Tax News Blog

New Tax Plan: Trump’s Six Big Changes

Posted by admin on May 23, 2017
Last modified: May 23, 2017

Is Trump’s new tax plan making filing simpler, or is it really just a helping hand for the wealthy?

We’re reminded daily of the new guy in town…or office. Whether that reminder comes from seeing his face on a t-shirt or a protester’s sign outside your office window is a different story. Let’s put the opinions aside for a moment, shall we? If all goes according to Trump’s proposal, many changes will be taking place in the tax world. Here’s a breakdown of Trump’s new tax plan.

There will only be three tax brackets.

Currently, there are a total of seven federal income tax brackets. We each fall into one of them based on our income and filing status. For the 2016 tax year, they were as follows:


If and when President Trump’s plan is passed, these seven tax brackets will be narrowed down to just three:

  • 10%
  • 25%
  • 35%

The income ranges are yet to be determined within each bracket. As you can imagine, this has made many Americans weary as it could end up being a significant change to get accustomed to; for richer and poorer.

The Standard Tax Deduction will be doubled.

When filing your tax return, you have the option to either claim the standard deduction or itemize your deductions. One would typically itemize if their expenses add up to cost more than the standard deduction amount. As of right now, the standard deduction for individual taxpayers is $6,350 and $12,700 for joint filers. Trump’s new tax plan aims to double those amounts, many who currently itemize would predictably just claim the standard deduction instead. Expenses can (but typically wouldn’t) add up to more than the new standard deduction amount. Finally, you won’t have to shove those random receipts in a shoebox under your bed until April!

Repeal the Alternative Minimum Tax (AMT)

The AMT was originally designed to prevent the higher-income earning Americans from using deductions and a variety of other loopholes to pay less tax. It is basically a set of rates that make wealthier taxpayers pay more than lower-income earners. Here’s a basic chart for 2016 to get a better understanding:

Long story short, Trump’s new tax plan states that it will be eliminating this tax altogether. Although the low-income taxpayers label this as controversial, many others are beginning to see the benefits. Over the years, the purpose of the alternative minimum tax has altered; now affected middle-income earners as well as the high-income earners. That wasn’t the original goal so many don’t see the harm in eliminating the tax completely.

Lower the Capital Gains Tax

A taxpayers with a modified AGI of more than $200,000 for single filers and $250,000 for married couples filing jointly has a 3.8% net income investment tax. This is another tax that Trump would like to eliminate completely.

The Inheritance Tax will be repealed.

This tax, known to some as the “death tax”, currently taxes individuals who inherit more than $5.5 million and married couples who inherit more than $11 million at a rate of 40%. Trump plans to remove that 40% tax altogether. So why is this part of the plan so controversial? Many believe that it would deter the wealthy from donating to charities given that the incentive to do so will be no more.

Eliminate numerous tax deductions for individuals

As mentioned earlier, Trump plans to increase the standard deduction amount. Well, surprise! On top of that, he also wants to limit the tax deductions that taxpayers can claim on their return, so limited that you’ll really only be able to claim any that relate to mortgage or charitable donations. This brings me back to our original prediction. Claiming the standard deduction will be the simpler option for many taxpayers if the plan passes.

Change is good…but could it be better?

It’s important that we take a look at these potential modifications with a clear head and (semi) open mind. Trump plans to eliminate a lot from the existing tax plan that we’ve grown to endure over the years. Change is usually followed by even more change. Keep that in mind when filing your taxes for the year. It has to start somewhere.

Trump's New Tax Plan

Obamacare VS. Trumpcare: 3 Ways Taxes Will Be Affected

Posted by admin on April 14, 2017
Last modified: April 14, 2017

Obamacare made it through the election. Will it stay on your tax return?

Every new president brings on a new aura for Americans to bask in, and while emotions run high, opinions begin to surface. Suddenly, cheerful holiday dinners turn into political debates. Some chime in while the rest of us are just trying to decide between pecan pie or pumpkin. One debate is the replacement of Obamacare, or the American Health Care Act. Lately, we’ve introduced a new word into our vocabulary that will likely stick; TrumpCare

 

Flexible Spending Account (FSA) for Over-the-Counter Medicine

According to the IRS in 2011, under the Affordable Care Act (aka Obamacare), “Distributions from health FSAs and HRAs will be allowed to reimburse the cost of over-the-counter medicines or drugs if they are purchased with a prescription.” This will remain accurate until Obamacare is no longer in effect. However, there are limits to the Flexible Spending Account. For example, the pre-tax dollars you can have contributed to your account adjusts each year depending on inflation. The FSA limit is currently $2,500.

The American Health Care Act (aka TrumpCare) having one foot in the door, we can expect to see a few changes. President Trump truly believes in the benefits of Health Savings Accounts (HSAs). Although these accounts have been available to eligible Americans for the past decade, they tend to attract mostly higher-income earners. TrumpCare will remove the $2,500 FSA limit for those who want to purchase a high deductible medical coverage plan. Therefore, for larger deductibles, HSAs come into play. The HSA contribution limit for individuals is $3,400.

