Will You Owe Tax Penalties for 2018?

Tax withholding tables and tax rates changed in February 2018, due to the 2017 Tax Cuts and Jobs Act. Doing a “Paycheck Checkup” was promoted by the IRS and in the news all year to help taxpayers avoid an expensive surprise when filing their 2018 income tax returns in 2019. You’ve been meaning to Checkup on your Paycheck, but it’s already late November.

Will you have to pay a tax penalty if you owe? Maybe not…

To avoid a penalty for 2018, your tax paid or withheld must total 90% of your 2018 tax liability, or 100% of your 2017 tax liability, whichever is lower. Since 2010, the number of taxpayers assessed underpayment penalties and interest has increased by 40%, from 7.2 million a year to 10 million. Interest on unpaid amounts is calculated based on IRS rates, and accrues daily until the amount due is paid. That really adds up!

Here are four ways to avoid tax penalties:

  1. Increase tax withholdings from wages for the rest of the year by submitting a new IRS Form W-4 and a new state withholding authorization with your employer. Reducing the number of exemptions that you claim increases the amount of tax withheld. Don’t overdo it! Avoid over withholding and giving Uncle Sam an interest-free loan until you get your 2018 refund.
  2. Pay estimated taxes if you expect to owe at least $1,000, after tax withholdings and refundable credits. Estimated tax payments are normally due on April 15, June 15, September 15 and January 15 of the following year, unless the due date falls on a weekend or holiday. Paying amounts due stops the clock on 2018 interest accruals for those balances.
  3. Taxpayers who receive income unevenly during the year can make estimated tax payments as funds are earned or received. That means if most of your income comes in during the last few months of the year, you can make lower estimated tax payments earlier in the year and higher payment amounts later in the year.
  4. Exceptions to the penalty and special rules apply to some groups of taxpayers, such as farmers, fishermen, casualty and disaster victims, those who recently became disabled or retired. Do your homework to see if you belong in one of these categories.

 

Think that the IRS loves to charge penalties? No! They want to help taxpayers avoid penalties. Tools are available for a Paycheck Checkup at https://www.irs.gov/paycheck-checkup.

Automation Saves Money and Time

Would your organization save money by doing more in less time, with greater accuracy? Would having complete, accurate reports available at the push of a button save time and inform decision making? Could reducing errors and identifying suspicious activity minimize financial losses?

Yes, yes and yes!

Increasing productivity, reducing errors, informing decisions and minimizing losses all happen when organizations automate their processes and controls. Automation is the single best way to effectively manage and get visibility to an organization’s finances and operations. Plus, organizations with a higher percentage of automated controls have better safeguards to protect assets and lower the risk of fraud.

Sure, automating is an investment. But the cost of the technology has come way down, while the tools have gotten more powerful. Advanced automation is now accessible even to smaller organizations, and the return on investment is high. Automation, when well-planned and implemented, not only reduces errors and identifies risk. It frees your team to focus on high-value work, keeping them interested and engaged.

Automation will not replace your team. There will always be a need for skilled financial and operations professionals to assess the results of automated reports and any anomalies that are identified. Manual processes and controls greatly enhance the opportunities for fraud and abuse to occur and go undetected, draining money from the organization. Organizations that have a high percentage of automation have a more comprehensive approach that increases confidence that organizational assets are safeguarded.

Automation allows organizations to quickly analyze huge volumes of data from multiple systems, flagging potential fraud patterns as they happen. Instead of a laborious, hands-on process of performing spot checks on random samples of data, software runs continuously in the background, doing the tedious work of scanning everything from emails to purchase orders, looking for patterns and anomalies, and flagging outliers for further investigation.

Organizations that fall into the low end of the range on the percentage of automated processes and controls should take out some time to look at the available software tools that can help crunch much more data, more thoroughly, in less time. Some options are affordable for small businesses and nonprofits. Once automated controls are in place, you’ll wonder how you ever got by without them.

 

Will the IRS Be Ready for the 2019 Tax Season?

