Tax Updates

Important Tax Dates

The deadline to file your 2017 tax return is April 17, 2018.

Refer to the link for more info:
https://www.irs.gov/newsroom/2018-tax-filing-season-begins-jan-29-tax-returns-due-april-17-help-available-for-taxpayers

TAX ALERTS FOR 2018 TAX SEASON

Federal:
Beginning in 2017, a new law required the IRS to hold refunds on tax returns claiming the Earned Income Tax Credit or the Additional Child Tax Credit until mid-February. Under the change required by Congress in the Protecting Americans from Tax Hikes (PATH) Act, the IRS must hold the entire refund – even the portion not associated with the EITC and ACTC – until at least Feb. 15. This change helps ensure that taxpayers get the refund they are owed by giving the IRS more time to help detect and prevent fraud.

PATH Act Legislation and Expanded Due Diligence Requirements

  • Refunds. Effective in 2017, the Protecting Americans from Tax Hikes PATH Act requires the IRS to hold the refunds for tax returns claiming the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC) until February 15. This change affects some returns submitted early in the tax filing season. We will process returns as usual, but to comply with the law, will hold the refunds on EITC and ACTC-related returns until February 15. File your returns as you normally do and don’t hold them. We encourage you to begin preparing for this change now. Planning is underway for a wider communication effort later this year to help set expectations around refunds for you and your clients.
  • Expanded due diligence requirements. The PATH Act also extended due diligence requirements to returns claiming the Child Tax Credit (CTC) and the American Opportunity Tax Credit (AOTC). Last year due diligence only applied to EITC. See “Paid Preparer Due Diligence Penalties” below for information on how IRS can assess penalties.
  • Form 8867, Paid Preparers Earned Income Credit Checklist. In previous years, the law required paid preparers to complete and submit the Form 8867 with every EITC claim. The form now includes the CTC and the AOTC. Beginning in 2017, paid preparer will need to complete and submit the Form 8867 with every electronic or paper return claiming EITC, CTC or AOTC or any claim for refund with one or more of the credits. The IRS can assess penalties when the Form 8867 is not completed or not included with the tax return claiming one of the credits. The revised Form 8867 instructions are available.
  • PATH Act Legislation and ITINs. Individual Taxpayer Identification numbers may need renewal this year. Those who have not used their ITIN on a federal tax return at least once in the last three years will need to renew their ITIN. Also, all ITINs issued before 2013 will begin expiring this year. ITINs with a 78 or 79 in the middle will expire this year; others will expire on a rotating basis. You can’t file a tax return using an expired ITIN. Also, there are new documentation requirements when applying for or renewing an ITIN for certain dependents. Renewals began in October 2016. Find out more about the changes here.

Paid Preparer Due Diligence Penalties

  • The $500 penalty for each failure to meet your due diligence for one or more of the credits is now adjusted for inflation. The penalty for tax year 2016 is $510. The penalty for 2017 will remain at $510.
  • Paid preparers must exercise due diligence, conduct interviews, ask adequate questions to determine whether a taxpayer meets all the eligibility requirements for these credits and keep records. Failure to take these steps can be costly. The penalty will apply to each credit incorrectly submitted on a tax return and is now indexed for inflation. The penalty for failure to meet the due diligence requirements containing EITC, CTC or AOTC filed in 2017 is $510 per credit per return. For example, if the preparer fails to meet due diligence for ALL THREE credits, the preparer’s penalty would be $1,530 per return for 2016 returns.

