IRS CHANGES: New law provides additional flexibility for health FSAs and dependent care assistance programs
Alternative minimum tax (AMT)
The alternative minimum tax was originally enacted to ensure that high-income taxpayers pay at least a minimum
amount of tax if they benefit from certain deductions and
other tax preference items.
The AMT tax computation is a parallel system to the regular tax system with its own definitions of income and expenses, rules for income recognition and timing, exemptions, and tax rates. Although every taxpayer is subject to
AMT rules, the additional tax is paid only if the tax computation under AMT rules is higher than the tax computed
under regular rules.
Even though the AMT was originally targeted toward high-income taxpayers, factors, including inflation and
treatment of certain tax credits, can sometimes push lower-income taxpayers into an AMT situation.
Read on to learn about how it works.
How does AMT work?
Certain items called adjustments and preferences are added to or subtracted from federal adjusted gross income reduced by any itemized deductions. An AMT exemption amount is allowed, depending on the taxpayer’s filing status. The AMT tax rate of 26% to 28% is applied to the resulting alternative minimum taxable income. If the resulting tax is greater than regular tax, the difference is added to regular tax on Form 1040.
Example #1: When computed under regular rules, John’s income tax is $4,700. When computed under AMT rules, the tax amount is $3,900. Since his tax computed under AMT rules is less than his tax computed under regular rules, John will not pay any additional amount for AMT.
Example #2: Assume the same facts as Example #1, except when computed under AMT rules, John’s tax amount is $5,100. Since his tax computed under AMT rules is higher than his tax computed under regular rules, John must pay the difference in additional tax. John must report additional AMT tax in the amount of $400.
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Remote work is on the rise, and this has implications to your tax deductions. According to a survey done by FlexJobs.com and Global Workplace Analytics, remote work has spiked 159% between 2005 and 2017. Not only that, but remote work is impacting real estate. A report completed by Zillow indicated that more than half of home buyers who work remotely say remote work has influenced a major home change.
Some expenses are deductible whether or not you use your home for business. Others are deductible only if the home is used for business.
If you find yourself recently married or in the process of getting married, it's important to consider more than just floral arrangements. Marriage, while a loving union, is also a huge financial change. Making sure you have your taxes in order is a must. Here are 7 things you need to have your to-list after those nuptials are finalized:
1. Notify the Social Security Administration (SSA) If one of you has taken on a new name, report the change to the SSA. File Form SS-5, Application for a Social Security Card.
It is essential that your name and Social Security Number match on your tax return. The IRS will match your information with records provided by the SSA and, if the records don’t match, any electronically filed return will be rejected and any paper filed return will be de- layed until the error is corrected.
Getting married during tax season? It may be best to avoid changing your name. While the SSA can process a name change in about two weeks, the delay in data-sharing between the SSA and the IRS can make any change near the end of the year problematic. In such situations, it may be advisable to file the tax return using your maiden name and change your name with the SSA after the return has been filed.
2. Notify the IRS If You Move The IRS will automatically update your new address upon filing your next tax return, but any notices the IRS sends in the meantime may not get to you. The U.S. Postal Service does not forward certain types of federal and certified IRS mail.
3.Notify the U.S. Postal Service To ensure your mail, including mail from the IRS, is forwarded to your new address, you’ll need to notify the U.S. Postal Service.
Most post offices will not forward refund checks so be sure the IRS has your correct address. Using electronic direct deposit for refunds can prevent them from being delayed due to address mix-ups.
4. Notify Your Employer Report your name and/or address change to your employer(s) to make sure you receive your Form W-2, Wage and Tax Statement, after the end of the year.
5. Notify Financial Institutions Financial institutions with which you do business need to be notified to ensure that any Forms 1099 are sent to the proper address. This would include banks and brokerage firms, as well as employer-sponsored retirement plans.
6. Check Your Withholding If you both work, keep in mind that you and your spouse’s combined income may move you into a higher tax bracket. The IRS Tax Withholding Estimator, available at www.irs.gov, can help you determine whether you need to give your employer(s) a new Form W-4, Employee’s Withholding Certificate. Use the results to fill out and print Form W-4 online and give it to your employer(s).
7. Choose the Best Filing Status Once you are married, you can no longer use the Single filing status on your tax return. Your marital status on December 31 each year determines whether you are considered married for the entire year for tax purposes. Generally, the tax law allows married couples to file their federal income tax returns either jointly or separately in any given year.
