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Tax Tip of the Week | Tax Considerations for Working Kids September 18, 2019

Posted by bradstreetblogger in : Deductions, General, Tax Deadlines, Tax Planning Tips, Tax Preparation, Taxes, Taxes , add a comment

When we file children’s income tax returns, nasty surprises are not commonplace BUT on the other hand they are not rare either. Some not so pleasant surprises may result from the Form W-4 that children will complete for their tax withholdings. Being over withheld may create a larger tax refund but a smaller net payroll check each pay period. On the other hand, withholding too little makes each net payroll check look awesome but may create a tax balance when the income tax return is filed. Another surprise situation may occur when the child receives a Form 1099 (no withholding) instead of a Form W-2 (has withholdings). In this instance, their income tax world immediately becomes more complicated as tax estimates will most likely be needed along with accounting for their income and expenses. As soon as you discover that your child will receive a Form 1099, you should contact your CPA for further information concerning estimated amounts and various tax deadlines. Please remember that not making any required estimated income tax payments may create interest and penalties along with the potential for a large balance due with the tax return.

The below article by Bill Bischoff of MarketWatch drills down further into some of my comments above and discusses some additional ones.  

                            -Mark Bradstreet

5 questions and answers about kids and money

Is your kid earning money from a summer job or some other activity? If so, what are the tax implications? And BTW, what kid-related tax breaks can you collect? Good questions. Here are some answers.

Does my kid need to file a tax return?

Maybe. For 2019, a dependent child must file a federal income tax return on Form 1040 in any of the following situations:

* The child has unearned income of more than $1,100. If your child has more than $2,200 of unearned income, he or she may be subject to the dreaded Kiddie Tax. More on that later.

* The kid’s gross income exceeds the greater of: (1) $1,100 or (2) earned income up to $11,650 plus $350.

* The child’s earned income exceeds $12,200.

* The kid owes other taxes such as the self-employment tax or the alternative minimum tax (AMT). Relatively unlikely, but it happens.

The good news is your child can shelter his or her income with the standard deduction. For 2019, the standard deduction for a dependent kid with only investment income is $1,100. If your child has earned income from summer jobs or whatever, the standard deduction equals the lesser of: (1) earned income plus $350 or (2) $12,200. So up to $12,200 of earned income can be sheltered with the standard deduction. Good.

Key Point: Even if no return is required for your child, one should be filed if federal income tax was withheld for any reason and would be refunded if a return is filed. Filing a return is also necessary to benefit from certain beneficial tax elections, such as the election to currently report accrued Savings Bond income that would be sheltered by your kid’s standard deduction.

Who is responsible for filing the kid’s return?

According to IRS Publication 929 (Tax Rules for Children and Dependents), a child is generally responsible for filing his or her own federal income tax return on Form 1040 and for paying any tax, penalties, or interest. If a child cannot file for any reason, the child’s parent, guardian, or other legally responsible person must file for the child. If the child can’t sign the return, a parent or guardian must sign the child’s name followed by the words “By (signature), parent (or guardian) for minor child.” Your child may also need to file a state income tax return. If so, that probably winds up on your plate too.

Key Point: If you sign a return on your child’s behalf, you can deal with the IRS on all matters related to the return. In general, a parent or guardian who doesn’t sign can only provide information concerning the return and pay the child’s tax bill.

Can’t I just report the kid’s income on my own return?

Probably. If your child will be under age 19 (or under age 24 if a full-time student) as of 12/31/19 and his or her only income is from interest and dividends, including mutual fund capital gain distributions, you can generally choose to report the kid’s income on your return by including Form 8814 (Parents’ Election To Report Child’s Interest and Dividends) with your Form 1040. Read the Form 8814 instructions to see if you qualify for this option. If you do, it may or may not result in a lower tax bill for the kid’s income.

What’s that ‘Kiddie Tax’ I’ve heard about?

Good thing you asked. For 2018-2025, the Tax Cuts and Jobs Act (TCJA) revamped the Kiddie Tax rules to tax a portion of an affected child’s or young adult’s unearned income at the higher rates paid by trusts and estates. Those rates can be as high as 37% or as high as 20% for long-term capital gains and dividends. Before the TCJA, the Kiddie Tax rate equaled the parent’s marginal rate–which for 2017 could have been as high as 39.6% or 20% for long-term capital gains and dividends.

If your kid is a student, the Kiddie Tax can potentially be an issue until the year the child turns age 24. For that year and future years, your child is finally Kiddie-Tax-exempt.

To calculate the Kiddie Tax, first add up the child’s net earned income and net unearned income. Then subtract the child’s standard deduction to arrive at taxable income. The portion of taxable income that consists of net earned income is taxed at the regular rates for a single taxpayer. The portion of taxable income that consists of net unearned income and that exceeds the unearned income threshold ($2,200 for 2019) is subject to the Kiddie Tax and is taxed at the higher rates that apply to trusts and estates.
Unearned income for purposes of the Kiddie Tax means income other than wages, salaries, professional fees, and other amounts received as compensation for personal services. So, among other things, unearned income includes capital gains, dividends, and interest. Earned income from a job or self-employment is never subject to the Kiddie Tax.

Calculate the Kiddie Tax by completing IRS Form 8615 (Tax for Certain Children Who Have Unearned Income). Then file Form 8615 with your kid’s Form 1040. Beware: the Kiddie Tax rules are complicated

Here are the most-common ones.

