New Law Sets Jan. 31 W-2 Filing Deadline; Some Refunds Delayed Until Feb. 15

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A new federal law moves up the W-2 filing deadline for employers and small businesses to Jan. 31. The new law makes it easier for the IRS to find and stop refund fraud. It also delays some taxpayer refunds. Those taxpayers claiming the Earned Income Tax Credit or the Additional Child Tax Credit won’t see refunds until Feb.15, at the earliest.

Here are some key points to keep in mind:

  • Protecting Americans from Tax Hikes (PATH) Act. Enacted last December, the new law means employers need to file their copies of Forms W-2  by Jan. 31. These forms also go to the Social Security Administration. The new deadline also applies to certain Forms 1099. Those reporting nonemployee compensation such as payments to independent contractors submitted to the IRS are due Jan. 31. Employers have long faced a Jan. 31 deadline in providing copies of these forms to their employees. That date won’t change.
  • Different from past deadline. Employers normally had until the end of February, if filing on paper, or the end of March, if filing electronically, to send in copies of these forms. The IRS is working with the payroll community and other partners to spread the word.
  • Helps stop fraud or errors. The new Jan. 31 deadline will help the IRS to spot errors on returns filed by taxpayers. Having these W-2s and 1099s sooner will make it easier for the IRS to verify legitimate tax returns and get refunds to taxpayers eligible to receive them. The changes will allow the IRS to send some tax refunds faster.
  • Some refunds delayed. Certain taxpayers will get their refunds a bit later. By law, the IRS must hold refunds for any tax return claiming either the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) until Feb. 15. This means the whole refund, not just the part related to the EITC or ACTC.
  • File tax returns normally. Taxpayers should file their returns as they normally do. The IRS issues more than nine out of 10 refunds in less than 21 days. However, some returns may need further review. Whether or not claiming EITC or ACTC, the IRS cautions taxpayers not to count on getting a refund by a certain date. Consider this fact when making major purchases or paying debts.
  • Use IRS.gov online tools. Starting Feb. 15, the best way to check the status of a refund is with the Where’s My Refund? tool on IRS.gov.

Taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers may need their Adjusted Gross Income amount from a prior tax return to verify their identity. They can get a transcript of their return at www.irs.gov/transcript.

If you have any questions please do not hesitate to give us a call at our office, 314-993-4285.

This information was received from IRS Special Edition Tax Tip Issue Number: 2016-16.

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Rental Losses Not Automatically Nonpassive Due To Status As Real Estate Professional

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HKA has always believed that you must materially participate in a rental activity even if you hold a realtor license.  Court affirms the stance.

The Court of Appeals for the Ninth Circuit has found that a taxpayer’s rental losses were not automatically nonpassive because of her status as a real estate professional. The court rejected the taxpayer’s argument that she did not need to show material participation in the rental property.

Take away. The Ninth Circuit noted that the Tax Court has held that caselaw clearly requires that a taxpayer claiming deductions for rental real estate losses must meet the material participation’ requirement.

Background

The taxpayer worked as a licensed real estate agent. The taxpayer deducted losses from rental properties she owned on her 2006 and 2007 returns. The IRS disallowed the rental losses. The IRS determined that the taxpayer had failed to show she materially participated in the rental properties. The taxpayer countered that her status as a real estate professional made her rental losses per se nonpassive. A federal district court ruled against the taxpayer and she appealed to the Ninth Circuit.

Court’s analysis

The court first found that Code Sec. 469(c)(1) provides the general rule that any activity in which a taxpayer does not materially participate is passive. The term “passive activity” means any activity which involves the conduct of any trade or business, and in which the taxpayer does not materially participate. Further, Code Sec. 469(c)(2) establishes that rental activity is per se passive, regardless of whether the taxpayer materially participates; however, Code Sec. 469(c)(7) provides an exception for real estate professionals. Reg. §1.469-9(e)(1) provides that a real estate professional can treat rental losses as nonpassive, but only so long as he or she materially participates.

A taxpayer performs qualifying services in real property businesses if: (1) More than half of the personal services performed in a trade or business by the taxpayer are performed in real property businesses in which the taxpayer materially participates; and (2) The taxpayer performs more than 750 hours of services during the tax year in real property businesses in which the taxpayer materially participates. A taxpayer who meets the preceding requirements is commonly referred to as a real estate professional for purposes of the passive loss rules.

