Charles Woodson | TaxConnections

21 Aug 2018

Tax Reform 2.0 Is In The Works

Charles Woodson - Tax Reform Is In The Works

The dust has not yet settled from the Tax Cuts and Jobs Act (TCJA), passed into law in December 2017, and the House Ways and Means Committee is already considering another round of tax changes. The committee chair, Kevin Brady, Republican from Texas, wants to include input from stakeholders such as business groups, think tanks and other relevant organizations. Historically, major tax reforms have been decades apart, so the committee chair is looking for another approach to the way Washington deals with tax policy.

As with all tax legislation, it begins with talking points. From what we can gather, it appears the focus of Tax Reform 2.0 will include:

Written by Chuck Woodson | Posted in Tax Reform

14 Aug 2018

What Are The Penalties For Not Filing Your Tax Return?

Charles Woodson, IRS Penalties For Not Filing

Everybody knows the old saying about death and taxes, yet a surprising number of people fail to file an income tax return. If you’re one of those people and you think you’ll be able to slide by, you need to reconsider your position. Even if you’re unable to pay your taxes, you need to file a return. Not doing so will eventually lead to a domino effect of negative consequences.

No matter how many people have told you that it’s no big deal, or that the IRS has “bigger fish to fry” than you, the employees of the Internal Revenue Service have a job to do and a process that they follow. Even if no legal action is taken against you, failure to file a return will end up working against you. Let’s take a look at the rules regarding filing your taxes and the various outcomes that you risk:

Written by Chuck Woodson | Posted in Charles Woodson • Penalties For Not Filing

10 Aug 2018

Tax Reform Eases The Alternative Minimum Tax – But It’s Still There

Charles Woodson, Alternative Minimum Tax

Although Congress has been promising to repeal the alternative minimum tax (AMT), they failed to do that when they passed tax reform in 2017. Instead, they lessened the effects of the AMT by increasing AMT exemptions (an amount of income exempt from AMT taxation) and raising the income thresholds for when the exemptions are phased out. These two steps and some other changes covered below lessen your chances of being hit by the AMT, but it is still there, so it is wise to be aware of how the AMT is determined and the things that might trigger it.

There are two ways to determine your tax: the regular way, which most everyone is familiar with, and the alternative method. Your tax will be the higher of the two.

Written by Chuck Woodson | Posted in Alternative Minimum Tax • Charles Woodson

07 Aug 2018

States Sue U.S. To Void $10,000 Cap On State And Local Tax Deduction

Charles Woodson, Stes Sue U.S. To Avoid $10,000 Cap

Four states – New York, Connecticut, Maryland and New Jersey – have sued the federal government to void the tax-reform cap on the federal itemized deduction for state and local taxes, contending that limiting the deduction is unconstitutional. The taxes at issue include state and local income taxes, real property (real estate) taxes and personal property taxes.

These states – all Democratic (blue states), with some of the highest state and local tax rates in the nation – saw this deduction limitation as political retribution from the Republican-controlled Congress and have passed state legislation attempting to circumvent the tax reform provision limiting the federal itemized deduction for state and local taxes (SALT) to $10,000.

Written by Chuck Woodson | Posted in State And Local Tax Deduction

03 Aug 2018

Did You Pay Too Much In Prior Tax Years?

Have you been preparing your own returns? If not, did you have someone prepare it who didn’t take the time to query you about possible tax deductions, credits or filing status options? If you answered either question yes, you could have missed out on a number of tax benefits that could have saved you big bucks in taxes.

If something was overlooked, there is still time to get a refund for 2015, 2016 or 2017 (or even 2014, for some state returns). So if you know you missed something, or even if you just want a professional to look over your past returns to see if something was overlooked, give this office a call.

Here is a list of some (but not all) frequently overlooked tax benefits that may apply to you. Some of these were extended to 2017 in a special bill passed by Congress in the middle of February 2018, so if you filed your 2017 return before that date or used a preparer who does not keep up with changes, there’s a chance one or more items may apply to you. Please note that the items listed below apply to years 2015 through 2017.

Written by Chuck Woodson | Posted in Income Tax • Tax Overpayment

01 Aug 2018

A Breakdown Of The Proposed IRS 1040

Remember the IRS’s promise about being able to file your income tax return using a postcard?

The reality of the new 1040 form is a far cry from a postcard. Although the administration insists that it has simplified the process of preparing your tax return, a few minutes of comparing the old 1040 to the new draft version shows that the redesign did little more than change it from the previous two-page form to two half-size pages – with six schedules provided separately. All but four of the 79 lines from the old version remain on the new one; they’re just divided up differently. Unless all of your income comes from wages, interest, dividends, pensions and Social Security, you will now have more schedules to fill out than you did before, and you still have a lot of work ahead of you.

How much new work does the revised version represent? Here’s a quick rundown of the six new schedules:

Written by Chuck Woodson | Posted in Charles Woodson • Form 1040

31 Jul 2018

Offer In Compromise FAQs

We’re all responsible for paying our fair share of taxes each year. But what happens when the amount that you owe is simply out of reach? What happens if you failed to make payments in a timely manner and your financial circumstances have shifted to the point where your cumulative debt is beyond your ability to pay? In the face of this untenable position, your best option for paying the IRS may be what is known as an Offer in Compromise.

The Goal of the Offer in Compromise

The Offer in Compromise, or OIC, was created to accomplish two goals: it allows American taxpayers who are unable to pay the full amount of their tax debt a way to negotiate a payment that is in keeping with their ability to pay, while at the same time providing the IRS with the ability to collect at least a portion of the amount that is owed to them. The process is neither simple nor fast: it generally takes at least one to two years for both sides to come to an agreement on an amount to be paid.

