Author Archives: c11723713

Delayed Refunds for Many 2016 Tax Returns

There are some important changes that will impact your individual income tax return for tax year 2016.  The changes range from refund delays, due diligence requirements and updated exemption and deduction amounts.

Any tax return that claims the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit (ACTC) will be delayed beginning with this filing season.  In prior years, these refunds were issued no differently than returns that were not claiming these credits.  As a requirement of the PATH Act, no refunds will be issued until February 15, 2017 to allow for review and verification of eligibility to claim these credits. The entire refund will be held, not just the amounts of the credits claimed.

The PATH Act has also increased the due diligence required of tax preparers to include the Child Tax Credit (CTC) and the American Opportunity Tax Credit (AOTC).  In the past, due diligence was only required on the EITC.  Form 8867 has been modified to include questions that will help determine the eligibility for all three of these credits.  Failure to comply with this new requirement will result in a penalty of $510 so there is added incentive for tax professionals to comply with the new requirement.

The updated amounts for some common items are as follows:  the personal exemption amount has increased from $4,000 to $4,050 per exemption; the standard deduction for filing status of single, married filing separately and married filing jointly remains unchanged but the amount for head of household has increased from $9,250 to $9,300; the standard business mileage rate has dropped from $.575 per mile to $.54 per mile; the adoption credit has increased from $13,400 to $13,460.

Some states are requiring additional identity verification on tax returns such as entering your driver’s license information.  While Virginia has not yet implemented this verification step, it is likely to occur in the near future so be prepared to provide this information to you tax preparer.

These are just a few items that are changing for the 2016 tax filing season.

Thank you, Lakeside!

Orchid

 

Lakeside will forever hold a place in my heart.  My dad, Earl W Moore, started this business 30 years ago in The Hub shopping center and we have called The Hub home ever since. In 2008, I stepped in to help run the business as Dad battled Leukemia. After he passed and I took over the business, I was full of confidence. How hard could it be? I had an accounting degree from the University of Richmond and 8 years of corporate management experience. Well, I am so thankful for a client base that was loyal, patient and forgiving of my growing pains as a business owner and tax professional. I can’t imagine another community being so gracious. Lakeside helped me develop into the professional I am today and I will be forever grateful to the clients and community of Lakeside.

What does that have to do with an orchid you might ask?  In 2013, my mom, Judy Moore, sold her house and my wife, Amanda and I adopted an orchid from her. While eating dinner with my family last week, I noticed the orchid was in full bloom. Amanda commented that it was the first time it had bloomed since being in our home.  So the first time this orchid blooms is right as I’m relocating the business?  That was a sign to me that Dad was right there with me, supporting me during this emotional time. I have plans to memorialize this orchid at the new location. I hope it will keep the spirit of Lakeside alive in the new space and make you smile the way it made me smile.

Farewell, Lakeside and thank you for the memories!

The next chapter

Exciting changes are taking place at E. W. Moore & Company, Inc.!  As a valued client, I want to take this opportunity to share our news with you.

For 30 years, my family has served you from the Hub Shopping Center on Lakeside Avenue, including 20 years in our present location.  With your loyalty, we have outgrown our current office and need more space to serve you more effectively.

On August 8th, we will be closing our current office and we will re-open on August 15th at our new office located at 9671 Sliding Hill Road, Suite 203, Ashland, VA 23005 in the Sliding Hill Professional Building.  Don’t let the Ashland location fool you.  We will only be ten minutes north of our present location and easily accessible by Interstate 95 (exit 86A – Atlee) as well as by U.S. Routes 1 and 301.

Our new location will give us the space we need to operate more efficiently as well as to provide you with private meeting spaces for discussing your tax and financial information.

Some other changes that were made this past year that you might not have been aware of include a redesigned website (www.ewmooreaccounting.com) and a secure client portal.  Our website is loaded with helpful information about our practice, posts about relevant tax topics on the blog, access to the secure client portal, and “Where is my refund?” status, just to name a few.

