s Opportunity

Hand moving chess piece

For the first time in many years, it looks like a last minute tax law change will not upset your ability to fulfill a well thought out tax plan. In addition to making last minute moves to reduce your tax obligation, consider some opportunities to take advantage of recent legislation.

Educators. The $250, above the line deduction is now permanent. If you are a qualified teacher, please make sure you save receipts for your out-of-pocket classroom expenses.

Action: Add up your receipts now. If less than $250, consider your needs prior to the end of the year to maximize your use of this tax law.

Small Business. There are numerous provisions for small business tax savings opportunities in recent tax legislation. Most of them benefit specific industries, but a couple are worth considering for most businesses.

Action: Consider 1st year bonus depreciation and Section 179 provisions to expense qualified capital equipment purchases. Also review your possible use of the Research Credit recently made a permanent part of the tax code.

Seniors who donate. If a senior age 70½ or older, you can now make direct contributions to charities from qualified retirement accounts. The limit is $100,000. The benefit of these direct contributions is they control your adjusted gross income to help you become more tax efficient.

Action: Consider a direct contribution to a preferred charity, especially if you would make the donation with after-tax funds anyway.

Sales tax or state deduction. The option to deduct general sales tax as an itemized deduction versus using state income taxes is now permanent.

Action: Review your situation. If you anticipate low or no state income taxes, but could itemize, you may wish to use this deduction. Remember to keep receipts of any large purchases to track large sales and use tax payements.

Everyone’s health care reporting. Remember to look for your Form 1095 this year. It should accurately report your family’s health care coverage. Many providers of this form have had a hard time getting this information from insurance carriers.

Action: Look for this form in January. Confirm that the information is correctly reported. Notify the provider immediately if the form contains any errors.

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Private Agencies to Start Collecting for IRS

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What you need to know

In late 2015 Congress required the IRS to turn over uncollected taxes it is no longer pursuing to outside collection agencies. The agencies are now selected and in early 2017 they will begin their collection efforts. This will impact all of us. Here is what you need to know.

Alert icon Turn up your scam alert. Rest assured the IRS identity scam epidemic is going to hit a new high as these scam artists now will try to impersonate collection agencies. Never pay a collection agency directly for any tax owed. Always send any payments directly to the IRS. If you do not think you owe money to the IRS, ask for help.
Agencies icon Four agencies have been authorized. Only four collection agencies have been authorized to collect unpaid taxes for the IRS. They are:
Conserve Fairport,
New York
Pioneer Horseheads,
New York
Performant Livemore,
California
CBE Group Cedar Falls,
Iowa
Notice icon You will receive written notice…twice. Before an outside agency calls you, the IRS will send two written notices to you and your representative about the transfer of the bill to an outside collection agency. Without these notices, you must assume any contact with a collection agency saying they represent the IRS is a scam.
Payment icon No payment to the agency. These collection agencies may not receive direct payment. You will be asked to use the IRS online payment system or to send your payment into the IRS. Payment is to be made to the U.S. Treasury and not to the collection agency.

Unfortunately, these agencies are going to begin their collection process right in the middle of this year’s tax filing season. So be prepared now and ask for help if you may be impacted by this change within the IRS.

Preview of Some Key 2017 Tax Figures

2017 compass

While official numbers for 2017 are not yet released by the Internal Revenue Service (IRS), many figures are based on the Consumer Price Index (CPI) published by the Department of Labor. Using the release of recent CPI figures, a number of sources are projecting key figures for 2017.

 

Tax Brackets: While the actual income brackets for tax rates are not set for 2017, the rate of inflation impacting the income levels for each rate is anticipated to raise the income brackets by approximately 0.6 – 0.8%.

Personal Exemption: $4,050 in 2017 (unchanged from 2016)

Standard Deductions:

Deduction Tax Year 2017 Tax Year 2016
Single
$6,350
$6,300
Head of Household
$9,350
$9,300
Married Filing Jointly
$12,700
$12,600
Married Filing Separately
$6,350
$6,300
Dependents (kiddie tax)
$1,050
$1,050
65 or Blind: Married
Add $1,250
Add $1,250
Single
Add $1,550
Add $1,550

Other Key figures:

Estate & Gift Tax Exclusion
$5.49 million
$5.45 million
Annual Gift Tax Exclusion
$14,000
$14,000
Roth and Traditional IRA Contribution Limit
$5,500
$5,500

Caution: Remember, these are early figures using the recently announced Consumer Price Index. Official numbers are released by the IRS later in the year.

