Hit Counter

How long should a Taxpayer keep their tax records and any other related documents?

The general answer is.

It may depend on the action, expense, or event or the type of document and/or records. 

As a general rule, a taxpayer (TP) must keep records that support an item of income, deduction or credit shown on your tax return until the period of limitations for that tax return runs out.

The period of limitations is the period of time in which you can amend your tax return to claim a credit or refund, or the IRS can assess additional tax. The information below reflects the periods of limitations that apply to income tax returns. 

Caveats: Unless otherwise stated, the years refer to the period after the return was filed. Returns filed before the due date are treated as filed on the due date.   Keeping copies of your filed tax returns help you in preparing future tax returns and making computations if you file an amended return.

Period of Limitations that apply to income tax returns:

1. Keep records for 3 years if situations (4), (5), and (6) below do not apply to you.
2. Keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later, if you file a claim for credit or refund after you file your return.
3. Keep records for 7 years if you file a claim for a loss from worthless securities or bad debt deduction.
4. Keep records for 6 years if you do not report income that you should report, and it is more than 25% of the gross income shown on your return.
5. Keep records indefinitely if you do not file a return.
6. Keep records indefinitely if you file a fraudulent return.
7. Keep employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.

What about tax records connected to a property?

Generally, keep records relating to property until the period of limitations expires for the year in which you dispose of the property. You must keep these records to figure any depreciation, amortization, or depletion deduction and to figure the gain or loss when you sell or otherwise dispose of the property.

If you received property in a nontaxable exchange, your basis in that property is the same as the basis of the property you gave up, increased by any money you paid. You must keep the records on the old property, as well as on the new property until the period of limitations expires for the year in which you dispose of the new property.  Example: Your residence.

What should I do with my records for nontax purposes? (e.g., your insurance company, creditors, financial planning, etc.)

After they are no longer needed for tax purposes, you may need them for other purposes.  When in doubt, consult your tax advisor CPA.

Source IRS.gov

Hit Counter

Taxpayers may consider paying your taxes electronically or by phone.

The IRS suggests EFTPS; it claims the following: The system is secure, convenient, and improve accuracy.

What is the EFTPS?

• It is a government website that allows register users to make federal tax payments electronically.
• Every user must have a secure Internet browser (e.g., Microsoft Explorer.) with 128-bit encryption in order to access the site. 
• To log on, an enrolled user must be authenticated with three pieces of unique information: Taxpayer Identification Number (EIN or SSN), EFTPS® Personal Identification Number (PIN) and an Internet Password. The combination of these three pieces of identification adds to the security of the site and the privacy of taxpayer data.
• The IRS claims the system is available 24/7.

Some of the available features

• You are able to keep track of your payments by opting in for email notifications when you enroll or update your enrollment for EFTPS. An email notification you will receive will contain the confirmation number you receive at the end of a payment transaction. 
• Businesses and Individuals can schedule payments up to 365 days in advance. 
• Scheduled payments can be changed or canceled up to two business days in advance of the scheduled payment date.
• You can use the system to make all your federal tax payments, including income, employment, estimated and excise taxes.
• You can check up to 16 months of your payment history online or by calling Customer Service.
•  Using your bank account, you submit payment instructions to move funds to the Treasury's account for payment of your federal taxes. Funds will not move from your account until the date you indicate. 
• You will receive an immediate acknowledgment of your payment instructions, and your bank statement will confirm the payment was made. 

Word of caution: You will only receive an email from EFTPS if you've requested the service.

To enroll in the government payment system

To enroll, or for more information on enrollment, visit EFTPS® or call EFTPS® 

Customer Service to request an enrollment form:

1-800-555-4477 

1-877-333-8292 (Federal Agencies)

1-800-733-4829 (TDD Hearing-Impaired)

1-800-244-4829 (Español)

Source: IRS.gov

Last updated by the IRS was Nov 19, 2018, as of Feb. 6, 2019

Trump Calls For Review Of Rule Requiring RMDs At 70 1/2

Trump Calls For Review Of Rule Requiring RMDs At 70 1/2: His executive order may lead to money staying longer in tax-deferred retirement accounts.

Hit Counter

Trump Calls For Review Of Rule Requiring RMDs At 70 1/2

Trump Calls For Review Of Rule Requiring RMDs At 70 1/2: His executive order may lead to money staying longer in tax-deferred retirement accounts.

Hit Counter

Hit Counter

Hit Counter

The Right to a Fair and Just Tax System: 

Some of the taxpayers rights, are:

• Taxpayers have the right to expect the tax system to consider facts and circumstances...
• Taxpayers can receive assistance from the Taxpayer Advocate Service...
• Taxpayers who cannot pay their tax debt in full and meet certain conditions can arrange a payment plan with the IRS....
• Taxpayers can submit an offer in compromise asking the IRS to settle their tax debt...
• The IRS cannot seize all of someone’s wages to collect their unpaid tax...
• The IRS has the authority to decrease an excessive unpaid portion...

