Archives for February 2018

The Right to Pay No More than the Correct Amount of Tax – Taxpayer Bill of Rights #3

The Right to Pay No More than the Correct Amount of Tax – Taxpayer Bill of Rights #3

Taxpayers have the right to pay no more than the correct amount of tax they owe. This is one of ten basic rights known collectively as the Taxpayer Bill of Rights. This tip is the third in a series outlining these rights.

Taxpayers have the right to pay only the amount of tax legally due. This includes interest and penalties. Additionally, taxpayers can expect to have the IRS apply all tax payments properly.

Here are some things taxpayers should know about the right to pay no more than the correct amount:

Taxpayers who overpaid their taxes can file for a refund. Taxpayers must file a claim for a credit or refund by the later of these two dates:

Three years from the date they filed their original return.
Two years from the date they paid the tax.

Taxpayers who receive a letter from the IRS should review the information in it. The taxpayers who believe the information is incorrect should contact the office listed in the letter. The letter also provides a date by which the taxpayer should respond.• The IRS may automatically correct math errors on a return. Taxpayers who disagree with the adjustment must request that the IRS reverse the change. The taxpayer has 60 days to make this request from the time the IRS made the change, or otherwise the taxpayer will lose the right to dispute the adjustment in United States Tax Court before paying the tax.
• Taxpayers may request that the IRS remove any interest from their account caused by unreasonable IRS errors or delays. For example, this could happen if the IRS delays issuing a late notice because an IRS employee was out of the office, and interest accrues during that time.

• If a taxpayer believes they do not owe all or part of their bill, they can submit an offer in compromise. This offer asks the IRS to accept less than the full amount owed. To do this, taxpayers use Form 656-L, Offer in Compromise.

• Some taxpayers enter a payment plan to pay their taxes. This plan is an installment agreement. The IRS must send these taxpayers an annual statement that provides how much the taxpayer:

Owes at the beginning of the year.
Paid during the year.
Still owes at the end of the year.

More Information:

Publication 556, Examination of Returns, Appeal Rights, and Claims for Refund
Publication 1, Your Rights as a Taxpayer

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Upcoming Tax Filing Deadlines

February 28th:

Businesses – File information returns (Form 1099) for certain payments you made during 2017. These payments are described under January 31; however, Form 1099-MISC reporting non-employee compensation must be filed by January 31. There are different forms for different types of payments. Use a separate Form 1096 to summarize and transmit the forms for each type of payment. See the 2017 Instructions for Forms 1099, 1098, 5498, and W-2G for information on what payments are covered, how much the payment must be before a return is required, what form to use, and extensions of time to file. If you file Forms 1097, 1098, 1099, 3921, 3922, or W-2G electronically (except Form 1099-MISC reporting non-employee compensation), your due date for filing them with the IRS will be extended to April 2. The due date for giving the recipient these forms is still January 31.

Payers of Gambling Winnings – File Form 1096, Annual Summary and Transmittal of U.S. Information Returns, along with Copy A of all the Forms W-2G you issued for 2017. If you file Forms W-2G electronically, your due date for filing them with the IRS will be extended to April 2. The due date for giving the recipient these forms remains January 31.

Large Food and Beverage Establishment Employers – with employees who work for tips. File Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips. Use Form 8027-T, Transmittal of Employer’s Annual Information Return of Tip Income and Allocated Tips, to summarize and transmit Forms 8027 if you have more than one establishment. If you file Forms 8027 electronically, your due date for filing them with the IRS will be extended to April 2.

Health Coverage Reporting – If you’re an Applicable Large Employer, file paper Forms 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, and 1095-C with the IRS. For all other providers of minimum essential coverage, file paper Forms 1094-B, Transmittal of Health Coverage Information Returns, and 1095-B with the IRS. If you’re filing any of these forms with the IRS electronically, your due date for filing them will be extended to April 2.

March 1:

Farmers and Fishermen – File your 2017 income tax return (Form 1040) and pay any tax due. However, you have until April 17 to file if you paid your 2017 estimated tax by January 16, 2018.

