Author: Eric Buechler

Here’s an important alert for your 2017 tax returns. The Internal Revenue Service wants annual returns for partnerships and S Corporations to be filed a month earlier than returns for individual taxpayers.

The due date for partnerships and S Corporations reporting on calendar tax years is Thursday, March 15. It applies if you’re filing a Form 1065 (U.S. Return of Partnership Income) or Form 1120S (U.S. Income Tax Return for an S Corporation).

Partnerships had been due on April 15th, but the IRS moved up the deadline to March from the standard April date beginning last season for 2016 returns.

If your partnership or S Corp reports on a different tax year, the deadline can float with it. The due date generally is the 15th day of the third month after the tax year ends.

Feel free to contact Eric for more details about these partnership and S Corp due dates.

Minnesota’s Legislature has given state taxpayers a bunch of tax credits and subtractions from income that they can start using on 2017 returns. Most apply to special situations. Nonetheless, many Minnesota taxpayers – who now are starting to fill in the blanks on their 2017 returns — are going to like these NEW tax breaks when their refunds arrive! Here are some to note:

• Social Security Benefit Subtraction – This is one with fairly broad effect. Minnesotans who receive Social Security or Railroad Retirement benefits can take as much as $3,500 off their income if filing as an individual, or $4,500 if filing a joint, married return (or widow/widower). There are income limits. For example, the subtraction for a married couple phases out at $99,500 of what is called “provisional income.” The subtraction is claimed on state Tax Form M1M.

• Student Loan Credit – Minnesotans who are making payments on their loans can receive as much as a $500 tax credit per person, based on their payouts during 2017. Claim the credit on Form M1SLC.

• Education Savings Accounts –Minnesota taxpayers who contributed to a Section 529 education plan during 2017 might be able to collect a tax credit of as much as $500. Once again, income limits are involved. The maximum payments go to singles or couples with adjusted gross income of $75,000 or less. Partial credits are available to couples with as much as $160,000 in income. Taxpayers who can’t take advantage of the credit probably can subtract as much as $1,500 (single filers) or $3,000 (joint filers) from their income for contributing to the education savings account last year. Consult schedule M1529 for the details.

• First-time Homebuyers Savings Account – Minnesotans now can save up for their first homes and enjoy tax-free interest along the way. Beginning in 2017, any state resident can accumulate as much as $14,000 a year ($28,000 for a married couple) in a special savings account designated for buying a new or existing single-family home. At tax time, the interest can be subtracted from Minnesota income. (Any federal taxes on the interest still apply, of course.) Here’s an important detail. Although the account is labeled “first-time,” Minnesota Revenue says residents who have not owned a “principal residence” for at least three years actually are eligible. See Minnesota Schedule M1HOME for more details.

As the tax season proceeds, we at EricJohn Ltd. can help with the news on the Minnesota tax front!

Those W-2s and 1099s probably have been landing in your mailbox – or computer – for a couple of weeks or so. Now, taxpayers are able to fill in their returns and fire them off to the Internal Revenue Service.

Today is the first day of the filing season for individual taxpayers. to pay income taxes or file for a refund! We’ll all have until April 17 this year to pay income taxes or file for a refund! The filing deadline once again has been pushed back a couple of days because of a holiday in the nation’s capital.

The Minnesota Department of Revenue also has been obliging enough to coordinate its processing season with the federal dates. So, state tax returns also are due at the end of the day on April 17.

Last year, more than 2 million Minnesotans filed their returns electronically. Minnesota Revenue is telling taxpayers that security programs to prevent tax fraud might slow down refunds this year, compared with 2016. So, “Don’t spend your refund until you see the money in your bank account,” the agency advised in an announcement.

When can you expect your refund? Minnesota Revenue operates a tracking service called “Where’s My Refund?” Once they’ve filed, a taxpayer can locate the refund at one of four stages. The online service also tells whether the department need something more to finish processing the return.

It typically takes 21 days or less for a taxpayer to receive his/her refund, the department said. A YouTube video explains more about the refund service. Find it at https://www.youtube.com/watch?v=GTeeyElYT_M&feature=youtu.be

Current EricJohn Ltd. clients should try to submit the figures to owner/tax preparer Eric Buechler as soon as possible. Sooner is better! New clients can call to arrange for tax preparation or discuss tax issues. Eric is an enrolled agent with the IRS, which allows him to represent clients directly before the IRS on tax matters.

