Sunday, January 20, 2019

Free Tax Return Preparation for Qualifying Taxpayers

The Volunteer Income Tax Assistance (VITA) program offers free tax help to people who generally make $54,000 or less, persons with disabilities and limited English speaking taxpayers who need assistance in preparing their own tax returns. IRS-certified volunteers provide free basic income tax return preparation with electronic filing to qualified individuals.
In addition to VITA, the Tax Counseling for the Elderly (TCE) program offers free tax help for all taxpayers, particularly those who are 60 years of age and older, specializing in questions about pensions and retirement-related issues unique to seniors. The IRS-certified volunteers who provide tax counseling are often retired individuals associated with non-profit organizations that receive grants from the IRS.
Before going to a VITA or TCE site, see Publication 3676-B for services provided and check out the What to Bring page to ensure you have all the required documents and information our volunteers will need to help you. *Note: available services can vary at each site due to the availability of volunteers certified with the tax law expertise required for your return.
Some VITA sites offer CAA service to taxpayers along with their VITA program.

Find a VITA or TCE Site Near You

VITA and TCE sites are generally located at community and neighborhood centers, libraries, schools, shopping malls and other convenient locations across the country. To locate the nearest VITA or TCE site near you, use the VITA Locator Tool or call 800-906-9887.
When looking for a TCE site keep in mind that a majority of the TCE sites are operated by the AARP Foundation’s Tax Aide program. To locate the nearest AARP TCE Tax-Aide site between January and April use the AARP Site Locator Tool or call 888-227-7669.
At select tax sites, taxpayers also have an option to prepare their own basic federal and state tax return for free using Web-based tax preparation software with an IRS-certified volunteer to help guide you through the process. This option is only available at locations that list “Self-Prep” in the site listing.

Get Ready for Taxes: Here’s how the new tax law revised family tax credits

WASHINGTON ― More families will be able to get more money under the newly-revised Child Tax Credit, according to the Internal Revenue Service.
This is the third in a series of reminders to help taxpayers get ready for the upcoming tax filing season. Additionally, the IRS has recently updated a special page on its website with steps to take now for the 2019 tax filing season.
The Tax Cuts and Jobs Act (TCJA), the tax reform legislation passed in December 2017, doubled the maximum Child Tax Credit, boosted income limits to be able to claim the credit, and revised the identification number requirement for 2018 and subsequent years. The new law also created a second smaller credit of up to $500 per dependent aimed at taxpayers supporting older children and other relatives who do not qualify for the Child Tax Credit.
“As we approach the 2019 tax-filing season, I want to remind taxpayers to take advantage of this valuable tax credit if they are eligible to claim it,” said IRS Commissioner Chuck Rettig. “Tax reform changed the tax code significantly and doubling the Child Tax Credit is an example of how the changes impact taxpayers.”

Here are some important things taxpayers need to know as they plan for the tax-filing season in early 2019: 

Child Tax Credit increased

Higher income limits mean more families are now eligible for the Child Tax Credit. The credit begins to phase out at $200,000 of modified adjusted gross income, or $400,000 for married couples filing jointly, which is up from the 2017 levels of $75,000 for single filers or $110,000 for married couples filing jointly.
Increased from $1,000 to $2,000 per qualifying child, the credit applies if the child is younger than 17 at the end of the tax year, the taxpayer claims the child as a dependent, and the child lives with the taxpayer for more than six months of the year. The qualifying child must also have a valid Social Security Number issued before the due date of the tax return, including extensions.
Up to $1,400 of the credit can be refundable for each qualifying child. This means an eligible taxpayer may get a refund even if they don’t owe any tax.
For more information, see Publication 972, Child Tax Credit, available soon on IRS.gov.

New Credit for Other Dependents

A new tax credit – Credit for Other Dependents — is available for dependents for whom taxpayers cannot claim the Child Tax Credit. These dependents may include dependent children who are age 17 or older at the end of 2018 or parents or other qualifying relatives supported by the taxpayer.
During the upcoming tax-filing season, the IRS urges taxpayers to use the agency’s Interactive Tax Assistant to see if they qualify for either of these credits. To find out more, visit IRS.gov.

