2022 Tax Filing Season Recap

by

As we put the 2021 tax season behind us, here are a few reminders for individuals and small businesses:

  1. Privacy – Be sure to protect you sensitive financial information. There are still cases of identity theft so be sure to safeguard credit card statements, your social security number and other personal information.
  2. Keep Up with Tax Estimated Payments: If you’re a small business owner or a high income earner, it never hurts to formally prepare a 2022 tax projection, pay any needed estimated taxes to comply with IRS Rules and save a few bucks in underpayment of estimated tax penalties.
  3. IRS Service Levels: Be aware that the IRS is still not running at acceptable services levels. If you need to reply to a notice, do it in writing if you cannot get an IRS representative on the phone. Most days, as of 5/18/22, it is still very difficult to get in contact with a live person at the IRS. Try later in the day or early morning to increase your changes of speaking with a live person to resolve any tax issues. Check www.irs.gov for basic answers to your question(s). In the mean time, be aware of any notice deadlines and put your questions or explanations in writing to the IRS and send via certified mail.
  4. IRS Notices: Finally, if you receive a notice from a tax agency, contact our office, and we can provide assistance with resolving the issue. We will need to see a copy of the notice in order to help so please fax, mail, email or drop a copy by our office.

We thank our clients for using our firm services. Have a relaxing summer and contact us if we can be of any assistance.

2019 Tax Filing Season

by

The 2019 Tax Filing Season is upon us. At Scott, Scott & Co, CPA, PC we provide tax services focusing on Individuals with Small Businesses, Investments, & Trusts, Estates. Additionally we handle all Corporate Tax Returns including 1120, 1120S, 1065, and 990 nonprofit tax filings. Contact Stephen Scott for a phone or in-office appointment to discuss your needs.

Office: 314-984-9829 x11
email: info@scottcpa.com

2017 Tax Cuts & Jobs Act (TCJA)

by

On December 22, 2017, the President signed into law the Tax Cuts and Jobs Act of 2017 (TCJA). TCJA is the largest tax overhaul since the 1986 Tax Reform Act and it will affect almost every individual and business in the United States. Generally, the new law goes into effect in 2018, with many of the provisions relating to individuals expiring at the end of 2025.

I’m writing to give you a brief rundown of what’s in the new law and how it might affect you.

Overview of TCJA Changes Affecting Individuals

The following is a brief overview of TCJA’s key changes (and non-changes) affecting individuals.

Tax Rates and Brackets. TCJA provides seven tax brackets, with most rates being two to three points lower than the ones under present law (the top rate goes from 39.6 percent to 37 percent). The top rate kicks in at $600,000 of taxable income for joint filers, $300,000 for married taxpayers filing separately, and $500,000 for all other individual taxpayers.

Observation: While applicable rates at any given level of income generally go down by two to three points, some go up. For example, the rate for single individuals with taxable income between $200,000 and $416,700 goes from 33 percent to 35 percent.

Capital Gain Rates and Net Investment Income Tax. Tax rates on capital gains and the 3.8 percent net investment income tax (NIIT) are unchanged by TCJA.

Personal Exemptions and Standard Deduction. TCJA repeals the personal exemption deductions, but nearly doubles the standard deduction amounts to $24,000 for joint filers and surviving spouses, $18,000 for heads of household, and $12,000 for single individuals and married filing separately (additional amounts for the elderly and blind are retained).

Observation: The fact that the standard deduction has nearly doubled may create the misleading impression that you’ll reap a large tax benefit from the change. But, because the increase in the standard deduction was coupled with the repeal of the deduction for personal exemption ($4,150, per exemption in 2018), the actual benefit is fairly modest. For example, the overall amount of income that is exempt from tax will increase by $2,700 for joint filers – a nice increase, but nowhere near double the $13,000 standard deduction under prior law.

Because the standard deduction is generally claimed only when its amount exceeds available itemized deductions, the increases will not benefit you if you itemize (the repeal of personal exemptions, by contrast, will affect you whether you itemize or not).

