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NOTICE TO RESIDENTS OF MARYLAND

We are NOT affiliated with the State of Maryland. If you are looking for information about Maryland income taxes, please go to www.marylandtaxes.com.


Useful Links:

FindAGoodCPA.com - Not a healthcare professional? Find a CPA or EA who understands the tax issues specific to you.

Nanny Taxes - Find out what's involved with complying with the Nanny Tax Rules

IRS Web Site - for tax forms, publications, and general tax information.

Exchange Authority - New England's first authority for IRC 1031 Exchanges

Cost Segregation Studies - Accelerate tax depreciation deductions on new and existing buildings through cost segregation studies

Social Security - find out the latest rules or your projected retirement benefit.

The Company Corporation offers fast, reliable & affordable incorporation and LLC services.


MONTHLY TAX NEWSLETTER

September 2017

COHEN'S CORNER: 1/2/18 IS DEADLINE TO POSSIBLY SAVE SIGNIFICANT ESTATE TAXES

by Attorney Neil Cohen

You have until January 2, 2018 to file your portability election.  What does that mean and why is it important? 

If your spouse or one of your parents died after December 31, 2010 and no federal estate tax return was filed for their estate, you may be missing out on an opportunity to protect over $5 million dollars from federal estate taxes. 

Under the federal gift and estate tax laws, every person has the ability to pass a certain amount of assets to anyone else during life (via gift in excess of $14k per year) or at death (via their estate) without being subjected to a gift or estate tax.  This exclusion amount, (sometimes referred to as an “exemption” or the “unified credit”) has increased dramatically over the past few decades in response to the calls for estate tax law repeal.  The exclusion amount was $600,000 during most of the ‘90’s and after gradually increasing earlier last decade was set at $5,000,000 in 2011. 

In an effort to allay future calls for repeal, two additional concepts were included in the new law:  first, the exclusion amount was indexed for inflation so that it is now $5,490,000 for 2017 and, second, the exclusion amount became portable.

Portability means that if one spouse dies and does not use his or her entire exemption amount, the surviving spouse can still have the benefit of that unused exclusion amount on his or her death.  This was a radical departure from the estate tax law of the past because the exclusion amount was a “use it or lose it” proposition.  Previously, if one spouse held $10,000,000 of assets in his or her name and the other spouse died first with no assets, then on the surviving spouse’s subsequent death the value of the assets over the exemption amount would be subject to estate taxes.  A $10,000,000 estate would be subject to an estate tax in the neighborhood of $2,500,000.

With the advent of portability, however, that same couple is able to shelter the full $10,000,000 because the exclusion amount of the first spouse to die is available to the surviving spouse. 

In order to claim what is now referred to as the “deceased spousal unused exclusion” (DSUE) amount, the estate of the first spouse to die must file a “timely filed” estate tax return, including extensions, for no other reason than to claim the DSUE.  Before portability, if a person died with an estate that was not over the exclusion amount, an estate tax return was not required.  This may explain why no estate tax return was filed for your spouse or parent.

As time passed people began to realize that the DSUE amount was only available if they filed a timely filed estate tax return meaning within nine months after death or 15 months if the automatic 6 month extension is requested.   When people realized the filing deadline had passed, their only option was to file a Private Letter Ruling request with the IRS which came at great expense; the filing fee alone approached $10,000. The benefit however is well worth it.

After being inundated with countless identical Private Letter Ruling requests, the IRS recently issued Revenue Procedure 2017-34 which provides for a simplified method to grant relief to estates that have missed their filing deadline.  This simplified method requires the executor to complete and file a properly prepared estate tax return on or before the later of January 2, 2018, or the second annual anniversary of the decedent’s date of death. 

There are several other requirements as well but the Bottom Line is that estates of people that died between 2011 and 2015 can obtain relief under this streamlined Revenue Procedure instead of by filing a Private Letter Ruling request.  It also extends the time to file for certain estates that may have missed their filing deadlines but have not yet exceeded the 24 month period; i.e. estates of decedents who died more than 15 months but less than 24 months prior to the date you are reading this article.

If you have any questions about the DSUE please contact Attorney Neil Cohen of Seegel Lipshutz & Lo, LLP at ncohen@sll-law.com.

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IRS REMINDS TAXPAYERS TO WATCH OUT FOR SCAMS

IR-2017-112, June 26, 2017

WASHINGTON – The Internal Revenue Service today issued a warning that tax-related scams continue across the nation even though the tax filing season has ended for most taxpayers. People should remain on alert to new and emerging schemes involving the tax system that continue to claim victims.