Treasury, IRS issue final regulations, other guidance on new qualified business income deduction; Safe harbor enables many rental real estate owners to claim deduction

WASHINGTON — Today the Treasury Department and the Internal Revenue Service issued final regulations and three related pieces of guidance, implementing the new qualified business income (QBI) deduction (section 199A deduction).
The new QBI deduction, created by the 2017 Tax Cuts and Jobs Act (TCJA) allows many owners of sole proprietorships, partnerships, S corporations, trusts, or estates to deduct up to 20 percent of their qualified business income.  Eligible taxpayers can also deduct up to 20 percent of their qualified real estate investment trust (REIT) dividends and publicly traded partnership income.  
The QBI deduction is available in tax years beginning after Dec. 31, 2017, meaning eligible taxpayers will be able to claim it for the first time on their 2018 Form 1040.
The guidance, released today includes:
  • A set of regulations, finalizing proposed regulations issued last summer, A new set of proposed regulations providing guidance on several aspects of the QBI deduction, including qualified REIT dividends received by regulated investment companies
  • revenue procedure providing guidance on determining W-2 wages for QBI deduction purposes,
  • notice on a proposed revenue procedure providing a safe harbor for certain real estate enterprises that may be treated as a trade or business for purposes of the QBI deduction
The proposed revenue procedure, included in Notice 2019-07, allows individuals and entities who own rental real estate directly or through a disregarded entity to treat a rental real estate enterprise as a trade or business for purposes of the QBI deduction if certain requirements are met. Taxpayers can rely on this safe harbor until a final revenue procedure is issued. 
The QBI deduction is generally available to eligible taxpayers with 2018 taxable income at or below $315,000 for joint returns and $157,500 for other filers. Those with incomes above these levels, are still eligible for the deduction but are subject to limitations, such as the type of trade or business, the amount of W-2 wages paid in the trade or business and the unadjusted basis immediately after acquisition of qualified property. These limitations are fully described in the final regulations.
The QBI deduction is not available for wage income or for business income earned by a C corporation.
For details on this deduction, including answers to frequently-asked questions, as well as information on other TCJA provisions, visit IRS.gov/taxreform.

Changes strengthen program; Free File can also help navigate new tax law provisions

WASHINGTON — An improved version of IRS Free File begins its 17th filing season today as a dozen private-sector partners offer their brand-name products to help eligible taxpayers navigate the new tax reform law and electronically prepare their tax returns.
The free online software program, accessible only through IRS.gov, is available for taxpayers to use in advance of the start of the filing season on Jan. 28.
A number of changes were made to Free File this year, strengthening the program to make it even more taxpayer friendly. More than 53 million taxpayers have used Free File since the program’s inception. The public-private partnership between the Internal Revenue Service and the Free File Alliance provides free, brand-name tax software and free electronic filing to taxpayers who earned $66,000 or less last year. Some providers offer both free federal and free state tax preparation. Active duty military personnel with incomes of $66,000 or less may use any Free File software product offering a military option without regard to other criteria.
“Free File is an important tool that allows taxpayers free access to electronic filing of their tax returns,” said IRS Commissioner Chuck Rettig. “The program has been a great partnership with the private sector, and we’ve taken steps to improve Free File this year. With these changes to the Free File program as well as the new tax law, this is a great year for people to consider using this option for preparing their taxes.”
Starting today, taxpayers can go to www.irs.gov/freefile to find the Free File software product that matches their situation. Each partner sets its own eligibility standards, generally based on age, income or state residency. Taxpayers can do their taxes online from IRS.gov or they can use the IRS2Go mobile app to access Free File and do their taxes on their mobile phones, tablets or any app-enabled device. 
For taxpayers who earned more than $66,000, there is Free File Fillable Forms, the electronic version of IRS paper forms which will be available when the IRS begins the filing season on Jan. 28.