If you’re among the eager taxpayers who just can’t wait to send in their tax returns – and, probably, collect their refunds — Jan. 29 is the opener. That’s when the Internal Revenue Service says it will start accepting an estimated 155 million returns for 2017 from individual taxpayers.

But many businesses already can send in their 2017 tax forms, although that is not very well known. The IRS began accepting electronic filings from corporations, partnerships, trusts, non-profit organizations, etc., on Jan. 8, 2018, says Drake Software, maker of professional tax preparation software, in an announcement.

Of course, there may be some practical limitations to slow down those early business filings. For example, companies might have to wait for year-end bank statements to close their books and figure 2017 taxes. EricJohn Ltd. owner Eric Buechler says his target date for filing returns from current business clients generally is Feb. 1.

Back to individual taxpayers. If they speed along their returns by filing online, the IRS expects most will have refunds within three weeks of hitting the “send” button. However, there is one big exception. As with last year, the IRS notes that it is not allowed by law to pay out refunds from returns claiming the earned income tax credit (EITC) or the additional child tax credit until mid-February.

Here’s the most-watched date for the 2018 season. This year’s tax deadline is April 17. That’s when income taxes and returns from individual taxpayers are due. So, as in past years, those millions of taxpayers will have an extra two days beyond April 15 to put the finishing touches on their 2017 returns or to ask for a six-month delay to file with IRS.

Tax reform has dominated our national mindset lately. But, we’re still wrapping up the 2017 tax year, and few, if any, changes to tax codes are likely to take effect this year.

So, what can you do now  to minimize federal and state taxes on your upcoming 2017 return? Here are some savvy steps to take no later than Dec. 31 with tax reform in mind, from Eric and the National Association of Tax Professionals:

Personal taxes

• Income timing – Defer flexible income into 2018, if possible. Many taxpayers will benefit from lower tax brackets next year.
• Itemized deductions – Load up on itemized deductions, such as property taxes, charitable contributions and medical expenses. The standard deduction rises next year and only one in 10 taxpayers is expected to be filing a Schedule A (itemized deductions) in 2018.
• Accelerate any of your children’s unearned income into 2017. Kiddie tax rates are going up in 2018.
• Prepay investment expenses and tax preparation fees in 2017. They won’t be deductible in 2018.
• State income taxes – If you typically owe state taxes when filing your return, prepay an estimate of those taxes by Dec. 31. Make the same move if you owe back taxes to Minnesota or another state.
• Electric car – Thinking electric? Buy one now, because Uncle Sam’s generous tax credit expires at year-end 2017.
• Buy something big –Just from the standpoint of sales taxes. The itemized deduction for sales taxes disappears in 2018, and a 2017 purchase still will capture that tax break.
• Moving expenses – The deduction for job-related moving expenses goes away in 2018. Pay as many expenses as possible by Dec. 31.
• Unreimbursed business expenses –If you’re used to writing off work expenses that your employer won’t reimburse (e.g. mileage, certain types of dues or other trip expenses), prepare to lose that itemized deduction in 2018. It didn’t survive tax reform.

Business taxes

• Income timing – Same strategy as for individual taxpayers. Push business income out into 2018, when tax rates will be lower.
• Business losses – Recognize losses in 2017, if possible. They will be limited next year.
• Vehicles – Wait to buy a business vehicle until 2018. One reason: Depreciation on luxury autos rises substantially next year. BUT, if you fancy a new work truck and its GVWR is more than 6,000 lbs., heading to the dealership by Dec. 31 could be a good move to reduce 2017 income.
• Intellectual property – Sell any business processes or patents before the end of this year. They receive favorable, capital gains treatment for 2017, but will be taxed as ordinary income in 2018.

As always, taxes are highly personal, so if you have questions, contact Eric for more specific guidance!

On a separate year-end note, here’s a warning/reminder from the Internal Revenue Service about Individual Taxpayer Identification Numbers. If you use this type of account instead of a Social Security number and your number is expiring, act quickly. The IRS says failing to renew by year-end (Dec. 31) could delay the turnaround time for your 2018 tax return.

You should have received an IRS letter in the summer if your ITIN is expiring. More than 1 million taxpayers did. If you haven’t used your number on a federal tax return in the last three years, the ITIN automatically has expired. There also are some series of numbers that no longer will be good for 2018.