Lower to middle-income earners are finding this new plan hard to swallow since HSAs require a high-deductible account and the money to fund it. Long story short, with the existing HSA guidelines, many will not qualify and will therefore not be able to use either of these accounts to purchase over-the-counter medication like they can now with FSAs.

 

Individual Shared Responsibility Tax Payment

We can all agree that the Affordable Care Act increased health care coverage among Americans, the statistics speak for themselves. However, the reason why might have to do with the tax penalty you would be subject to paying if you didn’t have any coverage at all. The Individual Shared Responsibility Tax Payment ensured that you (and each member of your household) would either have the minimum essential health coverage or pay a pretty penny out of your tax refund. The choice was yours but either way, you pay. As of 2016, the penalty had increased to the larger of:

  • $695 for each adult and $347.50 for each child without minimum coverage (maxing out at $2,085 per household), or
  • 2.5% of your household income above the tax return filing threshold for your filing status

President Trump’s plan repeals this tax penalty. There are rumors that Americans who have paid this penalty in the past will be able to amend their tax returns to accommodate for the repeal. 

 

Medical Itemized Deduction Threshold

Currently, Obamacare allows individuals who itemize medical expenses to deduct costs that exceed 10% of their AGI (Adjusted Gross Income).

Under the American Health Care Act, those who itemize their deductions would be able to write off medical expenses exceeding 5.8%, reducing the current threshold of 10% by almost half. This would allow those who have large, out-of-pocket medical expenses to deduct more on their tax returns for the year.

 

When one door closes, another one opens…even in the tax world.

Taxes and politics are two subjects that are the furthest from appetizing yet always seem to sneak into dinner table conversations. Get started filing your current or prior year taxes whichever political party or tax bracket you fall under. Create an account today or feel free to give us a call with any questions you have.

 

Obamacare

20 Facts About Filing an Amended Prior Year Tax Return

Posted by admin on February 7, 2017
Last modified: February 7, 2017

Did you take the wrong step with your tax return? Don’t be too hard on yourself.

Mistakes happen. If you filed your tax return with incorrect or missing information, the IRS will give you a chance to fix your mishap. Before insisting you 100% need to amend your return, though, take a look at our list of when you should, when you shouldn’t, and other need-to-know info about doing so.

 

What it is and where to file

1.Another name for an amended tax return is 1040X.

2.If you are amending multiple tax returns at once, you will need a prepared 1040X for each one. They will also need to be mailed in separate envelopes to the IRS.

3.You can prepare your amended tax return with PriorTax whether you filed your original return with us or a different tax preparer.

4.The address to mail your amended tax return is:

Department of the Treasury

Internal Revenue Service

Austin, Texas 73301-0215

Or if you are using a private delivery service:

Internal Revenue Service

3651 South I-H 35, Stop 6055 AUSC

Austin, Texas 78741

 

Fixing Information VS. Adding Additional Information

5.You don’t need to file an amended return for calculation mistakes. The IRS has calculators of their own which will update the information automatically on your return. Read the rest of this entry »

Someone Used My Social Security Number to File Taxes – What Should I Do?

Posted by admin on January 10, 2017
Last modified: January 25, 2017

Victim of identity theft? Don’t let panic get the best of you.

After entering your tax information, you finally hit the e-file button, only to have your return rejected by the IRS. The reason; a tax return has already been filed with your social security number!

There’s a sinking feeling in your gut and an enveloping sense of dread. What do you do? How will you ever get your refund money now? Remain Calm. You’ll get through this.

 

Here’s what you should do now

Step #1

The first thing to do is double check all of the information on your return, especially your name and Social Security number and those of your spouse and dependents. Sometimes this error can be caused by a simple typo. Read the rest of this entry »

Calculate Your Prior Year Tax Refunds with Tax Calculators

Posted by Michelle O'Brien on January 5, 2017
Last modified: January 13, 2017

The IRS has never been keen on surprises. Know what to expect.

Whether you’re slightly behind on your taxes or up to date and ready to conquer tax season 2017, it’s nice to have a starting point. Taxes are intimidating if you go into it not knowing whether you owe the IRS or can expect a refund. Why not figure that out first?

 

Accessing prior year tax calculators online

With PriorTax, you can find out what your tax refund will be before you even think about the IRS. You don’t even need to create an account or enter any personal information at all. In fact it’s completely anonymous. And did I mention it’s 100% free?

We offer tax calculators dating back to 2011. You can access any of them by clicking the buttons below: Read the rest of this entry »

What Does Being Audited By The IRS Mean?

Posted by Michelle O'Brien on December 23, 2016
Last modified: December 23, 2016

Feel like the IRS has all eyes on you?