$2,000 tax credit for under-age-17 child

For 2018-2025, the TCJA increased the maximum child credit to $2,000 per qualifying child (up from $1,000 under prior law). Up to $1,400 can be refundable, meaning you can collect it even when you don’t owe any federal income tax. Under the TCJA, the income levels at which the child tax credit is phased out are significantly increased, so many more families now qualify for the credit.

$500 tax credit for over-age-16 dependent child

For 2018-2015, the TCJA established a new $500 tax credit that can be claimed for a dependent child (or young adult) who is not under age 17 and who lives with you for over half the year. Dependent means you pay over half the child’s support. However, a child in this category must also pass an income test to be classified as your dependent for purposes of the $500 credit. According to IRS Notice 2018-70, your over-age-16 dependent child passes the income test for 2019 if his or her gross income does not exceed $4,200.

Two higher education tax credits

The American Opportunity credit can be worth up to $2,500 during the first four years of a child’s college education. The Lifetime Learning credit can be worth up to $2,000 annually, and it can cover just about any higher education tuition costs. Both credits are phased out as your income goes up, but the Lifetime Learning credit is phased out at much lower income levels than the American Opportunity credit.

Head of household filing status

HOH filing status is preferable to single filing status because the tax brackets are wider and the standard exemption is bigger. HOH status is available if: (1) your home was for more than half the year the principal home of a qualifying child for whom a personal exemption deduction would be allowed under prior law and (2) your paid more than half the cost of maintaining the home.

Student loan interest deduction

This deduction can be up to $2,500 for qualified student loan interest expense paid by a parent, subject to phase-out for higher-income parents.

The bottom line

There you have it: most of what you need to know about kids and taxes. As always, kids are a chore and an expense. But they usually turn out to be worth it in the end. Fingers crossed.

Credit given to:  Bill Bischoff  of MarketWatch. Article is titled “When kids make money at a summer job, who files their taxes?”

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We also welcome and appreciate anyone who wishes to write a Tax Tip of the Week for our consideration. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.  

This Week’s Author – Mark Bradstreet, CPA

–until next week.

Tax Tip of the Week | All You Need to Know About Student Loan Forgiveness March 27, 2019

Posted by bradstreetblogger in : Deductions, General, tax changes, Tax Deadlines, Tax Planning Tips, Taxes , add a comment

The sheer magnitude of our outstanding student loan debt is beyond my feeble comprehension. According to the Federal Reserve, student-loan debt hit $1.53 trillion at the end of the second quarter of 2018. I may understand “millions” and just perhaps “billions,” but the concept of “trillions” totally escapes me. Almost two-thirds of that total debt or about $900 billion is carried by women.

An article written in the WSJ on December 17, 2018 by Ms. Berman, a reporter at MarketWatch follows. Her article discusses some limited options on having some of the student-loans forgiven, but, very often someone has to jump through some really high hoops to qualify. So keep your fingers crossed, but I wouldn’t hold your breath.

                                                                                                    – Mark C. Bradstreet

“Student-loan forgiveness might seem out of reach for many of the 44 million people who have educational debt. But some of these borrowers may qualify for relief—if they know where to look.

Student-loan forgiveness has gotten somewhat of a bad rap in recent months, largely because of controversy surrounding the federal Public Service Loan Forgiveness program, which allows public servants with a certain type of federal student loans to have their debt discharged after 120 monthly payments.

The first cohorts of borrowers became eligible for forgiveness under PSLF in the fall of 2017 and in the months since, advocates have grown concerned that confusion about the program’s requirements, combined with sloppy implementation on the part of student-loan companies and the government, has made it difficult for eligible borrowers to qualify. Of the roughly 28,000 people who filed an application for debt forgiveness under the program as of June 2018, just 96 had their loans forgiven, government data show.

PSLF may be the best known loan-forgiveness program, but it isn’t the only one. Not only are there other federal programs, cities and states across the country offer some debt forgiveness for people who work in certain jobs or even live in certain areas.

Here is a closer look at some programs and their requirements:

Federal programs

PSLF: To be eligible, borrowers must work full-time in a public-service job for the right type of employer—typically a federal, state or local government or a nonprofit with a 501(c)3 designation. They must have the right type of loan—a federal Direct Loan—and be in an income-driven repayment plan to benefit. Borrowers also need to have made 120 on-time payments toward their debt to have the remainder forgiven under PSLF.

It’s hard to say exactly why so many borrowers who applied to have their loans forgiven were rejected. It could be that many simply hadn’t been working in public service or paying down their loans for the full 10 years. But some data indicate that confusion over the program’s requirements played a role.

Of borrowers who have had at least one employment certification form (the document borrowers can use to ensure they’re on track toward forgiveness) approved, nearly 12% are repaying their loans under a nonqualifying repayment plan, according to the Education Department. Congress authorized a temporary expansion of PSLF earlier this year for borrowers who met all of the program’s other requirements but were using certain nonqualifying repayment plans.

Advocates also worry that borrowers who have Federal Family Education Loans, which don’t qualify for PSLF, are working in eligible jobs and repaying their debt, assuming they’ll qualify for forgiveness only to later face a rude awakening. Borrowers can consolidate FFEL debt into Direct Loans, but they may not know to do that unless they receive information about it from their student-loan servicer. (Borrowers who think they might qualify for PSLF should reach out to their servicer and ask whether they have Direct Loans, and if not, how they can consolidate their student debt into Direct Loans.)