Believe it or not, the 2019 tax season is almost here! The Internal Revenue Service has been working for months to be ready to process more than 150 million tax returns that will be filed for the 2018 tax year. Meeting the deadline could be tight — hundreds of forms, instructions, and publications required updating because of the Tax Cuts and Jobs Act, passed in December 2017.

We are still waiting to see all the new forms, but the IRS circulated a copy of the new Form 1040 to the tax community not long ago. The new 1040— about half the size of the current version— would replace the “old” Form 1040, Form 1040A and Form 1040EZ. Consolidating the three “old” versions allows all taxpayers to use the same form.

Here’s what you can expect to see on your 2018 individual income tax return:

  1. The new Form 1040 uses a “building block” approach that reduces the return to one simple form that is supplemented with additional schedules if needed. Taxpayers with simple tax situations will only file this new 1040 with no additional schedules.
  2. Several additional new schedules have been developed to supplement the new Form 1040 to report other income, adjustments, credits, and items that appeared on the longer, “old” version of the Form 1040.
  3. The new schedules are designated by numbers instead of letters. Here’s a quick overview of the new schedules and what they are for:
    • Schedule 1 is for taxpayers with additional non–wage sources of income or adjustments to income, such as IRA contributions, student loan interest, and health savings account contributions.
    • Schedule 2 is for taxpayers with additional taxes, such as alternative minimum tax or excess advance premium tax credit repayment.
    • Schedule 3 is for nonrefundable tax credits such as the foreign tax credit, education credits or residential energy credit.
    • Schedule 4 is where taxpayers will add up certain taxes, such as self-employment tax, and household employment taxes.
    • Schedule 5 is to add up tax payments, such as estimated tax payments or amounts paid with an extension.
    • Schedule 6 is used to report a foreign address or appoint a third-party designee to discuss the tax return with the IRS on your behalf.

Will the IRS be ready for the 2019 tax filing season? If changes to the Form 1040 are any indication, it could be a tight dash to the deadline. Have questions? Check out www.irs.gov or call your tax professional.

Real Estate and the New Tax Law

If you’ve been house hunting recently, you know that it’s pretty complicated. Negotiating a price and getting mortgage financing are time consuming and challenging tasks. Throw in the new Tax Cuts and Jobs Act and it’s confusing, too. The new tax law passed in December 2017 changed a lot of the rules that drive your decisions about real estate. Not knowing about the new tax rules could mean an expensive surprise derails your plans.

Not sure where to turn? Well, you’re in luck because I’m co-presenting a workshop with Arlington Community Federal Credit Union on Thursday, December 6, 2018, where all of your most complicated questions will be answered. The workshop is designed to raise the awareness of prospective and existing real estate owners about how the new tax law impacts decisions for purchasing and financing a home or rental property.

Three experienced professionals – a real estate agent, mortgage lender and tax practitioner (yes, that would be me) – share their insights based on questions and issues they encounter day-to-day with their clients. Participants are encouraged to bring their own questions about real estate purchasing, financing and related tax matters and hear what the subject matter experts have to say.

Some of the highlights we will address include:

  • The home mortgage interest deduction for purchases after December 31, 2017, is limited to $750,000 of indebtedness for first and second residences, including home equity used for home purchase/improvement. This will impact a significant percentage of taxpayers in the DC area and other relatively expensive real estate markets, like San Francisco.

 

  • The combined deduction for state and local income, sales and property taxes is limited to $10,000. This limit will significantly impact many high-income taxpayers and home owners in states with high real estate tax rates, such as New Jersey and New York.

 

  • Lower individual income tax rates reduce the tax savings aspect of home ownership. On the other hand, real estate is often an appreciating asset. With careful planning, real estate can be a great security blanket in retirement after the mortgage is paid off.

 

  • The new tax law does not impact real estate held for investment or business. No worries about the new individual tax deduction limits for mortgage interest and state/local taxes. Nice to know that some things stay the same.

 

Want to know more? Join us on Thursday, December 6, 2018, from 6:00 – 7:00 PM and learn about how the new Tax Cuts and Jobs Act impacts your real estate purchase and financing decisions. Register here: https://bit.ly/2BYekUj