“We continue to urge people to watch out for new and evolving schemes this summer,” said IRS Commissioner John Koskinen. “Many of these are variations of a theme, involving fictitious tax bills and demands to pay by purchasing and transferring information involving a gift card or iTunes card. Taxpayers can avoid these and other tricky financial scams by taking a few minutes to review the tell-tale signs of these schemes.”

EFTPS Scam

A new scam which is linked to the Electronic Federal Tax Payment System (EFTPS) has been reported nationwide. In this ruse, con artists call to demand immediate tax payment. The caller claims to be from the IRS and says that two certified letters mailed to the taxpayer were returned as undeliverable. The scammer then threatens arrest if a payment is not made immediately by a specific prepaid debit card. Victims are told that the debit card is linked to the EFTPS when, in reality, it is controlled entirely by the scammer. Victims are warned not to talk to their tax preparer, attorney or the local IRS office until after the payment is made.

“Robo-call” Messages

The IRS does not call and leave prerecorded, urgent messages asking for a call back. In this tactic, scammers tell victims that if they do not call back, a warrant will be issued for their arrest. Those who do respond are told they must make immediate payment either by a specific prepaid debit card or by wire transfer.

Private Debt Collection Scams

The IRS recently began sending letters to a relatively small group of taxpayers whose overdue federal tax accounts are being assigned to one of four private-sector collection agencies. Taxpayers should be on the lookout for scammers posing as private collection firms. The IRS-authorized firms will only be calling about a tax debt the person has had – and has been aware of – for years. The IRS would have previously contacted taxpayers about their tax debt.

Scams Targeting People with Limited English Proficiency

Taxpayers with limited English proficiency have been recent targets of phone scams and email phishing schemes that continue to occur across the country. Con artists often approach victims in their native language, threaten them with deportation, police arrest and license revocation among other things. They tell their victims they owe the IRS money and must pay it promptly through a preloaded debit card, gift card or wire transfer. They may also leave “urgent” callback requests through phone “robo-calls” or via a phishing email.

Tell Tale Signs of a Scam:

The IRS (and its authorized private collection agencies) will never:

  • Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer. The IRS does not use these methods for tax payments. The IRS will usually first mail a bill to any taxpayer who owes taxes. All tax payments should only be made payable to the U.S. Treasury and checks should never be made payable to third parties.
  • Threaten to immediately bring in local police or other law-enforcement groups to have the taxpayer arrested for not paying.
  • Demand that taxes be paid without giving the taxpayer the opportunity to question or appeal the amount owed.
  • Ask for credit or debit card numbers over the phone.

For anyone who doesn’t owe taxes and has no reason to think they do:

  • Do not give out any information. Hang up immediately.
  • Contact the Treasury Inspector General for Tax Administration to report the call. Use their IRS Impersonation Scam Reporting web page. Alternatively, call 800-366-4484.
  • Report it to the Federal Trade Commission. Use the FTC Complaint Assistant on FTC.gov. Please add "IRS Telephone Scam" in the notes.

For anyone who owes tax or thinks they do:

How to Know It’s Really the IRS Calling or Knocking

The IRS initiates most contacts through regular mail delivered by the United States Postal Service. However, there are special circumstances in which the IRS will call or come to a home or business, such as:

  • when a taxpayer has an overdue tax bill,
  • to secure a delinquent tax return or a delinquent employment tax payment, or,
  • to tour a business as part of an audit or during criminal investigations.

Even then, taxpayers will generally first receive several letters (called “notices”) from the IRS in the mail. For more information, visit “How to know it’s really the IRS calling or knocking on your door” on IRS.gov.

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MIKE'S RECOMMENDATIONS FOR BEST FILMS FEATURING TAX ACCOUNTANTS

by Michael Bohigian CPA

While the 2017 summer blockbuster season was woefully deficient in characters with distinguished accounting pedigrees, several past cinematic hits have showcased the fine art of the tax deduction.

Here are some of Hollywood’s most memorable accountants and the tax wisdom, or lack thereof, that these characters imparted along the way, starting most recently with:

The Accountant (2016)

In The Accountant, Ben Affleck plays an autistic CPA who “uncooks” the books for criminal enterprises while he exhibits a dazzling array of martial arts skills. In his off-time, Affleck’s character is a small-town tax preparer who isn’t afraid to push aggressive tax deductions on his clients as he randomly blows on his fingers.  One of these deductions is the home office deduction.  In the movie, the accountant recommends the home office deduction to his clients with a wink and a nod, yet this is a legitimate deduction that allows people who work from home to deduct a portion of their home expenses for business purposes. In fact, the IRS simplified the home office deduction a few years ago, allowing people the option to deduct $5 for every square foot of the home office up to $1,500 per year without having to pro-rate the cost of rent, mortgage interest, real estate taxes, and other relevant expenses.