Source: IRS.gov

Hit Counter

What could happen to residents of Puerto Rico and the U.S. Virgin Islands who evacuated or couldn’t return because of Hurricane Irma or Hurricane Maria, for tax filing and reporting purposes?

Most of such individuals may lose their status as “bona fide residents” of Puerto Rico or the U.S. Virgin Islands for tax filing and reporting purposes.   Under the old rules (Notice 2017-56), the rules say that if you are absent for an extended period of 14 days, you loose the "bona fide resident" (of the US territory status.)

Notice 2018-19 further extends the usual 14-day absence period to 117 days, beginning September 6, 2017 and ending May 31, 2018, for the presence test for residency under the tax rules. 

Source IRS.gov -Notice 2018-19

2018 Tax Filing Season Begins Jan 29, 2018

Tax Filing begins Jan 29, 2019

According to the IRS, the nation’s tax season will begin Monday, Jan. 28, 2019.  

Taxpayers Claiming Earned Income Tax Credits (EITC) and Addtional Child Tax Credits (ACTC).

As the Internal Revenue Service begins releasing refunds for taxpayers who claimed the EITC/ACTC sometimes in the middle of February of this year. That is if they chose direct deposit and there are no other issues with the tax return.

The nation’s tax deadline will be April 15 (Monday) this year.) 

Paper tax returns will be process later in the year. The IRS strongly encourages people to file their tax returns electronically for faster refunds. Even though the IRS issues most refunds in less than 21 days, it’s possible for refunds to take longer. Taxpayers should keep in mind that “Where’s My Refund?” is updated once daily, usually overnight, so checking more often will not produce different results.

When my Refund will arrive?

Choosing e-file and direct deposit for refunds remains the fastest and safest way to file an accurate income tax return and receive a refund.  

• Can Taxpayers check their refund status online?  Yes.  The Where's My Refund? ‎tool on IRS.gov and the IRS2Go phone app will be updated with projected deposit dates for early EITC and ACTC refund filers. 
• Where’s My Refund? remains the best way to check the status of a refund.

Can I go online to review my account?

Taxpayers can go to IRS.gov/account to securely access information about their federal tax account. They can view the amount they owe, pay online or set up an online payment agreement; access their tax records online; review the past 18 months of payment history; and view key tax return information for the current year as filed. 

Visit IRS.gov/secureaccess to review the required identity authentication process.

Source IRS>GOV

Updated 2/6/19

For a tax professional...modesto.matheu@gmail.com

Hit Counter

Tax Withholding on 2018 as a result of the tax changes:

The IRS is working to give taxpayer guidance in their implementation of the tax reform bill recently signed into law.  Guidance could come about sometime this month.  Little to none action from taxpayers on the current W-4 forms already filed earlier in the year. 

Due to the new 2018 withholding guidelines, taxpayers will begin to see changes in their paychecks as early as February.  

Source: IRS.gov

Hit Counter

Hit Counter

USA TAXPAYERS- Summary of few tax changes

The recently enacted Tax Cuts and Jobs Act (TCJA) is a sweeping tax package. Here's a look at some of the more important elements of the new law that have an impact on individuals. Unless otherwise noted, the changes are effective for tax years beginning in 2018 through 2025.

·         Tax rates. The new law imposes a new tax rate structure with seven tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The top rate was reduced from 39.6% to 37% and applies to taxable income above $500,000 for single taxpayers, and $600,000 for married couples filing jointly. The rates applicable to net capital gains and qualified dividends were not changed. The “kiddie tax” rules were simplified. The net unearned income of a child subject to the rules will be taxed at the capital gain and ordinary income rates that apply to trusts and estates. Thus, the child's tax is unaffected by the parent's tax situation or the unearned income of any siblings.

·         Standard deduction. The new law increases the standard deduction to $24,000 for joint filers, $18,000 for heads of household, and $12,000 for singles and married taxpayers filing separately. Given these increases, many taxpayers will no longer be itemizing deductions. These figures will be indexed for inflation after 2018.

·         Exemptions. The new law suspends the deduction for personal exemptions. Thus, starting in 2018, taxpayers can no longer claim personal or dependency exemptions. The rules for withholding income tax on wages will be adjusted to reflect this change, but IRS was given the discretion to leave the withholding unchanged for 2018.