March 15:

S-Corporation or Partnership – Returns for fiscal year Partnerships and S-Corporations will be due on the 15th day of the 3rd month after the year-end (usually March 15th). The business is responsible for reporting all financial activity on Form 1120S and attaching a Schedule K-1 for each shareholder. These Schedule K-1s report each shareholder’s share of the business’ taxable income so they can report it on their personal returns. If the business is unable to file by March 15, it can obtain an automatic six-month extension of time to file by filing IRS Form 7004.

Interest on Home Equity Loans Often Still Deductible Under New Law

Interest on Home Equity Loans Often Still Deductible Under New Law

WASHINGTON – The Internal Revenue Service today advised taxpayers that in many cases they can continue to deduct interest paid on home equity loans.

Responding to many questions received from taxpayers and tax professionals, the IRS said that despite newly-enacted restrictions on home mortgages, taxpayers can often still deduct interest on a home equity loan, home equity line of credit (HELOC) or second mortgage, regardless of how the loan is labelled. The Tax Cuts and Jobs Act of 2017, enacted Dec. 22, suspends from 2018 until 2026 the deduction for interest paid on home equity loans and lines of credit, unless they are used to buy, build or substantially improve the taxpayer’s home that secures the loan.

Under the new law, for example, interest on a home equity loan used to build an addition to an existing home is typically deductible, while interest on the same loan used to pay personal living expenses, such as credit card debts, is not. As under prior law, the loan must be secured by the taxpayer’s main home or second home (known as a qualified residence), not exceed the cost of the home and meet other requirements.

New dollar limit on total qualified residence loan balance

For anyone considering taking out a mortgage, the new law imposes a lower dollar limit on mortgages qualifying for the home mortgage interest deduction. Beginning in 2018, taxpayers may only deduct interest on $750,000 of qualified residence loans. The limit is $375,000 for a married taxpayer filing a separate return. These are down from the prior limits of $1 million, or $500,000 for a married taxpayer filing a separate return. The limits apply to the combined amount of loans used to buy, build or substantially improve the taxpayer’s main home and second home.

The following examples illustrate these points.

Example 1: In January 2018, a taxpayer takes out a $500,000 mortgage to purchase a main home with a fair market value of $800,000. In February 2018, the taxpayer takes out a $250,000 home equity loan to put an addition on the main home. Both loans are secured by the main home and the total does not exceed the cost of the home. Because the total amount of both loans does not exceed $750,000, all of the interest paid on the loans is deductible. However, if the taxpayer used the home equity loan proceeds for personal expenses, such as paying off student loans and credit cards, then the interest on the home equity loan would not be deductible.

Example 2: In January 2018, a taxpayer takes out a $500,000 mortgage to purchase a main home. The loan is secured by the main home. In February 2018, the taxpayer takes out a $250,000 loan to purchase a vacation home. The loan is secured by the vacation home. Because the total amount of both mortgages does not exceed $750,000, all of the interest paid on both mortgages is deductible. However, if the taxpayer took out a $250,000 home equity loan on the main home to purchase the vacation home, then the interest on the home equity loan would not be deductible.

Example 3: In January 2018, a taxpayer takes out a $500,000 mortgage to purchase a main home. The loan is secured by the main home. In February 2018, the taxpayer takes out a $500,000 loan to purchase a vacation home. The loan is secured by the vacation home. Because the total amount of both mortgages exceeds $750,000, not all of the interest paid on the mortgages is deductible. A percentage of the total interest paid is deductible (see Publication 936).

Cannabis license in Santa Barbara, Merced, Benicia, or Thousand Oaks

Heads up: if you are applying for a cannabis license in Santa Barbara, Merced, Benicia, or Thousand Oaks, you must read this update! These are among the several cities with pending and quickly approaching application deadlines.