Exemption for Dependents and Child Tax Credit. As part of the repeal of personal exemption deductions, TCJA repealed exemptions for dependents. To compensate, TCJA increases the child tax credit to $2,000 ($1,400 is refundable), up from $1,000 (fully refundable) under present law. The modified adjusted gross income threshold where the credit phases out is $400,000 for joint filers and $200,000 for all others (up from $230,000 and $115,000, respectively). The maximum age for a child eligible for the credit remains 16 (at the end of the tax year).

TCJA also provides a $500 nonrefundable tax credit for dependent children over age 16 and all other dependents. Most families with non-child dependents will lose some ground here, as the $500 credit will generally be less valuable than the $4,150 exemption deduction it replaces.

Other Tax Breaks for Families Unchanged. The child and dependent care expenses credit, the adoption credit, and the exclusions for dependent care assistance and adoption assistance under employer plans are all unchanged by TCJA.

Passthrough Tax Break. TCJA creates a new 20 percent deduction for qualified business income from sole proprietorships, S corporations, partnerships, and LLCs taxed as partnerships. The deduction, which is available to both itemizers and nonitemizers, is claimed by individuals on their personal tax returns as a reduction to taxable income. The new tax break is subject to some complicated restrictions and limitations, but the rules that apply to individuals with taxable income at or below $157,500 ($315,000 for joint filers) are simpler and more permissive than the ones that apply above those thresholds.

Example: In 2018, Joe receives a salary of $100,000 from his job at XYZ Corporation and $50,000 of qualified business income from a side business that he runs as a sole proprietorship. Joe has no other items of income or loss. Joe’s deduction for qualified business income in 2018 is $10,000 (20 percent of $50,000).

Observation: The effective marginal tax rate on qualified business income for individuals in the top 37-percent tax bracket who are able to fully apply the new deduction will be 29.6 percent – fully 10 points lower than the top rate under current law.

Deduction for State and Local Taxes (SALT). TCJA imposes a $10,000 limit on the deduction for state and local taxes, which can be used for both property taxes and income taxes (or sales taxes in lieu of income taxes) and repeals the deduction for foreign property taxes. There is no limit on the amount of the SALT deduction under present law.

Mortgage Interest Deduction. TJCA reduces to $750,000 (from $1 million) the limit on the loan amount for which a mortgage interest deduction can be claimed by individuals, with existing loans grandfathered. TCJA also repeals the deduction for interest on home equity loans.

Deduction for Medical Expenses. An early version of the tax overhaul passed by the House would have repealed the deduction for unreimbursed medical expenses. TCJA retains that deduction and enhances it for 2017 and 2018 by lowering the adjusted gross income (AGI) floor for claiming the deduction from 10 percent to 7.5 percent for all taxpayers.

Deduction for Casualty and Theft Losses. TCJA repeals the deduction for casualty and theft losses, except for losses incurred in presidentially declared disaster areas.

Observation: The new law does, however, provide enhanced relief for victims in federally declared disaster areas in 2016 and 2017.

Deduction for Charitable Contributions. TCJA retains the charitable contribution deduction and increases the maximum contribution percentage limit from 50 percent of a taxpayer’s contribution base to 60 percent for cash contributions to public charities.

Deduction for Certain Miscellaneous Expenses. TCJA repeals the deduction for any miscellaneous itemized deductions subject to 2-percent of AGI floor.

Repeal of Alimony Deduction. TCJA repeals the deduction for alimony paid and also the corresponding inclusion in income by the recipient, effective for tax years beginning in 2019. Alimony paid under separation agreements entered into prior to 2019 will generally be grandfathered under the old rules.

Education-Related Tax Breaks Preserved. TCJA retains deductions for student loan interest and educator expenses, and also exclusions for graduate student tuition waivers and employer educational assistance programs.

Alternative Minimum Tax. TCJA increases alternative minimum tax (AMT) exemption amounts by 27 percent, and sharply increases the income level where the exemption is phased out. Combined with the effects of other TCJA changes, many individuals who are currently subject AMT in 2017, will not be in 2018 and beyond.

Expanded Uses for 529 Plan Distributions. TCJA allows up to $10,000 in aggregate 529 distributions per year to be used for elementary and secondary school tuition. Under present law, 529 distributions can only be used for higher education expenses.

