With the arrival of tax reform, we might have to rename the start of the summer season to tax planning season. In this edition of our monthly update, we cover some of the hot planning issues you need to think about before the next tax season. Also, we share some changes to the home office deduction, kiddie tax, business accounting methods and much more.
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Preparing for Taxes for 2018 and Beyond
- Increase In Standard Deduction
- Loss of Personal Exemptions
- Changes to Itemized Deductions
- Bunching Strategy
- Employee Business Expenses
- Business Expensing
- 20% Flow-through Income Deduction
- Change in Treatment of Alimony
- Casualty Losses, Home Equity Interest and Moving No Longer Deductible
Tax reform has changed the way most taxpayers need to think about and plan for their taxes. It is no longer business as usual, and those who think it is are in for a rude awakening come tax time next year.
For most taxpayers, the most significant change is the increase in their standard deduction, which on the surface seems like a big benefit. But don’t overlook the fact that the same tax reform that nearly doubled the standard deduction took away the personal exemption as a deduction. So, for example, under old law, a married couple’s standard deduction would have been $13,000, and their two personal exemptions would have been $8,300 (2 x $4,150), for a total deduction of $21,300. Under the new law, they will be able to deduct $24,000, the new standard deduction for 2018. So, their total increase over what they would have gotten under prior law is only $2,700. If they have four children, their deductions for 2018 under prior law would have been $37,900 ($13,000 plus 6 x $4,150), as compared to the new law’s $24,000. However, for individuals with children under age 17, the child tax credit for 2018 was increased to $2,000 (with $1,400 being refundable) from the prior $1,000, in many cases making up for the loss in the exemption deduction. Note that a credit is a dollar-for-dollar reduction of the tax, while a deduction reduces the income that is taxable.
Tax reform also placed some limitations on itemized deductions by limiting the amount that can be claimed for state and local taxes as well as totally eliminating the deduction for employee business expenses along with some other commonly encountered deductions. Thus, the remaining allowable itemized deduction categories are medical (in excess of 7.5% of AGI), up to $10,000 of state and local taxes, home acquisition debt interest, investment interest, charitable contributions and gambling losses (limited to the amount of gambling income).
Some taxpayers may be able to employ what is referred to as the “bunching” strategy as a workaround. This strategy has the taxpayer taking the standard deduction one year and itemizing the next. This is accomplished by doubling up charitable contributions in one year and skipping donations the next year, deferring or pre-paying medical expenses where possible, and paying state estimates in advance for the year of itemizing and prepaying all assessed property taxes, while keeping in mind that the maximum deduction for taxes in any year is $10,000. This strategy should only be used if the shifting of deductions results in total itemized deductions being greater than the year’s standard deduction.
Another huge issue is the loss of employee business expenses. This means the likes of long-haul truckers, traveling salespeople and others with large employee business expenses should seek out accountable expense reimbursement plans with their employers, even if they have to reduce their pay to balance it out.
For taxpayers in business, tax reform offers 100% expensing of purchased tangible business assets other than structures. At the same time, it also offers a new 20% flow-through business deduction. The combination of these two deductions must be carefully considered because expensing rather than depreciating the cost of equipment, machinery, etc., will reduce the business’s profit, which will in turn reduce the flow-through deduction. On the flip side, the new 20% deduction is limited for certain higher-income individuals, and reducing income by expensing capital purchases may actually help one to qualify for the deduction.
Married couples contemplating divorce will have to understand how the law changes will affect their situation and whether they should finalize the divorce before the end of the year. Currently, alimony is deductible by the payer and taxable to the recipient. Tax reform has changed that long-standing rule for divorce agreements entered into after December 31, 2018, or pre-existing agreements that are modified after that date, to include a new provision saying that alimony is no longer deductible by the payer and is not income to the recipient. Of course, the treatment of alimony can be adversarial and can also be a planning issue for 2018.
Here are some additional issues of importance:
- Business entertainment expenses are no longer deductible.
- Up to $10,000 of Qualified Tuition Plan (Sec. 529) funds can be used for elementary and high school expenses, if permitted by the plan.
- Taxpayers who convert their traditional IRA to a Roth IRA can no longer change their minds and undo the conversion.
- Casualty losses, other than those incurred in a federally declared disaster area, are no longer deductible, so you should consider whether you have adequate insurance.