 

New Overtime Rules

Timeclock

Employer and employee alert

On May 18, 2016 President Obama and Labor Secretary Perez announced new Department of Labor overtime regulations that go into place December 1, 2016. The Federal Labor Standards Act (FLSA) has information everyone needs to know to comply with these new rules.

Watch icon

Any worker making $47,476 or less must be paid overtime for hours worked in excess of 40 in a given week. This is true whether the employee receives a salary or hourly pay. The overtime rate must be at least time and one-half.
Watch icon Up to 10% of the compensation amount can be in the form of nondiscretionary bonuses or incentives.
Watch icon Highly compensated employees (HCE) is now defined as $134,004 or higher. The old rate was $100,000. Those above these income levels are exempt from the overtime rules as long as a minimal duties test is met.
Watch icon The new rule is effective December 1, 2016
Watch icon The wage amount will automatically reset every three years. The next change will be January 1, 2020.
Watch icon Actual implementation documentation has not been published in the Federal Register. Final regulations could still change slightly.

What this means to you

Watch icon There will be change. Any salaried employee who makes less than the $47,476 amount will see a change. It could take any of the following forms:

Point move from salaried employee to hourly employee
Point a raise to $47,476 or more
Point move from a flexible work-week to a scheduled work-week to comply with a strict 40 hour work week
Point increase in the tracking of hours
Watch icon Flex hours a thing of the past? Your work hours must now be tracked. Because of this, working from home and working flexible hours is more difficult. While the legal burden of reporting is placed on employers, employees will now need to track their work time.
Watch icon Required reporting. While the Department of Labor provides flexibility on how employers track hours, the standard of reporting will probably be tested through legal action. Here are some of the options per the Department of Labor.

Point Time clock. Have everyone track their hours by punching in and out.
Point Personal recordkeeping. Have each employee track their daily hours and report them to the employer each pay period on a timesheet.
Point Hard scheduling. Publish a schedule of hours for each employee. Record any deviation from the schedule and place the documentation with payroll records.

Note: Please refer the U.S. Department of Labor Fact Sheet #21 for a summary of the FLSA’s recordkeeping regulations.

Watch icon More than a raise. While many are touting this as a potential raise for more than 4 million employees, many believe two other objectives are in play. The first is to broaden employment. Employers may hire additional people to avoid the necessity of paying overtime. The second possible objective is to help re-establish a work and leisure balance.

No matter what the pundits say, the true impact of this change is unknown. The only certainty is that all employers now face additional administrative duties and potential legal action for non-compliance. This includes businesses, schools, and non-profit organizations. What is important at this point is to be aware of the upcoming change and plan for it.

A Couple IRS Wrinkles That May Impact You

IRS logo

The IRS made two recent announcements that may impact you this tax-filing season. Being aware of these announcements may keep you from unknowingly delaying filing your tax return.

One topic is regarding proof you have qualified health insurance and the other topic is an error in notices sent to victims of IRS identity theft.

Extension in Form 1095 reporting

For 2015 tax returns, everyone employed by a company with 50 or more employees will receive a new Form 1095. This form is in addition to the Form 1095-A’s received by other taxpayers using the Marketplace to purchase their health insurance. You need this form to file your taxes as it provides the necessary proof that you have adequate health insurance for the year. Without this proof you could be subject to the new shared responsibility tax.For 2015 tax returns, everyone employed by a company with 50 or more employees will receive a new Form 1095. This form is in addition to the Form 1095-A’s received by other taxpayers using the Marketplace to purchase their health insurance. You need this form to file your taxes as it provides the necessary proof that you have adequate health insurance for the year. Without this proof you could be subject to the new shared responsibility tax.

 

What is happening

The IRS has granted an extension for Form 1095 B and 1095 C being sent to employees. Here are the old and new dates.

Form Purpose Original
due date
New
due date
1095 B & 1095 C Report to employees of adequate health insurance coverage by month 2/1/2016 3/31/2016
Summary forms 1094 B & 1094 C Summary forms sent to the government confirming employee health care coverage 2/29/2016
(3/31 if filing electronically)
5/31/2016
(6/30 if filing electronically)

Note: This delay does not impact the timing of Form 1095 A, Health Insurance Marketplace Statement. 1095 A is the form you receive if you purchase your health insurance through the Marketplace and not through your employer.

What it means to you

Since the IRS understands that taxpayers do not wish to wait to file their 2015 tax returns, the IRS is allowing you to file your 2015 tax return without receiving this form. Here are some suggestions.