The IRS provides details online. Start at https://www.irs.gov/newsroom/get-ready-for-taxes-taxpayers-with-expiring-itins-should-submit-renewal-applications-by-dec-31

Once again, the Internal Revenue Service is warning the taxpaying public about a dangerous deception by cyber scammers. This one is particularly sophisticated, but it also is simple to foil.

The Web criminals have been sending fake tax forms about life insurance using the names of tax preparers. The objective? To reach into the clients’ life insurance policies or annuities and steal money. With enough information, a nefarious somebody could take out loans or even clean out the value of an annuity.

The IRS alert has a few tip-offs to watch for:
• The subject line of the scam emails tends to emphasize “urgent information.”
• This text has been used: “Kindly fill the form attached for your Life insurance or Annuity contract details and fax back to us for processing in order to avoid multiple tax bill.”
• Poor grammar in the message also is a warning sign.
• Of course, a slightly altered email address is a big flag in these types of phishing attacks. Check before clicking!

The defense is simple. Don’t click; just delete. Sending back the fake tax form online gives the crooks information they can use to steal from a life insurance or annuity account.

The IRS didn’t say if the scam is widespread yet. But it’s a masquerade that involves two deceptions. First, the crooks fool a tax preparer and grab email addresses from his/her computer. (The thieves have been doing that by posing as a “cloud” storage site, the IRS says.) Then, they use the tax preparer’s name to send clients the bogus tax form.

Eric didn’t fall for this one. Here are his working precautions:
• Never click on an emailed link from a client, because it may not be real.
• Do not open .pdf attachments from clients unless a personal message comes with the email and documents have been discussed verbally in advance.
• Always use the EricJohn Ltd. portal for sending and receiving documents. (Clients have password-protected access.)

At the same time, Eric says it’s worthwhile to remind all his clients to be “super-careful with emails, even from me.”

A general caution. You should not be hearing from the IRS online or by phone without receiving written notice ahead of time. In the agency’s words: “The IRS generally 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.”

Find more information at the IRS “Report Phishing and Online Scam page,” which is: https://www.irs.gov/privacy-disclosure/report-phishing

Still have a question about whether a tax-related contact is legit? Contact Eric, owner of EricJohn Ltd. tax service, at his email, [email protected] (P.S. Don’t send attachments at first contact. Eric plays it safe!)

The anticipation about tax reform now is being satisfied. We’ve got details.
Both the House of Representatives and the Senate versions of federal tax reform are promising big cuts in taxes, especially for the middle class. Both houses of Congress named their bills the “Tax Cuts & Jobs Act.” Corporations and small business also are in line for benefits.

It’s not a done deal yet. Although the House of Representatives passed its tax fix on Thursday (11/16), the full Senate still must vote on it, probably after Thanksgiving. But we finally know what tax-slashing is likely.

What’s in these bills for you?

Here’s a briefing on some significant changes to the tax codes. It skims the surface of this major overhaul, of course. By the way, these revisions will not affect 2017 tax returns.

•Income tax brackets. All are for taxpayers who are married filing joint. With one exception, the bills set figures for single taxpayers at half of the joint amount.
HOUSE — four brackets (married filing joint)
 They are: 12%, starting at $0; 25%, starting at $90,000; 35%, starting at $260,000 and 39.6%, over $1 million.
SENATE – seven brackets (married filing joint)
 They are: 10%, starting at $0; 25% starting at $19,050; 22%, starting at $77,400; 25%, starting at$140,000; 32%, starting at $320,000; 35%, starting at $400,000; and 38.5%, starting at $1 million.

• Standard deduction –Both House and Senate versions almost double the standard deduction to $24,000 for married filing joint (up from $12,000) and half that, or $12,000, for individuals.

• Child tax credit – It is boosted in both bills to $1,650 from $1,000. The House version recasts it as a new Family Credit and adds another credit of $300 for each parent and for dependents who are not children “to help all families with their everyday expenses,” a summary says.

• Charitable contributions – Both House and Senate keep the itemized deduction for gift-giving to charities and other non-profits.

• Home mortgage interest – Again, lawmakers in both houses are preserving the itemized deduction for mortgage interest on existing home loans. However, the House caps the deduction for newly purchased homes at $500,000 and the Senate ends it at $1 million. That difference will have to be ironed out.

