If you make estimated tax payments, your fourth quarter 2017 Form 1040-ES payment must be postmarked on or before Tuesday, January 16th. I suggest sending it certified mail for proof of mailing date.
You probably noticed that a major tax overhaul recently passed. Here are a few actions I would recommend taking before the end of 2017:
- Pay property taxes on principal residence
- Pay January student loan and/or mortgage payments early (if the bank will allow it)
- Make charitable contributions and be sure any non-cash contributions are dropped off before 12/31/2017
- Pay for any employee business expenses, including union dues, supplies, etc.
- Complete any planned vehicle (car/boat/RV) purchase
The 2017 tax return will generally follow the old rules; the 2018 returns will be subject to the new tax laws. As I learn more about the new laws, I will provide additional direction on any other actions to take in the new year.
Despite Congress’s efforts, neither a repeal of the Affordable Care Act (“Obamacare” or “the ACA”) nor a tax reform bill have made it into law. As such, the individual insurance mandate is still in effect for the 2017 tax year. On the 2016 tax returns, the IRS gave us the option leave blank the answer to the healthcare coverage question. This put the onus on the IRS to come after taxpayers to enforce assessment and payment of the ACA mandate penalty. However, for the 2017 year, the IRS has stated that it will no longer accept tax returns that have left the healthcare question blank. So, if you do not have healthcare coverage and don’t have an acceptable exemption from the penalty, I will have no choice but to answer the healthcare coverage question “no” and calculate the penalty.
Here is a link to the IRS’s summary of the healthcare law and how it affects most taxpayers. I’ve boiled down most of the highlights:
- If you have health insurance through your employer, they will likely issue you a Form 1095-C. Add this to your tax data and give it to me when we do your tax return. No further information is generally required.
- If you purchased insurance through the individual market (not on the Healthcare Marketplace Exchanges), you should receive a Form 1095-B. I will need this form and a summary of the health insurance premiums you paid out of pocket.
- If you purchased insurance through the Healthcare Marketplace Exchange (www.healthcare.gov), you should receive a Form 1095-A. I will need this form, but no further information is generally required.
- If you are claiming a health coverage exemption issued by a religious health-sharing provider or you have an Exemption Certificate Number issued by the Marketplace, please include applicable documents with your tax data.
Some of you may be wondering about these health coverage exemptions. Here is a link to the Marketplace’s 2017 health coverage exemptions and how to apply for them, and here is a link to the IRS’s tool to help you determine if you are eligible for a health coverage exemption. If you think you may be eligible for an exemption, please visit both of those sites. Print out the results and include them with your tax data so we can make sure we report it correctly.
Finally, a reminder that open enrollment for 2018 coverage on the Healthcare Marketplace ends December 15, 2017. Since my crystal ball is on the fritz, I have to advise based on the laws currently in effect. So, my advice is to enroll in a health insurance plan now to avoid a penalty on the 2018 tax return!
If you use independent contractors (service providers who are not your employees) in your business, you may be required to file Forms 1099-MISC and the related Form 1096. This is a form that you don’t want to miss because the IRS penalties for late filing or failure to file are a serious bummer.
Here is a link to the Form 1099 instructions, but these are the general rules for most small business owners and sole proprietors:
- The Form 1099-MISC/Form 1096 filing deadline is January 31, 2018. This is both to distribute forms to nonemployee compensation recipients AND to file with the IRS.
- Prepare a Form 1099-MISC for any nonemployee compensation recipient paid $600 or more during 2017.
- Nonemployee compensation paid to independent contractors is reported in Box 7 of Form 1099-MISC.
- Form 1099-MISCs generally are not required to be issued to service providers that are organized as corporations (both Subchapter C and S).*
- For Form 1099-MISC filing using paper forms, the original forms suitable for filing with the IRS must be purchased.** They can be ordered online or purchased at an office supply store. (Pro tip: spring for the 1099 envelopes too. Makes life easier and looks a lot more professional than plain envelopes.)
- If you pay independent contractors, be sure to have them fill out a Form W-9 so you have their tax identification number and updated address information. Keep this Form W-9 in your files so it is available should the IRS ever want to see it.
- If you are a sole proprietor, I strongly recommend that you obtain an employer identification number. You can apply for one online here. This keeps your social security number from being distributed with every Form 1099-MISC.
It’s not too early to start thinking about this. January is right around the corner!
*Attorney fees over $600 must be reported on Form 1099-MISC even if the legal provider is organized as a C or S Corporation. Use Box 7.
**Unfortunately, the sample Forms 1099-MISC/Form 1096 on the IRS.gov website are not suitable for filing, and can trigger a penalty if submitted to the IRS.
