Fox Accounting & Tax Services Inc.                                    (503)246-6994   Income Tax Preparation, Payroll & Bookkeeping Services

• 54.5 cents per mile for business 
• 18 cents per mile for medical
• 14 cents per mile for charity

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​Individuals who have earned income may make deductible contributions to a traditional IRA up to $5,500 or that year's compensation from wages or self-employment, whichever number is lower. The contribution limit is $6,500 for taxpayers age 50 or above. You can make deductible contributions to your IRA up to April 18, 2016 this year's tax filing deadline.

The deduction for taxpayers contributing to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $63,000 and $73,000. These thresholds are unchanged from 2015. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $101,000 to $121,000. For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

Individuals who exceed these phase out thresholds may still contribute to their IRA but will be unable to deduct the contributions.
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Like traditional IRAs, Roth IRA contributions are limited to $5,500/$6,500. Contributors must have earned income at least equal to their contribution amount. But Roth contributions are not deductible and Roth distributions are not taxed.

Unlike traditional IRAs, Roth IRAs also have an income test for eligibility. Individuals with adjusted gross income above certain levels may not contribute to a Roth. The AGI phase-out range for taxpayers making contributions to a Roth IRA in 2018 is $189,000 to $199,000 for married couples filing jointly. For singles and heads of household, the income phase-out range is $120,000 to $135,000.  As with the traditional IRA, the phase out limit For married separate is $10,000.

Taxpayers in these ranges will have their maximum Roth contribution amounts "phased out" with the amount at the lower end close to the max and the amount at the upper end near zero. ​

Only a few days into the filing season and the IRS has already identified a new scam.  In a new twist, these criminals are filing fraudulent returns and using the taxpayers' real bank accounts for the deposit. A woman posing as a debt collection agency official then contacts the taxpayers to say a refund was deposited in error and asks the taxpayers to forward the money to her.  This scheme is likely just the first of many that will be identified this year as the IRS, state tax agencies and tax industry continue to fight back against tax-related identity thieves.
In addition to contacting your tax preparer, taxpayers who receive a direct deposit refund they did not request should take the following steps:

1. Contact the Automated Clearing House (ACH) department of the bank/financial institution where the direct deposit was received and have them return the refund to the IRS.
2. Call the IRS toll-free at 800-829-1040 (individual) or 800-829-4933 (business) to explain why the direct deposit is being returned.
3. Visit the IRS identity protection page at:                                               - https://www.irs.gov/identity-theft-fraud-scams/identity-protection

If your business pays non-employee individuals, LLC's, or partnerships for services and those payments exceed $599 per vendor, you need to file 1099 Information Reports. These reports are due on January 31st. The penalties for not filing these forms have increased substantially over the past few year.  Additionally,The state of Oregon now has the power to disallow your deductions for Wages and Sub-contract, or outside services where the appropriate information return has not been filed timely.  That is a big deal.  It is more important than ever for our small business clients to stay on top of these filing requirements and due dates.  See the high-lights of the 1099 reporting rules below:

• If you pay any individual, partnership, or LLC $600 or more for services then you must file a form 1099 no later than January 31.  
• 1099's are also due for rent paid to any non-corporate payee.
• If you file copies of 1099s late with the IRS, but within 30 days of the due date, then the IRS assesses a penalty of $50 per late 1099. I believe this is $50 for the payee copy and another $50 for the IRS copy.
• If you are running more than 30 days late on your Form 1099s, but complete and submit them by August 1, the IRS may assess a more severe penalty of $100 per late form.
• The potential penalty increases still further after August 1, with 1099s still outstanding meriting fines of up to $260 per form.
• The penalty is increased to $530 per missed form if the IRS deems that the failure to file is due to intentional disregard of the filing requirement.
• Additionally, Oregon has a new enforcement tool in their box.  If a form 1099 or W-2 is not filed timely, they may disallow your deduction for the item - so the wages or sub contract costs paid. This applies no matter how late the form.  It is only likely to come up in audit but the potential loss is so large that I would not disregard that possibility.