Liz Hill, an Education Department spokeswoman, says the agency’s office of Federal Student Aid is approving every eligible application for PSLF under the “strict rules” established by Congress. It is also conducting regular outreach to borrowers about the program via social media, webinars and in person events.

“FSA is committed to enhancing the process, outreach, and communications related to the program,” she wrote in an email.

Are You Eligible?
Borrowers who want to know if they are on track to qualify for the federal Public Service Loan Forgiveness program can submit an employment certification form. A separate application is needed to claim forgiveness.

Teacher loan forgiveness: Teachers who work for five consecutive years in qualifying schools—typically those serving low-income students-—can receive up to $17,500 in forgiveness on certain federal loans; depending on what subject they teach. They need to have been a new borrower as of Oct. 1, 1998, meaning that they had no prior loans still outstanding as of this date. Also, they must have completed at least one of their qualifying years of teaching after the 1997-1998 academic year.

Teachers can’t use this program and PSLF at the same time, so they need to pick that one that best suits their financial needs. The American Federation of Teachers, a national teachers union, tends to advise borrowers to focus on PSLF, which offers superior benefits, unless the borrower doesn’t plan to stay in public service for the full 10 years.

Perkins Loan cancellation: Nurses, firefighters, public defenders and others may be eligible for cancellation of their Perkins Loans, federal need-based loans for both undergraduate and graduate students. Typically, a percentage of the loan is forgiven for each year of service, culminating in 100% of the loan being discharged after up to seven years.

Congress ended schools’ authority to make new Perkins Loans last year, so there won’t be any new borrowers receiving them—at least for now.

Income-driven repayment forgiveness: Borrowers using income-driven plans for federal loans can have the balance of the debt discharged after 20 or 25 years of payments, even if they aren’t working in public service. But under current law, debt relief is taxed as income, so borrowers may face a heftier-than-normal tax bill after their loans are discharged.

State, local programs

States and regions across the country offer a variety of student-loan forgiveness programs, most of which fall into two categories: those tied to a specific occupation or those tied to living in a specific region, or both. Many of these programs cover private student loans, which federal debt-forgiveness programs don’t.

“Almost every single state has at least one program,” says Betsy Mayotte, president of the Institute of Student Loan Advisors, which recently compiled a list of 115 debt-forgiveness programs.

While the list is a good place to start, Ms. Mayotte cautions that the eligibility criteria and funding available for many of these programs changes constantly, so borrowers need to check with the entities offering forgiveness directly before making a financial plan based on them.

In some cases, borrowers may be able to combine a state or local program with Public Service Loan Forgiveness, says Heather Jarvis, an attorney and student-loan expert. For example, borrowers can use some loan-repayment assistance programs sponsored by states, nonprofits or their employers to help defray the cost of their loan payments during the 10 years they’re working to become eligible for PSLF.

Occupation-focused programs typically center on health care, education or legal-services jobs, Ms. Mayotte says.

Michigan’s Department of Health and Human Services will pay off a significant chunk of health professionals’ loans—both federal and private—if they agree to work in primary care in an underserved area. The initiative, which doctors, dentists, nurse practitioners and other health professionals can use to pay off up to $200,000 of debt over eight years, was designed “specifically to recruit and retain primary-care providers in underserved areas in Michigan,” says Elizabeth Nagel of the policy, planning and legislative-services administration at the Michigan Department of Health & Human Services.

Location-based programs, while not as widespread, simply require the borrower to live in a certain region, Ms. Mayotte says.

Kansas launched its Rural Opportunity Zones program in 2011 to encourage educated workers to move to certain rural regions experiencing population decline, says Rachéll Rowand, the program manager.

Borrowers with an associate’s, bachelor’s or graduate degree and a student-loan balance in their own name can become eligible for some debt relief by establishing residency in a ROZ county on or after the date the county opted into the program. They also need a sponsor, which can be an employer or the county itself. Borrowers can receive up to $15,000 in assistance on federal and private student loans over five years. And they can use the program along with PSLF if they qualify.

Of course, when considering any loan-forgiveness program tied to a job or place, borrowers need to ask themselves how committed they are to staying put for a long period.

While a loan-forgiveness program essentially helps to make a low-paying career possible with high student-debt levels, it “really isn’t an incentive to go into a particular occupation,” says Mark Kantrowitz, the publisher of Savingforcollege.com and a financial-aid expert.

“In most cases,” he says, “you might actually be better off taking a job in a different field that pays better.”

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

This Week’s Author – Mark C. Bradstreet, CPA

-until next week

Five Things to Know About Proposed Tweaks to the Retirement Systems March 13, 2019

Posted by bradstreetblogger in : Deductions, tax changes, Tax Deadlines, Tax Planning Tips, Tax Preparation, Tax Tip, Taxes, Uncategorized , add a comment

The following article, by Anne Tergesen (WSJ), discusses possible revisions to the USA retirement system. These “proposed tweaks” may never happen or if they do, the changes will most likely be different than what follows. When I first began in taxes, an elderly tax practitioner told me to stop worrying about the future tax law changes and to make my decisions based upon the current law. For more often than not, I thought that was good advice. But that is not to say, we should bury our heads in the sand and not consider the provisions that Congress is working on.