Think of filing your taxes as going through security at an airport. Your tax return is you. The security checkpoint is the IRS. Just like you can be stopped while going through security, your tax return can be stopped by the IRS. With a security checkpoint, you’re either stopped because you were the lucky number of the hour or because something triggered suspicion. The same goes for your tax return and the next step is an IRS audit.

 

What is an audit?

An audit is simply an examination of the information you reported on the tax return you filed for a specific year. Contrary to popular belief, the IRS is not employed with millions of accountants checking each return that comes through their doors. In fact, much of the processing is computerized now. You can imagine how technology can be manipulated a bit by fraud accounts and identity theft. Audits are necessary to help stop that from occurring as well.

 

What triggers your return for an audit?

Just like at the airport security check, the IRS can stop a tax return randomly or for suspicious activity. Here is a list of the most common audit triggers we’ve come across: Read the rest of this entry »

IRS Address to File a Late Tax Return

Posted by admin on December 15, 2016
Last modified: January 13, 2017

If you need to file a prior year tax return, you’ll have to mail it to the IRS…

Still need to get caught up on a prior year tax return? You’ll most likely need to paper file it. If this is the case, you’ll need the IRS address to send your return to.

You’ll be able to prepare any previous year tax return online, but you won’t be able to electronically file it. You’ll need to mail it to the IRS.

IRS address to file a late tax return

The address you’ll send your prior year tax return to will depend on what state you live in. Below, are five separate addresses on where to send a late tax return to. Please note that if you received a notice from the IRS with an alternate address, you should use that one.  Read the rest of this entry »

Student Loan Interest Deduction Income Limit

Posted by admin on December 15, 2016
Last modified: December 16, 2016

Strapped for cash as a recent grad? See if you qualify for a student loan interest deduction.

College is over and you’ve been blasted with a taste of reality…or should I say adulthood? It’s tough but you’ll get through it. Even the IRS is on your side with certain deductions available to those of us who used our after-high school lives to pick up a college education. College is expensive. The student loan interest deduction can help you out a bit. Let’s see if you’re eligible.

Are there income limits?

Here are the income limits that apply to the student loan interest deduction. Note that prior tax years have slightly different income limits:

Single filers with a modified adjusted gross income (MAGI) below $80,000 and married couples filing jointly with incomes below $160,000 can take the full deduction.

Taxpayers whose MAGIs are above these limits can only take a reduced deduction or no deduction at all. The deduction phases out between MAGIs of $65,000 and $80,000 for single filers. For married couples filing jointly, the deduction phases out between MAGIs of $130,000 and $160,000. Read the rest of this entry »

Itemized Deductions vs. the Standard Deduction

Posted by admin on November 29, 2016
Last modified: January 5, 2017

What is the difference between claiming the standard deduction and itemizing deductions?

In general terms, a deduction is a certain amount you are allowed to exclude from your income. This means that you are taxed on a lower amount of income, and thus pay less in taxes. While not as valuable as tax credits – which directly decrease your tax liability – deductions can still reduce your tax burden significantly.

There are two ways to claim deductions.

  1. Itemize deductions. Add up all of your allowable expenses and subtract them from your income.
  2. Claim the standard deduction. Deduct the basic amount available to everyone.

While preparing your taxes you need to figure out whether you get a bigger tax break from itemizing your deductions or claiming the standard deduction. Most people end up claiming the standard deduction, but some people have enough allowable expenses to make it worth their while to itemize deductions.

The Standard Deduction

The standard deduction is a fixed dollar amount that reduces the amount of income on which you are taxed. The amount of the standard deduction depends on your filing status and whether you can be claimed as a dependent on another return. For the 2013 tax year, for example, the standard deduction is
Read the rest of this entry »

1099-C Defined: Handling Past Due Debt

Posted by Michelle O'Brien on November 15, 2016
Last modified: December 21, 2016

So you’ve accrued a bit of debt. It’s not the end of the world.

Debt is stressful, overbearing and can build up quickly. When this happens, you may need to eliminate it altogether. In a situation when you need to cancel your debt completely, you would contact your creditor and they’d issue you form 1099-C, as shown below.

What is form 1099-C?

The 1099-C is also known as the Cancellation of Debt. The most common reasons that you would receive this form are as follows:

  • You’ve not made any payment on a debt for at least three years and there has been no collection activity for the past year.
  • You negotiated a settlement to pay your debt for less than the amount you owed and the lender/creditor forgave the remaining amount.
  • You sold a home in a short sale where the lender/creditor agreed to accept less than the full amount due to them
  • You’ve owned a home that entered into foreclosure with a deficiency (the difference between the value of the home and your debt on it) which was forgiven or remains unpaid.

What does each box on the 1099-C mean?

Tax forms, in general, are intimidating to most of us. The tricky language and minuscule text paired with our immediate panic can send anyone into a frenzy. Let’s break this form down box by box and see if all your questions can’t be answered. Read the rest of this entry »