Ghostbusters (1984)

A minor and very underrated character in Ghostbusters, Louis Tully (played by Rick Moranis), is an accountant who happens to be the “Keymaster of Gozer.” It is at his own party where he meets Zuul, the “Gatemaster of Gozer.”  Now, had this been a party thrown for business purposes, the Keymaster would have been able to claim a Meals and Entertainment deduction on his 1984 tax return. In general, a taxpayer can deduct 50% of business-related meal and entertainment expenses, although in Tully’s day the deduction would have provided a much bigger bang for the buck, as 100% of the expense was then deductible. 

The Shawshank Redemption (1994)

In The Shawshank Redemption, Tim Robbins plays Andy Dufresne, an accountant wrongly imprisoned for the murder of his wife. While in prison, Dufresne gains the ear of the warden by offering some tax loopholes around the Estate Tax, in particular avoiding a fictitious “inheritance tax” by giving a one-time gift to his spouse.  While this advice deviates wildly from factual accuracy, the IRS code does allow tax-free transfers from one spouse to the other. 

The Untouchables (1987)

The Untouchables features the real-life story of federal accountant Oscar Wallace who helps federal agent Elliot Ness bring down Al Capone by proving that Capone made millions of dollars illegally but never paid taxes. The film is a good reminder of the federal government’s powers to investigate and punish income tax fraud. When fraud isn’t involved, however, how long must the average taxpayer have to worry about an IRS audit? Traditionally, the IRS statute of limitations has been three years to look back at past year tax returns. But this doubles to six years for a few exceptions, one of which is if you have omitted more than 25% of your income from your tax return.

In Summary

Based on these movies, everyone can now agree that accountants are usually very interesting people and not boring as the stereotype unfairly depicts.

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TAX AND FINANCIAL PLANNING CALENDAR FOR SEPTEMBER 2017

Month

Income Taxes

Saving and Investing

 

September

  • 3rd qtr estimates due 9/15/17
  • Corporate and Partnership tax returns on extension are due 9/15/17

 

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2016 & 2017 TAX FACTS

  • For 2016, the standard deduction for a single individual is $6,300 and for a married couple is $12,600. A person will benefit by itemizing once allowable deductions exceed the applicable standard deduction. Itemized deductions include state and local income taxes (or sales taxes), real estate taxes, mortgage interest, charitable contributions, and unreimbursed employee business expenses.
  • For 2016, the personal exemption is $4,050. Individuals will claim a personal deduction for themselves, their spouse, and their dependents. 
  • The maximum earnings subject to social security taxes is $127,200 for 2017, up from $118,500 for 2015 and 2016.
  • The standard mileage rate is $.535 per business mile as of January 1, 2017, down from $.54 for 2016.
  • The maximum annual salary deferral into a 401(k) plan or a 403(b) plan is $18,000 in 2015, 2016 and 2017, up from $17.5k in 2014. And if you'll be 50 or older by December 31st, you can contribute an extra $6,000 into your 401(k) or 403(b) account this year.
  • The maximum annual contribution to your IRA is $5,500 for 2014 through 2017. And if you turn 50 by December 31st, you can contribute an extra $1,000 that year. You have until April 15, 2017 to make your 2016 IRA contributions.

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This Month's Topics

Cohen's Corner: 1/2/18 Is Deadline To Possibly Save Significant Estate Taxes

IRS Reminds Taxpayers to Watch Out for Scams

Mike's Recommendations For Best Films Featuring Tax Accountants

The FICA Refund for Medical Residents

2016 & 2017 Tax Facts

Tax and Financial Planning Calendar for September 2017

 

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WHAT'S NEW WITH THE FICA REFUND?

In a shocking development, the IRS recently announced that they will be honoring the FICA tax refunds submitted by residency programs and individual doctors. The catch is that only FICA taxes paid prior to 4/1/05 qualify.

For more information, go to our April 2010 Newsletter, our January 2009 Newsletter, or our February 2001 Newsletter or read through the IRS' Chief Counsel Advice Memorandum on this issue.

Let's work together to keep current on this hugely valuable tax break. Please post whatever you read or hear regarding this FICA issue on our new Message Board we set up just for this topic.

 

 
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