The biggest change in filing deadlines is for partnership returns. The deadline for filing Form 1065, if you are on a calendar year, is now March 15. The deadline for filing Form 1120 and 1120-S corporate returns, if you are on a calendar year, is still March 15. All personal income tax returns are due on April 15. A person that thinks they will end up owing on their tax return could have their return completed and filed in March and then have the time between filing and April 15 to figure out where the money will come from to pay any taxes due. This is much better than filing on April 13 and finding out you owe, then have only 48 hours to come up with the balance due.
The Affordable Care Act, a.k.a. Obamacare, has a couple of large changes this year. The penalty for not having insurance in 2016 has gone up. The penalty is $695 annually per person or 2.5% of adjusted gross income, whichever is higher. The other change that takes effect in 2017 is the deduction of out of pocket medical expenses. To deduct medical expenses in 2017, they must be greater than 10% of your adjusted gross income for all age groups. In 2016, if the taxpayer or their spouse is 65 or older at the end of the taxable year, your out of pocket medical expenses must be greater than 7.5% of your adjusted gross income.
Everyone that had medical insurance at any time during 2016 will receive some version of Form 1095. If you bought insurance from the "marketplace", you will receive a Form 1095-A that we will need to reconcile your premium tax credit on your tax return. If you bought insurance through your employer or directly from an insurance company, you will receive a Form 1095-B or 1095-C that you will need to bring in when we prepare your tax return. Without these form(s), we will not be able to complete your tax return properly. Also due to this law, in most cases out of pocket medical expenses need to be greater than 10% of your income before anything becomes deductible.
A new requirement has been added to be able to claim any education credits. Effective for tax year 2016, education credits can only be claimed if the taxpayer has a Form 1098-T from the educational institution and the form has the educational institution's federal id number.
For all divorces and separations since July 2, 2008, noncustodial parents must have a signed Form 8332 attached to their return in order to be able to claim a dependency exemption for a child that they are not the custodial parent. Divorce decrees, court orders, and separation agreements since July 2, 2008 are not recognized by the IRS as a formal release of dependency exemptions from the custodial parent to the noncustodial parent. The Form 8332 must be signed by the custodial parent releasing the dependency exemption to the noncustodial parent for the tax year or years involved. The form can be found on the IRS website www.irs.gov.
Generally, deductible home mortgage interest is any interest you pay on a loan secured by your home (main home or second home). The loan may be to buy your home, a second mortgage, a line of credit, or a home equity loan. Mortgage interest deductions require a Form 1098 from your mortgage company. To be deductible, the mortgage(s) to acquire your home cannot exceed $1 million, a home equity loan cannot exceed $100,000 and in combination with your other mortgages cannot exceed the value of your home.
The basic rules for cash contributions are if you give a single contribution of less than $250 to any one organization in a year, a cancelled check, bank record, or receipt from the organization is adequate. If the contribution is $250 or more, a receipt from the organization is mandatory. Any noncash contribution to a charity needs a written receipt from the charity and an itemized listing of the item(s) donated with the contribution valuation of each item donated. If you don't have a receipt and itemized listing for the noncash contribution, no deduction can be taken.
If you own rental property we need, for each property, a complete address, type of property (single-family, duplex, etc.), any Form 1099-K received, the number of days the property was rented or offered for rent, and the number of days it was used for personal use. An accounting of the rental income and expenses for each rental property is also needed.
The business mileage rate is 54 cents per mile, medical and moving mileage rates are 19 cents per mile, and charity purpose miles are 14 cents per mile. Business miles log books need to be maintained contemporaneously during the year and should show dates, where to, and miles driven for business purposes. The IRS also wants to know the total of personal miles the business vehicle was driven.
Unreimbursed employee expenses must be documented with receipts or bank records to verify the deduction. The expenses must be broken down into categories of expenses, such as; hotels, meals, uniforms, etc. Here again, round numbers look wrong and invite an IRS audit. Without documentation or receipts no deduction will be allowed.
Small businesses, especially those that file using a Schedule C, are under heavy scrutiny by the IRS for underreporting of income and lack of documentation for deductions. Be sure to keep a good set of books and records for your small business. Treat your small business as a business and not like a Saturday yard sale or a hobby. Make sure to issue any Form 1099's that may be required for your business. The penalty for not filing Form 1099s has increased to as high as $530 for each form not sent to the individual or business and $530 for each form not sent to the IRS.
These are just a few highlights of changes that are coming. If you would like to have a more thorough review, please give us a call and we can discuss your situation in more detail.
As another reminder, if you are unable to have your taxes prepared and filed by the April 15th deadline, call us and we will file an extension for you. The extension is only for filing the return, not the payment of any taxes. All taxes must be paid by April 15th, otherwise interest and possibly penalties may accrue depending on the amount still owing.
We greatly appreciate and thank you for your business and look forward to seeing you.