> > For up-to-date information regarding tax law changes due to COVID-19, please like us on Facebook. <<
CARES Act, Stimulus Checks, Unemployment Benefits, SBA Loans… You’ve got questions; we’ve got answers!
Please see a complete list of COVID-19 updates here as they develop: http://smarttaxadvisor.com/faq/covid-19-updates/
- Username: your e-mail address
- Password: one you created
- Hint: Passwords are cAsE sEnSiTiVe and must contain both upper and lowercase letters and a number. Your password is NOT the same as your PIN
If anything is already filled in, please delete it!
(usernames and passwords tend to auto-fill in the Name and PIN fields which won’t work for e-signing!)
How to E-Sign: (VISUAL BELOW)
- CLIENT/SPOUSE: (Personal returns)
- Name: Enter Your Legal Name (if anything is auto-filled, delete it)
- Date of Birth (MM/DD/YYYY format)
- PIN: last 5 digits of your SSN* (if anything is auto-filled, delete it)
- SSN/EIN: entire Social Security Number, no dashes
- Zip Code
- ENTITY: (corporate returns, partnerships, etc)
- Name: YOUR legal name, as the officer (if anything is auto-filled, delete it)
- PIN: last 5 digits of entity’s EIN* (if anything is auto-filled, delete it)
- SSN/EIN: entire Employer Identification Number, no dash
- Zip Code
Currently, the only documents that can be electronically signed on the portal are the signature pages for your income tax return, called the “Signature Set” (see “How to E-Sign Your Tax Return” above).
We are in the process of looking into other programs, such as DocuSign, as a way for our clients to easily e-sign all other documents on the portal, such as Power of Attorney Forms, S-Corp Election Forms, our Engagement Letter, and so on. However, we do not yet have that in place — stay tuned!
If you receive an IRS or DOR letter, please upload a copy (include all pages) to our secure client portal.
Please DO NOT send IRS letters through email! By doing so, you put yourself at risk for Identity Theft. Please use our secure Client Portal (see access instructions above) to send us your documents or fax it to us at 508-630-9008.
Paul cannot discuss the letter with you until he has had a chance to review it, and we cannot help you without seeing a copy of the letter itself. Please do not attempt to read the letter to us over the phone or to “recap” the letter in a message.
Once Paul has reviewed the letter, he will determine the next course of action. Paul may reply to the IRS on your behalf, or he may instruct you what to do next.
Be sure to sign up for the Gold Tax Maintenance Program so that all IRS and DOR letters and audits are covered at no additional cost to you.
Link to IRS Website on Estimated Tax Payments: https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes
*AN EXTENSION TO FILE IS NOT AN EXTENSION TO PAY – There is NO extension to Pay!
If you have not paid at least 80% of the final tax due the Federal and state will penalize you when you finally file. Interest will still accrue if you finally owe money.
To figure the 80% of tax, look at page 2 of form 1040 under the title TOTAL TAX (Line 60) and subtract any withholdings and/or estimates.
If you want to make a payment when we e-file your extension:
-We need to know how much you want to pay to federal and/or state
-We recommend at least 80% of your 2017 total tax, less withholdings and estimates.
If you’d like to pay electronically upon e-filing your extension, we need your Bank information:
-Bank Routing Number
-Bank Account number
If you are going to make a payment by check, we need to send you an extension voucher to mail with your check. We will still e-file the extension for you.
I normally pay ESTIMATES, and Q1 is due April 15th! – WHAT SHOULD I DO?
Ask us to prepare a first-quarter estimate for you to make the payment based on what you paid last year or for whatever amount you choose.
THE NATIONAL AVERAGE IS THAT 25% OF ALL TAXPAYERS FILE EXTENSIONS
SO, If you file an extension…
-You will not get automatically audited!
-You will not go to jail!
-You will not collect $200 for going past Go! 😉
*Extension to file is a six-month extension: the extension deadline for individual tax returns is October 15th.
WHAT IF I CAN’T PAY THE TAX BY APRIL 15?
Oh crap. You just found out you are going to owe an arm and maybe a leg to Uncle Sam this year, and April 15 is just a few days away!
Do you have any clue how you’re going to come up with the money? What if you just don’t have it?
First of all, if you are getting this surprise, you are not giving your accountant enough information throughout the year to be much of a help to you. Be proactive about this stuff, and help us to hold you accountable (pun intended). Also, beware that filing an extension won’t help, as there is no extension to pay, only an extension of time to file. Your taxes are still due by April 15th, even if you don’t file your tax return until October.
Here’s is what the IRS recommends if you need more time to pay:
- File On Time! People who owe taxes but can’t pay the full amount owed by the April deadline should still file their return on time and pay as much as they can to avoid penalties and interest. If you can’t pay the full amount, you should contact the IRS to ask about alternative payment options. Late-filing penalties are worse than late payment penalties, so at a minimum, file that tax return!