-Mark Bradstreet

“In addition to giving annuities a greater role in 401(k) plans as part of its proposals to tweak the U.S. retirement system, Congress is considering provisions that could serve to expand workers’ access to retirement-savings plans and make it easier for savers to tap their accounts in case of emergencies. Here are five changes Americans could see in their 401(k) plans and individual retirement accounts.

(1)     A New Item on 401(k) Disclosures
Currently, 401(k) plans are required to send participants quarterly and annual account statements with their balance. Under the proposed legislation, plan sponsors would have to show an estimate of the monthly income a participant’s balance could generate with an annuity, a detail akin to the payoff disclosures required on credit-card statements. The goal is to help workers better understand how prepared they are to maintain their income in retirement.

(2) A Repeal of the Age Limit on IRA Contributions
If you are 70 ½ or older, you can’t currently make deductible contributions to a traditional IRA. Congress is considering removing the age cap and allowing people above 70 ½ or older to deposit up to $6,500 a year in either a traditional IRA or a Roth IRA. With a traditional IRA, account holder’s generally get to subtract their contributions from their income but they must pay ordinary income taxes on the money when they withdraw it – something they are required to do starting at age 70 ½ (the bill would do nothing to change that). With a Roth IRA, there is no upfront tax deduction but the money increases tax-free.

(3) More Types of Savings Accounts
Among the proposals under consideration is a new type of universal savings account that would offer more-flexible withdrawal rules than existing retirement accounts, according to Rep. Kenny Marchant (R, Texas) Employers could also be allowed to automatically enroll workers into emergency savings accounts. (Employees would be free to opt out.)

(4)  More Ways for Graduate Students to Fund IRAs
The bill would allow students to contribute taxable stipend or fellowship payments to an IRA, something that’s not currently possible.

(5)  Pooled 401(k) Plans
For years policy makers have tried to make retirement-savings plans more attractive and affordable to small businesses, many of which have no plan at all. About one-half of private-sector employees, many of whom work for small companies, lack access to a workplace retirement plan. Under one measure before Congress, small employers would be able to more easily band together to spread out the administrative costs of 401(k) plans. The proposal would eliminate a requirement that employers have a connection, such as being members of the same industry trade group, in order to join a so-called multiple-employer plan. Congress is also considering expanding a tax credit available to small companies to offset the costs of starting a new retirement plan. The annual credit amount would increase from $500 to as much as $5,000 for three years.”

Credit given to Anne Tergesen, WSJ
Saturday/Sunday July 21-22, 2018

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

This week’s author – Mark Bradstreet, CPA
–until next week.

Tax Tip of the Week | 11 Tax Deductions Every Independent Contractor Should Know About February 6, 2019

Posted by bradstreetblogger in : Deductions, General, Tax Deadlines, Tax Planning Tips, Tax Preparation, Tax Tip, Taxes, Uncategorized , add a comment

11 Tax Deductions Every Independent Contractor Should Know About

    Tax Day 2019 is Monday, April 15.
•    If you work as an independent contractor, you are entitled to certain tax deductions for your business expenses.
•    Even if your contract work is just a side gig, you’re still running a business, so it’s important to track your expenses.
•    We spoke with CPA and certified financial planner Harvey I. Bezozi about the deductions that independent contractors can use to reduce the amount of tax they owe.

With the rise of the gig economy, many more people now have to consider the tax implications of working as independent contractors. When you are an independent contractor, the IRS considers you a business owner, even if you contract full-time for one client.

Independent contracting comes with additional tax burdens (e.g., there is no employer contribution, so the entire payroll tax burden falls to you). On the other hand, you can deduct expenses that you couldn’t take as an employee.

Harvey I. Bezozi, a CPA and CFP, has worked with small businesses for more than three decades. He shared with us this list of tax deductions that every independent contractor should know about.

1.    First, form an entity
Before he talked about deductions, Bezozi said, “When somebody starts a business, especially if they’re new at it, they’ll usually become a sole proprietor. That’s mistake number one.”

He suggests that you form an LLC, S-corporation, or some other business entity, even if your business is very small. He believes that the tax benefits and the protection from personal liability are worth the extra paperwork.

2.    Use of your car for business
As an employee, your work commute is not tax deductible. “But as an independent contractor, it’s no longer a commute,” Bezozi said.

If you’re going from your office to your client’s office, keep a log and take your mileage off your taxes. You can also deduct transit expenses for travel to a client.

3.    Home office dos and don’ts
“There’s no reason why you can’t deduct that portion of the apartment and/or home expenses, based on square footage” that you use for a home office, Bezozi said. To be deductible, your home office “has to be regular and exclusive use and your principle place of business,” he added.

4.    Equipment purchases
The cost of any electronics you use in your business can be written off on your taxes. If a device has mixed personal and business use, your deduction is proportional. If 30% of your phone usage is for business calls and emails, you can deduct 30% of the cost of the phone and your monthly bill, Bezozi said.

Bezozi also noted that if you’re super conscious of cyber security, you might want to have separate devices for personal and business use, especially if you have employees.