Married Filing Jointly. If you are married on the last day of the year and both spouses agree, you can file a joint return. Joint returns include income and deductions for both spouses. If a joint return is filed, both of you may be held responsible, jointly and individually, for the tax and any interest or penalty due on the joint return. One spouse may be held responsible for all the tax due even if all the income was earned by the other person. For most married couples, filing jointly will result in a lower tax liability. Once a joint return is filed for any tax year, it cannot be amended to file separately.
Married Filing Separately. If you are married you can choose to file separately and report only your own income, credits, and deductions. Many credits and deductions are not allowed on married filing separately forms, which generally results in higher tax liability. A separate return can be amended within three years of the due date to change the filing status and file a joint return.
When does it make sense for a married couple to file separately?
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The Wall Street Journal last year shared a heart-wrenching story of financial ruin, when a 60 year-old nurse paid scammers $340,000. Scams are on the rise in the past few years, and it's important now more than ever for tax payers to be aware. In the chart below from the Wall Street Journal, reported losses from scammers has grown to nearly $30 million.
Tax scammers work year-round, not just during tax season and target virtually everyone. Stay alert to the ways criminals pose as the IRS to trick you out of your money or personal information.
IRS-Impersonation Telephone Scam
An aggressive and sophisticated telephone scam targeting taxpayers, including recent immigrants, has been making the rounds throughout the country. Callers claim to be employees of the IRS, but are not. These con artists can sound convincing when they call. They use fake names and bogus IRS identification badge numbers. They may know a lot about their targets from information gathered from online resources, and they usually alter the caller ID (caller ID spoofing) to make it look like the IRS is calling. Also, if the phone is not answered, the scammers often leave an urgent callback request.
Victims are often told they owe money to the IRS and it must be paid promptly through a pre-loaded debit card, gift card, or wire transfer. If the victim refuses to cooperate, they are then threatened with arrest, deportation, or suspension of a business or driver’s license. In many cases, the caller becomes hostile and insulting.
Alternatively, victims may be told they have a refund due to try to trick them into sharing private financial information.
What to do. If you receive a phone call from someone claiming to be from the IRS and asking for money, take the following steps.
Phony IRS Emails—“Phishing”
Scammers copy official IRS letterhead to use in emails they send to victims. Emails direct the consumer to a web link that requests personal and financial information, such as a Social Security Number, bank account, or credit card numbers. The practice of tricking victims into revealing private personal and financial in- formation over the internet is known as “phishing” for information.
The IRS does not notify taxpayers of refunds or payments due via email. Additionally, taxpayers do not have to complete a special form or provide detailed financial information to obtain a refund. Refunds are based on information contained on the federal income tax return filed by the taxpayer. The IRS never asks people for the PIN numbers, passwords, or similar secret access information for their credit card, bank, or other financial accounts.
What to do. If you receive an email from someone claiming to be from the IRS and asking for money, take the following steps:
Abusive tax shelters. Avoid using abusive tax structures to avoid paying taxes. The IRS is committed to stopping complex tax avoidance schemes and the people who create and sell them. The vast majority of tax- payers pay their fair share, and everyone should be on the lookout for people peddling tax shelters that sound too good to be true. When in doubt, taxpayers should seek an independent opinion regarding complex products they are offered.
Frivolous tax arguments. Avoid using frivolous tax arguments to avoid paying taxes. Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. These arguments are wrong and have been thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to dis- obey the law or disregard their responsibility to pay tax- es. The penalty for filing a frivolous tax return is $5,000.
Ways to Protect Yourself From Scams
There are many precautions you can take to protect yourself from becoming a victim. These include:
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Earlier this week, Elon Musk suggested Bitcoin and other cryptocurrencies were “clever” and a plausible replacement for cash. While an endorsement from a genius, billionaire is interesting, virtual currency is still hardly legal tender.
When a currency is legally recognized by a government to be valid for meeting a financial obligation, it is called legal tender. Coins and banknotes are usually defined as legal tender in most countries. Legal tender is backed by a central government, and the government controls the supply.
Bitcoin and other virtual currencies are not legal tender and they are not backed by a central government or bank. They are decentralized and are global.
For federal income tax purposes, transactions using virtual currency must be reported in U.S. dollars. You will be required to determine the fair market value (FMV) as of the date of payment or receipt of the virtual currency.
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