The client portal allows us to electronically and securely exchange documents with you as a matter of convenience.  If this is something that interests you, be sure to let us know so we can set you up to start using this feature.

I put a great deal of thought into picking a new location and I truly feel it is the best decision to better serve you.  I am truly excited to start this new chapter of the company.  Our telephone number (804-266-8846), fax (804-261-9274) and email (eric@ewmooreaccounting.com) will remain the same.

The comment I hear over and over again is how much you love the personal attention we give you and this will not be changing.  This is a very important asset to me as a business owner and it is as valuable to me as it is to you.  I will not lose sight of this benefit to our clients.

I look forward to seeing you at the new office!9671 Sliding Hill Road

Home Office Deduction

You’ve decided to start a small business working out of your home. Life is great and you can’t beat the commute. Now, how will this affect your income taxes? Can you deduct expenses for use of your home? The answer is that it depends…on a lot of things.

First of all, the business must be for profit or an expectation of profit. Next, you must set aside an area that is used exclusively for this business. Perhaps you’ve set up a room with a desk, computer, file cabinets, and storage for your product. Use the room entirely and exclusively for business purposes and it will be deductible. Beware, however, that as soon as you add a sofa bed in the corner for your in-laws to use when they come to visit, the space is no longer exclusive and you lose the deduction.

What is eligible for a deduction? This is where the math comes in. You must determine the total square footage of your home and the total square footage of the office. Example: Total house is 2000 square feet and the office area is 200 square feet. This will give you a 10% office usage equation. You will then be allowed to deduct 10% of your costs for the upkeep and maintenance of your home which includes insurance, taxes, mortgage interest (or rent), electricity, gas, and repairs for the entire house. Additionally, you can take specific fix-up and maintenance costs in full if they are solely for the business space.

Also available is a deduction for depreciation on the home. To determine this figure, use the cost of the house, less the value of the land, and depreciate this value over 39 years. When you sell the home, you must make an adjustment for the amount of the depreciation taken. This depreciation adjustment is recaptured on your tax return at the 25% tax rate.

Be sure you fully understand the home office deduction and subsequent depreciation recapture before using it. Rules for the home office deduction can be tricky; therefore, it is wise to get professional tax help from an enrolled agent, America’s tax expert.

What is a 1095?

The most asked question this tax season is “What is a 1095”?  A 1095 is a form that outlines your health insurance coverage for you and your dependents.  It comes in 3 variations: 1095-A, 1095-B and 1095-C.

If you obtained your health insurance through the health care marketplace, you will receive a form 1095-A.  This form will list who was covered, for what period of time and the amounts paid.  This form will also be used to reconcile any advance credits received.  If you paid too much for your coverage, you will receive additional credit on your tax return.  If you paid too little for your coverage, you will have to repay it on your tax return.

If you obtained your health insurance through a private insurance agent, you will receive a form 1095-B.  This form is similar to the 1095-A except it will only be used to verify that you had health insurance.

If you obtained your health insurance through your employer and they employ at least 50 people, you will receive a form 1095-C.  This is similar to the 1095-B in that it will only be used to verify you had health insurance.

So what happens if you haven’t received a 1095 yet?  If you are expecting a 1095-A, you should already have it.  If not, you can access it online through your marketplace account or call the marketplace for a replacement copy.  Since the 1095-B and 1095-C are required for the first time, the deadline was extended to March 31st so it may not have arrived.  The 1095 form is mandatory so you will get one.

If you did not have health insurance in 2015, you will need to report it on your tax return and you may be subject to a penalty.  The penalty applies when you can afford (based on your income) health insurance but you choose not to purchase coverage.

When you are ready to file your taxes, provide your tax professional with the appropriate form 1095.

The PATH to a better tax season

On December 18, 2015, the Protecting Americans from Tax Hikes Act of 2015 (PATH) was officially signed into law.  This law extended several deductions and credits that expired at the end of 2014 for individuals and businesses.  The law extended some of the tax breaks temporarily while some of the tax breaks were made permanent.