Written by Chuck Woodson | Posted in Charles Woodson • IRS • Offer In Compromise

24 Jul 2018

10 Mistakes Most Small Business Owners Miss When Starting Out

Chuck Woodson, Mistakes Small Business Owners Make

The process of starting a small business can be an arduous one; there are numerous steps that need to be taken — and often in a precise order — to legally establish a business. As a result, the process can be overwhelming. Unfortunately, it’s also easy to overlook some important details and steps along the way. By being aware of a few of the most common legal and compliance mistakes made by small business owners when starting out, you can be better prepared for future success.

1. Misclassifying Employees as Independent Contractors

Regulators are coming down hard on misclassifications. The IRS estimates that this problem includes millions of workers. It is best to talk this through with an expert, but you can get some background on the guidelines at the United States Department of Labor website.

2. Choosing the Wrong Business Structure

Written by Chuck Woodson | Posted in Charles Woodson • TaxConnections

18 Jul 2018

Clergy Tax Benefits Under Fire

Chuck Woodson, Clergy Benefits Under Fire

Section 107 of the Internal Revenue Code provides that a minister of the gospel’s gross income doesn’t include the rental value of a home (parsonage) provided; if the home itself isn’t provided, a rental allowance paid as part of compensation for ministerial services is excludable. The benefit is generally referred to as a parsonage allowance. Thus, a minister can exclude the fair rental value (FRV) of the parsonage from income under IRC Sec. 107(1), or the rental allowance under Sec. 107(2), for income tax purposes. The Sec. 107(2) rental allowance is excludable only to the extent that it is for expenses such as rent, mortgage payments, utilities, repairs, etc., used in providing the minister’s main home, and only up to the amount of the FRV of the home.

However, either type of parsonage allowance is only excludable for income tax purposes and is subject to self-employment taxes, although for years before 2018 and after 2025, the amount subject to self-employment tax can be reduced by the minister of the gospel’s employee business expenses.

Back in October 6, 2017, in the US District Court for the Western District of Wisconsin, Judge Barbara B. Crabb, in Gaylor v. Mnuchin (the treasury secretary), concluded that Section 107(2) of the Internal Revenue Code is unconstitutional. Specifically, she concluded that this code section violates the Establishment Clause of the First Amendment because it does not have a secular purpose or effect and because a reasonable observer would view the statute as being an endorsement of religion.

Written by Chuck Woodson | Posted in Clergy Benefits

17 Jul 2018

How Long Should You Hold On To Old Tax Records?

Charles Woodson, How Long Should You Hang On To Tax Records

Generally, taxpayers should hold on to their tax records for at least 3 years after the due date of the return to which those records apply. However, if the original return was filed later than the due date, including if the taxpayer received an extension, the actual filing date is substituted for the due date. A few other circumstances can require taxpayers to keep these records for longer than 3 years.

The statute of limitations in many states is 1 year longer than in the federal statute. This is because the IRS provides state tax authorities with federal audit results. The extra year gives the states adequate time to assess taxes based on any federal tax adjustments.

In addition to the potential confusion caused by the state statutes, the federal 3-year rule has a number of exceptions that cloud the recordkeeping issue:

The assessment period is extended to 6 years if a taxpayer omits more than 25% of his or her gross income on a tax return.
The IRS can assess additional taxes without regard to time limits if a taxpayer (a) doesn’t file a return, (b) files a false or fraudulent return to evade taxation, or (c) deliberately tries to evade tax in any other manner.
The IRS has unlimited time to assess additional tax when a taxpayer files an unsigned return.

Written by Chuck Woodson | Posted in Tax Records - Time To Keep • TaxConnections

13 Jul 2018

How Some High-Income Taxpayers Can Maximize The New 20% Pass-through Business Deduction

Taxpayers with higher 1040 taxable incomes who are self-employed but are not “specified service businesses” may find it beneficial to structure new businesses, or restructure an existing business, as an S corporation to avoid taxable income limitations that apply to the new 20% Sec. 199A pass-through deduction.

To make up for the tax reform’s reduction of the C corporation tax rate to 21%, from which other forms of business activities do not benefit, Congress created a new deduction and code section: 199A. The 199A deduction is for taxpayers with other business activities – such as sole proprietorships, rentals, partnerships and S corporations – since, unlike C corporations, which are directly taxed on their profits, the income from the other business activities flows through to the owner’s tax return and is taxed at the individual level, i.e., at the individual’s tax rate, which can be as high as 37%.

This new Sec. 199A deduction is 20% of the pass-through income from these business activities. But not every owner of these flow-through businesses will benefit from this deduction because, as in all things tax, there are limitations.

Written by Chuck Woodson | Posted in Pass-Through Business Deduction

12 Jul 2018

College Education Tax Credits: Did You Know About These?

Charles Woodson, College Education Tax Credits

There are actually two higher-education tax credits. The American Opportunity Tax Credit (AOTC) provides up to $2,500 worth of credit for each student, 40% of which is refundable. The credit is equal to 100% of the first $2,000 of college tuition and qualified expenses and 25% of the next $2,000. The AOTC only applies to the first 4 years of post-secondary education.

The other credit is the Lifetime Learning Credit (LLC), which only provides a maximum $2,000 of credit (20% of up to $10,000 of eligible expenses) per family. None of it is refundable, meaning it can only be used to offset the taxpayer’s tax liability, and any additional credit amount is lost.

Written by Chuck Woodson | Posted in Education Tax Credits