Repeal of Individual Healthcare Mandate. TCJA repeals the tax penalty on individuals who fail to carry health insurance enacted as part of the Affordable Care Act (ACA).

Estate and Gift Tax Exclusion. TCJA permanently doubles the basic exclusion amount for estate and gift tax purposes from $5.6 to $11.2 million. A provision fully repealing the estate tax beginning in 2025 was passed by the House, but didn’t make it into TCJA, so the estate tax will remain in effect with the higher exclusion amount.

Concluding Thoughts

As you can see, the provisions in the TCJA are quite extensive and also quite complicated.

Going forward, we can discuss how these changes will impact your tax situation through additional tax planning outside of the filing season, and what kind of strategies we can considering adopting to ensure that you get the best possible outcomes under the new rules.

Contact Stephen Scott, CPA at info@scottcpa.com.
or call 314-984-9829 Ext. 11

Identity Theft & Taxes

by

The 2015 tax filing season seems to be riddled with tax scams and identify theft. The IRS has used the term “rampant” to describe the situation when I spoke with them. I’ve seen two situations occur recently.

1) Falsely Filed Tax Returns:
I have spoken with many other CPAs, the IRS, and clients; and we’ve seen a lot of this going on.  Taxpayers have had their Social Security Numbers stolen and tax returns falsely filed on their behalf, many times with another, unrelated person, male or female. The IRS is sending out notices in some instances asking if you filed the tax return.  Be sure to respond to this notice in a timely manner so the return does not get processed.  One taxpayer actually received a refund at their home mailing address when he had not yet filed a return himself yet…we’re still scratching our heads trying to figure that one out.

2) Message from Fake IRS Agents: We’ve heard a lot about these messages and it has been in the news recently in St Louis.  I’ve received one of these calls myself.  They typically say that your account has been audited and you owe some balance.  They don’t appear to have your Social Security Number, just your phone number, name and address. They are tracking who they call and will only speak with you if they have your name and phone number in their database. In my case it was an obvious call from India.  I recorded a call with the would-be-scammer and will post the conversation shortly.  Don’t fall for their tactics, and, if you’re not sure if its real call your CPA and ask for assistance.

IRS Identity Theft Page:  https://www.irs.gov/uac/Taxpayer-Guide-to-Identity-Theft

– Steve Scott

2013 Tax Law Changes Are Here!

by

Taxpayers should be aware of numerous tax law changes for 2013 and 2014.  Below are just a few key tax law changes you should be aware of that could affect your tax return this year.

1) Income Tax Rate Increase for High Earners beginning in 2013:
The new 39.6% rate applies to incomes above:
Married Filing Joint:  $450,000
Head of Household: $425,000
Single: $400,000
Married Filing Separate: $225,000

2) Capital Gain & Dividend Rate Increase for High Earners beginning in 2013:
The top capital gains rate increases from 5% to 20%.  This rate applies to taxpayers with incomes above:
Married Filing Joint:  $450,000
Head of Household: $425,000
Single: $400,000
Married Filing Separate: $225,000

3) Additional Medicare Tax:
For single taxpayers with income greater than $200,000 and married fielding joint filers with income > $250,000, there is a new .9% Medicare Tax (See instructions for other filing statuses).  This new tax needs to be calculated and reported using the new form 8959.

4) New 3.8% Additional Medicare Tax on Net Investment Income:
This new tax applies to Single Filers with income > 200,000 and MFJ filers wtih income > $250,000. (other filing status have different thresholds) As your tax professional if this tax applies to you.

5) New Home Office Deduction Simplification:
The IRS has released rules regarding the home office deduction calculation. Taxpayers may now claim $5/sq ft on up to 300 sq ft of qualifying home office space used for business.  This rule is designed to simplify home office deduction record keeping and reporting for small business home offices.

6) Higher Threshold for deducting Medical Expenses:  10%

These six changes are just a few of the many tax changes that could affect your tax return for 2013 resulting from recent legislation, primarily the American Taxpayer Relief Act of 2012 and the Affordable Care Act.  Please be sure to address your 2013 tax needs earl in the 2014 season.  If you are looking for tax assistance please contact Stephen Scott at 314-984-9829 x11 or email info@scottcpa.com.