A few of the temporary deductions include the deduction for mortgage insurance premiums and the tuition and fees deduction which were both extended through 2016.  Taxpayers might be able to deduct mortgage insurance premiums paid on mortgages taken out after 2006 on their Schedule A.  The tuition and fees deduction allows a deduction for education expenses that don’t qualify for the American Opportunity Tax Credit or the Lifetime Learning Credit.  The ability to exclude the discharge of primary residence debt from income was also extended through 2016.

The real benefit of this law comes from the permanent extension of key deductions and credits that are widely used by taxpayers.  The following items were extended permanently: The schoolteacher expense deduction, the American Opportunity Tax Credit, the state and local sales tax deduction and the Qualified Charitable Distributions.  The schoolteacher expense deduction allows a deduction of up to $250 per year for out of pocket expenses.  The American Opportunity Tax Credit allows up to $2,500 per year for tuition and related education expenses for the first 4 years of post-secondary education.  The state and local sales tax deduction on Schedule A allows the taxpayer to deduct the higher of state income taxes paid or sales tax paid.  The Qualified Charitable Donation allows taxpayers over the age of 70 ½ to donate to a charity directly from their IRA.  This can be done in place of a Required Minimum Distribution and the distribution to the charity will not count as income.

While this law didn’t extend all deductions and credits permanently, it gives taxpayers and tax professionals the ability to plan more effectively.  For a complete list of the individual tax breaks and for the business tax breaks that were extended, consult your tax expert.

I’m not an employer…or am I?

Most people don’t think of themselves as an employer but if you have a nanny to help with the kids or a caregiver to help with elderly family members, you just might be an employer.   Do you have to do anything special if you hire a nanny or a caregiver?

The IRS and the state of Virginia provide specific guidelines for employers of household help.  The IRS defines a household employee as anyone hired to do household work where you control what duties they have and how they perform them.

If you have someone who qualifies as a household employee and you pay them more than $1800 a year, you need to make sure you are following the appropriate federal and state guidelines for payment and reporting.  Generally, you will be responsible for FICA taxes and unemployment taxes and possibly withholding taxes.  In these cases, you would also be responsible for issuing a W-2 to the household employee at the end of the year.

The employer reports and submits the FICA and federal unemployment taxes annually when they file their individual tax return.  A Schedule H is used to report the annual wages and calculate the FICA and unemployment taxes due.  This schedule is then attached to the tax return.

The Virginia department of taxation will require an annual report to be filed with payment.  This form is separate from your individual tax return.  The household employer would also have to pay Virginia unemployment taxes which are filed and paid on a quarterly basis unless an annual exception is granted.

Navigating the waters of household employment can be tricky.  Often the penalties for non-compliance are greater than the actual cost of the taxes and reporting requirements.  If you are unsure if you have a household employee or if you are unsure if you are reporting it correctly, seek out the help of someone who is trained and has experience with household employees.

Heading off to College

Are you or one of your dependents headed off to college this fall?  If so, the IRS provides several education tax credits that will help offset some of the cost.  Here is a brief description of the two most common credits.

The first credit is the American Opportunity Credit.  This credit is available only during the first 4 years of higher education.  You (or your spouse or a dependent) must be enrolled in a program that leads to a degree or certificate, you must be enrolled in at least half of a full time work load, you must not have been convicted of a felony for distributing a controlled substance at the federal or state level, and you must incur expenses related to the education, such as tuition.  If all of these requirements are met, you can claim a credit of up to $2,500.  The credit does begin to phase out as income exceeds $80,000 for a single taxpayer or $160,000 for a taxpayer filing a joint return.  Also, $1,000 of the credit is refundable which means you can receive up to this amount even if you have no tax liability.  The other $1,500 is non-refundable meaning it can only be used to offset tax liability until it reaches $0.