These requirements are applicable to payments made  in the course of your trade or business. Personal payments are not reportable. You are engaged in a trade or business if you operate for gain or profit. However, nonprofit organizations are considered to be engaged in a trade or business and are subject to these reporting requirements.  Rental operations that rise to the level of a business are also subject to these rules.  Most rental owners are considered to be engaged in a passive activity rather than a business so would not need to issue 1099's.

The House Ways and Means Committee has proposed sweeping changes to the tax rules. The proposal would drop corporate rates from the current top rate of 35% to a top rate of 20%.  It also collapses the individual rates to 4 brackets ranging from 12% to 39.6%.    This is being touted as a middle class tax cut but is it?

How it affects individuals and families will depend a lot on where they live and how reliant they are on specific deductions. The deductions for state and local taxes and medical costs are on the chopping block.  Mortgage interest deductions would be limited and no deduction would be allowed for second homes.  Standard deductions double for most taxpayers, but they repeal the personal exemptions.  This would be a positive change for taxpayers who do not itemize but likely not for those who do.  The higher standard deduction minus is unlikely to make up for the lost exemptions and itemized deductions for many, if not most, folks who currently itemize.  The proposal would increase the child credit to $1,600 per child and extend the credit to those earning $230,000.   This could mitigate the loss of the exemption deductions for dependents but not those claimed by the taxpayer and spouse. 

The only way to know for certain how this bill would impact you would be to re-work your tax return under the new proposed laws.  My sense is that it will be a middle class tax cut for some and an increase for many.  Again, this is just a proposal at this point.  The final tax bill is likely to have many changes.  In its current form, it is estimated that the bill would increase the national debt by 1.4 trillion dollars.  

One item to note when doing your tax planning is the proposed change to the sale of principal residence rules.  Under the current law, you can exclude gain on the sale of your principal residence up to $250,000 for singles or $500,000 for married joint.  Currently, you need to have resided in the home for 2 of the past 5 years.  The new proposal would change that to 5 out of the last 8 years.  This rule would take effect for sales after 12/31/17.  This could negatively impact taxpayers whose houses are currently on the market if they have not met the new residency rules.  See item 7 below.

​For those of you with stock options, take a look at item 11 under business proposals.  The incentive to exercise and hold stock options may be on its way out.

​The standared mileage rate for business has been reduced from 54¢ to 53.5¢ for tax year 2017. The rates for charity and medical deductions are 14¢ and 17¢ respectively.

For those claiming actual expenses rather than using the standard mileage rate, the Annual depreciation and expensing deductions for so-called luxury autos are limited to specific dollar amounts. These amounts are inflation-adjusted each year. The IRS has announced that for autos (not trucks or vans) first placed in service during 2017, the dollar limit for the first year an auto is in service is $3,160 ($11,160 if the bonus first-year depreciation allowance applies); for the second tax year, $5,100; for the third tax year, $3,050; and for each succeeding year, $1,875. These dollar limits are the same as those that applied for autos first placed in service in 2016.

For light trucks or vans (passenger autos built on a truck chassis, including minivan and sport-utility vehicles (SUVs) built on a truck chassis) first placed in service during 2017, the dollar limit for the first year the vehicle is in service is $3,560 ($11,560 if the bonus first-year depreciation allowance applies); for the second tax year, $5,700; for the third tax year, $3,450; and for each succeeding year, $2,075. For a light truck or van placed in service in 2017, the dollar figures are the same as for such vehicles first placed in service in 2016, except that the third-year amount is $100 higher.
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A taxpayer that leases a business auto may deduct the part of the lease payment representing its business/investment use. If business/investment use is 100%, the full lease cost is deductible. So that auto lessees can't avoid the effect of the luxury auto limits, however, taxpayers must include a certain amount in income during each year of the lease to partially offset the lease deduction. The amount varies with the initial fair market value of the leased auto and the year of the lease, and is adjusted for inflation each year. The IRS has released a new inclusion amount table for autos first leased during 2017.