Refunds

What You Need to Know What You Need to Do
Expecting a refund? Some refunds must be held until February 15. Be careful not to count on getting a refund by a certain date, especially when making major purchases or paying other financial obligations.
According to a new tax law change, the IRS cannot issue refunds before February 15 for tax returns that claim the Earned Income Tax Credit or the Additional Child Tax Credit. You don’t need to wait until February 15 to file your tax return. While the IRS must hold the refund until February 15, it will begin taking the steps it normally does to process your tax return once the filing season starts.
This applies to the entire refund, even the portion not associated with these credits. File a complete and accurate return and include all known refundable credits with your original return.
The IRS will begin to release EITC/ACTC refunds starting February 15. However, the IRS cautions taxpayers that these refunds likely won’t arrive in bank accounts or on debit cards until the week of February 27. Read more about refund timing for early EITC/ACTC filers. Check Where’s My Refund on IRS.gov or the IRS mobile app, IRS2Go, after February 15 for your personalized refund status.

To address the above, the Zuni Tax Services is requiring our clients to fill out the attached questionnaire: Zuni Tax Services questionnaire

For additional information, go to:
https://www.irs.gov/pub/irs-pdf/p5273.pdf

EITC Schedule C – Please Note for those filing Schedule C – Profit or Loss from Business

Tax return preparers should always demonstrate due diligence when preparing returns. Paid tax return preparers generally can rely on the taxpayers’ representations, but EITC due diligence requires the paid preparer to take additional steps to determine that the net self-employment income used to calculate the amount of or eligibility for EITC is correct and complete. EITC due diligence, IRC §6695(g), requires paid tax return preparers make additional inquiries of taxpayers who appear to be making inconsistent, incorrect or incomplete claims related to their self-employment when the tax return includes the earned income tax credit. The additional inquiries made and the client’s responses must be documented.

Tax preparers should ensure that the amount of net self-employment income reported is correct. Taxpayers sometimes want to over-report or under-report their income to qualify for or maximize the amount of EITC. The preparer should ask sufficient questions of clients claiming self-employment income to be satisfied that the client is actually conducting a business, the client has records to support income and expenses, or can reasonably reconstruct income and expenses records, and the client has included all income and related expenses on Schedule C, Profit or Loss from Business (Sole Proprietorship).

It is important to note that all preparers are held to the ethical standards defined in Circular 230 and are subject to consequences if the standards are not met. In addition, penalties may be assessed on a paid preparer for failure to comply with EITC due diligence. If after exercising EITC due diligence, a tax preparer is not satisfied the return is correct, the preparer may refuse to prepare the return.

This training module introduces the due diligence responsibilities involved with preparing returns with a Schedule C where EITC is claimed. The module also includes recordkeeping guidelines, recommendations on reconstructing records, and examples of how to comply with EITC due diligence in common Schedule C situations a preparer may encounter.

Follow the links below to see more information about each topic:

EITC Due Diligence and Self-Employed Taxpayers
Who is self-employed?
How is self-employment reported on a tax return?
Why are Schedule C’s an EITC issue?
What is EITC due diligence?
How does EITC due diligence apply to Schedule C claims prepared by paid tax preparers?
What are the consequences for not meeting your due diligence and filing incorrect EITC returns?
What Schedule C situations should raise a red flag for you as a tax preparer?
What techniques can be used to obtain information from your client?

Recordkeeping
Why should taxpayers conducting a trade or business keep records?
What should be included in the taxpayer’s books and records?
What Business Expenses can be claimed on Schedule C?
What are examples of supporting documents?
What should you do if the taxpayer does not have records?
What choices do you have if you are not satisfied with the records?
Where can you get additional guidance on EITC due diligence?

Scenarios
Scenario 1 – No Expenses
Scenario 2 – False Business Income
Scenario 3 – Overstated Expenses
Scenario 4 – No Expenses
Scenario 5 – Rounded Expenses
1099-Misc Income Treatment Scenarios

The timeframe for New Mexico State refunds will be 6-8 weeks if you filed electronically and 8-12 weeks if you mailed your return. There are more safeguards, more fraud flags and more verification required. Some taxpayers may receive a letter requesting additional information.

NEW FOR 2016: Affordable Care Act (ACA)

IRS Health Care Tax Tip 2017-01, January 4, 2017
As you prepare to file your 2016 tax return, review this chart to see how the health care law affects you.