- Additional Time to Pay. Based on your circumstances, you may be granted a short additional time to pay your tax in full. A brief additional amount of time to pay can be requested through the Online Payment Agreement application at IRS.gov or by calling 800-829-1040. Taxpayers who request and are granted an additional 30 to 120 days to pay the tax in full generally will pay less in penalties and interest than if the debt were repaid through an installment agreement over a greater period of time.
- Installment Agreement. You can apply for an IRS installment agreement using the Web-based Online Payment Agreement application on IRS.gov. This Web-based application allows taxpayers who owe $25,000 or less in combined tax, penalties and interest to self-qualify, apply for, and receive immediate notification of approval. You may also complete and submit a Form 9465, make your request in writing, or call 1-800-829-1040 to make your request. For balances over $25,000, you are required to complete a financial statement to determine the monthly payment amount for an installment plan. For more complete information, see the IRS article on payment plans here: https://www.irs.gov/payments/payment-plans-installment-agreements
- Pay by Credit Card or Debit Card. You can charge your taxes on your American Express, MasterCard, Visa or Discover credit cards. Additionally, you can pay by using your debit card. However, the debit card must be a Visa Consumer Debit Card, or a NYCE, Pulse or Star Debit Card. To pay by credit card or debit card, contact one of the service providers at its telephone number or Web site listed below and follow the instructions. There is no IRS fee for credit or debit card payments, but the processing companies charge a convenience fee or flat fee. If you are paying by credit card, the service providers charge a convenience fee based on the amount you are paying. If you are paying by debit card, the service providers charge a flat fee of $3.89 to $3.95. Do not add the convenience fee or flat fee to your tax payment.
The processing companies are:
Official Payments Corporation To pay by debit or credit card:
888-UPAY-TAX (888-872-9829) www.officialpayments.com/fed
Link2Gov Corporation To pay by debit or credit card:
888-PAY-1040 (888-729-1040) www.pay1040.com
RBS WorldPay, Inc. To pay by debit or credit card:
888-9PAY-TAX (888-972-9829) www.payUSAtax.com
For more information about filing and paying your taxes, visit http://www.IRS.gov and choose 1040 Central or refer to the Form 1040 Instructions or IRS Publication 17, Your Federal Income Tax. You can download forms and publications at http://www.IRS.gov or request a free copy by calling 800-TAX-FORM (800-829-3676).
FORM 9465 INSTRUCTIONS
Installment Agreement Request
This form will allow you to get an automatic installment agreement from the IRS, as long as you owe no more than $25,000.
You will be charged a $225 fee; $107 if you make your payments by electronic withdrawal.
Although the fees are less with electronic withdrawal, we have had issues with IRS not taking money and then killing the installment agreement. Therefore, we strongly urge you to make payments by check.
NOTE: penalties and interest will not stop with this agreement.
But the penalties will be a lower percent with this agreement.
We can/will file the form electronically
Please provide the following information:
Line 10 Enter amount you are paying with the tax return or tax notice
Line 11 Enter the amount you will pay each month.
Line 12 Enter the day of the month you will make the payment
Once the IRS acknowledges this agreement they will begin to bill you on a monthly basis.
You can choose to pay more than the minimum calculated or pay the entire amount off at any time.
Do not wait for the IRS to acknowledge this form since that could take some time. Begin payments based on your agreement. Failure to make the payments waiting for a bill from the IRS could void this agreement.
Enter on your check the year of the taxes and the form number and your social security number.
e.g. Form 1040, 2018 taxes, 123-45-6789
If you plan to pay within 120 days you can apply online and avoid the fee.
Go to: http://www.irs.gov/Individuals/Online-Payment-Agreement-Application
New tax law changes
- Tax rates changed
- Personal Exemption Eliminated
- Standard deduction increased $12000 single/$24,000 Married filing Joint
- Child tax credit Increased to $2,000 for children under 17yrs of age
- Kiddie tax -Children under age of 24yrs unearned income taxed at trust tax rates
- e.g. top rate of 37% is at $12,500 and above
- Itemized deductions
- Medical exemption 7.5% 2018 only, back to 10% in 2019
- SALT taxes limited to $10,000
- Mortgage Interest $750K
- HELOC eliminated UNLESS for purchase or improvement of the home
- Charitable Contribution limit up to 60%
- Casualty and theft loss only Presidential declaration of a disaster area
- Misc itemized deductions Eliminated
- Gambling losses still deductible
- Moving expenses gone for most taxpayers
- Alimony – non deductible if finalized 01/01/19 or later
- Alimony – not taxable to the recipient if finalized 1/01/19 or later
- 529 plans now can pay for secondary or religious
- Roth Recharacterizations Eliminated
- 1031 exchanges only for Real estate
- Business Autos trade in now taxable
- Estate tax exclusions now $11,800K
- AMT exemption and phase out increased.
