by Daniel Kittell | Accounting News, IRS, News, Tax, Tax Planning, Tax Planning - Individual, Tax Preparation - Individual
Although it came a few days later than expected, the Republican Party has finally released its most recent version of their tax bill. Below are 12 major changes that would affect most taxpayers:
- Lowering the number of income tax brackets
Currently, our tax code has seven brackets, but the new bill would lower that to four: 12% for those making less than $45,000, 25% for those making between $45-$200,000, 35% for those making between $200-$500,000, and 39.6% for those making over $500,000.
- Doubling the standard deduction
Singles would see their standard deduction rise from $6,350 to $12,000 and couples filing jointly would see an increase from $12,700 to $24,000.
- Child tax credit expansion
The credit itself would increase from $1000 to $1,600 for every child under 17, although low income families with no income tax would still be given the standard $1000 as a return. However, the phase out income for this tax would increase from $75,000 to $115,00 for single parents and from $110,000 to $230,000 for married parents.
- New family credits
Both credits are in the amount of $300. One credit is for each parent (so $600 for those filing jointly and $300 for single parents). The other would be for any non-child dependents, including elderly parents, adult children with disabilities or a child over 17 whom you are still supporting.
- Elimination of tax exclusion for dependent care FSA’s
Our current tax code allows parents to save up to $5,000 to place into a dependent care flexible spending account, which is considered nontaxable income. The new bill would make that income taxable.
- Elimination of personal exemptions
Current code permits a $4,050 personal exemption for each member of your family, but the new bill would eliminate personal exemptions entirely.
- Does not change 401K’s
Previous proposals had considered lowering the cap on pre-tax contributions to a 401K, but it appears that enough opposed this move so 401K’s were left alone.
- Deductible mortgage interest limited
If you already have an existing mortgage, your deduction would remain the same. However, new mortgages would only be allowed to claim a deduction for interest on mortgage debt up to $500,000, a drop from $1 million.
- Repeals the Alternative Minimum Tax
The tax intended to ensure the highest filers pay some tax by disallowing many breaks, although it usually affects those who make between $200,000 and $1 million, would be repealed in the new code.
- Repeals state and local deductions
The new bill would remove the deduction for state and local income or sales tax. However, in the light of strong opposition, the new bill would preserve a property tax break as an itemized deduction for property taxes up to $10,000.
- Estate tax repealed
The current estate tax only affects those with assets over $5.5 million, but the new proposal would eliminate this tax beginning in 2024 and would raise the exemption amount in the meantime.
- Other deductions repealed
Deductions for student loan interest, moving expenses, alimony payments, medical payments and tax preparation fees would all be removed.
by Stephen Reed | Accounting News, Bookkeeping, Business Consulting, IRS, News, Professional Services, Resources, Tax, Tax Consulting, Tax Planning, Tax Planning - Individual, Tax Preparation - Individual
With their first plan shot down in Congress, the GOP has released another, broader tax framework as the Trump Administration attempts to shift the tax code. This new plan has many elements that Congress will need to hash out before anything is signed into law, but taxpayers of all income levels are wondering how this plan may affect them personally. Below are five major developments in the new plan that could affect you come tax season:
- Rate Shift
Our current code has seven different income tax brackets, but the new plan would drop that number down to three: 12, 25 and 35 percent. Although the plan does not specify which income levels would be taxed at each new rate, the wealthy would likely see the greatest benefit since the current top bracket at 39.6% would drop to 35%. The current lowest bracket (at 10%) would see an increase to join the 12% bracket, but the plan claims to aid families in that bracket through an increase in the standard deduction and a greater child tax credit.
- Deduction Increase (for most)
For many taxpayers, the new plan would almost double the current standard deduction. Filers who claim multiple children would not see as high of a increase, but could potentially see that offset by a steeper child tax credit. Presently, about 70% of taxpayers take the standard deduction as it is higher than itemizing. However, experts believe that number would increase significantly if the standard deduction is doubled. The GOP’s plan would remove other deductions to offset the increased standard deduction, but the charitable contribution and mortgage interest deductions would be kept.
- Some Taxes and Deductions Eliminated Entirely
The largest deduction that would meet its end with the new GOP plan is the local and state tax deduction. This deduction is often taken in states where taxes, and average income, is higher, states that are often Democratic. Other taxes that would be eliminated include the alternative minimum tax and the estate tax for those who inherit funds in excess of $5.49 million.