Santa Barbara, California has begun accepting applications February 1, 2018 and will continue through March 30, 2018

Merced, California announced the initial application period for commercial cannabis business permits starting Monday, March 5, 2018 through Monday, March 26, 2018.

Thousand Oaks, California will be accepting applications to operate a commercial cannabis business from February 13 to March 8, 2018 at 4PM.
Benecia, California is introducing ordinances that could potentially allow for commercial cultivation, laboratories and testing, manufacturing, distribution, delivery, microbusiness and retail.
More important updates can be found at the link below!

The Right to Quality Service – Taxpayer Bill of Rights #2

The Right to Quality Service – Taxpayer Bill of Rights #2

All taxpayers have basic rights when filing taxes and dealing with the IRS. This tip is one in a series that outlines the Taxpayer Bill of Rights, which groups the multiple existing rights in the nation’s tax law into 10 categories. This makes it easier for taxpayers to find, understand and take advantage of their rights.

The right to quality service is the second provision highlighted in the Taxpayer Bill of Rights. Taxpayers have the right to:

Prompt, courteous and professional assistance when dealing with the IRS.
Be spoken to in a way they can easily understand.
Receive communications that are clear and easy to understand.
Speak to a supervisor about inadequate service.

To make sure taxpayers receive quality service, the IRS:

Posts answers to tax questions on IRS.gov, the best place to find answers to questions.
Employs representatives who care about the quality of the service they provide and listen objectively to taxpayers, considering all relevant information and answering questions promptly, accurately and thoroughly.
Is courteous to taxpayers when collecting taxes, and should:
- Only contact taxpayers between 8 a.m. and 9 p.m.
- Not contact taxpayers at their workplace if the IRS has reason to know that the employer doesn’t allow such contacts.
Provides information in all notices of deficiency letting taxpayers know how to get assistance from the Taxpayer Advocate Service.
May provide information to eligible taxpayers about how they can get legal help from a Low-income taxpayer clinic.

Avoid the Rush: Some Taxpayers May Need Prior-Year Tax Data

Avoid the Rush: Some Taxpayers May Need Prior-Year Tax Data

The Internal Revenue Service today reminded taxpayers who have changed tax software products that they may need information from their 2016 tax return to complete their taxes this year.

It’s always a good idea to keep copies of previously-filed tax returns. That recommendation is more important this year because, for some taxpayers, certain data from the 2016 tax return – the adjusted gross income — will be required to validate their electronic signature on their 2017 tax return due April 17.

Taxpayers often call or visit the IRS seeking their prior-year tax transcript, which is a record of their tax return. But the days around Presidents Day mark the busiest time of the year for the IRS, and there are online options that are faster and more convenient for taxpayers.

Taxpayers can avoid the rush by always keeping copies of their tax returns, generally for the past three to six years depending on the type of return filed. Alternatively, taxpayers may try to locate their 2016 tax return from their previous year’s tax preparation software or tax return preparer. Or, they may use online tools to access their tax transcript.

The electronic signature is the way the taxpayer acknowledges that information on the tax return is true and accurate. Validating the electronic signature by using prior-year adjusted gross income is one way the IRS, state tax agencies and the tax industry work to protect taxpayers from identity thieves.

Generally, for returning users, the tax software product will carry over the prior-year information and make for an easy, seamless validation process. However, taxpayers using a new tax software product for the first time may be required to enter the information manually.

Here’s the way the electronic signature and signature validation work:

Taxpayers sign their returns electronically by creating a four-digit Personal Identification Number (PIN), also known as a Self-Select PIN. To validate that e-signature PIN, taxpayers must enter their birthdates and either their adjusted gross income from the prior-year return or the prior-year Self-Select PIN.
If taxpayers have kept a copy of their prior-year tax return, completing this task is easy. On the 2016 tax return, the Adjusted Gross Income (AGI) is on line 37 of Form 1040; line 21 on Form 1040-A; or line 4 on Form 1040-EZ.
If a copy of their 2016 tax return is not available, taxpayers may be able to obtain a copy from their previous year’s tax preparation software or previous tax preparer.
Taxpayers may also obtain a tax transcript online from the IRS.
- Use Get Transcript Online to immediately view the AGI. Taxpayers must pass the Secure Access identity verification process. Select the Tax Return Transcript and use only the “Adjusted Gross Income” line entry.
- Use Get Transcript by Mail or call 800-908-9946. Taxpayers who fail Secure Access and need to request a Tax Return Transcript can use the mail option. Allow 5 to 10 days for delivery. Use only the “Adjusted Gross Income” line entry.