5.    Insurance (and if you don’t have it, you should)
“Generally, you want to have some kind of professional liability insurance,” Bezozi said. “You may want to have cybersecurity insurance. Eventually you want to have disability insurance. That’s something that people don’t think about.” All these insurance premiums are deductible.

If you work alone, your health insurance premiums might be deductible, under the same IRS rules that govern the deductibility of healthcare expenses for individuals.

6.    Retirement savings
If you work as an independent contractor an IRA, SEP IRA, or solo 401(k), will allow you to defer taxes on that income until you retire, Bezozi noted. The amount you contribute comes off your taxable income.

7.    Business travel
“Most people that start out in business, especially in the gig type of economy, are going to be looking to meet people,” Bezozi said. Whether you go across town to a networking event or across the country to a professional conference, your travel expenses can be deductible.

8.    Business meals
“When you meet a client, if you have a meeting over coffee or lunch or a fancy dinner, you can write off the cost of half of that meal,” Bezozi said. The tax rules have changed, however, so you non-meal entertainment expenses are no longer deductible. “If you take a client to a concert, you can no longer deduct that,” he noted.

9.    Training and subscriptions
“Anything to make you better and more knowledgeable in what you do now” is deductible, according to Bezozi. The training must be “something that enhances your ability in your current career but doesn’t get you ready for a different career,” he added. He noted that subscriptions to professional magazines and apps and software that you use in your business are also deductible business expenses.

10.    Client gifts

Gifts to your clients are deductible, up to a point, Bezozi said. If you send a year-end gift basket to an individual client, you can deduct up to $25. If the gift is for the company as a whole (a coffee table book, for example), the limit is higher.

11.    Credit-card interest
If you charge business expenses on a credit card, Bezozi said, “the portion of interest that relates to business expenditures can be deductible.” He noted that there is a limit to the deductibility of this interest, but the limit is high enough that it won’t apply to most independent contractors.

Credit given to:  Laura McCamy  Business Insider   January 10, 2019

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

This Week’s Author – Mark C. Bradstreet, CPA

-until next week

Tax Tip of the Week | Estimated Tax Payments January 23, 2019

Posted by bradstreetblogger in : Deductions, General, Tax Deadlines, Tax Planning Tips, Tax Preparation, Tax Tip, Taxes , add a comment

Estimated Tax Payments

Clients who are starting a business often ask “Do I need to make estimated payments?”  The answer, as with most tax questions, is “It depends”.  While the IRS, states and cities each have their own set of rules for making estimated payments, this article will discuss only the federal provisions for individuals.

In general, you are required to pay estimated tax if:

1. You expect to owe at least $1,000 after subtracting any withholding and refundable credits you are entitled to receive, and

2. You expect your withholding and refundable credits to be less than the smaller of:

The above percentages are commonly known as safe-harbors.  These percentages may be different for farmers, fisherman, or high income taxpayers.  For farmers and fisherman, if at least two-thirds of your income is from farming or fishing, you can substitute 66 2/3% for the 90% shown above.  For higher income taxpayers, if your adjusted gross income (AGI) is over $150,000, you will need to pay in 110% of the prior year tax instead of 100% as shown above to avoid penalties.  For 2017 and earlier years, AGI was the bottom line on the first page of the Form 1040.  Starting in 2018, AGI is line 7 on the second page of the 1040 form.

If, in addition to your business income, you also receive salaries and wages, you may be able to avoid paying estimates by having your employer bump up your withholding.  We often see higher income W-2 earners owing with their tax returns because they do not have enough tax withheld.  In these cases, if nothing is done to increase withholding, and no estimates are paid, the requirements above can cause a penalty on the return, even though the taxpayer has no other outside income.

Another safe-harbor that exists stems from having no tax liability for the prior year.  In that case, you are not required to make estimated payments for the current year.  However, if you make no estimated payments, you need to be prepared to pay any balance due when your returns are filed, plus you will owe the first estimate that will be due for the next year, both of which will be due April 15th.  So plan ahead!

If you do find yourself in the position of having to make estimated payments, the due dates are on the 15th of April, June, September and January, unless weekends come into play, in which case, they are due the following Monday.  Payments can be made in several ways including online at IRS.gov/payments by using a debit or credit card, electronic funds withdrawal, or through the electronic federal tax payments system, known as EFTPS (you must have an account set up for this one).  You can also pay by phone or through a mobile device by downloading the IRS2Go app.  And yes, you can still pay the old-fashioned way by sending in a payment voucher, Form 1040-ES, with a check or money order payable to U.S. Treasury.

For more information, please see your tax advisor, or go to the IRS website at www.IRS.gov.  Thank you for all of your questions, comments and suggestions for future topics. We may be reached in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

This week’s author – Norman S. Hicks, CPA

–until next week.

Tax Tip of the Week | Students Get Help From Judges January 2, 2019

Posted by bradstreetblogger in : Deductions, General, tax changes, Tax Deadlines, Tax Planning Tips, Tax Preparation, Tax Tip, Taxes , add a comment

Students Get Help From Judges

To give you an idea of the pervasiveness of this issue, student loan debt “has eclipsed credit cards as the largest source of consumer debt after mortgages.”  Please read the write-up below for potential relief for some former students.

Mark Bradstreet, CPA

“More bankruptcy judges are throwing lifelines to people struggling to repay their student loans after decades of refusing to consider any sort of relief.