- New Tax Rate for “Pass-Through” Businesses
S corporations, sole proprietorships and partnerships could see a new tax rate at 25% under the new plan. Currently, those “pass-through” businesses pay at the individual rate of their owners, and those businesses make up about 95% of the nation’s business demographic. Although many business owners currently pay a rate lower than 25%, just under 2% of those business owners pay the top rate of 39.6%, which means they could see a significant drop in rate if they are permitted to incorporate as a “pass-through.”
- Change in the Corporate Tax Code
The current plan taxes corporations at 35%, but the new plan would drop that rate to 20%. To offset this steep drop in rate, the proposal submits to eliminate certain business deductions and credits. The plan suggests that the deduction for domestic production could be eliminated, while maintaining exceptions for low income housing and research and development, but leaves many of those choices up to Congress.
Congress must still comb through the GOP’s newest plan and make adjustments before a finalized plan is voted upon, so taxpayers should prepare for more adjustments to be made before anything is signed into law. As developments arise, MKR will continue to keep our clients up to date in future newsletters.
by Jean Miller | Accounting News, Fraud, News, Professional Services, Resources, Tax, Tax Consulting, Tax Planning, Tax Planning - Individual, Tax Preparation - Individual, Technology
Although Equifax has yet to reveal specifics about the individuals who were affected by their data breach, as many as 143 million Americans may have been impacted. With that in mind, anyone with credit should consider taking measures to protect their identity and funds. Many experts are suggesting individuals freeze their credit, but this may not be the most effective method. While freezing your credit is not a bad decision, it only protects you from new accounts being opened in your name, a form of identity theft that is actually quite rare.
While many taxpayers are now deeply concerned about their lives being destroyed from identity theft, there are many other ways to guard your identity and your money that may be more beneficial than freezing your credit:
- Use two-step verification and secure passwords
Most identity theft occurs on existing accounts, so making it difficult for hackers to access your accounts with financial information is one step you can take to safeguard your personal data.
- Choose ID-verification questions and answers cautiously
Consider choosing questions whose answers cannot be easily found online. Questions such as “Where were you born?” or “What was your high school mascot?” could be easily discovered by checking your social media accounts, so be wise when creating those protective measures.
- Monitor current accounts as often as possible
Ideally, you should check your bank accounts daily to ensure all posted charges were made by you or whoever has access to the account. Since most financial institutions today have an app for accessing account information, monitoring your credit can be as simple as a quick log on from your phone. If you notice suspicious activity, you can then notify your bank immediately to avoid racking up more false charges.
- Set up alerts for new credit activity
Although you can set up a fraud alert or credit freeze, there are other free services that monitor your credit and any new account openings or activity.
- Check credit reports regularly
Every individual is allowed one free credit report annually from each of the three major credit bureaus through AnnualCreditReport.com, a site sponsored by the government. You can receive all three reports at once, or request one every 4 months to space out your monitoring tactics.
- File taxes early
One form of fraudulent behavior that is becoming more common is filing for taxes under someone else’s SSN. But, organizing your tax information quickly and filing as early as possible could lower the chances that someone will file in your name. Plus, if you are owed a refund, you will likely get it sooner than April if you file early.
While none of these methods are entirely foolproof, taking precautionary steps to protect your credit are always advised. If you do fall victim to identity theft, check out the Federal Trade Commission’s step-by-step recovery guide for helpful information.
by Daniel Kittell | Accounting News, Fraud, IRS, News, Resources
While a majority of the population is covered by Social Security (SS) to some degree, many do not fully understand the program, resulting in frustration and confusion when it comes time to receive benefits. In an effort to curb miscommunication or misgivings, the Social Security Administration (SSA) has increased its informational output in recent years. The SSA’s 2017 fact sheet provided numerous statistics for future and current recipients, and we’ve outlined the top stats below.