Taxpayers who have been issued an Identity Protection (IP) PIN should enter it when prompted for an IP PIN by the software. The IP PIN will serve to verify the taxpayer’s identity. If the taxpayer has never filed a tax return before and is age 16, enter zero as the AGI.

As the IRS, state tax agencies and the tax industry have made progress against tax-related identity theft as part of the Security Summit effort, cybercriminals try to steal more personal information to file fraudulent tax returns. They know that just stealing a name, address and Social Security number is not enough information to commit tax fraud.

This is one reason why some states in recent years have required taxpayers to enter their driver’s license number on electronically-filed tax returns. States can match taxpayers to the driver’s license database and help validate the return.

Many software companies, working in conjunction with state authorities, require taxpayers to answer the request for a driver’s license number in one of three ways: 1) provide the information as requested, 2) indicate that the taxpayer lacks a driver’s license or state-issued photo ID, or 3) indicate that the taxpayer chooses not to provide the information. Taxpayers must complete the field with one of these three answers.

The IRS does not require a driver’s license number on a federal tax return.

When taxpayers or tax professionals are prompted for additional information, such as a driver’s license number, providing this detail will help stop tax-related identity theft. Identity validation and identity proofing are keys to ensuring that refunds go only to the legitimate taxpayer.

The Right to Be Informed – Taxpayer Bill of Rights #1

The Right to Be Informed – Taxpayer Bill of Rights #1

All taxpayers have basic rights when filing taxes and dealing with the IRS. The Taxpayer Bill of Rights takes the multiple existing rights in the nation’s tax code and groups them into 10 categories. This makes them easier to find, understand and use. This tip is one in a series outlining these rights.

The right to be informed is the first one highlighted in the Taxpayer Bill of Rights. Taxpayers have the right to:

Know what they need to do to comply with the tax laws.
Have clear explanations of the laws and IRS procedures in all forms, instructions, publications, notices and correspondence.
Be informed of IRS decisions about their tax accounts, and to receive clear explanations of the outcomes.

The IRS will take these actions to make sure taxpayers are informed:

Certain notices must include any amount of the tax, interest and certain penalties the taxpayer owes.
The IRS must explain why the taxpayers owes any taxes.
When the IRS disallows a claim for a refund, the agency must explain the specific reasons why.
The IRS posts information on IRS.gov to help taxpayers understand their IRS notice or letter.
If the IRS proposes to assess tax, the agency sends an initial letter. That letter must include:
- Information on how the taxpayer can appeal the decision
- An explanation of the entire process from audit through collection.
- Details on how the Taxpayer Advocate Service can help.
The IRS must send an annual statement to taxpayers who enter into a payment plan, which is also known as an installment agreement. The statement will include how much the taxpayer:
- Owes at the beginning of the year.
- Paid during the year.
- Still owes at the end of the year.
IRS makes forms and publications available on IRS.gov. Taxpayers can also have hard copies mailed to them by calling 800-829-3676.
IRS uses social media to provide helpful tax information to a wide audience of taxpayers.

NEWSLos Angeles Finally Cracking Down On Unlicensed Marijuana Businesses

Los Angeles County officials weigh mass medical marijuana raids

Los Angeles police are investigating several unlicensed marijuana shops they believe are engaging in criminal activity.

During a news conference, LAPD Deputy Chief John Sherman said he believes there are hundreds of those businesses operating around L.A.

