General Information

Retirement Plan Contribution Limits for 2018

Retirement Plan Contribution Limits for 2018

The Internal Revenue Service issued the annual cost of living adjustments Thursday for 401(k) contributions, pension plans and other retirement-related matters.

The contribution limit for workers who are enrolled in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan has grown from $18,000 to $18,500.

The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements, to contribute to Roth IRAs and to claim the saver’s credit have also increased for 2018.

Taxpayers are able to deduct contributions to a traditional IRA if they meet certain conditions. If either the taxpayer or their spouse was covered by a retirement plan at work over the course of the year, the deduction could be reduced, or phased out, until it’s eliminated, depending on their filing status and income. (If neither the taxpayer nor their spouse is covered by a retirement plan at work, the phase-outs of the deduction don’t apply.)

Here are the phase-out ranges for 2018:

  • For single taxpayers covered by a workplace retirement plan, the phase-out range goes from $63,000 to $73,000, up from $62,000 to $72,000.
  • For married couples who file jointly, where the spouse making the IRA contribution is covered by a retirement plan at work, the phase-out ranges from $101,000 to $121,000, up from $99,000 to $119,000.
  • For an IRA contributor who isn’t covered by a workplace retirement plan and is married to a spouse who is covered, the deduction is phased out if the couple’s income ranges between $189,000 and $199,000, up from $186,000 and $196,000.
  • For a married taxpayer filing a separate return who’s covered by a retirement plan at work, the phase-out range isn’t subject to an annual cost-of-living adjustment and remains $0 to $10,000.

 

The income phase-out range for taxpayers making contributions to a Roth IRA goes from $120,000 to $135,000 for singles and heads of household, up from $118,000 to $133,000. For married couples who file jointly, the income phase-out range is $189,000 to $199,000, up from $186,000 to $196,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

The income limit for the Saver’s Credit (also referred to as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $63,000 for married couples filing jointly, up from $62,000; $47,250 for heads of household, up from $46,500; and $31,500 for singles and married individuals filing separately, up from $31,000.

Some limitations are unchanged from 2017:

  • The limit on annual contributions to an IRA stays unchanged at $5,500. The additional catch-up contribution limit for individuals aged 50 and over isn’t subject to an annual cost-of-living adjustment and remains $1,000.
  • The catch-up contribution limit for employees ages 50 and over who contribute to 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan remains unchanged at $6,000.

 

Information from Accounting Today was used in this blog post. For more details and technical guidance, see Notice 2017-64. Contact the professionals at Fox Peterson for tax planning and to learn more about how these rules affect your taxes.

 

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Should I File a Tax Return?

Should I File a Tax Return?

Most people file a tax return because they have to. Even if a taxpayer doesn’t have to file, there are times they should. They may be eligible for a tax refund and not know it.

Here are five tips on whether to file a tax return:

  1. General Filing Rules.  In most cases, income, filing status and age determine if a taxpayer must file a tax return. Other rules may apply if the taxpayer is self-employed or a dependent of another person. For example, if a taxpayer is single and under age 65, they must file if their income was at least $10,350 (for 2016). There are other instances when a taxpayer must file. Contact one of the professionals at Fox Peterson for more information.
  2. Tax Withheld or Paid.  Did the taxpayer’s employer withhold federal income tax from their pay? Did the taxpayer make estimated tax payments? Did they overpay last year and have it applied to this year’s tax? If the answer is “yes” to any of these questions, they could be due a refund. They have to file a tax return to get it.
  3. Earned Income Tax Credit.  A taxpayer who worked and earned less than $53,505 last year could receive the EITC as a tax refund. They must qualify and may do so with or without a qualifying child. They may be eligible for up to $6,269. The professionals at Fox Peterson can help determine eligibility, or the IRS’ 2016 EITC Assistant tool on IRS.gov can also help. Taxpayers need to file a tax return to claim the EITC.
  4. Additional Child Tax Credit.  Did the taxpayer have at least one child that qualifies for the Child Tax Credit? If they do not qualify for the full credit amount, they may be eligible for the Additional Child Tax Credit. Beginning in January 2017, by law, the IRS must hold refunds for any tax return claiming either the EITC or the Additional Child Tax Credit until Feb. 15. This means the entire refund, not just the part related to either credit.
  5. American Opportunity Tax Credit.  To claim the AOTC, the taxpayer, their spouse or their dependent must have been a student enrolled at least half time for one academic period to qualify. The credit is available for four years of post-secondary education. It can be worth up to $2,500 per eligible student. Even if the taxpayer doesn’t owe any taxes, they may still qualify. Complete Form 8863, Education Credits, and file it with the tax return. Learn more by visiting the Education Credits web page.