Who can use Free File

Any individual or family whose adjusted gross income for 2018 was $66,000 or less can find at least one Free File software product they can use. Often, taxpayers are eligible for multiple products. The income limitation means that 100 million taxpayers – 70 percent – are eligible to use Free File.
Workers, families with children, first-time filers and seniors who meet the income criteria are all eligible for Free File. The software supports all the new tax law changes as well as long-time benefits such as the Earned Income Tax Credit. While most products have a set of eligibility requirements, 10 Free File partners have a special offer for active duty military personnel by making their sole eligibility criteria an income of $66,000 or less.
IRS Free File is all that’s needed for residents of Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming where there is no state income tax. Some Free File partners offer free federal and free state return preparation. And some states have their own Free File program.

How to use Free File

Taxpayers can only access Free File from IRS.gov. To get started, simply go to IRS.gov/freefile. Use the “Help Me” tool to enter a bit of information such as age, income, and state residency. The tool will match the taxpayer with the software products. Generally, taxpayers will have several options from which to choose. Taxpayers also can review all the offers made by each of the 12 partners if they do not want to use the tool. Once taxpayers make their selection, they will be directed away from IRS.gov to the provider’s website to prepare their return.
Also, taxpayers can use the IRS2Go app to access Free File. Simply download the IRS2Go app onto any app-enabled device. From their phones or tablets, taxpayers can access the “Help Me” tool and go to the provider’s website to do their taxes.
Free File will be available to taxpayers from Jan. 11 through the mid-October deadline for extension filers. Taxpayers, regardless of income, also can use Free File to file an extension from the April 15 deadline.

New agreement offers new consumer protections

The IRS and the Free File Alliance, the consortium of the 12 partners, reached a new agreement recently to extend the Free File program through Oct. 31, 2021. This new memorandum of understanding also included several new consumer protections. These include:
  • Removing the “value-add” button from Free File partner landing pages. Free File members will remove any button or link on their Free File landing pages that would take taxpayers to non-Free File programs. The change is designed to improve the transparency of the program, and to make the navigation easier for taxpayers to use Free File.
  • Taxpayers can return to the IRS Free File page if they don’t qualify for an offer.  To use Free File, taxpayers must use IRS.gov to connect to a company offering Free File. If the taxpayer doesn’t qualify for a free filing option on a particular member site, the new agreement requires these companies to offer taxpayers the option to easily return to IRS.gov to see if they qualify for another Free File offer.
  • Returning taxpayers’ first option must be Free File. If a taxpayer returns to a Free File member’s website the following year after using the free program, the first option after logging into their account will be the Free File option — before receiving any other offers from the company.
  • Follow-up emails to taxpayers who used Free File the previous year will welcome them back to the Free File service.This change will strengthen rules for members sending follow up emails to prior year customers, reminding them of the availability of Free File. To help increase program participation, Free File members will email prior year participants welcoming them back to the Free File program. The email cannot contain information about any non-Free File service or product or any other marketing or soliciting, except for free or paid state tax preparation offers.
  • Emphasis on the in-place review process. Both the IRS and a third party already review each Free File option before filing season to ensure the program standards are being followed by Free File members. The new agreement now reinforces this longstanding requirement, which has always also included an unannounced review during filing season.

IRS waives penalty for many whose tax withholding and estimated tax payments fell short in 2018

WASHINGTON — The Internal Revenue Service announced today that it is waiving the estimated tax penalty for many taxpayers whose 2018 federal income tax withholding and estimated tax payments fell short of their total tax liability for the year.
The IRS is generally waiving the penalty for any taxpayer who paid at least 85 percent of their total tax liability during the year through federal income tax withholding, quarterly estimated tax payments or a combination of the two. The usual percentage threshold is 90 percent to avoid a penalty.
The waiver computation announced today will be integrated into commercially-available tax software and reflected in the forthcoming revision of Form 2210 and instructions.
This relief is designed to help taxpayers who were unable to properly adjust their withholding and estimated tax payments to reflect an array of changes under the Tax Cuts and Jobs Act (TCJA), the far-reaching tax reform law enacted in December 2017. 
“We realize there were many changes that affected people last year, and this penalty waiver will help taxpayers who inadvertently didn’t have enough tax withheld,” said IRS Commissioner Chuck Rettig. “We urge people to check their withholding again this year to make sure they are having the right amount of tax withheld for 2019.”
The updated federal tax withholding tables, released in early 2018, largely reflected the lower tax rates and the increased standard deduction brought about by the new law. This generally meant taxpayers had less tax withheld in 2018 and saw more in their paychecks. 
However, the withholding tables couldn’t fully factor in other changes, such as the suspension of dependency exemptions and reduced itemized deductions. As a result, some taxpayers could have paid too little tax during the year, if they did not submit a properly-revised W-4 withholding form to their employer or increase their estimated tax payments. The IRS and partner groups conducted an extensive outreach and education campaign throughout 2018 to encourage taxpayers to do a “Paycheck Checkup” to avoid a situation where they had too much or too little tax withheld when they file their tax returns. 
Although most 2018 tax filers are still expected to get refunds, some taxpayers will unexpectedly owe additional tax when they file their returns.

