Year-End Tax Checklist

Year-End Tax Checklist

Now is a good time to review your year-end tax situation while there is still time to act. Here’s a handy checklist to help you do that. There are details on “must-dos” to get the most out of your charitable donations. As the year draws to a close, there are several tax-saving ideas you should consider. Use this checklist to make sure you don’t miss an opportunity before the year is out.

Bullet Point Retirement distributions and contributions. Make final contributions to your qualified retirement plan, and take any required minimum distributions from your retirement accounts. The penalty for not taking minimum distributions can be high.
Bullet Point Investment management. Rebalance your investment portfolio, and take any final investment gains and losses. Capital losses can be used to net against your capital gains. You can also take up to $3,000 of capital losses in excess of capital gains each year and use it to lower your taxable ordinary income.
Bullet Point Last-minute charitable giving. Make a late-year charitable donation. Even better, make the donation with appreciated stock you’ve owned more than a year. You often can make a larger donation and get a larger deduction without paying capital gains taxes.
Bullet Point Noncash donation opportunity. Gather up noncash items for donation, document the items, and give those in good condition to your favorite charity. Make sure you get a receipt from the charity, and take a photo of the items donated.
Bullet Point Gifts to dependents and others. You may provide gifts to an individual of up to $14,000 per year in total. Remember that all gifts given (birthdays, holidays, etc.) count toward the annual total.
Bullet Point Organize records now. Start collecting and organizing your end-of-year tax records. Estimate your tax liability and make any required estimated tax payments.



Renew Your ITIN Now

Home office deductions

If you have an Individual Taxpayer Identification Number (ITIN) rather than a Social Security number (SSN), you may need to take action now or you’ll be unable to file a tax return for 2017.

Here is what you need to know.

What to know about ITINs

ITINs are identification numbers issued by the U.S. government for individuals who do not qualify to receive a SSN. An ITIN can be used to file tax returns and is also a form of identification often required by banks, insurance companies and other institutions. Unfortunately, ITINs are also a source of identity fraud. To combat this, the 2015 PATH Act made substantial changes to the program. Now a number of ITINs will expire if not renewed by Dec. 31.

Bullet Point No ITIN, no problem. If you do not have an ITIN, but have a SSN, this expiration does not affect you.
Bullet Point No tax return in past three years. ITINs that have not been used to file a tax return at least once in the past three years will automatically expire on Dec. 31.
Bullet Point Specific middle digit numbers expire. The new law creates a rolling expiration date for all issued ITINs. The key number to look for is in this position: 9xx-XX-xxxx. If it’s a 70, 71, 72, or 80, you’ll need to renew it. Last year the middle digits of 78 and 79 expired.

Renew your ITIN

Don’t wait until the last minute to discover your tax return has been rejected and your refund delayed because of an expired ITIN. To renew, fill out Form W-7 with the required support documents. To learn more, visit the ITIN information page on the IRS website, Individual Taxpayer Identification Number.

You Still May Wish to File a Tax Return

1040 form and IRS logo

Too many taxpayers fail to file a tax return under the false notion that one is not required to pay income tax. This assumption can cause problems. Here are some examples of when to file a tax return even when not required to do so.

Check mark Wish to qualify for Premium Tax Credit. This tax credit helps reduce the cost of health insurance for those who purchase their insurance through the new health insurance marketplace. Without a filed tax return you cannot have the Premium Health Credit applied towards your monthly premiums. In fact, non-filing could limit your ability to receive this credit in future tax years as the IRS continues to place controls on the payment of this credit.
Check mark Receive refundable tax credits. There are certain tax credits that will provide refunds even if you do not owe income tax. The most common of these is the Earned Income Tax Credit.
Check mark You wish to limit potential audits. The IRS typically has three years to audit a filed tax return. If no tax return is filed, this audit time limit never starts.
Check mark You are applying for financial aid or loans. Banks and colleges will often use tax return information to qualify you for loans and financial aid. Even if not required to file, it is nice to provide this information if requested.
Check mark You are filing a final tax return for a loved one. The IRS will eventually receive death information through the Social Security Administration. By filing a final tax return, you can put the breaks on unwanted communication from the IRS as they wait for this confirmation.
Check mark You want withholdings returned to you. Always file a tax return if an employer or other supplier withheld tax funds. It is the only way you will receive them back from the federal government.
Check mark You wish to protect against someone else filing a tax return. With the vast increase in identity theft from the IRS, filing a tax return can close the door on would-be thieves. Your filed tax return can block attempts by someone else who files a second tax return with fake information.

A Dozen IRS Not so Fine Penalties


Tax penalties

Over the past few years the IRS has made the use of penalties and fines a more prevalent tool to encourage compliance among taxpayers. This “stick” approach is in direct contrast to the “voluntary” philosophy built within our tax system. Here are a dozen of the more common penalties and fees.