The professionals at Fox Peterson can help with questions on any of these points. Information from IRS Tax Tip 2017-02 was used in this blog post.

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Eight Tips to Prevent Identity Theft

Eight Tips to Prevent Identity Theft

Identity theft happens when someone steals personal information for financial gain. Tax-related identity theft happens when someone uses another person’s stolen Social Security number (SSN) or Employer Identification Number (EIN) to file a tax return to obtain a fraudulent refund.

Many people first find out they are victims of identity theft when they submit their tax returns. That’s because the IRS lets them know someone else already used their SSN to file.

The IRS continues to work hard to stop identity theft with a strategy of prevention, detection and victim assistance. So far, the agency has stopped millions of dollars from getting into the hands of thieves.

Check out these eight tips on how to protect against identity theft:

  1. Taxes. Security. Together. The IRS, the states and the tax industry need everyone’s help. The IRS launched The Taxes. Security. Together. awareness campaign in 2015 to inform people about ways to protect their personal, tax and financial data. Learn more at www.IRS.gov/TaxesSecurityTogether.
  2. Protect Personal and Financial Records. Taxpayers should not carry their Social Security card in their wallet or purse. They should only provide their Social Security number if it’s necessary. Protect personal information at home and protect personal computers with anti-spam and anti-virus software. Routinely change passwords for online accounts.
  3. Don’t Fall for Scams. Criminals often try to impersonate banks, credit card companies and even the IRS hoping to steal personal data. Learn to recognize and avoid those fake communications. Also, the IRS will not call a taxpayer threatening a lawsuit, arrest or to demand immediate payment. Beware of threatening phone calls from someone claiming to be from the IRS.
  4. Report Tax-Related ID Theft. Here’s what taxpayers should do if they cannot e-file their return because someone already filed using their SSN:
  • File a tax return by paper and pay any taxes owed.
  • File an IRS Form 14039, Identity Theft Affidavit. Print the form and mail or fax it according to the instructions. Include it with the paper tax return and/or attach a police report describing the theft if available.
  • File a report with the Federal Trade Commission using the FTC Complaint Assistant.
  • Contact Social Security Administration at www.ssa.gov and type in “identity theft” in the search box.
  • Contact financial institutions to report the alleged identity theft.
  • Contact one of the three credit bureaus so they can place a fraud alert or credit freeze on the affected account.
  • Check with the applicable state tax agency to see if there are additional steps to take at the state level.
  1. IRS Letters. If the IRS identifies a suspicious tax return with a taxpayer’s stolen SSN, that taxpayer may receive a letter asking them verify their identity by calling a special number or visiting an IRS Taxpayer Assistance Center.
  2. IP PIN. If a taxpayer is a confirmed ID theft victim, the IRS may issue them an IP PIN. The IP PIN is a unique six-digit number that the taxpayer uses to e-file their tax return. Each year, they will receive an IRS letter with a new IP PIN.
  3. Report Suspicious Activity. If taxpayers suspect or know of an individual or business that is committing tax fraud, they can visit IRS.gov and follow the chart on How to Report Suspected Tax Fraud Activity.
  4. Service Options. Additional information about tax-related identity theft is available online. The IRS has a special section on IRS.gov devoted to identity theft and information for victims to obtain assistance.

Avoid scams. The IRS does not initiate contact using social media or text message. The first contact normally comes in the mail. Those wondering if they owe money to the IRS can view their tax account information on IRS.gov to find out.

Information from IRS Summertime tax Tip 2017-16 was used in this blog post.

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Debt Cancellation May be Taxable

Debt Cancellation May be Taxable

If a lender cancels part or all of a debt, a taxpayer must generally consider this as income. However, the law allows an exclusion that may apply to homeowners who had their mortgage debt canceled in 2016.

