Category Archives: IRS

Pass-through Entities and Sec 199A

Accounting Today recently wrote up a good article on the challenges of the new Sec 199A — popularly known as the “20% Pass-Through Deduction”. I encourage giving it a read. I think the best takeaway for accountants and others running personal service companies comes from the last paragraph:

“Most accountants that are in a flow-through entity should probably continue that way,” Wheelwright said. “I don’t know any accounting professionals that leave money in the business, and if you’re going to take money out, it doesn’t make sense to be a C corporation,” he said. “Where being a C corporation does make sense is if you’re going to reinvest a large portion of the profits back into the business. Because of the double tax related to C corporations [the corporate tax plus the tax on dividends], most pass-throughs will want to continue to be pass-through entities.”

-Tom Wheelwright, Founder and CEO of ProVision

In a related article, Accounting Today reports:

“The National Society of Accountants wants the Internal Revenue Service to provide a six-month extension for businesses to make an election to be treated as S corporations for this year, arguing the current deadline of March 15 is just not enough time to make a decision given the uncertainty surrounding the new tax law.”

“By allowing a six month extension to Sept. 15, 2018, for a corporation to make an election to be treated as an S corporation for the current calendar year would afford time for all affected parties, as well as their tax adviser, to read and understand any such regulations and how they may impact their tax liabilities.”

-John Ams, NSA Executive Director

IRS Releases Updated Form W-4 & Withholding Calculator

The woman who inspired me to become a CPA, Theresa Briggs, used to tell a great story about the day, early each tax season, when the CCH Tax Guides arrived at the office, and an extremely enthusiastic associate of hers would skip down the halls singing, “the new tax guides are here; the new tax guides are here!”

Well, that’s a little bit how I felt today when I read the news that the new W-4 Forms have been released in the wake of the major recent changes to our tax law. Get yours today!

Source: Updated Withholding Calculator, Form W-4 Released; Calculator Helps Taxpayers Review Withholding Following New Tax Law | Internal Revenue Service

People would rather have the same song stuck in their heads for a year than pay taxes

It’s been a tough day. Then I read this article from Accounting Today and thought… well, look at what I’m up against as a tax preparer — no wonder I have a tough time of it on occasion!

As opposed to paying their taxes, the survey found that 14 percent of men and 24 percent of women would prefer to have the same song stuck in their head for a year, 14 percent of men and 11 percent would eat their least favorite food for every meal, and 10 percent of men and 9 percent of women would have an embarrassing video of themselves go viral, among other unsavory options.

Seemed only appropriate to share the levity with my readers. Enjoy.

Form 1095-C Decoder

I recently stumbled across this wonderful “decoder” for Form 1095-C — the form that you’ll receive from your employer if they provide your health insurance. You simply click on the line number and a pop-up window explains all the different codes that you might see on your copy, and what each one means. It’s a confusing form, with many options, and I think this interactive website does a great job clearing up the complexity and confusion.

Source: Form 1095-C Decoder – Tax Form Management

Partnership and S-Corp Medical Insurance Premiums for Owners

Recently I was doing some research for a couple different clients about various alternatives regarding paying for (or reimbursing) a closely-held company owner’s health insurance. I was going to write up a short blog post about the proper way to handle these, but there is one already out there written by a colleague that is so well-illustrated and to-the-point that I realized the better approach was to share it with you here.

The most important take-aways:
1) you can’t double-dip; and,
2) though the particular hoops that have to be jumped through are a) different for partnerships than for S-Corps, and b) a PITA for both, they are in fact the law and must be followed.

Source: Polito Eppich: Articles of Interest–1202 Stock – Partnership and S Corp Medical Insurance Premiums

February 9th Budget Bill Includes 2017 Retroactive Extenders

Thank goodness for the National Association of Tax Professionals! Today I received a cryptic message from the IRS that gave no details and made little sense:

IRS Statement on Retroactive Extender Provisions

Following is an IRS statement issued today, Feb. 9:

“The IRS is reviewing the legislation signed Feb. 9 that retroactively extended and modified numerous tax provisions covering 2017. We are assessing these significant changes in the tax law and beginning to determine next steps. The IRS will provide additional information as quickly as possible for affected taxpayers and the tax community.”

I immediately freaked out and thought, “What significant changes? For 2017? I’m already working on 2017 returns! Tell me more!”

Thankfully, I’m a member of NATP, which had sent out an email at exactly the same time, answering many of the questions I’d just asked. And unfortunately, it’s all true. Our government has decided to pass a 2017 tax extenders bill AFTER tax season has already started. AFTER the IRS has already released all their updated forms. AFTER the tax software companies have already programmed their systems. AFTER tax preparers have already completed their 2017 tax update educational coursework.

