Proposed Tax Plan from President-Elect Trump
- Tax brackets reduced to three: 12%, 25% and 33%.
- Elimination of:
- Alternative Minimum Tax
- Head of Household filing status
- Net Investment Income Tax
- Personal Exemptions
- Estate Tax
- Business tax rate lowered to 15%.
- Cap on itemized deductions at $100,000 for single filers and $200,000 for married filing joint.
- Standard deduction $15,000 for single filers and $30,000 for married filing joint.
- Low-income families get a credit up to $1,200 a year for child-care costs.
- Close the "carried interest" exemption. Essentially, it allows big money managers to count earnings as capital gains instead of ordinary income.
- Carried interest would be taxed at ordinary tax rates instead of capital gains rates.
Alternative Minimum Tax Adjustments
Under regular tax, deductions subtracted from AGI reducing taxable income, lower the amount of tax, but under AMT specific deductions are not permitted.
Below is a list of deductions allowed under regular tax, but not permitted for AMT:
• Standard deduction (for non-Schedule A filers).
• Personal exemption(s)
• Property tax
• State & local income tax
• General sales tax
• Personal excise tax
• Investment advisory fees
• Employee business expenses (Form 2106) itemized on Schedule A
While regular tax allows a deduction for mortgage interest on acquisition indebtedness and home equity indebtedness, AMT allows a deduction only on acquisition indebtedness.
Under AMT, medical & dental expenses are deductible when your expenses are more than 10% of AGI -- 7.5% of AGI for taxpayers 65 years or older.
Charitable donations ARE allowed under the AMT as an itemized deduction.
Lower tax rates that apply to qualified dividends & long-term capital gains for regular tax purposes apply for AMT purposes as well.
Most people's goal to reduce total tax, (the sum of regular tax plus AMT), is spoiled when deductions reducing regular tax are added back for AMT, increasing AMT. A plan to reduce or eliminate AMT, by decreasing deductions will cause regular tax to increase, resulting in a "no-win" situation—AMT goes down, but regular tax goes up,"Catch-22"
Sadly, there is little taxpayers can do to reduce their AMT exposure.
IRS Offers New Cash Payment Option
The Internal Revenue Service recently announced a new payment option for individual taxpayers who need to pay their taxes with cash. In partnership with ACI Worldwide's OfficialPayments.com and the PayNearMe Company, individuals can now make a payment without the need of a bank account or credit card at over 7,000 7-Eleven stores nationwide.
"We continue to look for new ways to provide services for our taxpayers. Taxpayers have many options to pay their tax bills by direct debit, a check or a credit card, but this provides a new way for people who can only pay their taxes in cash without having to travel to an IRS Taxpayer Assistance Center," said IRS Commissioner John Koskinen.
Individuals wishing to take advantage of this payment option should visit the IRS.gov paymentspage, select the cash option in the other ways you can pay section and follow the instructions:
- Taxpayers will receive an email from OfficialPayments.com confirming their information.
- Once the IRS has verified the information, PayNearMe sends the taxpayer an email with a link to the payment code and instructions.
- Individuals may print the payment code provided or send it to their smart phone, along with a list of the closest 7-Eleven stores.
- The retail store provides a receipt after accepting the cash and the payment usually posts to the taxpayer's account within two business days.
- There is a $1,000 payment limit per day and a $3.99 fee per payment.
Because PayNearMe involves a three-step process, the IRS urges taxpayers choosing this option to start the process well ahead of the tax deadline to avoid interest and penalty charges.
The IRS has been partnering with Official Payments since 1999 for taxpayers wanting to use a credit card to pay taxes.
In this new option, PayNearMe is currently available at participating 7-Eleven stores in 34 states. Most stores are open 24 hours a day, seven days a week,. For details about PayNearMe, the IRS offers a list of frequently asked questions on IRS.gov.
The IRS reminds individuals without the need to pay in cash that IRS Direct Pay offers the fastest and easiest way to pay the taxes they owe. Available at IRS.gov/Payments/Direct-Pay, this free, secure online tool allows taxpayers to pay their income tax directly from a checking or savings account without any fees or pre-registration.
Click here for more information about the new IRS payment option.
IRS removes Cuba from list of countries with foreign tax restrictions
The IRS has removed Cuba from the so-called “IRC §901 blacklist” of foreign countries from which US taxpayers may not be entitled to a foreign tax credit. Removal of Cuba from this list means that US taxpayers are now entitled to the benefit of a foreign tax credit to any income attributable to Cuba. Income earned in Cuba through a controlled foreign corporation will no longer be Subpart F income barred from deferral treatment under IRC §952(a)(5).