In interviews with the Wall Street Journal, more than 50 current and former bankruptcy judges, frustrated at seeing borrowers leave federal courtrooms with six-figure debts, say they or their colleagues are more open to chipping away at the decades-old guidelines that determine how such debt is treated.

“If the law’s not going to be improved by Congress, we have to help these young people who are drowning in student loan debt, said U.S. Bankruptcy Court Judge John Waites in South Carolina.

Outright cancellations remain rare, but judges said they have other tools at their disposal, including asking lawyers to represent borrowers for nothing. The lawsuits can cost $3,000 to $10,000 and take years.

Other judges are embracing debt-relief techniques that don’t fully erase student loans but make repayment more affordable by, for instance, canceling future related tax bills. The popularity of these relief strategies could get a boost from a panel of professors, judges and advocates who are studying failures in consumer bankruptcy law and plan to release a report next year.

Hundreds of thousands carry student debt in the U.S. – the total has more than doubled over the past decade to $1.4 trillion – nearly all backed by the federal government. It has eclipsed credit cards as the largest source of consumer debt after mortgages. Almost every other type can be extinguished in bankruptcy, but standards made college debt untouchable. Borrowers typically must repay student loans over their lifetime, even those facing extreme financial hardship.

In March, Federal Reserve chairman Jerome Powell said he would be “at a loss to explain” why student loans can’t be cancelled like other debt. The Trump administration is considering whether to fight cancellation requests less aggressively.

Consumer bankruptcy lawyers are starting to notice that judges are being more flexible. One Las Vegas law firm recently filed the first cancellation request in its 14-year history after hearing a judge at a conference voice concern over student loans. Other lawyers said growing sympathy amounts to judges making lenders more willing to reach resolutions in court.

“I’m getting really good results with settlements these days,” said Chicago lawyer David Leibowitz. “I’m not the only one.”

Rules governing how student debt is handled in bankruptcy are made by Congress and by judges who issue influential rulings. Several bills in Congress that would erase student-loan debt in bankruptcy have stalled in recent years.

Last year in Philadelphia, U.S. Bankruptcy Court Judge Eric Frank cancelled a single mother’s $30,000 in student loans. Opposing lawyers from the U.S. Department of Education said the borrower needed to prove her hardship would persist 25 years. Judge Frank ruled that the relevant window was five years.

An appeals court over-turned his ruling, but his decision inspired a Tacoma, Wash., judge in December to cancel a portion of another borrower’s loans.

Such rulings are rare because few troubled borrowers attempt to cancel their student loans, because of the historically slim chances of victory.

Some bankruptcy judges criticize colleagues for re-interpreting well-settled law on student loans. “My view is, if the law is clear, follow it,” said retired California judge Peter Bowie.

The push to rethink the legal standard on student-loan debt is bipartisan. Judges interviewed by the Wall Street Journal were appointed during both Republican and Democratic administrations, though bankruptcy judges are appointed by appeals court judges, not the president.

Before 1976, laws allowed borrowers to do away with student-loan debt in bankruptcy. Congress, out of concern that the new graduates would take too much advantage of that option, made a new rule: Borrowers could cancel student loan debt after only five years of payments. Judges could grant exceptions if borrowers showed that repaying would cause “undue hardship.”

Congress didn’t define “undue hardship” so the task of doing so fell to federal judges. When Marie Brunner, a 1982 graduate of a master’s program in social work tried to cancel her loans in bankruptcy, a New York judge in 1985 said she had to show three things: she struggled financially, her struggles would continue and that she had made a good faith effort to repay. She lost.

That list still serves as a baseline for hardship in circuit courts that control the rules in most states.  Some appeals courts set even higher bench-marks, with one, for instance, saying borrowers must face a “certainty of hopelessness.”

In 1998 Congress said any borrower trying to cancel any federal student loans must prove “undue hardship,” like Ms. Brunner. Congress gave private student loans the same protection in 2005.

Some of the country’s bankruptcy judges are starting to argue that the prevailing legal standard is unintentionally harsh and wasn’t meant for adults still on the hook for student-loan debt years after college.

Judge Frank Bailey in Boston made that argument in an April ruling wiping out $50,000 in student loans for a 39-year-old man whose health ailments prevent him from working.

Some judges, including U.S. Bankruptcy Court Judge Michael Keplan in Trenton, N.J., said they are looking for ways to be more forgiving after seeing their own adult children borrow heavily for their education. Other judges grew concerned after talking to their law clerks. The typical law-school student takes out $119,000 in loans.

Two judges said they regret their rulings against borrowers more than a decade ago.

Kansas judge Dale Somers said he worked particularly hard to justify the reasoning in a December 2016 ruling that cancelled more than $230,000 in interest that built up on a couple’s student loans from the 1980s. They left bankruptcy owing $78,000.

Alabama judge William Sawyer declared that student loans had become “a life sentence” in a 2015 decision cancelling a $112,000 student loan debt for high school science teacher Alexandra Conniff, a single mother of two teen boys whose yearly income is $59,400.”

Credit given to Katherine Stech (Wall Street Journal)

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

This Week’s Author – Mark C. Bradstreet, CPA

-until next week

Happy Holidays & Happy New Year! December 26, 2018

Posted by bradstreetblogger in : General, Tax Deadlines, Tax Planning Tips, Tax Preparation, Tax Tip, Uncategorized , add a comment

Happy Holidays & Happy New Year!

