March 2018 Tax Snacks
Tax Snacks: Bite-size tax news and information on the fly
• Calendar-year partnership and S corporation income tax returns are due
- Individual 2017 income tax returns are due
- Calendar year C corporation and trust income tax returns are due
- Q1 2018 estimated tax payments are due for individuals, trusts, and calendar year C corporations
In late February, federal H.R. 1892 was signed into law, primarily addressing other matters, but also retroactively extending a handful of expired (or about to expire) tax provisions. Unlike many law changes, this one had broad support from both democrats and republicans, and they congratulated themselves on this rare feat of unity by naming the law the Bipartisan Budget Act of 2018.
Numbering among the “extenders” are changes that allow:
- income from discharge of qualified principal residence debt to remain nontaxable,
- certain mortgage insurance premiums to qualify as deductible mortgage interest, and
- qualified tuition and related costs to remain as “above the line” deductions.
Most other changes that will have broad appeal involve energy credits, including:
- a credit (generally 30%) for residential energy property, including solar electric and heating equipment, geothermal heat pumps, and small wind energy equipment,
- a 10% credit for certain nonbusiness energy efficient improvements (windows, fans, boilers, etc.), and
- a credit for qualified fuel cell motor vehicles (electric and hybrid cars).
Each of these provisions expired on 12/31/16, and the Act extends most of them retroactively from that date through 12/31/17. One exception is the 10% energy efficient credit, which was extended through 2021. The text of H.R. 1892 may be found on Congress’s website.
The IRS has released a new withholding calculator, as well as a new and improved version of Form W-4. W-4 is completed by employees and provided to their employers, to target the proper amount of payroll tax withholding on wages. It historically has been based greatly on the number of exemptions an employee expected to claim on Form 1040, but exemptions no longer exist thanks to December’s Tax Cuts and Jobs Act. New (generally reduced) federal withholding has appeared in most employees’ paystubs beginning very recently, whether or not a new W-4 was completed. Readers can use the new IRS calculator to help determine whether the changes make sense, and should consider completing a new Form W-4 if updates are needed. The calculator and W-4 may be found on the IRS website.
No tax season would be complete without a creative new scheme some crooks cook up to relieve innocent taxpayers of their money. The latest involves telephone claims that other taxpayers’ refunds were erroneously deposited into the victim’s bank account, or automated calls warning of a “blacklisting” of the victim’s Social Security Number (whatever that means). The message provides a “case number” and phone number for the victim’s use correcting the problem.
Please recall that the IRS will always contact you first by mail – not by phone. Also, even legitimate issues with the IRS rarely require truly immediate action; typically at least 30 days are provided in which to respond. Use that time to verify that any contact is valid. More information on this latest scam is available on the IRS website.
“Carried interest” has been in the crosshairs of many lawmakers and pundits for some time, and for those who did not care much for the Tax Cuts and Jobs Act, among the “disappointiest” of its characteristics was the relatively light treatment carried interest was given (many expected the hammer to drop on what they perceived as an egregious loophole). Under the Act, carried interest’s features were preserved, but applicable investments must be held for three full years, rather than one, to qualify for long-term capital gain rates. However, apparently the new rules were seen as allowing S corporations to somehow circumvent them, so the IRS clarified in IR-2018-37 that this is not the case. The IRS also explains that new regulations addressing carried interest will be forthcoming.
The term “carried interest” is widely misunderstood, and many do not even know that it does not refer to interest income or expense. A readable explanation of what carried interest is (and what it isn’t) may be found in BNN’s library.
Disclaimer of Liability: This publication is intended to provide general information to our clients and friends. It does not constitute accounting, tax, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.