The restrictions are lifted as of December 21, 2015, based upon certification by the Secretary of State that Cuba is no longer a country described in IRC §901(j)(2)(A). That section applies to any country with whom the US does not maintain diplomatic relations or that is designated by the State Department as a country that supports international terrorism.
Check Out this Graphic to Determine if You Might be Eligible for the Premium Tax Credit
- IRS Health Care Tax Tip 2016-30, March 10, 2016 Español
- The premium tax credit can help make purchasing health insurance coverage more affordable for people with moderate incomes. Answer the yes-or-no questions in the following chart – or in this accessible text – and follow the arrows to find out if you may be eligible for the premium tax credit.
- Here are links to information and resources referenced in the graphic:
- The Trade Facilitation and Trade Enforcement Act of 2015, referred to as the "Customs Bill", was signed into law on Feb 24th, 2016. The Bill originally grabbed tax headlines news for it's ban on local taxation of InterNet access.
- This law included late-filing penalties.
- For tax returns filed after Dec 31, 2015, the minimum late-file penalty is the smaller of $205 or 100% of the unpaid tax.
- The previous minimum late-file penalty was the smaller of $135 or 100% of the unpaid tax.
- The late-file penalty is assessed on tax returns filed 60 days after the filing deadline, usually April 15th.
IRS Penalties
- Normally, the IRS treats each late filer individually and calculates penalties and interest on a case-by-case basis.
- Once the IRS receives or accepts your return, the penalties are computed (plus interest) and a separate bill is sent to the taxpayer.
- There is no penalty if you're getting a tax refund, provided you file within 3 years of the April 15 deadline (or October 15 deadline if you filed an extension).
- After 3 years, unclaimed tax refunds are forfeited and become the property of the US Treasury.
- There is no late-file penalty if you filed an extension and paid any additional taxes owed by April 15, as long as you file your return by the October 15 deadline.
- A late-file penalty applies if you owe taxes and didn't file your return or extension by April 15.
- This penalty applies if you owe taxes, filed an extension, but didn't file your return by October 15.
- The late-file penalty is 5% of the additional taxes owed amount for every month (or fraction thereof) your return is late, up to a maximum of 25%.
- If you file more than 60 days after the due date, the minimum penalty is $205 or 100% of your unpaid tax, whichever is smaller.
- The late-file penalty is 10 times higher than the late-pay penalty. Even if you can't pay your tax bill, file your return on time, or at least file a 6-month extension. You can file an amendment later.
- A late-pay penalty applies if you didn't pay any balance due owed by April 15, whether you filed an extension or not.
- The late-pay penalty is 0.5% (1/2 of 1%) of any balance due amount for every month (or fraction thereof) the owed tax remains unpaid, up to 25% maximum.
- For any month(s) in which both the late-pay and late-file penalties apply, the 0.5% late-pay penalty is waived.
Case Study: Let's say you haven't filed your return or an extension by April 15, and you still have a $10,000 balance due the IRS.
- If you file your return on April 29 (2 weeks late) and submit your payment for $10,000, you would likely owe an additional $500 for the late-file penalty ($10,000 x 5% = $500).
- Had an extension been filed by April 15, your late-pay penalty would only be $50 ($10,000 x .05% = $50) and not a late-file penalty of $500.
- Say instead, you filed your return and submit your payment for $10,000, 5-years late, (past the original due date). You would owe an additional $5,000 for filing late and paying late ($10,000 X 25%), (5% per month up to 25% for filing late) plus ($10,000 X 25%), (0.5% per month up to 25% for paying late)*, plus possible interest.
* The late-pay penalty is 0.5% of the unpaid taxes, assessed on a monthly basis, up to a maximum of 25%.
Estate and Gift Tax - Consistent Basis Reporting Between Estate and Person Acquiring Property from Decedent
Last year’s “Highway Bill”, Regarding Beneficiaries Acquiring Property From a Decedent, requires certain estates to file Form 8971 to ensure consistent basis reporting among estates and their beneficiaries.
On February 29, 2016, the IRS plans to begin accepting basis information with respect to property acquired from decedents as required by H.R. 3236, the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, signed into law on July 31, 2015.
The law created IRC §6035, which requires the executor of an estate required to file an estate tax return to also provide certain statements to the IRS and to beneficiaries receiving inherited property. This also applies to IRC §6018(b) filers.
The law also adds IRC §1014(f), which requires consistent basis reporting between an estate and the beneficiary receiving property from a decedent.
These changes apply to any estate tax return filed, and to property with respect to which an estate tax return is filed, after July 31, 2015.
The IRS is working steadily to identify and define the policy, procedural, and information system changes necessary to meet the requirements of the new law. Please see Notice 2015-57 for important information.
Source: irs.gov