And get ready for the tax filing season.

Hopefully, you followed some of the suggestions outlined in Publication 552 to organize your records. If you did, great! This will make filing your tax returns a lot easier this year. It also means that you and your tax advisor can spend more time on tax and financial planning issues for 2019 vs. looking back to 2018.

This week we will look at some of the more common forms that you should be watching for in the coming weeks and months:

W-2:    Employers should mail these by 1/31/19. If you have moved during the year, make sure former employers are aware of your new address. Some employers provide W-2’s to their employees via a website. Be sure to login and print out your W-2 after it is available.

W-2G:    Casinos, Lottery Commissions and other gambling entities should mail these by 1/31/19 if you have gambling winnings above a certain threshold. Note: Some casinos will issue you a W-2G at the time you win a jackpot. Make sure you have saved those throughout the year.

1096:    Compilation sheet that shows the totals of the information returns that you are physically mailing to the IRS.The check box for Form 1099-H was removed from line 6, while a check box for Form 1098-Q was added to line 6.The spacing for all check boxes on line 6 was expanded.The amounts reported in Box 13 of Form 1099-INT should now be included in box 5 of Form 1096 when filing Form 1099-INT to the IRS.

1098-C:    You might receive this form if you made contributions of motor vehicles, boats, or airplanes to a qualified charitable organization. A donee organization must file a separate Form 1098-C with the IRS for each contribution of a qualified vehicle that has a claimed value of more than $500. All filers of this form may truncate a donor’s identification number (social security number, individual taxpayer identification number, adoption taxpayer identification number, or employer identification number), on written acknowledgements. Truncation is not allowed, however, on any documents the filer files with the IRS.

1099-MISC:   This form reports the total paid during the year to a single person or entity for services provided. Certain Medicaid waiver payments may be excludable from the income as difficulty of care payments. A new check box was added to this form to identify a foreign financial institution filing this form to satisfy its Chapter 4 reporting requirement.

1099-INT:    This form is used to report interest income paid by banks and other financial institutions. Box 13 was added to report bond premium on tax-exempt bonds. All later boxes were renumbered. A new check box was added to this form to identify a foreign financial institution filing this form to satisfy its Chapter 4 reporting requirement.

1099-DIV:    This form is issued to those who have received dividends from stocks. A new check box was added to this form to identify a foreign financial institution filing this form to satisfy its Chapter 4 reporting requirement.

1099-B:     This form is issued by a broker or barter exchange that summarizes the proceeds of sales transactions. For a sale of a debt instrument that is a wash sale and has accrued market discount, a code “W” should be displayed in box 1f and the amount of the wash sale loss disallowed in box 1g.

1099-K:    This form is given to those merchants accepting payment card transactions. Completion of box 1b (Card Not Present transactions) is now mandatory.

K-1s:    If you are a partner, member or shareholder in a partnership or S corporation, your income and expenses will be reported to you on a K-1. The tax returns for these entities are not due until 3/15/19 (if they have a calendar-year accounting). Sometimes, you may not receive a K-1 until shortly after the entity’s tax return is filed in March.

If you are a beneficiary of an estate or trust, your share of the income and expenses for the year will also be reported on a K-1. These returns will be due 4/15/19 so you might not receive your K-1 before the due date of your Form 1040.

NOTE:  Many times corporations, partnerships, estates and trusts will put their tax returns on extension. If they do, the due date of the return is not until 9/16/19 or later. We often see client’s receiving K-1s in the third week of September.

If you receive, or expect to receive, a K-1 it is best if you place your personal return on extension. It is a lot easier to extend your return then it is to amend your return after receiving a K-1 later in the year.

1098:    This form is sent by banks or other lenders to provide the amount of mortgage interest paid on mortgage loans. The form might also show real estate taxes paid and other useful information related to the loan.

1098-T:    This form is provided by educational institutions and shows the amounts paid or billed for tuition, scholarships received, and other educational information. These amounts are needed to calculate educational credits that may be taken on your returns.

So start watching your mailbox and put all of these statements you receive in that new file you created!

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

–until next week

Tax Tip of the Week | Keep your Tax Returns Forever? October 24, 2018

Posted by bradstreetblogger in : General, Tax Deadlines, Tax Preparation, Tax Tip, Taxes, Uncategorized , add a comment

Tax Tip of the Week
October 24, 2018

One of our more commonly asked questions is, how long do I have to keep my income tax returns?

Maybe, the key words in this question are “have to.” For practically all intents and purposes “have to” refers to the requirement of retaining three (3) years after filing them. The reasoning is that you and the IRS only have three (3) years to amend or change a return (typical statute of limitations).

BUT, there are some notable exceptions to the three (3) year rule:

(1) The IRS may go back six (6) years when a significant income amount (25%) has been omitted from an income tax return. They can also go back indefinitely if the IRS proves you filed a fraudulent tax return.

(2) What about the situation where the IRS says you failed to file a return? Let’s say the IRS asks for a return from four (4) years ago. Oops – you just shredded that one since you were diligently following the three (3) year rule. Who knows why the IRS did not receive the return. Maybe your neighbor hijacked it from your mailbox, possibly your postal carrier lost it or the IRS Center received it but simply missed processing it because the return was attached to another return and overlooked. It matters not, why the return was not shown as received by the IRS, because the burden is yours to prove the return was filed. Now you have to resurrect your records, prepare and file the tax return again or be classified forever and ever as a “non-filer.”