Here are 10 tips about debt cancellation:

  1. Main Home. If the canceled debt was a loan on a taxpayer’s main home, they may be able to exclude the canceled amount from their income. They must have used the loan to buy, build or substantially improve their main home to qualify. Their main home must also secure the mortgage.
  2. Loan Modification. If a taxpayer’s lender canceled or reduced part of their mortgage balance through a loan modification or ‘workout,’ the taxpayer may be able to exclude that amount from their income. They may also be able to exclude debt discharged as part of the Home Affordable Modification Program, or HAMP. The exclusion may also apply to the amount of debt canceled in a foreclosure.
  3. Refinanced Mortgage. The exclusion may apply to amounts canceled on a refinanced mortgage. This applies only if the taxpayer used proceeds from the refinancing to buy, build or substantially improve their main home and only up to the amount of the old mortgage principal just before refinancing. Amounts used for other purposes do not qualify.
  4. Other Canceled Debt. Other types of canceled debt such as second homes, rental and business property, credit card debt or car loans do not qualify for this special exclusion. On the other hand, there are other rules that may allow those types of canceled debts to be nontaxable.
  5. Form 1099-C. If a lender reduced or canceled at least $600 of a taxpayer’s debt, the taxpayer should receive Form 1099-C, Cancellation of Debt, by Feb. 1. This form shows the amount of canceled debt and other information.
  6. Form 982. If a taxpayer qualifies, report the excluded debt on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. They should file the form with their income tax return.
  7. Exclusion Extended. The law that authorized the exclusion of cancelled debt from income was extended through Dec. 31, 2016.

 

Information from IRS Tax Tip 2017-23 was used in this blog post

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The Fair Wages and Healthy Families Act

THE FAIR WAGES AND HEALTHY FAMILIES ACT

Earned Paid Sick Time

 Employers: click here to download a pdf of the AZ Earned Paid Sick Time Poster 2017

EXEMPTIONS: The Fair Wages and Healthy Families Act (the “Act”) does not apply to any person who is employed by a parent or a sibling; any person who is employed performing babysitting services in the employer’s home on a casual basis; or any person employed by the State of Arizona or the United States government.

ENTITLEMENT AND AMOUNT:

Beginning July 1, 2017, employees are entitled to earned paid sick time and accrue a minimum of one hour of earned paid sick time for every 30 hours worked, subject to the following limitations:

  • Employees whose employers have less than 15 employees may only accrue or use 24 hours of earned paid sick time per year.
  • Employees whose employers have 15 or more employees may only accrue or use 40 hours of earned paid sick time per year.

Employers are permitted to select higher accrual and use limits.

TERMS OF USE: Earned paid sick time may be used for the following purposes: (1) medical care or mental or physical illness, injury, or health condition; or (2) a public health emergency; and (3) absence due to domestic violence, sexual violence, abuse, or stalking. Employees may use earned paid sick time for themselves or for family members. See Arizona Revised Statutes § 23-373 for more information.

RETALIATION & DISCRIMINATION PROHIBITED:

Employers are prohibited from discriminating against or subjecting any person to retaliation for: (1) asserting any claim or right under the Act, including requesting or using earned paid sick time; (2) assisting any person in doing so; or (3) informing any person of their rights under the Act.

ENFORCEMENT: Each employee has the right to file a complaint with the Industrial

Commission’s Labor Department alleging that an employer has violated the Act. Certain time limits apply. A civil action may also be filed as provided in the Act. Violations of the Act may result in penalties.

INFORMATION: For additional information regarding the Act, you may refer to the Industrial Commission’s website at www.azica.gov or contact the Industrial Commission’s Labor Department: 800 W. Washington, Phoenix, Arizona 85007-2022; (602) 542-4515.

The State of Arizona is requesting that THIS POSTER be conspicuously posted in a place that is accessible to employees.

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Protect Your Computer Online

Protect Your Computer Online

The Internal Revenue Service, the states and the tax industry urge you to be safe online and remind you to take important steps to help protect yourself against identity theft.

Scammers, hackers and identity thieves are looking to steal your personal information – and your money. But there are simple steps you can take to help protect yourself, like keeping your computer software up-to-date and giving out your personal information only when you have a good reason.

We all have a role to play to protect your tax account. There are just a few easy and practical steps you can take to protect yourself as you conduct your personal business online.