• The deduction for state and local property taxes is at risk. The House is willing to allow it up to $10,000; the Senate bill erases it entirely.

• Your IRA, 401(k)s and other retirement plans are safe in both bills. The Senate proposal would repeal conversions between traditional and Roth IRAs, though.

• Both the House and Senate proposals also abolish the complicated alternative minimum tax. (There will be no tears from taxpayers or tax preparers over that change!)

Let’s just mention three important rewrites for businesses:

• Business tax rates — Corporate tax rate is reduced to 20 percent from the current 35 percent, the largest drop in U.S. tax history. The federal tax on small business income also is cut to no more than 25 percent, but there may be differences and lower rates for “pass-through” entities.

• Both versions allow businesses to write off immediately the full costs of new equipment used in their operations.

• The research and development tax credit is preserved in both bills.

To place the reforms into the tax code, the Senate must pass its version. Then, it and the House version must be reconciled to become one bill. Finally, President Donald Trump must sign it into law.

Feel free to contact EricJohn Ltd. for tax planning ideas in these final two months of 2017.

The Internal Revenue Service is making it easier for some charitable taxpayers and their employers to donate as the nation rushes relief to areas ravaged by Hurricane Harvey. The IRS just announced it will not tax proceeds from “leave-based donation programs” that will benefit Hurricane Harvey victims.

Some, but not all, employers allow their workers to trade in their vacation, personal leave or sick time for cash payments sent to charities.  Here’s how the programs work.  The employee authorizes the exchange. Then, instead of paying him/her for leave time, the employer sends the cash donation directly to a charity or relief effort.

The IRS now says those charitable gifts for Hurricane Harvey relief will not be included in the employee’s wages. They’re tax-free.  Of course, that also means the employee also can’t claim a charitable deduction for the donation on his/her personal tax return.

Employers offering the leave-based plans also receive some tax advantage. The IRS allows them to deduct those donated dollars as business expenses.

The special tax treatment will continue through this year and calendar year 2018, the agency says.

The IRS has offered similar relief before, not only for hurricanes (Matthew in 2016, Sandy in 2012, Katrina in 2005), but also for other disasters, such as the Ebola medical emergency in West Africa in 2014.

If you’re inclined to help that way, check to see if your employer offers this type of charitable giving.

If you want the legalese about leave-based donation payments related to Hurricane Harvey, see IRS Notice 2017-48. More information about Harvey and related issues from the IRS is available at a special Web page:  https://www.irs.gov/newsroom/help-for-victims-of-hurricane-harvey.

Of course, feel free to check in with us at EricJohn Ltd. for tax advice on “leave-based” and other types of donations.

Last call!

Tuesday, Aug. 15, is the last chance for Minnesota homeowners and renters to grab a refund of some property taxes for 2015. However, while Aug. 15 is their original due date, state residents who paid the taxes in 2016 can relax. Although Aug. 15 is the original due date, they still have another year—until Aug. 15, 2018 – to make a claim.

The refund for homeowners formally is called the “Homestead Credit Refund”; for people who rent, it’s simply the “Renter Property Tax Refund.”  Minnesota Form M1PR covers both types of refunds. Also possible is a “special credit,” which applies to homeowners who have seen sudden increases (more than 12%) in their property taxes.

\Property owners and renters must qualify for the tax break based on income and on the amount of taxes they paid.  Not everyone qualifies, but the refund can be rewarding for those who do. The average tax break last year figured to $840 for homeowners and $635 for renters, Minnesota Revenue said last week.

Homeowners must have their Statement of Property Taxes Payable, which is issued by their county, and renters must have their Certificate of Rent Paid, which comes from their landlords. (Check instructions for details about those proofs.)

Form M1PR can be filed electronically, as described in a video from Minnesota Revenue, https://www.youtube.com/watch?v=fU9rde_47WA, or on the agency’s Web site.

The state tax agency offers a short video online about the property tax refunds for renters. See https://www.youtube.com/watch?v=Jcrzs-L6HtQ.

Minnesota Revenue also is advising that refunds may be slower in coming this year than in the past because of precautions to prevent tax frauds such as identity theft.

While the 2015 deadline is all but gone, EricJohn Ltd. can help homeowners or renters with advice or a complete filing of Form M1PR for 2016.