 

Facts about IRS Failure to File and Late Payment Penalties

by

8 Facts about Failure to File or Pay Penalties

 

It’s important for taxpayers to file tax returns timely and pay timely.  When a tax return is filed late and/or taxes are paid late, the IRS can assess a Failure to File Penalty, Failure to Pay Penalty or Both.

Here are eight important facts about the two different penalties one might encounter if you file or pay late.

  1. If you do not file by the tax deadline, you might face a failure-to-file penalty. If you do not pay by the due date, you could face a failure to pay penalty.
  2. The Failure to File penalty is typically greater than the failure to pay penalty.  If you cannot pay all the taxes you owe, you should still file your tax return on time and pay as much as you can, then explore other payment options. The IRS is generally helpful to work out a payment plan.
  3. The late filing penalty is usually 5 percent of the unpaid taxes for each month or part of a month that a return is filed late. This penalty will not exceed 25% of  the unpaid taxes.
  4. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.
  5. If you do not pay your taxes by the due date, you will generally have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes.
  6. Important: If you file an extension request by the tax deadline and you paid at least 90 percent of your tax liability by the original due date, you will not face a failure-to-pay penalty if the remaining balance is paid by the extended due date.
  7. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty. However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.
  8. Reasonable Cause: you will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.

Tax Record Keeping Tips

by

During the summer or fall you’re probably not thinking much about taxes but you should.  Their are probably expenses you paid this year that will effect your taxes.  Don’t wait until January or February to start thinking about your tax records. Make it easier on yourself (and on your CPA) by keeping the proper records so you have them available for preparation of your tax return.

It’s good practice to keep all tax records organized and save them for your tax preparer and in case you need to support any deductions or credits at a later date.

Here are a few some common sense tips for tax recordkeeping:

Save Your Tax Returns:
Include copies of your filed tax returns with your tax records.  You may need information in them to help prepare future tax returns, and you will need them if you need to amend a tax return. You might also need copies if you apply for a home loan or refinance.

Save Your Records:
The IRS requires you to save records to support income and deductions reported on your tax returns.  You should keep the basic tax records for at least 3 years which may include W-2, K-1 Forms, 1099 Forms, applicable credit card receipts, bank statements, cancelled checks & other proofs of payment, and mileage logs.

Homes & Investment Property:
You should save records related to the purchase of your home and any major improvements that would increase your basis.  These records can be important if you convert your primary residence to a rental property, or when you later sell your home.  You should save these records for at least 3 years after selling the property.

Business Owners:
You should keep all records that support your total receipts and those that support your expenses and asset purchases.  These records would include bank deposit slips, receipts, and invoices.  You should also save business credit card receipts, sales slips, canceled checks, account statements and petty cash slips.  Keeping a good set of books and accounting files will always make your job much easier and reduce the risk of reporting incorrect figures on your tax returns.

Employees:
If you have a business with employees, you should save all employment-related records  for at least four years after the tax return was filed, or tax was paid, whichever is later.

Record Format:
The IRS does not require a particular method to keep records, but your CPA can help you keep yours organized.  In any case, develop some type of consistent record keeping system for your business or tax returns.  This will more easily help you file more accurate tax returns and support tax filings if the IRS asks you for more information.

We can help. If you are filing individual or small business tax returns and have questions about accounting, tax, or general record keeping, please contact us by calling 314-984-9829 or emailing Steve Scott at info@scottcpa.com.

 

 

Charitable Donations – Letters from Nonprofit Organizations

by

Verify that letters you receive from churches and other nonprofit organizations have the proper language stating that “no goods or services were provided in consideration for donation”.

Court Case: Taxpayers deducted $25,171 in charitable contributions, most of which were made by check to their church. Their records included canceled checks along with an acknowledgement letter from the church. The IRS rejected the letter because it did not contain a statement regarding whether goods or services were provided in consideration for donations. A second letter containing the required language was rejected because it did not satisfy the contemporaneous  requirement.  To be contemporaneous the written acknowledgment must generally be obtained by the donor no later than the date the donor files the return for the year the contribution is made.