If you don’t qualify for the American Opportunity Credit, you may qualify for the Lifetime Learning Credit.  This credit only requires you to take at least one class at a higher education institution.  The credit is for 20% of eligible expenses, with a maximum credit allowed of $2,000.  There is no limit to the number of times this credit may be claimed.  This credit begins to phase out as income levels reach $54,000 filing singly or $108,000 filing jointly.  The credit is non-refundable.

It is important to note that neither credit is available to taxpayers with a filing status of Married Filing Separately.  Also, each student may only claim one tax credit per year.

If you pay for higher education expenses, chances are pretty good that you will qualify for one of these credits which can help ease the financial burden that comes with attending a higher education institute.

Data Breach at the IRS

On June 2, 2015, IRS Commissioner Koskinen testified that the IRS suffered a data breach to its “Get Transcript” application.  The data breach occurred between mid-February and mid-May.  Approximately 200,000 accounts were targeted with approximately 104,000 of those targets being successful.

What is the “Get Transcript” application?  It is an online program at www.irs.gov that will allow you to obtain text versions of annual tax filings including information about your income, dependents, employment, social security number and address to name a few.  In order to obtain this transcript, the taxpayer must answer a series of questions designed to authenticate their identity.  The answers to these questions are designed so that only the taxpayer would know them.

So how could the criminal know these taxpayer specific answers?  With the increasing electronic environment we live in, data is more readily available to those criminals who know how to access it.  Social media also enables the information gathering as taxpayers share personal information about themselves that could help someone to beat the authentication process.

As the need to access data electronically increases, the focus on fraud prevention becomes more important.  The IRS has stated that no other application was targeted such as the main IRS computer system.  The IRS is working with state tax agencies as well as tax software companies to continue finding ways to make taxpayer information more secure.  The IRS is actively enforcing tax fraud and identity theft when it is discovered.  In June, a Florida man convicted of identity theft in a scam to claim $1.8 million in false refunds was sentenced to 27 years in federal prison.

As data security becomes more important, we should be aware of our role in the process.  Some steps you can take to avoid being a victim include changing passwords periodically, making sure your computer is secure, only giving out your social security number when it’s absolutely necessary, and checking your credit report annually.

It is the responsibility of the IRS, state taxing agencies, tax preparers and others to protect the information that is entrusted to them.  It is also important for taxpayers to take an active role in identity protection.

Greetings from the IRS

You’ve just picked up your mail and there among the ads, bills and junk mail is that official looking letter from the Internal Revenue Service. You get a queasy feeling in the pit of your stomach but don’t panic.  DO open the letter. It might even be good news.

Usually, mail from the IRS is a notification that they need verification or substantiation of an amount you have claimed on your tax return. Read the letter thoroughly. Determine what they are looking for, and then provide the information. Some of the most commonly missed items on a return are simple things: you forgot to sign the 1040; there was an error in figuring credits or deductions; or, perhaps the income you listed doesn’t match the figures that were reported to the IRS.

If you have the correct information, it’s a simple matter to fix. Make copies of your documents verifying the information on your return and send the copies back to the IRS along with a copy of the letter. If, in fact, you didn’t include an amount on your return that should have been there, sign the form agreeing to the change and send them a check for the amount of tax due by the deadline date given for compliance. Usually, penalties and interest will be added—so, the sooner you comply, the less it will cost.

If your IRS letter advises you that your return has been selected for audit, you would be wise to seek professional advice. If you used a tax professional to prepare your return, such as an enrolled agent (EA), CPA, or attorney, you should contact that person for help with the audit. If you prepared your own return, you may wish to contact an enrolled agent immediately. Enrolled agents are authorized by the U.S. Treasury Department to represent taxpayers before all administrative levels of the IRS for audits, collections, and appeals. To find an EA in your area, visit the National Association of Enrolled Agents website at www.naea.org.

Now you’re thinking, what about that possible good news mentioned earlier? It could be that the notice is for an unexpected refund, of course. Now, open that letter!