Bob Carlson, editor of Retirement Watch, contends that keeping your tax returns indefinitely may well be worth the hassle. “Once you show a return was filed, the statute of limitations is three (3) years, unless the fraud or six (6) year exceptions apply. With very few exceptions, the IRS won’t be able to question the details of the (older) returns. You can shred and dispose of those supporting records and keep a copy of the return.”

It may well be worth the hassle to store these old returns in an effort to gain just a little peace of mind.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

This Week’s Author – Mark C Bradstreet, CPA

–until next week

Tax Tip of the Week | No. 471 | Ohio Worker’s Compensation August 1, 2018

Posted by bradstreetblogger in : Deductions, General, Tax Deadlines, Tax Planning Tips, Tax Tip, Taxes, Uncategorized , add a comment

Tax Tip of the Week | Aug 1, 2018 | No. 471 | Ohio Worker’s Compensation

To Start: Having a business in Ohio requires you to obtain Worker’s Compensation insurance for your employees and possibly your subcontractors. The application, payments and returns are all filed through the Ohio Bureau of Workers’ Compensation (OBWC) website at https://www.bwc.ohio.gov.

For new employers an application form U-3 requires a $120 non-refundable application fee. Based on your estimated payroll for the following 12 months and the type of work that your employees do (manual number), OBWC will set your annual fee. It is very important that you are specific in the type of work being done and the equipment being used to accurately assign the manual numbers and rates.

Reporting & Paying: Depending on the amount set for your annual fee, you will either need to pay the entire amount up front or it will be broken down into 6 equal payments. You can make these payments online or pay the installments through the mail. Once a year, you can elect to make your 6 payments monthly, quarterly or annually. BWC runs on a fiscal year of July 1- June 30. A true-up report is due annually on August 15 and is required to be filed on their website reporting the actual payroll for the prior fiscal year. Depending on the actual versus the estimated, either an overpayment will be refunded or a balance will be due. If you have a significant increase in your payroll, you may want to increase your payments during the year so that you don’t owe a large sum with the true up.

Rebates: In 2018 OBWC is issuing rebates for the 2016-2017 fiscal year of 85% of the premiums paid for that year. Checks were mailed out in July. Rebates have also been issued in 3 of the past 4 years.

Lowering your rates:  There are various methods to help lower your rates including: belonging to a group, participating in safety programs, i.e. Policy Activity Rebate (PAR) and training through Better You, Better Ohio! as well as other rating programs. Various rules apply to these, including claim history and some may not be combined.

Let us help answer any of your questions about Workers’ Compensation or other tax matters.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We may be reached in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our website.

This week’s author – Linda J. Johannes, CPA

–until next week.

Tax Tip of the Week | No. 467 | Hmmm…Behind on Filing Your Income Tax Returns and/or Paying Your Income Taxes? July 4, 2018

Posted by bradstreetblogger in : General, Tax Deadlines, Tax Planning Tips, Tax Tip, Taxes, Uncategorized , add a comment

Tax Tip of the Week | July 4, 2018 | No. 467 | Hmmm…Behind on Filing Your Income Tax Returns and/or Paying Your Income Taxes?

You can run but you can’t hide. Delinquent tax return filing or failure to pay your income taxes is not a problem that ever goes away. In fact, the longer you wait to address this problem, the worse it becomes.

The highlights that follow are specific to the Internal Revenue Service. Other taxing entities have their own rules and regulations for past due returns and past due tax balances.

The “failure to file” IRS penalty is typically 5% per month and the “failure to pay” IRS penalty is an additional 5% per month. These two penalties may each be up to 25% of your unpaid taxes. To add insult to injury, interest expense to the IRS also accrues until the balance is paid in full.

The IRS may waive these penalties if you have reasonable cause for not filing your return or paying your taxes. Criminal charges may be sought against a taxpayer if the IRS believes you are evading taxes.

Some people won’t file a return with a balance due if funds are lacking to pay the IRS. In these cases, one may be in a better position to file the return without payment to avoid the “failure to file” penalty.  In this scenario, the “failure to pay” penalty would be the only penalty assessed, along with the interest expense of course.

If paying your return balance is not an option, an installment agreement may be applied for. If eligible, this agreement sets-up a monthly payment. Warning: These installment agreements are typically null and void if a payment is missed.

Another option, although far from easy to obtain, is to request an “offer in compromise.” This permits you to pay, under certain conditions, less then the full overdue balance.

Another possibility exists, if the IRS agrees you cannot pay your past due balance and your living expenses, your account may be moved to “currently not collectible.” Usually, in this situation, the IRS collection efforts will ratchet down. However, the debt remains with penalties and interest continuing to grow.

The moral of the story is not to ignore any IRS correspondence (or any tax correspondence for that matter) and be proactive in dealing with it. Your tax professional can help you come up with a workable plan. They have been down this road before and most likely will have a working rapport with the tax agency in question.

Credit to Sarah Skidmire Sell, The Associated Press, Sunday April 29, 2018, Dayton Daily News

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We may be reached in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our website.

This week’s author – Mark Bradstreet, CPA

–until next week.