Even though the 2016 filing season just wrapped up, it will be time for 2017 tax returns (and 1099s and Texas Franchise Tax and 2018 Estimated Taxes) before we know it.
Some things to think about BEFORE the end of 2017…
- If you are worried that you have not paid enough in federal tax withholding for 2017, please contact me now to discuss increasing your withholding or making an estimated payment.
- If you have some stocks that have fallen and can’t get up, sell before the end of the year to claim a capital loss.*
- If you are planning a Traditional or Roth IRA contribution, start setting money aside. Contributions to these accounts must be made by April 17, 2018.
- If you plan to donate to charity (especially if you are donating a large non-cash item like a vehicle), be sure to complete the donations by 12/31/2017 to deduct on the 2017 tax return.**
- If anything out of the ordinary has happened with your income or expenses during 2017, let me know so we can prepare for any possible tax effects.
It’s not too early to get a head start on collecting your expenses, tallying mileage, and organizing documents for 2017. I’ll be making a push to get tax returns done early this year, so getting things done ahead of time will be a huge help.
Your favorite CPA,
* Subject to capital loss limitations.
** Subject to itemized deduction limitations.
Greetings! This is your friendly reminder that your 3rd quarter 2017 Form 1040-ES estimated tax payment is due Friday September 15, 2017. Be sure your payment is postmarked on or before that date. I recommend you mail it via certified mail (minimum) with return receipt requested (preferable) to prove it was mailed timely. Enclose your voucher and check loose in an envelope (do not staple or otherwise attach). Also, make the check payable to “U.S. Treasury” and put the taxpayer’s social security number (leaving off two digits: 123-45-XX89), phone number, and the words “3rd quarter 2017 Form 1040-ES” on the check.
“When will I get my refund?”
This is one of the most popular questions people ask me. It is also one of my least favorite questions because I can’t answer it. (If you ask me this during the last few weeks of busy season when my hair is on fire, I will likely utter an obscenity and put your email in the “low priority” folder.) Once I efile a return and the IRS accepts it, refund timing is out of my hands. The IRS says 3-6 weeks, but sometimes it’s shorter or longer.
Help Me Help You
I have a solution for people who get a little impatient. The IRS website has this handy tool called “Where’s My Refund?“. You need some information found on your tax return, so have that handy when you go to the website. It will give you the refund status and a projected disbursement date. Easy-peasy and you don’t tick off your CPA.
It’s now the evening of April 17th and I am pretty much done with tax busy season. I even did my own extension. I always forget that I am also a taxpayer and have this irritating tax filing obligation. All I have left now are a few stragglers who haven’t returned a Form 8878 or 8879, the “permission slip” I need from my client before I can efile. Unfortunately, this year I did not reach my goal of filing all my clients’ returns timely. I had to file about 15 extensions, though the vast majority of them are mostly done and/or need to go through final review. This year, many of my clients weren’t ready with their tax data until late March (or even early April). When this happens, it puts me in a real bind because taxes aren’t the only one of my jobs that go into busy season in the spring. I have 22 violin and viola students that need to be taught, opera starts up again, and Easter (and other) gigs roll in. I simply run out of time. When we have a 20 hour opera week, and I have to teach or deal with student issues for about 20 hours, that’s 40 hours before I touch a tax return. I had a few weeks in March that were close to 60 hours before I even picked up a tax return. Given the number of tax returns I have to prepare and the average number of hours for each return, I need about 120 hours to complete all these returns. If I only have about five weeks to do all the returns (seriously I didn’t even get the first couple until the first week of March), that’s over 20 hours a week. There aren’t enough hours in the day or enough brain cells in my head. I finished as many as I could and had to get a little more time for the rest.
During tax season, I find it interesting how my clients react when I tell them they owe tax or they have a refund. Some people completely freak out if I tell them they owe a certain amount (that’s so much!), while others are happy to owe the same (is that all?). I have some who will never be happy with anything I tell them. Any amount to owe is too much, and any amount to get back is either not enough or they resent having paid in too much. I have to remind myself that I am only the messenger, and it is generally not my fault that anybody owes tax.
Now, I’m looking forward to the summer. I leave town eight weeks from now. That means I’ve got about seven weeks to get all these tax returns wrapped up. The good news is that my other jobs start to lighten up in May, so I should finally have uninterrupted time to get some work done. The bad news is that I probably won’t get much of a break until I cross the state line.
It’s March. Just sayin’. Hope to see you soon!
In cycling, people talk about going into the “pain cave” when they are putting out an extraordinarily difficult effort. This time of year, I go into the tax cave. Busy season is an extraordinarily difficult effort for me each year due to IRS deadlines, opera season, teaching commitments, Easter gigs, and life in general. So, if you want to visit me in the tax cave, please set up an appointment soon!