- Excess business loss limited to $250K/$500K
- New QBI 20% deduction
- Sole Props,
- S Corp
- QBI phased out at $157,500 single/$315,000 married filing separate
- QBI not available to certain businesses after the phase out
- e.g Accountants, Attorney, architects
- QBI is available for Rentals but special rules
- Active 250 hrs per year and must be documented
- Must issue 1099’s
- Triple net leases kill the QBI deduction
- C-Corp tax rate is flat 21%
- Health insurance penalty eliminated in 2019
Miscellaneous Itemized Deductions are gone for 2018
With the new tax law, miscellaneous Itemized deductions are now eliminated.
What does that mean for your tax deductions
If you are a wage earner you used to be able to deduct work-related expenses not reimbursed by your employer such as:
- Office in the home
- Office expenses
- All expenses normally taken on form 2106 unless you are a fee-based government employee, impairment related expenses, armed forces reservist or performing artist.
- Section 162(H) deduction for State Representative living outside the 50 mile limit of the state house, unless they are paid on a fee base. (Mass representatives are not fee-based)
Tax strategy: You should discuss this loss of deductions with your employer to see if these expenses can be reimbursed by your employer. They can still take these items as business deductions while you cannot.
In addition, the following items are no longer deductible:
- Investment expenses including broker fees
- Legal Fees
- Professionals publications
- Tax preparation fees
- Union Dues
- Safe deposit box
NOTE: although gambling losses are in the miscellaneous itemized deduction schedule these losses can still be taken but only to the extent of winnings.
QBI (Qualified Business Income) Deduction for Rental Properties
There is a new deduction on the federal return ONLY called Qualified Business Income deduction (QBI).
The IRS recently issued regulations indicating that certain Rentals qualify for the deduction because prior court cases defined certain rentals as a Business
……contemporaneous records, including time reports, logs, or similar documents, regarding the following: (i) hours of all services performed; (ii) description of all services performed; (iii) dates on which such services were performed; and (iv) who performed the services. Such 8 records are to be made available for inspection at the request of the IRS. The contemporaneous records requirement will not apply to taxable years beginning prior to January 1, 2019.
Ask for a notice 2019-07 compliance report
- 1095-A: Health Insurance Marketplace Statement
- The Health Insurance Marketplace (Marketplace) sends this form to individuals who enrolled in coverage there, with information about the coverage, who was covered, and when.
- If you receive a health insurance subsidy, you must provide this form so we can reconcile your advanced payments toward your Premium Tax Credit on your tax return.
- The deadline for the Marketplace to provide Form 1095-A is January 31st
- 1095-B: Health Coverage
- Health insurance providers send this form to individuals they cover, with information about who was covered and when.
- Individuals who had health coverage for themselves or their family members that is not reported on Form 1095-A or Form 1095-C should receive this form.
- The deadline for insurers, other coverage providers and certain employers to provide Forms 1095-B and 1095-C has been extended to March 2nd, so if you do not yet have this form but have another way of proving full-year healthcare coverage, we can file your tax return without it.
- 1095-C: Employer-Provided Health Insurance
- Certain Applicable Large Employers (ALE) send this form to certain employees, with information about what coverage the employer offered. Employers that offer health coverage referred to as “self-insured coverage” send this form to individuals they cover, with information about who was covered and when.
- Form 1095-C provides information about the health coverage offered by your employer and, in some cases, about whether you enrolled in this coverage. We need this form to determine your eligibility for the Premium Tax Credit.
- The deadline for insurers, other coverage providers and certain employers to provide Forms 1095-B and 1095-C has been extendedto March 2nd, so if you do not yet have this form but have another way of proving full-year healthcare coverage, we can file your tax return without it.
- 1099-HC: Massachusetts state healthcare form
- Required for all Massachusetts residents
What is PFML?
PFML stands for the Massachusetts Paid Family and Medical Leave Act (formerly FMLA).
FMLA protected Masschusetts employees from being let go while out on an extended leave of absence for family (ie. Maternity Leave) or medical reasons as covered under FMLA, though unpaid.
Beginning in 2021 under PFML, employees (and certain 1099 contractors) may apply for and collect a portion of their pay (not unlike umemployment) while out on an extended leave of absence for family or medical reasons (such as for Maternity Leave) as covered under PFML law.
Withholdings from W2 employees and 1099 contractors will begin October 2019 through the new Massachusetts Department of Family and Medical Leave.