Hopefully, by being aware of these common IRS penalties you can make sure they never apply to you or anyone you know. Sometimes when faced with these penalties you can request an abatement of the fine if you are a first-time offender.

Icon S-Corporation and Partnership late filing fee. This $195 fine is due for any month or partial month you are late in filing this tax return. The fine is due even though no tax is usually owed on these flow-through tax returns.
Icon 1099 or W-2 late filing penalty. You are required to issue a 1099 for any vendor that has $600 or more of activity with your business. The filing due date is the end of February or the end of March if e-filed.
Icon Underpayment of tax. This penalty is applied when a taxpayer does not withhold enough of their pay to cover their tax liability. There is a safe harbor calculation that protects you from this penalty. The safe harbor is usually withholding enough to cover 100% of last year’s tax liability or 90% of the current year’s tax liability. Special rules apply for higher income taxpayers.
Icon Late filing fee for form 1040. The fine is 5% of the unpaid tax per month (or fraction of a month) up to 25%. If over 60 days past due, the penalty is the smaller of $135 or 100% of the unpaid tax.
Icon Failure to file correct information returns. Fine: $50 – $260 per form (usually Form 1099s)
Icon Failure to file a tax return.
Icon Failure to have adequate health insurance for the entire year.
Icon 25% Inaccuracy penalty. This penalty applies to things like inaccurate business mileage deductions for the self-employed or to non-cash contributions that have no documentation. The best defense is to keep an accurate mileage log and record of your donations.
Icon Failure to file foreign information returns. If you own property in a foreign country you must consider the need to file annual reporting to the IRS. The rules in this area are strict and the fines can be high as the IRS continues to crack down on the use of foreign accounts to avoid paying U.S. taxes.
Icon Potential 100% penalty for employer failure to pay withholding taxes. The IRS takes a strong stance on employers that fail to send in their employee’s Social Security, Medicare and Federal tax withholdings.
Icon Retirement Account Penalties. There is a 10% penalty for withdrawing funds from qualified retirement accounts like IRA’s and 401(k)s prior to age 59½. There is also a 6% penalty tax for excess contributions to any of these accounts until the excess amount is corrected.
Icon Fine for not taking Annual Minimum Distribution (AMD) from retirement Accounts. If you are age 70½ or older you must withdraw a minimum amount from your qualified retirement accounts each year. Failure to do so creates a potentially large penalty of 50% of the amount that should have been withdrawn.

Is an Extension a Good Idea?

Maximizing Your Refund PowerThe clock is ticking down to the pending tax-filing deadline of April 15th.

Here are some examples when filing an extension might make sense other than rushing to meet the filing deadline.

Check Incorrect Form 1095-A. If you received health insurance through the new Healthcare (Marketplace) Exchange, you may have received an incorrect Form 1095-A recapping this activity. Over 800,000 of them were sent out in error. If it impacted you, it might make sense to wait for a corrected form.
Check Other Form Errors. If you receive a W-2 or Form 1099 that has errors, you may also wish to wait until you receive a corrected form. This delay may help you avoid a tax form mis-match with IRS records if you file your tax return before the form is corrected.
Check Missing K-1. If you have ownership in a small business, you should receive a K-1 summarizing your share of profits or losses. If the business entity is an LLC, you may have not yet received your necessary K-1. If this happens a tax extension may be necessary.
Check Conflicting Dependents. If an ex-spouse or other individual used one of your dependents in error, you may wish to have the error corrected prior to filing your tax return.
Check Self-employed Retirement Contributions. If you are self-employed you have until you file your tax return (including extensions) to fund your retirement account. This tax provision applies to SEP IRAs, solo 401(k)s, and SIMPLE accounts. By filing an extension, self-employed individuals give themselves up to six more months to fund a retirement account. This provision does not apply to Traditional or Roth IRAs.
Check Recharacterizing Roth IRA Conversions. If you transfer funds from a Traditional IRA to a Roth IRA, tax is due based on the fair market value of the assets at time of transfer. If, after transferring the funds, the value of the investment goes down, you may be required to pay tax on an over-inflated value. By delaying the filing of your tax return, you can buy time to convert the funds back to the original retirement account and avoid paying taxes on the higher value.

Extensions Are a Last Resort

Warning Start the audit clock. It is usually best to file your taxes by the April 15th due date. By doing so, it starts the Federal audit clock. Remember the window to audit your federal tax return is generally the later of three years after the due date OR when you actually file your tax return.
Warning Pay your tax. If you decide an extension is the right course of action for you, the form must be filed on or before April 15th for an automatic six-month extension. While this extension does not delay the requirement to pay the taxes owed on or before the April 15th deadline, it does eliminate a possible late filing penalty.