Compliance Alert

The court noted that the exception to the passive loss rules for rental activities of taxpayers who are involved in a real property business applies for tax years beginning after December 31, 1993.

The court found that even taxpayers who establish real estate professional status must separately show material participation in rental activities (as opposed to other real estate activities) before claiming any rental losses as nonpassive. Only the participation of the taxpayer with respect to the rental real estate may be used to determine if the taxpayer materially participates in the rental real estate activity under the material participation safe harbor provisions. Taxpayers who qualify as real estate professionals still must show material participation in rental activities before deducting rental losses, the court concluded.

Compliance Pointer

The court declined to address the taxpayer’s new argument that undated notes estimating the total hours spent on rental properties satisfied the burden of showing material participation.

If you have any questions or would like to discuss this further, please do not hesitate to give us a call at our office, 314-993-4285.

This information was received from CCH Federal Tax Weekly, Issue No. 33.

Tax News for Georgia

Georgia Conservation Tax Credit Extended

Legislation has been enacted that extends the conservation tax credit available against Georgia corporate and personal income tax liabilities from December 31, 2016 to December 31, 2021. (Effective April 28, 2016).

Savings Trust Account Deduction Increased

Legislation has been enacted that increases the Georgia personal income tax deduction for contributions to savings trust accounts to $4,000 per beneficiary for contributors filing a joint return (previously $2,000), for taxable years beginning on or after January 1, 2016.

Property Tax: Bona Fide Conservation Use Property Provisions Amended

Legislation has been enacted relating to bona fide conservation use property for purposes of Georgia ad valorem taxes. Amendments provide clarification of an existing exception to a breach of covenant for bona fide conservation use property. Amendments provide for a new exception, for certain not for profit rodeo events, to a breach of covenant. (Effective April 28, 2016).

Property Tax: Exemption for All-Terrain Vehicles Enacted

Enacted legislation provides an exemption from Georgia ad valorem taxation for certain watercraft and all-terrain vehicles held in inventory for sale or resale. Previously the exemption applied to certain watercraft only. An all-terrain vehicle is any motorized vehicle designed for off-road use which is equipped with four low-pressure tires, a seat designed to be straddled by the operator, and handlebars for steering. (Effective May 3, 2016, applicable to all taxable years beginning on and after January 1, 2017).

If you have any questions, don’t hesitate to call us at the office, 314-993-4285.

*This information was received from CCH Federal Tax Weekly.*

Tax News for Arizona

Charitable Contribution Credit Amounts Increased

The amounts that may be claimed as Arizona personal income tax credits for voluntary cash contributions to qualifying charitable organizations and qualifying foster care charitable organizations are increased, applicable to taxable years beginning after December 31, 2015. The credit cap for contributions to qualifying charitable organizations is increased from $200 to $400 for individuals and from $400 to $800 for married couples. The credit cap for contributions to qualifying foster care charitable organizations is increased from $400 to $500 for individuals and from $800 to $1000 for married couples. A taxpayer may receive separate tax credits for voluntary cash contributions to a qualifying charitable organization and to a qualifying foster care charitable organization during the same taxable year.

Arizona House Approves IRC Conformity Date Update and Partnership Return Changes

The Arizona House of Representatives has approved a bill that would update the state’s conformity to the Internal Revenue Code (IRC) for corporate and personal income tax purposes for taxable years beginning after 2015. The Senate also approved the bill. References to the IRC would be updated to mean the IRC as in effect on January 1, 2016, including those provisions that became effective during 2015, with the specific adoption of all federal retroactive effective dates. The bill would clarify some of the federal provisions that are effective for prior taxable years.

For taxpayers that qualify for the federal exclusion from gross income for civil damages, restitution, or other monetary award for wrongful incarceration, the bill would specify a deadline for filing an amended state return claiming a refund due to the exclusion and a deadline for the Department of Revenue to review the amended return. The bill would also change the partnership return filing due date from the 15th day of the fourth month following the close of the tax year to the 15th day of the third month following the close of the tax year.

In addition, the bill would specify reporting and payment requirements for when a partnership is audited by the Internal Revenue Service and is assessed an imputed underpayment pursuant to IRC §6225, or when a partnership makes the election under IRC §6226 with respect to an imputed underpayment. (As passed by the Arizona House of Representatives on May 7, 2016).