The Tax Court agreed with the IRS and the taxpayers’ deduction for the contributions was disallowed. (Durden, T.C. Memo 2012-140)

Missouri Use Tax – Requirements for Businesses

by

Overview

The State of Missouri imposes a use tax on Missouri businesses and individuals for the privilege of storing, using, or consuming tangible personal property in Missouri. While Missouri has imposed the use tax since the late 1950s, many purchasers are not aware of their responsibilities to report transactions and remit the appropriate tax.  The purpose of this letter is to make you aware of your responsibilities and help you avoid noncompliance penalties.

If an out-of-state seller does not collect Missouri sales or use tax on a sale to a Missouri purchaser, the purchaser has a responsibility to file a Missouri Consumer’s Use Tax Return and remit any tax due directly to the Missouri Department of Revenue.  The amount of use tax due to Missouri is reduced by any sales or use tax paid to another state on the items purchased.

How this Affects Your Business

If you have purchased any tangible personal property from out-of-state and no sales or use tax was paid on the purchase, you may be liable for Missouri use tax.  Common examples of purchases on which use tax may be due include:

Purchases from Internet sellers or catalogs

Purchases from out-of-state suppliers that were shipped directly to you from outside Missouri

Items you purchased from outside Missouri that you brought into the state

Goods imported from other countries

Missouri law provides an exception from filing a Consumer’s Use Tax Return if your total un-taxed purchases are less than $2,000 during a calendar year.  Once your annual purchases on which tax has not been paid equals or exceeds $2,000, you must file a Consumer’s Use Tax Return and pay tax on your total taxable purchases, including the first $2,000 in taxable purchases.

The Missouri Department of Revenue has recently implemented new tools to help identify businesses and individuals that are not complying with Missouri’s use tax laws.  This can be complicated and confusing so if you believe you may have a Missouri use tax filing responsibility for 2012, please let us know.  We can help you determine whether your purchases qualify for any exemptions (such as manufacturing machinery and equipment) and prepare and file the return if necessary.

Business Use of Your Car

by

Many small business owners, self employed individuals, and employees working for others use their automobile for business purposes. If you use your car entirely for that purpose then you may generally deduct the entire cost of operation, subject to some limits. If you use your car both for personal and business purposes, you may deduct on the costs associated with business use only. Below is some helpful information related to auto expenses:

1) Two Methods: You may generally figure the amount of your deductible car expense using one of two methods: 1) The Standard Mileage Rate Method, or 2) The Actual Expense Method. If you qualify to use both methods you may want to figure your deduction both ways to see which gives you the larger deduction.

2) Standard Mileage Rate: 58 cents per mile for the 2019 tax year, up 3.5 cents from 2018. To use the standard mileage rate method you must own or lease the car and you must not have claimed a depreciation deduction using the Modified Cost Recovery System (MACRS) on the car in an earlier year or any first year additional bonus deprecation. Also, you must not have claimed a Section 179 deduction on the car.

a) Cars you Own: To use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. Then in later years you can choose to use the standard mileage rate or actual expenses.

b) Leased Cars: You must use the standard mileage rate method for the entire lease period, including renewals.

3) Actual Expense Method: To use the actual expense method, you must determine what it actually costs to operate the car for the business portion of the car’s use. These costs include gas, oil, repairs, tires, insurance, registration fees, licenses, and depreciation or lease payments that are attributable to the business miles driven.

4) Mileage Logs and Documentation: The law requires that you substantiate your expenses by adequate records or by other sufficient evidence. A mileage diary is an excellent way to document mileage and expenses.

In summary, just remember there are two different methods to claiming automobile expenses for tax purposes, the Standard Mileage Method and the Actual Expense Method. Be sure you understand the methods so you can track the proper information for during the year.  It’s very important that you document mileage daily and save your receipts throughout the year.

For additional information see IRS Publication 463 – Travel, Entertainment, Gift, and Car Expenses for more information. If you need assistance from a professional to discuss your specific situation, contact Stephen or Taylor Scott by sending an email to info@scottcpa.com or calling us at 314-984-9829.