From NATP‘s Special Alert e-mail to members:

Newly-Passed Budget Bill Includes Retroactive Extenders
These could impact your clients’ 2017 tax return

This morning President Trump signed a budget bill averting yet another government shutdown. Tucked in the Bipartisan Budget Act of 2018 are several extender provisions that expired but are now available retroactively through Dec. 31, 2017.

The most notable extenders include:

Exclusion for discharge of indebtedness on a principal residence
The provision extends the exclusion from gross income of a discharge of qualified principal residence indebtedness through 2017. The provision also modifies the exclusion to apply to qualified principal residence indebtedness that is discharged pursuant to a binding written agreement entered into in 2017.

Premiums for mortgage insurance (PMI) deductible as mortgage interest
The provision extends the treatment of qualified mortgage insurance premiums as interest for purposes of the mortgage interest deduction through 2017. This deduction phases out ratably for taxpayers with adjusted gross income of $100,000 to $110,000.

Above-the-line deduction for qualified tuition and related expenses
The provision extends the above-the-line deduction for qualified tuition and related expenses for higher education through 2017. The deduction is capped at $4,000 for an individual whose adjusted gross income (AGI) does not exceed $65,000 ($130,000 for joint filers) or $2,000 for an individual whose AGI does not exceed $80,000 ($160,000 for joint filers).

Three-year depreciation for race horses 2-years-old or younger
The provision extends the 3-year recovery period for race horses to property placed in service during 2017.

Also incorporated into the bill is a series of additional provisions that will go into effect for the 2018 tax year. The following are noteworthy:

Requirement for new Form 1040SR for seniors
The provision requires that the IRS publish a simplified income tax return form, designated a Form 1040SR, for use by persons who are age 65 or older by the close of the taxable year. The form is to be as similar as possible to the Form 1040EZ. The use of Form 1040SR is not to be restricted based on the amount of taxable income to be shown on the return, or the fact that the income to be reported for the taxable year includes social security benefits, distributions from qualified retirement plans, annuities or other such deferred payment arrangements, interest and dividends, or capital gains and losses taken into account in determining adjusted net capital gain. This provision is effective for taxable years beginning after the date of enactment.

Prohibition of modifying user fee requirements for installment agreements
The provision prohibits increases in the amount of user fees charged by the IRS for installment agreements. In addition, the IRS is required to waive the fees imposed for installment agreements for taxpayers whose income falls below 250 percent of the poverty line and have agreed to make the payments by electronic means through a debit account. Further, for those taxpayers whose income falls below 250 percent of the poverty line, are unbanked, and successfully complete an installment agreement, the fee would be reimbursed at the end of the installment agreement period.

Individuals held harmless on improper levy on retirement plans
The provision allows amounts, including interest, returned to an individual from the IRS pursuant to a levy to be contributed to the IRA, or employer-sponsored plan, without regard to normal contribution limits. In addition, the IRS is required to pay interest on an amount returned. The provision is effective for levied amounts, and interest thereon, returned to individuals in taxable years beginning after December 31, 2017.

The Joint Committee on Taxation released the estimated budget effects of the revenue provisions contained in the Bipartisan Act. With more than 40 tax provisions affected, we recommend that you find time during this busy season to review the tax summary of the bill.

And I couldn’t agree with them more.
Step 1: Join NATP if you’re a tax preparer.
Step 2: Review the extenders package. ASAP.

I’ve never seen an extenders bill passed after tax season has already started. This is irresponsible on the part of our government, and that’s not a political statement.

In the words of the Tax Foundation:

Retroactive changes like this are poor public policy and should not be expected to contribute to long run economic growth. Further, this is not a productive way to build on a tax reform bill designed to improve the tax code. Businesses and individuals have already made their decisions for 2017 and cannot go back and choose to invest differently in light of the new tax breaks—and counting on regular tax break extensions when planning ahead is no longer a sure bet. The uncertainty surrounding tax extenders is one of the most persistent features of tax policy discussions, and that should change.

However, it’s our job as tax preparers to make sure we’re looking out for our clients. So, even though the organizers we sent them don’t mention PMI or tuition deductions, let’s make sure to ask these additional questions to clients as their return prep work makes it into the office. And let’s hope the IRS and software preparers can get those lines and others back on the forms before too many more returns are filed.

IRS Temporary Guidance on Form W-4

From today’s NATP e-newsletter, Guidance on Form W-4  Withholding under Tax Cuts Act:

The IRS has issued Notice 2018-14, which extends the effective period of Forms W-4 furnished to claim exemption from income tax withholding for 2017 until Feb. 28, 2018, and temporarily allows employees to claim exemption from withholding for 2018.

The notice suspends a requirement that employees must give their employers new W-4 forms within 10 days of a change of status resulting in fewer withholding allowances. However, the 2018 Form W-4 might not be released until after Feb. 15.