IF YOU… THEN YOU…
Are a U.S. citizen or a non-U.S. citizen living in the United States Must have qualifying health care coverage, qualify for a health coverage exemption, or make a payment when you file your income tax return
Had coverage or an employer offered coverage to you in the previous year Will receive one or more of the following forms;

This information will help you complete your tax return

Had health coverage through an employer or under a government program – such as Medicare, Medicaid and coverage for veterans – for the entire year Just have to check the full-year coverage box on your Form 1040 series return and do not have to read any further
Did not have coverage for any month of the year Should check the instructions to Form 8965, Health Coverage Exemptions, to see if you are eligible for an exemption
Were eligible for an exemption from coverage for a month Must claim the exemption or report an exemption already obtained from the Marketplace by completing Form 8965, Health Coverage Exemptions, and submitting it with your tax return
Did not have coverage and were not eligible for an exemption from coverage for any month of the year Are responsible for making an individual shared responsibility payment when you file your return
Are responsible for making an individual shared responsibility payment Will report it on your tax return and make the payment with your income taxes
Need qualifying health care coverage for the current year Can visit HealthCare.gov to find out about the dates of open and special enrollment periods for purchasing qualified health coverage
Enroll in health insurance through the Marketplace for yourself or someone else on your tax return Might be eligible for the premium tax credit
Received the benefit of more advance payments of the premium tax credit than the amount of credit for which you qualify on your tax return Will repay the amount in excess of the credit you are allowed subject to a repayment cap
Did not enroll in health insurance from the Marketplace for yourself or anyone else on your tax return Cannot claim the premium tax credit
Are eligible for the premium tax credit Can choose when you enroll in coverage to get premium assistance sent to your insurer each month to lower your monthly payments or get all the benefit of the credit when you claim it on your tax return
Are claiming the premium tax credit and did not benefit from advance payments of the premium tax credit Must file a tax return and IRS Form 8962, Premium Tax Credit (PTC) and claim the credit on the line labeled – Net premium tax credit
Choose to get premium assistance when you enroll in Marketplace coverage Will have payments sent on your behalf – to your insurance provider. These payments are called advance payments of the premium tax credit
Get the benefit of advance payments of the premium tax credit and experience a significant life change, such as a change in income or marital status Should report these changes in circumstances to your Marketplace when they happen
Get the benefit of advance payments of the premium tax credit Will report the payments on your tax return and reconcile the amount of the payments with the amount of credit for which you are eligible

Resources

IRS Individual Shared Responsibility Provision – Exemptions
Publication 5172, Facts about Health Coverage Exemptions
Affordable Care Act Tax Provisions
Individual Shared Responsibility Provision

https://www.healthcare.gov/american-indians-alaska-natives/

Affordable Care Act: Provisions for Employers

Tribal employers may have reporting requirements under certain circumstances under the Affordable Care Act. For the latest information about the coverage, reporting and payment, and provisions related to both small and large employers, visit the Affordable Care Act Tax Provisions for Employers web page.

Identity Theft Links:
Taxpayer Guide to Identity Theft
IRS, States and Tax Industry Announce New Steps to Help Public to Protect Personal Tax Data
IRS Publication 5027: Identity Theft Information for Taxpayers

Energy Credits will continue although the maximum credit allowed will only be $500. If you took a credit in prior years, this will affect what you receive this year.

The following four topics is where documentation is critical when it comes to the IRS:

  1. Mileage. It is important to keep a log of your mileage.
  2. Business income and expenses. You need to have good record-keeping for both your income and expenses. Keep all your check copies and your receipts.
  3. Charitable donations. One area where this can get the taxpayer in trouble is the non-cash donations. Please, provide a detailed list of what you donated and the value, not the purchase price, of each item donated. You should have a backup of all your cash donations. Keep in mind that you cannot claim cash donations to an individual.
  4. Mortgage interest. Form 1098 is required; however, if you do not receive this from your financial institution, you need to provide your Lender’s name, address, and their tax number.

Comments are closed.