Monday, December 17, 2018

Here’s how tax preparers can protect themselves and their clients

Cybercriminals are stepping up their attacks on tax professionals. Because of this, the IRS urges tax preparers to take steps to protect client data and their computer networks from these threats.
Thieves search for client data so they can create a fraudulent tax return that looks legit and might bypass IRS filters. They also impersonate tax professionals, using stolen Electronic Filing Identification Numbers, Preparer Tax Identification Numbers, and Centralized Authorization File numbers.
Here are some basic security steps that tax preparers can take to protect themselves and their clients. Tax preparers should:
  • Learn to recognize phishing emails. They can be on the lookout for emails from thieves pretending to be from the IRS, e-Services, a tax software provider, or cloud storage provider.
  • Never open a link or any attachment from a suspicious email. Remember: The IRS never initiates initial contact with a tax pro via email.
  • Create a data security plan using IRS Publication 4557, Safeguarding Taxpayer Data, and Small Business Information Security – The Fundamentals by the National Institute of Standards and Technology.
  • Install anti-malware/anti-virus security software on all devices. This includes laptops, desktops, routers, tablets and phones. They should also consider keeping their software set to automatically update.
  • Create passwords of at least eight characters.
  • Use different passwords for each account.
  • Password protect wireless devices and consider a password manager program.
  • Encrypt all sensitive files and emails.
  • Back up sensitive data to a safe and secure external source not connected fulltime to a network.
  • Wipe clean or destroy old computer hard drives and printers that contain sensitive data.
  • Limit access to taxpayer data to individuals who need to know.
  • Check IRS e-Services account weekly for number of returns filed with EFIN.
  • Report any data theft or data loss to the appropriate IRS Stakeholder Liaison.
  • Stay connected to the IRS through subscriptions to e-News for Tax ProfessionalsQuick Alert, and Social Media.

Tax reform creates opportunity zone tax incentive

Qualified Opportunity Zones were created by the 2017 Tax Cuts and Jobs Act. These zones are designed to spur economic development and job creation in distressed communities throughout the country and U.S. possessions by providing tax benefits to investors who invest eligible capital into these communities. Taxpayers may defer tax on eligible capital gains by making an appropriate investment in a Qualified Opportunity Fund and meeting other requirements.
In the case of an eligible capital gain realized by a partnership, the rules allow either a partnership or its partners to elect deferral. Similar rules apply to other pass-through entities, such as S corporations and its shareholders, as well as estates and trusts and its beneficiaries.

To qualify for deferral:

  • Capital gains must be invested in a QOF within 180 days. 
  • Taxpayer elects deferral on Form 8949 and files with its tax return.
  •  Investment in the QOF must be an equity interest, not a debt interest.
If a taxpayer holds its QOF investment at least five years, the taxpayer may exclude 10 percent of the original deferred gain. If a taxpayer holds its QOF investment for at least seven years, the taxpayer may exclude an additional five percent of the original deferred gain for a total exclusion of 15 percent of the original deferred gain. The original deferred gain – less the amount excluded due to the five and seven year holding periods – is recognized on the earlier of sale or exchange of the investment, or December 31, 2026. If the taxpayer holds the investment in the QOF for at least 10 years, the taxpayer may elect to increase its basis of the QOF investment equal to its fair market value on the date that the QOF investment is sold or exchanged. This may eliminate all or a substantial amount of gain due to appreciation on the QOF investment.