The IRS recently issued IRS Health Care Tax Tip # 2016-49, May 5, 2016:

While you may be tempted to forget all about your taxes and your premium tax credit once you've filed your tax return, don’t give in to that temptation.

When you applied for assistance to help pay the premiums for 2016 health coverage through the Marketplace, the Marketplace estimated the amount of your premium tax credit. Advance payments are based on an estimate of the premium tax credit that you will claim on your federal income tax return. You may be receiving the benefit of monthly advance payments to lower what you pay out-of-pocket for your monthly premiums.  Doing a  Premium Tax Credit (PTC) check-up now will help you avoid large differences between the advance credit payments made on your behalf and the amount of the premium tax credit you are allowed when you file your tax return next year.  

The IRS will either subtract the difference from your refund or add it to your taxes owed. If you ended up owing money due to excess advance payments, you should consider adjusting the amount of those payments now to avoid any issues, like a large tax bill, when you file your 2016 tax return next year. Similarly, if you got a refund that was larger than you expected, you could increase the amount of the advance payments of the credit sent to your provider on your behalf, which will lower what you pay out-of-pocket for your monthly premiums.

The Premium Tax Credit Change Estimator can help you estimate how your premium tax credit will change if your income or family size changes during the year. This estimator tool does not report changes in circumstances to your Marketplace. To report changes and to adjust the amount of your advance payments of the premium tax credit you must contact your Health Insurance Marketplace.
For more information, see the Claiming the Credit and Reconciling Advance Credit Payments page on IRS.gov/aca.

As of Jan. 1, 2016, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) are:

• 54 cents per mile for business miles driven.
• 19 cents per mile driven for medical or moving purposes.
• 14 cents per mile driven in service of charitable organizations.

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​Inflation in 2015 was too tame to trigger the cost-of-living adjustments that nudge pension plan limitations upward. Here are some figures to help plan 2016.

Employees May Contribute up to $18,000 to their 401(k) plans in 2016

The contribution limit for employees who participate in 401(k), 403(b), most 457 plans and the federal government's Thrift Savings Plan remains unchanged at $18,000.

The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan remains unchanged at $6,000.

Employees May Contribute up to $12,500 to their SIMPLE retirement account

SIMPLE account contribution limits for 2016 are unchanged at $12,500. The additional "catch-up" contribution for people age 50 and over  also remains unchanged at $3,000. The largest total SIMPLE contribution possible in 2016 is $15,500.

SEP (Simplified Employee Pension) plans are still limited to 25% of compensation (or self-employment earnings). 

The maximum amount small business owners and the self-employed may contribute to a SEP or other defined contribution plan remains $53,000 in 2016.

Annual IRA contribution limits remain unchanged at $5,500 ($6,500 for individuals 50 or above) 

Individuals who have earned income may make deductible contributions to a traditional IRA up to $5,500 or that year's compensation from wages or self-employment, whichever number is lower. The contribution limit is $6,500 for taxpayers age 50 or above. You can make deductible contributions to your IRA up to April 18, 2016 this year's tax filing deadline.

The deduction for taxpayers contributing to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $61,000 and $71,000. These thresholds are unchanged from 2015. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range remains unchanged at $98,000 to $118,000. For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

Individuals who exceed these phase out thresholds may still contribute to their IRA but will be unable to deduct the contributions.

Roth IRA income limits increase slightly in 2016

Like traditional IRAs, Roth IRA contributions are limited to $5,500/$6,500. Contributors must have earned income at least equal to their contribution amount. But Roth contributions are not deductible and Roth distributions are not taxed.

