The Basics of Estimated Taxes for Individuals

NSTP2019 Tax Season

The Basics of Estimated Taxes for Individuals

The U.S. tax system operates on a pay-as-you-go basis. This means that taxpayers need to pay most of their tax during the year, as the income is earned or received. Taxpayers must generally pay at least 90 percent (however, see 2018 Penalty Relief, below) of their taxes throughout the year through withholding, estimated or additional tax payments or a combination of the two. If they don’t, they may owe an estimated tax penalty when they file. The IRS has seen an increasing number of taxpayers subject to estimated tax penalties, which apply when someone underpays their taxes. The number of people who paid this penalty jumped from 7.2 million in 2010 to 10 million in 2017, an increase of nearly 40 percent. The penalty amount varies but can be several hundred dollars. The Tax Cuts and Jobs Act, enacted in December 2017, changed the way tax is calculated for most taxpayers, including those with substantial income not subject to withholding. As a result, many taxpayers may need to adjust the amount of tax they pay each quarter through the estimated tax system. Here are some simple tips to help taxpayers: Who May Need to Pay Estimated Taxes: Individuals, including sole … Read More

Is IRS Reform on The Way?

NSTPCongress

Is IRS Reform on The Way?

The Ways and Means Committee on April 2 approved legislation by voice vote that would rework some IRS operations — setting up a vote on the House floor in the coming weeks. The legislation, the Taxpayer First Act of 2019, is a bipartisan, bicameral measure that is supported by the leaders of both tax-writing committees in Congress. The measure is expected to sail through the House, but it’s unclear when the Senate will act on companion legislation introduced by Senate Finance Committee leaders Chuck Grassley (R-IA) and Ron Wyden (D-OR) March 28. A spokesman for Grassley didn’t offer a timeline but said there’s no reason the bill shouldn’t pass the Senate since it has such broad support. Provisions in the legislation include the following: IRS Modernization – The Treasury Department would have to develop a plan to modernize the IRS’s structure by September 30, 2020. The plan would have to consider whether the Criminal Investigation Division should report directly to the head of the IRS, instead of the deputy commissioner for services and enforcement. Online Services – The Treasury Department would have to create an online service for taxpayers to prepare and file 1099 forms, which are generally used for … Read More

IRS Dispels Five Myths About Tax Refunds

NSTP2019 Tax Season

IRS Dispels Five Myths About Tax Refunds

As the April tax-filing deadline approaches, the Internal Revenue Service understands that taxpayers are anxious to get details about their tax refunds. This has led to a number of common myths about refunds that often circulate on social media. While there’s no secret way for taxpayers to find out when their refund will be issued, there are some key facts that can help people understand the refund process. Taxpayers should keep in mind the IRS issues nine out of 10 tax refunds in less than 21 days. And the easiest way to check on a refund is “ Where’s My Refund?”, an online tool available on IRS.gov and through the IRS2Go app. People can use “Where’s My Refund?” to check on the status of their tax return within 24 hours after the IRS receives an e-filed return or four weeks after a mailed paper return. The “Where’s My Refund?” tool is updated no more than once every 24 hours, usually overnight, so there’s no need to check the status more often. Taxpayers should only call the IRS tax help hotline to talk to a representative if it has been: 21 days or more since their tax return was e-filed, Six … Read More

With New SALT Limit, IRS Explains Tax Treatment of State and Local Tax Refunds

NSTPTax Exempt and Government Entities Division

With New SALT Limit, IRS Explains Tax Treatment of State and Local Tax Refunds

The Internal Revenue Service has issued clarification of the tax treatment of state and local tax refunds arising from any year in which the new limit on the state and local tax (SALT) deduction is in effect. In Revenue Ruling 2019-11, available on IRS.gov,  the IRS provided four examples illustrating how the long-standing tax benefit rule interacts with the new SALT limit to determine the portion of any state or local tax refund that must be included on the taxpayer’s federal income tax return. Today’s announcement does not affect state tax refunds received in 2018 for tax returns currently being filed. The Tax Cuts and Jobs Act (TCJA), enacted in December 2017, limited the itemized deduction for state and local taxes to $5,000 for a married person filing a separate return and $10,000 for all other tax filers. The limit applies to tax years 2018 to 2025. As in the past, state and local tax refunds are not subject to tax if a taxpayer chose the standard deduction for the year in which the tax was paid. But if a taxpayer itemized deductions for that year on Schedule A, Itemized Deductions, part or all of the refund may be subject to … Read More

Tax Preparers Can Protect Their Clients by Hiring A Cybersecurity Pro

NSTPHackers

Tax Preparers Can Protect Their Clients by Hiring A Cybersecurity Pro

To protect their offices and clients, many tax preparers hire a cybersecurity professional. Every tax business is unique, so preparers should discuss their specific concerns with someone they hire. This will help safeguard both the preparer’s business and their clients’ data. Here are some things preparers should do when selecting a cybersecurity professional: Ask for recommendations Preparers can talk to other business owners or professionals for recommendations and references. Be selective Ultimately a preparer or business owner will need to select the person they trust most. They should choose someone with whom they feel comfortable discussing the safety and security of their business and clients. Do interviews Preparers should ask questions of the candidates to learn just how much experience they have in data protection. Here are some preliminary examples of questions preparers can ask to get the ball rolling: How does ransomware work and what can we do to protect our systems? What are the best options to securely back-up data and why are those options the best? Do you have suggestions regarding data encryption, malware, firewalls, disaster recovery, and remote access tools? Have you ever created a security plan for a similar business? Can you do an assessment … Read More

What’s New for Farmers?

NSTPInternal Revenue Service (IRS), Taxpayer

What's New for Farmers

What’s New for Farmers? Tax rates: Income averaging Tax rates have changed, and taxpayers may want to consider whether filing a Form 1040, Schedule J, Income Averaging for Farmers and Fishermen, is right for them. They may use Form 1040, Schedule J, to average all or some of the farm income by using income tax rates from the three prior years (“base years”). This may lower the tax if current year farm income is high and taxable income from one or more of the base years was low. Methods of accounting and capitalization: Overall method of accounting – cash or accrual For tax years beginning on or before December 31, 2017, the tax law prohibited certain farming C corporations, certain farm partnerships with a C corporation partner and all tax shelters from using the cash method of accounting. As a result of the TCJA, for tax years beginning after December 31, 2017, any farmer may use the cash method of accounting if the farmer: 1) meets the gross receipts test (discussed later); and 2) is not a tax shelter. (See Inventory below.) A farming business making a change to its overall method of accounting should file a Form 3115, Application … Read More