Things to Know:
- You must inform your employees/notify your workplace
- Determine your Contribution Rate
- File through MassTaxConnect
PFML & Real Estate Agents
As you are aware, MAR has sent a notice to Realtors that they are exempt from the new Paid Family Medical Leave act (PFML) initiated by the Massachusetts Legislature. We were not able to comment on this exclusion until recently when we have received an update from the Commonwealth directly on this matter.
The Massachusetts Department of Family and Medical Leave has determined that business under Section 6 of MGL C. 151A outlines all employment that is excluded from this new legislation.
Paragraph (p) states as follows:
(p) Services performed by an individual as a real estate broker or salesman if he is licensed by the state as a real estate broker or salesman, and if he is remunerated solely by way of commission; provided, however, that the term ”employment” shall include service performed by a real estate broker or a salesman, if such service is performed for a governmental employer as defined in subsection (i) of section one.
What this means in laymen’s terms is that if you are a licensed Real Estate Agent and you are paid solely by commissions, then you are exempt from this law.
We have established business entities for some of our Real Estate clients. Based on this interpretation, we are concluding that if a payroll has been established for you with your Corporation and the earnings from that Corporation is solely from commissions,then you are exempt under this ruling.
Note: Some Agents have other business activity that is not 100% commission based, and it is our interpretation that if you are mixing other business interests, and are not solely commission based, then this exemption will not apply to you.
Although the amount of money collected for PFML is small, it may be wise to meet with us to discuss if any changes need to be made to your current structure to ensure you are fully exempt.
We added this as an addendum in my book, The Real Estate Investor Tax Guide to include changes made by the new Tax Cuts and Jobs Act (TCJA) passed in December 2017, which affects returns for 2018 through 2025. Most of the changes in the law are scheduled to revert back to the prior law after the 2025 tax year unless Congress extends it.
Herein, we will refer to the new Tax Cuts and Jobs Act either as “The New Tax Law” or TCJA.
Qualified Business Income rules (QBI)
The TCJA created a new deduction for “Qualified Businesses” known as the QBI deduction.
First, what is the QBI Deduction?
The QBI deduction is a deduction for certain qualified trades or businesses, such as real estate investors, where your net rental income (if it qualifies) will create an additional deduction of up to 20% of your net rental income. This is the simple answer, but there are many complex rules that come into play if your income exceeds certain guidelines, and in certain situations, your rental income may NOT qualify.
Rental income that does NOT qualify for the QBI deduction are:
- Real estate used by the owner
- Real estate rented under a triple net lease
- Self-rental real estate rented to an owner of an SSTB* if the ownership is 50% or more owned by the SSTB*
The good news is that rental properties, for the most part, qualify for this new deduction.
Note that the deduction is only available to individual taxpayers and not to regular corporations.
Although pass-through entities’ net income qualifies for the QBI, it does so at the individual taxpayer level and not directly to the pass-through entity such as Partnerships, S-Corporations, and LLCs.
Following are the phase-out amounts for 2019:
- Married Filing Jointly: $321,400 to $421,400
- Married Filing Separately: $160,725 to $210,725
- All other taxpayers: $160,700 to $210,700
These limits are indexed for inflation each year.
When your income reaches the phase-out amounts, part of the 20% QBI deduction begins to “phase out” or disappear until it is completely gone, and a different set of rules comes into play.
Above the phase-out amount, the following is available for the QBI deduction:
- 50% of W-2 wages paid by the business …or…
- 25% of W-2 wages paid by the business plus 2.5% of the unadjusted basis of assets
IRS notice 2019-7 outlined the rules specific to rental real estate that qualify for the QBI deduction:
- You must keep separate books and records showing the income and expenses for each property.
- You must perform at least 250 hours of real estate rental services each year for each property.
- You must document the real estate services performed.
- You must issue 1099’s to all vendor providing services
Hours of Service test
To be eligible, the taxpayer must pass an Hours of Service Test.
This test requires the taxpayer to document at least 250 hours of services performed per property.
You must document these hours of service, the description of the service, the dates these services were performed, and who performed the services.
Services that qualify include:
- Advertising to rent
- Negotiating leases
- Collecting rents
- Performing maintenance and repairs (but not the construction of capital improvements)
- Supervising contractors and employees
Services do not include traveling to and from the properties.
The services do not have to be performed by the owner themselves but can be performed by agents, employees, or independent contractors.
250 Hour test: if you own multiple properties trying to document 250 hours for each property can be daunting. You can combine properties as a single enterprise to deal with this challenge. But you still have to keep separate residential rental from commercial rental. You must elect in the return to combine these rentals into a single enterprise.
*SSTB defined: a Specified Service Trade or Business (SSTB) is a certain class of business excluded from taking the QBI deduction because of the trade or business they are involved in.