The IRS is currently working on revising Form W-4 to reflect the changes made by the Tax Cuts Act, such as changes in available itemized deductions, increases in the child tax credit, the new dependent credit and the repeal of dependent exemptions.

The new guidance also specifies that the optional withholding rate on supplemental wage payments is 22 percent for taxable years 2018 through 2025.

I’ve had a few folks asking whether they should just keep using last year’s version of W-4, and the answer is yes!

Reminder: Jan 31 Filing Deadline Now Applies to All Wage Statements and Independent Contractor Forms

This went into effect last year, but it seems some folks missed that announcement, or thought it was only for last year, or just plain forgot. Because I’m getting a lot of surprised, blank stares when I remind folks that information returns are due by January 31st.

This most often refers to W-2 and 1099-MISC forms, because they report income and withholding to recipients, and the IRS needs this information to be able to accurately process (and computer-check) their individual returns that declare the income and withholding as part of their tax liability computations. The IRS hopes to catch folks in the first month of the filing season who misstate these items, and this way, they can compare the information submitted by payers to the information declared on returns by filers.

The application to extend these return due dates is no longer automatic.  There is a new address, and faxes will not be accepted anymore.

The IRS will only grant extensions for very specific reasons — such as: records being lost in a disaster; or, the person responsible for filing the returns has an unavoidable absence; or other inescapable scenario.

The best advice I can give for meeting this challenging deadline is:

  1. Do not pay anyone for services rendered, rent, royalties, or a settlement without first obtaining a signed W-9 form (or W-4 form in the case of an employee or household employee); this form is where they tell you whether they are incorporated or not (if they are, you do not need to send a 1099), and they give their address and tax ID number.
  2. Have your books reviewed by a professional accountant or bookkeeper each quarter. My staff accountant looks at our clients’ books for missing payee information, as well as folks that may be contractors for whom we do not have a W-9 already on file from the previous year. She reviews transactions in accounts that often have service providers’ activity tracked in them, such as: Repairs & Maintenance, Professional Services, Leasehold Improvements, Contracted Services, Legal & Accounting, Independent Contractors, Temporary Help, Cleaning, Payouts, Miscellaneous, and so on. That way we can have business owners inquire early-on for W-9 information (if they’ve forgotten to obtain it when payment was rendered).
  3. Order your 1099 forms early so they get to you on-time, if you’re preparing them yourself. If your accountant is preparing them, inform them asap that you’d like for them to do so, and reconcile your books as quickly as possible after the year-end.

Source: Reminder to Employers and Other Businesses: Jan. 31 Filing Deadline Now Applies to All Wage Statements and Independent Contractor Forms | Internal Revenue Service

Tax Relief for Victims of Wildfires, Flooding, Mud and Debris Flows in California

The IRS announced that victims of the recent federally-declared disasters in California counties of Los Angeles, San Diego, Santa Barbara and Ventura may qualify for tax relief. Per their recent news release:

The declaration permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after Dec. 4, 2017 and before April 30, 2018, are granted additional time to file through April 30, 2018. This includes 2017 individual income tax returns normally due on April 17, 2018. It also includes the fourth quarter estimated tax payment normally due on Jan. 16, 2018.

If an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date that falls within the postponement period, the taxpayer should call the telephone number on the notice to have the IRS abate the penalty.

The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 866-562-5227 to request this tax relief.

Source: Tax Relief for Victims of Wildfires, Flooding, Mudflows and Debris Flows in California | Internal Revenue Service

IRS Urges Travelers Requiring Passports to Enter into Payment Agreements

Signed into law in December 2015, the FAST Act requires the IRS to notify the State Department of taxpayers the IRS has certified as owing a “seriously delinquent” tax debt, and requires the State Department to deny their passport application or renewal of their passport. (In some cases, the State Department may revoke their passport entirely.)

Taxpayers affected by this law are those with a seriously delinquent tax debt — someone who owes the IRS more than $51,000 in back taxes, penalties and interest (indexed yearly for inflation) for which the IRS has filed a Notice of Federal Tax Lien and the period to challenge it has expired or the IRS has issued a levy.

Taxpayers can request a payment agreement with the IRS by filing Form 9465. Taxpayers can download this form from and mail it along with a tax return, bill or notice. Some taxpayers can use the online payment agreement to set up a monthly payment agreement for up to 72 months.

Some financially distressed taxpayers may qualify for an offer in compromise. This is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. The IRS looks at the taxpayer’s income and assets to determine the taxpayer’s ability to pay. To help determine eligibility, use the Offer in Compromise Pre-Qualifier, a free online tool available on

More here from the IRS newsroom: IRS Urges Travelers Requiring Passports to Pay Their Back Taxes or Enter into Payment Agreements; People Owing $51,000 or More Covered