Here are some best practices you can follow to protect your tax and financial information:

  1. Understand and Use Security Software.  Security software helps protect your computer against the digital threats which are prevalent online. Generally, your operating system will include security software or you can access free security software from well-known companies or Internet providers. Other options may have an annual licensing fee and offer more features. Essential tools include a firewall, virus/malware protection and file encryption if you keep sensitive financial/tax documents on your computer. Security suites often come with firewall, anti-virus and anti-spam, parental controls and privacy protection. File encryption to protect your saved documents may have to be purchased separately. Do not buy security software offered as an unexpected pop-up ad on your computer or email! It’s likely from a scammer.Security Lock
  2. Allow Security Software to Update Automatically. Set your security software to update automatically. Malware – malicious software – evolves constantly and your security software suite is updated routinely to keep pace.
  3. Look for the “S” for encrypted “https” websites. When shopping or banking online, always look to see that the site uses encryption to protect your information. Look for https at the beginning of the web address. The “s” is for secure. Unencrypted sites begin with an http address. Additionally, make sure the https carries through on all pages, not just the sign-on page.
  4. Use Strong Passwords. Use passwords of at least 10 to 12 characters, mixing letters, numbers and special characters. Don’t use your name, birthdate or common words. Don’t use the same password for several accounts. Keep your password list in a secure place or use a password manager. Don’t share your password with anyone. Calls, texts or emails pretending to be from legitimate companies or the IRS asking you to update your accounts or seeking personal financial information are generally scams.
  5. Secure your wireless network.  A wireless network sends a signal through the air that allows you to connect to the Internet. If your home or business wi-fi is unsecured it also allows any computer within range to access your wireless and steal information from your computer. Criminals also can use your wireless to send spam or commit crimes that would be traced back to your account. Always encrypt your wireless. Generally, you must turn on this feature and create a password.
  6. Be cautious when using public wireless networks. Public wi-fi hotspots are convenient but often not secure. Tax or financial Information you send though websites or mobile apps may be accessed by someone else. If a public Wi-Fi hotspot does not require a password, it probably is not secure. If you are transmitting sensitive information, look for the “s” in https in the website address to ensure that the information will be secure.
  7. Avoid phishing attempts. Never reply to emails, texts or pop-up messages asking for your personal, tax or financial information. One common trick by criminals is to impersonate a business such as your financial institution, tax software provider or the IRS, asking you to update your account and providing a link. Never click on links even if they seem to be from organizations you trust. Go directly to the organization’s website. Legitimate businesses don’t ask you to send sensitive information through unsecured channels.

Information from IRS Security Awareness Tax Tips was used in this blog post

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Medicare Changes for 2016

Medicare Update 2016

Social Security beneficiaries will not have a benefit increase in 2016. Inflation has declined over the past year, fueled primarily by a large drop in the price of gasoline during that period. This means the Social Security wage base will remain flat for 2016 (staying at $118,500). By law, if beneficiaries get no increase, the wage base can’t rise.

The benefit freeze will also have an impact on Medicare 2016Medicare Part B premiums. About 30% of Part B users will face large premium hikes over 2015 levels. This applies to those who first enroll in 2016 or don’t have premiums deducted from monthly Social Security benefits, plus anyone subject to the Part B surcharge. For 2016, that levy will kick in for singles with 2014 modified adjusted gross incomes over $85,000 and couples with 2014 modified AGIs over $170,000. The premium boosts on all three of these groups may be as high as 50% unless the Obama administration takes steps to ease the pain. Other Part B users will continue to pay $104.90 a month.

Additional information regarding 2016 Medicare laws can be found here: Medicare & You 2016

Information from The Kiplinger Tax Letter Vol. 90, No. 18 was used in the blog post.

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Scam Targets Taxpayers

Disappearing “Service” at the IRS

Don’t expect much in the way of service from the IRS this filing season. Budget cuts have forced the agency to pare back on services that filers have relied upon in the past. Folks who call the IRS don’t have a great chance of speaking to a person, even after a wait of 20 minutes or more. And if you finally reach someone, you’ll get no help with complicated questions. The IRS will answer only basic queries, such as those regarding filing status, dependents and whether income is taxable. Those with tougher issues will be sent to IRS publications or its Web site.

It’s Not the IRS Calling

A phone scam is targeting taxpayers across the nation. Callersphone scam claiming to be IRS officials (and altering caller ID information to make it appear as if the IRS is calling) are telling their victims that they owe taxes and must pay up fast with a prepaid debit card or wire transfer. Unsuspecting victims are being threatened with arrest, deportation or loss of their driver’s license if they fail to comply. The fraudsters sometimes follow up with bogus e-mails, and often will use fake names and IRS badge numbers. Don’t be tricked. The IRS never makes unsolicited calls to people to tell them that they owe more taxes. The agency normally contacts people first by mail. And it doesn’t ask for personal or financial information via e-mail or on social media sites.