·         New deduction for “qualified business income.” Starting in 2018, taxpayers are allowed a deduction equal to 20 percent of “qualified business income,” otherwise known as “pass-through” income, i.e., income from partnerships, S corporations, LLCs, and sole proprietorships. The income must be from a trade or business within the U.S. Investment income does not qualify, nor do amounts received from an S corporation as reasonable compensation or from a partnership as a guaranteed payment for services provided to the trade or business. The deduction is not used in computing adjusted gross income, just taxable income. For taxpayers with taxable income above $157,500 ($315,000 for joint filers), (1) a limitation based on W-2 wages paid by the business and depreciable tangible property used in the business is phased in, and (2) income from the following trades or businesses is phased out of qualified business income: health, law, consulting, athletics, financial or brokerage services, or where the principal asset is the reputation or skill of one or more employees or owners.

·         Child and family tax credit. The new law increases the credit for qualifying children (i.e., children under 17) to $2,000 from $1,000, and increases to $1,400 the refundable portion of the credit. It also introduces a new (nonrefundable) $500 credit for a taxpayer's dependents who are not qualifying children. The adjusted gross income level at which the credits begin to be phased out has been increased to $200,000 ($400,000 for joint filers).

·         State and local taxes. The itemized deduction for state and local income and property taxes is limited to a total of $10,000 starting in 2018. For tax years 2018 through 2025, TCJA limits deductions for taxes paid by individual taxpayers in the following ways:

·         . . . It limits the aggregate deduction for state and local real property taxes; state and local personal property taxes; state and local, and foreign, income, war profits, and excess profits taxes; and general sales taxes (if elected) for any tax year to $10,000 ($5,000 for marrieds filing separately). Important exception: The $10,000 limit doesn't apply to: (i) foreign income, war profits, excess profits taxes; (ii) state and local, and foreign, real property taxes; and (iii) state and local personal property taxes if those taxes are paid or accrued in carrying on a trade or business or in an activity engaged in for the production of income.

·         . . . It completely eliminates the deduction for foreign real property taxes unless they are paid or accrued in carrying on a trade or business or in an activity engaged in for profit.

To prevent avoidance of the $10,000 deduction limit by prepayment in 2017 of future taxes, the TCJA treats any amount paid in 2017 for a state or local income tax imposed for a tax year beginning in 2018 as paid on the last day of the 2018 tax year. So an individual may not claim an itemized deduction in 2017 on a pre-payment of income tax for a future tax year in order to avoid the $10,000 aggregate limitation.

·         Mortgage interest. Under the new law, mortgage interest on loans used to acquire a principal residence and a second home is only deductible on debt up to $750,000 (down from $1 million), starting with loans taken out in 2018. And there is no longer any deduction for interest on home equity loans, regardless of when the debt was incurred.

·         Miscellaneous itemized deductions. There is no longer a deduction for miscellaneous itemized deductions which were formerly deductible to the extent they exceeded 2 percent of adjusted gross income. This category included items such as tax preparation costs, investment expenses, union dues, and unreimbursed employee expenses.

·         Medical expenses. Under the new law, for 2017 and 2018, medical expenses are deductible to the extent they exceed 7.5 percent of adjusted gross income for all taxpayers. Previously, the AGI “floor” was 10% for most taxpayers.

·         Casualty and theft losses. The itemized deduction for casualty and theft losses has been suspended except for losses incurred in a federally declared disaster.

·         Overall limitation on itemized deductions. The new law suspends the overall limitation on itemized deductions that formerly applied to taxpayers whose adjusted gross income exceeded specified thresholds. The itemized deductions of such taxpayers were reduced by 3% of the amount by which AGI exceeded the applicable threshold, but the reduction could not exceed 80% of the total itemized deductions, and certain items were exempt from the limitation.

·         Moving expenses. The deduction for job-related moving expenses has been eliminated, except for certain military personnel. The exclusion for moving expense reimbursements has also been suspended.

·         Alimony. For post-2018 divorce decrees and separation agreements, alimony will not be deductible by the paying spouse and will not be taxable to the receiving spouse.

·         Health care “individual mandate.” Starting in 2019, there is no longer a penalty for individuals who fail to obtain minimum essential health coverage.

·         Estate and gift tax exemption. Effective for decedents dying, and gifts made, in 2018, the estate and gift tax exemption has been increased to roughly $11.2 million ($22.4 million for married couples).

·         Alternative minimum tax (AMT) exemption. The AMT has been retained for individuals by the new law but the exemption has been increased to $109,400 for joint filers ($54,700 for married taxpayers filing separately), and $70,300 for unmarried taxpayers. The exemption is phased out for taxpayers with alternative minimum taxable income over $1 million for joint filers, and over $500,000 for all others.

Results may varied by taxpayer(s). Please consult your CPA for more details. As you can see from this overview, the new law affects many areas of taxation. If you wish to discuss the impact of the law on your particular situation, please email me at:

modesto.matheu@gmail.com

Source: IRS GOV