- There are 171 million individuals covered by Social Security
- To qualify for benefits, you must “earn” 40 work credits in your lifetime, with the ability to collect up to 4 credits annually (valued at $1,300 per credit)
- 71% of recipients are retired workers (in 2017)
- SS payouts accumulate 8% from ages 62 to 70, so if you’re close to retirement, a great way to boost your payout is to wait to enroll
- The remaining 29% of benefits will go to the disabled and survivors
- In 2017, approximately 16% of benefits will be received by disabled workers and the remaining 13% goes to survivors of deceased beneficiaries
- In 2017, 62 million Americans will receive $955 billion in benefits
- Funding is acquired from 3 sources: interest on the program’s asset reserves, a 12.4% payroll tax on all earned income and the taxation of the benefits themselves
- 61% of seniors rely on their SS benefits for at least half their monthly income
- 48% of married seniors and 71% of unmarried retirees depend on Social Security for at least half their income
- Of unmarried seniors, 43% rely on benefits for about 90% of their income
- Close to half of single seniors look to Social Security to provide the majority of their income each month
- Most 65 year olds will live approximately 20 more years
- In 1960, the average life expectancy was 70, but it has since increased to 79, which means it is wise to factor in a longer lifespan since the program is only intended to account for 40% of wages in retirement
- By 2035, the senior population is set to grow by 65%
- Currently, those 65 and up number 48 million people, but the impending retirement of many baby boomers means that number could grow to 79 million over the next 18 years
- By 2035, the worker-to-recipient ratio will decline by 21%
- Presently, the worker-to-beneficiary ratio is 2.8-to-1, but experts estimate that ratio could drop to 2.2-to-1 in the next 18 years
- In the event of a long-term disability, about 90% of workers have protection
- While 67% of the private workplace does not offer long-term disability insurance, Social Security covers approximately 90% of workers ages 21 to 64 in the event of a work ending disability
- Of workers ages 20 to 49, about 96% do have protective insurance for survivors
- Since one in eight 20 year olds won’t live to see age 67, at least the majority of those who work in covered employment have survivors protection insurance for surviving spouses and children
- One third of workers report having nothing set aside for retirement
- With a potential 23% cut in benefits in 2034, the fact that 31% of the current working population has no money set aside, leaving them fully reliant on Social Security, is less than promising
In conclusion, although Social Security will be around for the long run, and likely covers more income than many believe, it would be wise to find secondary funding for retirement since Social Security was never intended to serve as your principal source.
by Daniel Kittell | Accounting News, Fraud, IRS, News, Resources
For years, taxpayers have been told that the IRS will never call to inquire about their taxes or collect unpaid funds. Rather, the IRS has operated under the communication policy that they will contact taxpayers by written notice only. However, immediately following this year’s tax season, in April 2017, the IRS enacted a change in their policy to begin calling individuals with overdue tax bills, but there are specifics to when or why they will contact you via phone.
Unfortunately, as many of us know, dozens and dozens of scam artists exist in today’s world, who will surely be attempting to capitalize on this new policy to con you out of your own money. With that in mind, we have assembled some information regarding the new policy to help you recognize when you’re actually being contacted by the IRS, and when you’re being scammed.
- The IRS has contracted out 4 private collection agencies: Conserve, Pioneer, Performant, and CBE Group
- These agencies will only call individuals with long overdue taxes, namely those with accounts who have not interacted with the IRS in more than 365 days. Thus, if you were a bit late on your April 2017 taxes, you didn’t receive a call in May, and won’t unless they go unpaid through April 2018.
- The IRS will still send written notices first stating your account is being turned over to a collection agency
- There are many practices or tactics used by scam artists over the phone that the IRS will never follow, even when calling though their contracted collection agencies. The IRS will NOT:
- Threaten to deport you, foreclose your property or withdraw your license
- Threaten to bring in law enforcement or other agencies to arrest you for lack of payment
- Demand payment without allowing you to inquire against or appeal the amount owed
- Request immediate payment over the phone. They will never call without sending a bill or notice via mail first
- Ask for credit or debit card numbers over the phone
- Demand a certain form of payment (i.e. a wire transfer, prepaid debit card or iTunes gift card)
If you think you have been scammed, or have an issue with one of the contracted collection agencies, the IRS suggests contacting the hotline for the Treasury Inspector General for Tax Administration at 800-366-4484, or visit tigta.gov. If you do receive a call from someone claiming to be from the IRS and are concerned with the validity of the call in any way, do not send funds. If you have questions about owing taxes or would like to confirm that a call you received is legitimate, contact the IRS directly at 1-800-829-1040.