If you get a phone call from someone claiming to be from the IRS, here’s what you should do:

  • If you know you owe taxes or you think you might owe taxes, call the IRS at 800-829-1040. The IRS employees at that line can help you with a payment issue – if there really is such an issue.
  • If you know you don’t owe taxes or have no reason to think that you owe any taxes (for example, you’ve never received a bill or the caller made some bogus threats as described above), then call and report the incident to the Treasury Inspector General for Tax Administration at 800-366-4484
  • If you’ve been targeted by this scam, you should also contact the Federal Trade Commission and use their “FTC Complaint Assistant” at www.FTC.gov. Please add “IRS Telephone Scam” to the comments of your complaint.

Remember, the IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels. The IRS also does not ask for PINs, passwords or similar confidential access information for credit card, bank or other financial accounts. Recipients should not open any attachments or click on any links contained in the message. Instead, forward the email to phishing@irs.gov

The Scam Continues to Grow

In a new effort to take money from unsuspecting website scamvictims, fraudsters are sending out phony tax bills on what purports to be official IRS letterhead. They are also sending out emails from false websites that contain “IRS” in the Web address.

Keep your guard up and don’t fall victim to any of these scams.

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Tax Return Due Dates

Tax Return Due Dates

The Senate and the House passed a short-term highway funding extension that contains several important tax provisions. The bill modifies tax return due dates for several common tax returns starting for tax year 2016 (filed in 2017).

Partnership tax returns are due March 15, NOT April 15 as in the past. If your partnership isn’t on a calendar year, the return is due on the 15th day of the third month following the close of your tax year. A six month extension is still available.

C corporation tax returns are due April 15, NOT March 15. An automatic 5 month extension is available. For non-calendar years, it is due on the 15th day of the fourth month following the close of the tax year. In addition, C corporations with tax years ending on June 30 will continue to have a due date of September 15 until 2025. For years beginning after 2025, the due date for these returns will be October 15.

Individual and S corporation due dates remain at April 15 and March 15, respectively, and a six month automatic extension is still available for both.

If you have any questions about this blog post or other accounting topics, please contact one of our tax professionals.

Information from Forbes and the Journal of Accountancy was used in this blog post.

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Assisting Victims of Tax-Related Identity Theft

Assisting Victims of Tax-Related Identity Theft

Anyone – regardless of whether they are required to file a tax return or not or whether they are a minor, an adult or even deceased can be impacted by identity theft. According to the Federal Trade Commission, 2014 marked the fifth consecutive year that tax-related identity theft was the number one identity theft complaint filed by consumers.

Tax identity theft typically happens when someone uses a person’s stolen identifying information to file a fraudulent tax return and obtain a refund. Practitioners should be alert for signs that identity theft has occurred. Telltale signs for individuals often include a return being rejected because the client’s SSN already has been used or a client receiving an IRidentity theft notice or letter, such as Notice CPOlB or Letter 5071C, requesting your client to verify their identity.

Chapter 12 of the IRS Response Library has everything practitioners need to assist their clients who are victims of tax identity theft. Here are some immediate steps that can be taken to assist clients.

  1. Obtain proper authorization from the client via a signed power of attorney (Form 2848).
  2. Report the identity theft to the local police department and the FTC at identitytheft.gov or 877.438.4338.
  3. Contact the major credit bureaus to place a “fraud alert’ on the account at: equifax.com or 800.525.6285, experian.com or 888.397.3742 or transunion.com or 800.680.7289.
  4. Report the identity theft to the IRS by contacting the Identity Protection Specialized Unit at 800.908.4490.
  5. Contact the Social Security Administration at ssa.gov or 800.772.1213.
  6. Respond to any IRS notices and submit a completed Form 14039 (Identity Theft Affidavit). This form allows the IRS to put an identity theft indicator on the client’s tax account.

A client whose return is rejected because someone else already filed under that SSN will have to file a paper return for the current year with the Form 14039 and Form 8948 (Preparer Explanation for Not Filing Electronically) attached.

Unfortunately, identity theft issues can take many months to correct. In an audit report dated March 20, 2015, the Treasury Inspector General for Tax IRS Identity TheftAdministration (TIGTA) indicated that the timeline the IRS provides to identity theft victims for processing and resolving the case can be misleading. The IRS tells taxpayers their identity theft case will be resolved within 180 days; however, TIGTA found that on average the IRS took 278 days to resolve identity theft cases.

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