Roth IRAs also have an income test for eligibility, unlike traditional IRAs. Individuals with adjusted gross income above certain levels may not contribute to a Roth. The AGI phase-out range for taxpayers making contributions to a Roth IRA in 2016 is $184,000 to $194,000 for married couples filing jointly, up from $183,000 to $193,000 in 2015. For singles and heads of household, the income phase-out range is $117,000 to $132,000, up from $116,000 to $131,000. 

Taxpayers in these ranges will have their maximum Roth contribution amounts "phased out" with the amount at the lower end close to the max and the amount at the upper end near zero. 

Health savings accounts, or HSA's, are individual bank accounts owned by employees or self employed individuals that allow for tax free payment or reimbursement of eligible medical expenses. 

HSA Highlights/Advantages:

• Tax Deductible Contributions
  
• Tax Free Growth on Account
  
• Tax Free Distributions for Qualified Medical Expenses
  
• Can be used as a Traditional IRA after age 65 (or Medicare Eligibility)
  

HSA's In general:
These accounts work in a manner which is very similar to an IRA account but they are for out of pocket medical expenses.  Qualifying individuals can deposit funds to the account, take a tax deduction for the funds deposited, and then withdrawal the funds tax free to pay qualified medical expenses.  You might be thinking, "wouldn't it be easier just to deduct your medial expenses instead?"  Well, yes it would but that isn't they way congress has written the laws.  As things stand now you can only deduct medical expenses that exceed 10% of your income.  For most people that means that they can't deduct any medical expenses at all. Health Savings Accounts are a good way to convert these otherwise non deductible medical expenses into deductible ones.

The Rules:
No permission or authorization from the IRS is necessary to establish an HSA. You set up an HSA with a trustee. A qualified HSA trustee can be a bank, an insurance company, or anyone already approved by the IRS to be a trustee of individual retirement arrangements (IRAs) or Archer MSAs. The HSA can be established through a trustee that is different from your health plan provider.

For tax year 2016 an individual with self-only coverage can contribute and deduct up to $3,350.  A contribution and deduction of up to $6,750 is allowed for a family coverage plan.

What's the catch?  Well, there are a couple of them.  First, to have a tax advantaged Health Savings Account you need to have a qualifying high deductible health insurance plan.  The plan must have a deductible of no less than $1,300 for self-only or $$2,600 for family coverage. Additionally, the plan must meet the maximum out of pocket rules.  The most that a plan participant can be required to pay our of pocket cannot exceed $6,550 for self coverage or $13,100 for family coverage.  Typically, qualifying high deductible plans have lower monthly premiums but higher out of pocket costs associated with them.  The Health Savings Component is mean to help you cover those higher out of pocket costs.  

To receive tax free distributions, the proceeds must be used for qualified medical expenses.  If HSA funds are used to pay for unqualified expenses the distribution will be included in income and will also be subject to a 20% penalty.  After you reach age 65 and become eligible for medicare you can take distributions from the account for non medical purposes without incurring the 20% penalty; however, the distributions will be subject to tax.  

Retirement Planning - How to Utilize Your HSA in Retirement:
Once you become medicare eligible you are no longer qualified to make contributions to your HSA. But, you can still utilize your Health Savings Account.  In fact, an HSA is a valuable asset in retirement providing useful benefits.  If you are fortunate enough to remain relatively healthy during your working years and don't incur a lot of medical expenses, you could build up a significant balance in your HSA.  You can continue to use this account balance for medical expenses as they occur. Your distributions will remain tax free to the extent that you are reimbursing medical expenses. What you don't use for medical expenses can be withdrawn just like regular IRA withdrawals with no penalty.  You will need to pay income tax on the non medical distributions, just as you would with a traditional IRA.

Two individuals who claim their tax information was stolen when hackers breached the Service’s “Get Transcript” web application filed a class action lawsuit against the agency. They say that IRS was generally aware that its computer systems were a target for criminals and failed to implement the necessary security measures or otherwise fix the weaknesses. They allege that IRS made an intentional decision not to strengthen the security of its systems, which led to the loss of taxpayer data in the Get Transcript breach.