“We have several hundred, probably somewhere in the neighborhood of 200 to 300, of what we believe are these unlawful and illegal establishments operating throughout the city,” he said.

Authorities said a marijuana business on Laurel Canyon and Van Nuys boulevards in Pacoima has been a trouble spot for years. Police arrested three people during a raid at the shop last week, including a convicted felon who was in possession of a weapon.

“A person was operating as a security guard. That person was unlicensed. That person was armed. We recovered three firearms out of that location,” Sherman said.

Police have identified 18 businesses in the city that they suspect are associated with criminal activity.

Officials said unlawful pot operations contribute to crime in the surrounding communities.

Special Thanks LOS ANGELES (KABC) and Amy Powell for Content Share [Read more…]

How Taxpayers Can Avoid the Rush Ahead of Presidents Day

How Taxpayers Can Avoid the Rush Ahead of Presidents Day

The IRS reminds taxpayers to avoid the rush. As with previous years, the agency expects taxpayers to submit a surge of tax returns during the upcoming Presidents Day weekend. Here are some tips and resources to get taxpayers the help that they need.

Go online. IRS.gov has several online tools to help taxpayers get fast answers to common tax questions:

Interactive Tax Assistant
TaxTopics
Frequently Asked
QuestionsTax Trails
IRS Tax Map

Use Where’s My Refund? to track refunds. The IRS issues most refunds in less than 21 days. IRS customer service representatives cannot answer refund questions until after this 21-day period. Taxpayers can track their refund anytime by using “Where’s My Refund?” They’ll find this tool on IRS.gov and the IRS2Go app. As an alternative, taxpayers can also call the automated IRS refund hotline at 800-829-1954.
Know how to validate identity. Taxpayers who call the IRS with questions about their account should be ready to verify their identity. IRS telephone assistors may ask a series of questions to authenticate the identity of callers. Many of the answers to these questions come from the taxpayer’s prior year tax return.
Make an appointment. All Taxpayer Assistance Centers operate by appointment. Anyone who needs face-to-face service can search IRS.gov for their nearest office. The IRS website also has details about how to make an appointment.
Replace a missing W-2. Anyone who didn’t receive a Form W-2, Wage and Tax Statement, from an employer by January 31 should first contact the employer to alert them about the missing form. Those who don’t get a response by the end of February should call the IRS for a substitute Form W-2.

Should you itemize or choose the standard deduction?

When preparing your federal tax return, you have the option of either taking the standard deduction, or, if you think you may have more qualified expenses than the standard deduction provides, you may choose to itemize your deductions. The amount of the standard deduction for 2017 depends on your filing status. The following shows the standard deduction amounts for tax year 2017:

Single or Married Filing Separately – $6,350

Married Filing Jointly or Qualifying Widow(er) – $12,700

Head of Household – $9,350 If you choose to file using the standard deduction, one of the amounts above, based on your filing status, will be deducted from your income before the amount of tax you owe is calculated.

If you have expenses that are more than the standard deduction allowed for your filing status, you may want to itemize your deductions. Here are some tips to help you decide which to choose:

Use IRS Free File.

If you earned $66,000 or less, you qualify to use free, brandname software to do your taxes for free.

IRS Free File helps you determine whether to itemize by finding your tax credits and deductions and doing the math for you. You can even do your taxes from your mobile phone or tablet.

If you earned more than $66,000, you can use Free File Fillable Forms, the electronic version of IRS paper forms.

Check out other e-file options.

Figure Your Itemized Deductions.

You need to add up deductible expenses you paid during the year. Visit IRS.gov and refer to Publication 17, Your Federal Income Tax, When to Itemize, for more details.

Use the IRS Interactive Tax Assistant Tool. Use the Interactive Tax Assistant tool on IRS.gov. It can help you determine if you can use the standard deduction. It can also help figure your eligibility for certain itemized deductions.
File the Right Forms. To itemize your deductions, file Form 1040 and Schedule A, Itemized Deductions. You can take the standard deduction on Forms 1040, 1040A or 1040EZ.