Common Missing Tax Return Items

Want your tax return filed quickly and without error? Looking for a quick refund? Then double-check this list of items that are often overlooked. These missing items often cause delays in getting your tax return filed and your much anticipated refund into your hands.

Point Missing W-2 or 1099. Using last year’s tax return, make sure all prior W-2s and 1099′s are received and applied to your tax return. Missing items will be caught by the IRS’s mismatch program.
Point Missing 1095-A. If you have health insurance through an Exchange, you will need this form to file your tax return.
Point Missing or invalid Social Security Number. E-filed tax returns will come to a screeching halt with a missing or invalid number.
Point Dependent already claimed. Your return cannot be filed if there is a conflict in this area.
Point Name mismatch. If recently married or divorced, make sure your last name on your tax return matches the one on file at Social Security.
Point Inconsistent information. Most tax software programs will check a tax return for inconsistencies. When one occurs, they must be resolved prior to filing your tax return.
Point No information for a common deduction. If you claim a deduction you will need to provide support to document the claim.
Point Missing cost information for transactions. Brokers will send you a statement of sales transactions. If you do not also provide your cost and purchase information, the tax return cannot be filed.
Point Not reviewing your return and signing your e-file approval. The sooner you review and approve your tax return, the sooner it can be filed.
Point Forms with no explanation. If you receive a tax form, but have no explanation for the form, questions could arise. For instance, if you receive a retirement account distribution form it may be deemed income. If it is part of a qualified rollover, no tax is due. An explanation is required to file your information correctly.

Hopefully, by knowing these commonly missed pieces of information you can prepare to have your tax filing experience be a smooth one.

There is still time for Retirement Funding

There is Still Time for Retirement FundingRemember you have until you file your tax return to make a contribution to a Traditional IRA or Roth IRA for the 2014 tax year. The annual contribution limit is $5,500 or $6,500 (if you are age 50 or over).

Prior to making the contribution, if you (or your spouse) are an active participant in an employer’s qualified retirement plan, you will want to make sure your modified adjusted gross income (MAGI) does not exceed certain thresholds. There are also MAGI (income) limits to qualify to make Roth IRA contributions. The limits are outlined here for your reference.

2014 IRA Income (MAGI) Limits
Traditional IRA
allowed contribution range
Roth IRA
allowed contribution range
SINGLE $60,000 $70,000 $114,000 $129,000
both participating
both participating
$181,000 $191,000
spouse participating
spouse participating
Note: Married Traditional IRA limits depend on whether either you, your spouse or both of you participate in a qualified employer provided retirement plan. If married filing separately and either spouse participates in an employer’s qualified plan, the income phase-out to contribute is $0 – $10,000.

How does the phase-out work?

If the phase-out rules apply to you and your income is below the “full contribution” amount noted above, you can contribute up to the maximum annual contribution. But what if your income falls between these ranges?

One First, subtract your income from the higher (phase-out complete) amount to get your contribution income potential.
Two Next calculate the phase out range.
Three Then, divide your contribution income potential by the phase-out range.
Four Take the result times your maximum annual contribution amount.

Example: Roth IRA contribution limit for a single person, age 40 with MAGI of $119,000; $10,000 contribution income potential (129,000-119,000); divided by phase-out range of $15,000 ($129,000 – 114,000); 10,000/15,000= .666 x $5,500 = $3,666 2014 ROTH IRA contribution limit. Rounding rules apply.

A final thought

If your income is too high to take advantage of these IRAs you can always make a non-deductible contribution to an IRA. While the contributions are not tax-deferred, the earnings are not taxed until they are withdrawn.

Missing the Flow-through Deadline

March 17th

The penalty that does not fit the crime
Please remember March 17th is the due date for filing Sub S Corporation tax returns that have a year-end of December 31st. While the Form 1120S does not require making a tax payment, missing the due date could cost you plenty. This is despite the fact that late filing of the sub S tax return does not impact the receipt of the taxes due on April 15th.
Those that are getting this “gotcha” penalty are often sole proprietors and couples who have formed a Sub S Corporation to handle their small businesses. The penalty is calculated based on each partial month the return is late times each shareholder. So a return filed 17 days late with no tax due could cost a married couple with a small S-Corporation $350 to $400 in penalties!

Action to take

Point 1 If you have a Sub S Corporation, or other flow through entity, either file an extension or submit your tax return on time. Remember, an extension gives you six months to file and you do not owe the tax until your 1040 tax return due date (typically April 15th).
Point 2 Challenge the penalty. While you may not be successful, remember the US Treasury is still receiving the taxes owed to them on a timely basis
Point 3 Do not file your individual 1040 tax return until you have received all your K-1 tax forms from the flow-through entities you own (like tax returns from Sub S and Limited Liability Corporations).

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