- Moving expenses are no longer tax deductible, and employer reimbursement for moving costs is now taxable income. If an employer requires an employee to relocate, consider having the employer provide a tax gross-up reimbursement.
- Taxpayers basing their ability to purchase a home on the tax deduction they will derive from the interest they’ll be paying need to be aware that for homes purchased after 2017, the home mortgage interest deduction is limited to the interest paid on the first $750,000 ($375,000) of home acquisition debt.
- Taxpayers who have tapped their home’s equity in the past should be aware that they can no longer deduct home equity debt interest, even if the debt was acquired before 2018 and is $100,000 or less.
- For taxpayers residing in a state that has a state income tax, some or all of the federal tax reform changes may not apply for state filing purposes, or they may apply only if the state legislature enacts conforming legislation.
As you can see, it is definitely not business as usual.
Good and Bad News About The Home Office Tax Deduction
- Home Office
- Actual-Expense Method
- Simplified Method
- Income Limitation
- Employee Deduction
“Home office” is a type of tax deduction that applies to the business use of a home; the space itself may not actually be an office. This category also includes using part of a home for storing inventory (e.g., for a wholesale or retail business for which the home is the only fixed location); as a day care center; as a physical meeting place for interacting with customers, patients, or clients; or the principal place of business for any trade or business.
Generally, except when used to store inventory, an office area must be used on a regular and continuing basis and exclusively restricted to the trade or business (i.e., no personal use). Two methods can be used to determine a home-office deduction: the actual-expense method and the simplified method.
Actual-Expense Method — The actual-expense method prorates home expenses based on the portion of the home that qualifies as a home office; this is generally based on square footage. These prorated expenses include mortgage interest, real property taxes, insurance, heating, electricity, maintenance, and depreciation. In the case of a rented home, rent replaces the interest, tax, and depreciation expenses. Aside from prorated expenses, 100% of directly related costs, such as painting and repair expenses specific to the office, can be deducted.
Simplified Method —The simplified method allows for a deduction equal to $5 per square footage of the home that is used for business, up to a maximum of 300 square feet, resulting in a maximum simplified deduction of $1,500.
Even if you qualify for a home-office deduction, your deduction is limited to the business activity’s gross income—not, as many people mistakenly believe, its net income. The gross-income limitation is equal to the gross sales minus the cost of goods sold. This amount is deducted on a self-employed individual’s business schedule.
The good news is that, under the tax reform, the home-office deduction is still allowed for self-employed taxpayers. The bad news is that this deduction is no longer available for employees, at least for 2018 through 2025. The reason for this change is that, for an employee, a home office is considered an employee business expense (a type of itemized deduction); Congress suspended this deduction as part of the tax reform.
If you have concerns or questions about how the home-office deduction applies to your specific circumstances, please give this office a call.
Big Changes to the Kiddie Tax
- Prior Law
- New Law
- Earned Income
- Unearned Income
- Fiduciary Rates
Years ago, to prevent parents from transferring their investment accounts into their children’s name to avoid taxes, Congress created what is referred to as the kiddie tax. This counteracted the strategy of taking income from the parents’ higher tax bracket and shifting it to their children’s lower tax bracket.
The kiddie tax plugged that tax loophole by taxing the child’s unearned income (income not from working) at the parent’s top marginal rate.
That has all changed under the new tax reform. Beginning in 2018, children’s tax rates are no longer based upon their parents’ top marginal rates. Congress streamlined the kiddie tax by taxing a child’s unearned income by the capital gain and ordinary income rates that apply to trusts and estates. Thus, the child’s tax is unaffected by the parent’s tax situation or the unearned income of any siblings, while the earned income is taxed using the single tax rates.
Although this will greatly simplify the preparation of a child’s return, there will be losers and winners. One of the big winners will be a child who is employed. Since earned income is taxed at single rates, a working child will benefit from the new higher standard deduction allowing them to make up to $12,000, instead of the previous $6,350 of earned income without any tax.
On the other hand, for those with substantial unearned (investment) income, that income will no longer be subject to the parent’s top tax bracket but instead will be taxed at the rates for estates and trusts, which for 2018 hit 37% at a taxable income of $12,500.
The losers will be children with substantial investment income, which will be taxed at the trust rates, especially children whose parents are in a low tax bracket. Under the old law, a child’s unearned income was taxed at the parents’ top tax bracket, which now may be lower than the fiduciary tax rates.