Check Check with your employer. If you work for an employer with more than 50 employees, check with your human resources department to find out when you can expect to receive the 1095 form. If there is no delay, then wait for Form 1095.
Check Look for other supporting documents. For 2015, the IRS will allow you to support your insurance coverage with means other than Form 1095. Simply collect this proof of insurance and save it in case of a future audit.
Check Wait. If you changed jobs or have a situation that suggests there may be a gap in insurance coverage you may wish to wait until you receive your documents. There is no corresponding delay granted to file your tax return. Federal taxes owed are still due on or before April 18th.

Identity theft PINs are for 2015 not 2014

If you are one of the unfortunate victims of IRS identity theft you will need a one time PIN to file your tax return. This numeric identifier is sent to you via mail by the IRS.

What has happened

IRS PIN notice ( letter: CP01A) is being mailed to identity theft victims right now. The tax year on many notices is incorrectly stated as 2014, when the PIN is to be used for your 2015 tax return. This mistake is causing confusion among taxpayers.

What to do

Check Do not throw out the notice! This PIN is for your 2015 tax return. Without it you cannot file your 2015 tax return.
Check File your tax return. Remember identity theft victims who are provided this PIN must submit their tax return with this PIN entered in the correct field. You may not efile your tax return without it.

 

IRS Revises Safe Harbor Repair Regulations

 

CopierIn November the IRS increased the amount your business can expense versus capitalize from $500 to $2,500. This change impacts businesses that do not publish applicable financial statements. The new rule takes effect starting in 2016, but there is audit protection for using this new limit in prior years.

What this means

This new rule is typically referred to as the safe harbor de minimis limit. Now small businesses may expense versus capitalize purchases of equipment that cost less than $2,500 and not have it challenged by the IRS. Without this change, small businesses would need to capitalize these purchases and then recapture the cost using depreciation over many years.

The irony is that with the recent extension of bonus depreciation through 2019, many small businesses would already expense many of these purchases. If this change could impact recent purchases of your business please ask for a review of your situation.

2016 Standard Mileage Rates

The IRS recently announced mileage rates to be used for travel in 2016. The Business mileage rate decreases by 3.5 cents while Medical and Moving mileage rates are lowered by four cents. Charitable mileage rates are unchanged.

2016 Standard Mileage Rates
Mileage Rate/Mile
Business Travel 54.0¢
Medical/Moving 19.0¢
Charitable Work 14.0¢
Mileage Rates

Here are the 2015 rates for your reference as well.

2015 Standard Mileage Rates
Mileage Rate/Mile
Business Travel 57.5¢
Medical/Moving 23.0¢
Charitable Work 14.0¢
Mileage Rates

Remember to properly document your mileage to receive full credit for your miles driven.

As always, should you have any questions or concerns regarding your situation please feel free to call.

IRS Now Required to Use Collection Agencies

Collection agency In a 1,300 page Transportation Bill signed into law in December, 2015, there are eight pages that require the IRS to assign unpaid tax bills to outside collection agencies. This means that third party companies will now be calling taxpayers as representatives of the IRS to collect unpaid taxes.

What you need to know

Icon What has changed. Prior to this bill, the IRS had the option, but not the requirement, to use other companies to try to collect past due tax bills. The IRS is now required to assign some of these unpaid taxes to outside companies for collection whether it is cost effective or not.
Icon Non-IRS companies may call you. If the IRS thinks you owe money and the statute of limitations for collection is approaching, you may have your tax bill assigned to a debt collector. This means you could receive phone calls and communication from a third party company that has your tax information.
Icon Your fraud alert senses should go up. This debt collector requirement may open the door to more tax fraud as thieves know they can falsely represent themselves as an agent of the IRS. Please be vigilant to this risk.
Icon The $900 million problem? The IRS acknowledges over $900 million in premium health care credits during 2014 will need to be repaid by taxpayers. There is the possibility of having some of this collection activity assigned to third party companies due to lack of IRS resources.
Icon There are rules. While the IRS may assign any unpaid debt to collection agencies, the “required transfer” of unpaid debts has specific rules. You may NOT be asked to pay tax bills from a third party debt collector if:

Check You are under age 18
Check The taxpayer is deceased
Check You are a victim of identity theft
Check You have an innocent spouse case
Check Your tax case is active within the IRS
Remember to be cautious if you are contacted by someone representing themselves as an agent of the IRS. When in doubt ask for help before providing any information.