If you have any questions, don’t hesitate to call us at the office, 314-993-4285.

*This information was received from CCH Federal Tax Weekly.*

An important message to our friends and family.

As many of you are aware, fraud is at an all-time high. We wanted to make our friends and family aware of recent scams involving phone messages, e-mails, and faxes by people reporting to be the Internal Revenue Service (IRS). The IRS will NOT call, fax, or e-mail you. If you receive any type of correspondence from the IRS, or someone claiming to be an IRS agent, please send us that information as soon as possible. We want to keep you and your information safe and out of the wrong person’s hands.

 

If you get a phone call from the IRS, call us; do not return their call.
If you get an e-mail from the IRS, call us; do not return their e-mail
If you receive a notice from the IRS, send it to us and we will contact you immediately.

If you have any questions, we’re just a phone call away, don’t hesitate to call our office at 314-993-4285.

To report fraudulent or suspicious activity, contact the Treasury Inspector General for Tax Administration. Please click the link below to see a list the IRS has compiled of known tax fraud alerts:

http://www.irs.gov/uac/Tax-Fraud-Alerts

 

Tips for Taxpayers Who Missed the Filing Deadline

deadline
The IRS has some advice for taxpayers who missed the tax filing deadline.


– File as soon as possible
. If you owe federal income tax, you should file and pay as soon as you can to minimize any penalty and interest charges. There is no penalty for filing a late return if you are due a refund.


– Penalties and interest may be due.
 If you missed the April 15 deadline, you may have to pay penalties and interest. The IRS may charge penalties for late filing and for late payment. The law generally does not allow a waiver of interest charges. However, the IRS will consider a reduction of these penalties if you can show a reasonable cause for being late.


– E-file is your best option.
 IRS e-file programs are available through Oct. 15. E-file is the easiest, safest and most accurate way to file. With e-file, you will receive confirmation that the IRS has received your tax return. If you e-file and are due a refund, the IRS will normally issue it within 21 days.


– Pay as much as you can. 
If you owe tax but can’t pay it all at once, you should pay as much as you can when you file your tax return. Pay the remaining balance due as soon as possible to minimize penalties and interest charges.


– Installment Agreements are available.
 If you need more time to pay your federal income taxes, you can request a payment agreement with the IRS. Apply online using the IRS Online Payment Agreement Application tool or file Form 9465, Installment Agreement Request.


– Refunds may be waiting.
 If you’re due a refund, you should file as soon as possible to get it. Even if you are not required to file, you may be entitled to a refund. This could apply if you had taxes withheld from your wages, or you qualify for certain tax credits. If you don’t file your return within three years, you could forfeit your right to the refund.

 

Questions? Give us a call! 314-993-4285

 

-Taken from IRS.gov

What to do with an IRS Notice

Aside

Each year, the IRS sends millions of letters and notices to taxpayers for a variety of reasons. Here is some information on what to do in case a notice shows up in your mailbox, provided by the IRS.

  •  Don’t panic. Many of these letters require a simple response.
  • There are many reasons why the IRS sends correspondence. If you receive an IRS notice, it will typically cover a very specific issue about your account or tax return. Notices may require payment, notify you of changes to your account or ask you to provide more information.
  • Each notice offers specific instructions on what you need to do to satisfy the inquiry.
  • If you receive a notice advising you that the IRS has corrected your tax return, you should review the correspondence and compare it with the information on your return.
  • If you agree with the correction to your account, then usually no reply is necessary unless a payment is due or the notice directs otherwise.
  • If you do not agree with the correction the IRS made, it is important that you respond as requested. You should send a written explanation of why you disagree. Include any information and documents you want the IRS to consider with your response. Mail your reply with the bottom tear-off portion of the IRS letter to the address shown in the upper left-hand corner of the notice. Allow at least 30 days for a response.
  • You should be able to resolve most notices that you receive without calling or visiting an IRS office. If you do have questions, call the telephone number in the upper right-hand corner of the notice. Have a copy of your tax return and the notice with you when you call. This will help the IRS answer your inquiry.
  • Remember to keep copies of any notices you receive with your other income tax records.
  • The IRS sends notices and letters by mail. The agency never contacts taxpayers about their tax account or tax return by email.

 If you have any questions, give us a call!