The kiddie tax applies to children under the age of 18, a child age 18 at the end of the year with earned income less than one half the cost of their support, and full-time students between the ages of 18 and 24, also with earned income less than one half the cost of their support.
Parents with children might consider some of the following investment strategies for their children to avoid the kiddie tax issues:
- U.S savings bonds — Invest in U.S. savings bonds. Not the best return on investment, but interest can be deferred until the bonds are cashed.
- Tax-deferred annuities — Invest in tax-deferred annuities. The income can be deferred until the annuity is surrendered.
- Municipal bonds — Invest in municipal bonds. They generally produce tax-free interest income (which may be taxable to the state).
- Growth stocks — Invest in stocks that focus more on capital appreciation than current income.
- Unimproved real estate — Invest in unimproved real estate, which provides appreciation without current income.
- Family employment — If the family has a business, that family business could employ the child. The child’s earned income is not subject to kiddie tax and will generate a deduction for the family business (assuming the wages are reasonable for the work actually performed). The child’s earned income can offset the standard deduction for a dependent, and the excess income will be taxed at the child’s rate (not the parent’s). In addition, the child would also qualify for an IRA, which provides an additional income shelter.
- Individual IRA Account — If a child has investment income and earned income, the earned income can be used as a basis for depositing investment funds into an IRA account. Funding an IRA at an early age is perhaps one of the most underused family wealth-building strategies. Generally, a Roth IRA would be preferable for a child with little or no tax liability.
- Sec. 529 Qualified Tuition Plans — If parents, grandparents, or others want to transfer money to a child, depositing the funds into a Sec. 529 plan will allow the earnings to accumulate tax-deferred, and if used for qualified college expenses, the earnings are withdrawn tax-free.
If you have questions or would like to schedule an appointment to discuss a child’s tax situation and options, please give this office a call.
Choosing Your Accounting Method Under New Tax Laws
Businesses today must take a closer look at their accounting methods. Since the passage of new tax laws, with changes to thresholds for choosing accounting methods, all companies need to take an inward look at their current accounting methods to determine if they are the most beneficial permissible method applicable. It is important to work closely with accounting professionals here — making changes as well as decisions on how accounting methods need to be updated.
What Is Changing?
The Tax Cuts and Jobs Act put into place new laws for a variety of sectors. One key area impacted that many business owners do not immediately consider is accounting. The overall method of accounting and the type of business can be key factors to consider. This tax reform set out to support small business owners and offer key ways to reduce some taxes. It also put into place provisions and accounting method reform with a focus on keeping things simple. Outdated methods of accounting minimized the amount of information shared, but they tend to overcomplicate methods. This is especially true with outdated gross receipt thresholds. Old methods required business owners to use accrual basis accounting which tends to increase overall administrative costs and compliance requirements.
Here is a look at some of the key changes businesses should recognize moving forward.
Limits on Cash Method of Accounting Improved
One key change is the limitation on which businesses can use the cash method of accounting. Previously, companies could not use the cash method of accounting — commonly considered the most natural and more affordable method — as an option if they reached a threshold in revenue. Previously, this method could not be used if the average annual gross receipts for the company were limited to companies with revenue under $10 million, except for the following companies that are that are limited to $1 Million:
- Retailing (NAICS codes 44 and 45);
- Wholesaling (NAICS code 42);
- Manufacturing (NAICS codes 31 — 33);
- Mining (NAICS codes 211, 212);
- Publishing (NAICS code 5111); or
- Sound recording (NAICS code 5112).
The new law changes this. First, it increases the threshold to $25 million. It also indexes this to inflation (meaning it can rise over time due to inflationary measures). Companies who are now able to use this method will note an accounting method change. It will allow the company to recognize ratable taxable income from this change over a period of four years — you do not have to adjust this all at one time. Additionally, any losses are recognized immediately.
Changes in Inventory Accounting
The law also changes Internal Revenue Code Section 263A. These UNICAP rules made for very specific restrictions for business owners. Prior to the changes, the revenue threshold was subject to the UNICAP rules. It requires businesses that maintain an inventory to apply specific costs to their inventory. When this cost is applied, it raises the company’s balance sheet. Overall, it increases the amount of taxable income the company has, therefore making it harder to overcome the threshold.
Now, companies with $25 million in revenue that qualify for the cash method of accounting will be able to note their inventories as non-incidental supplies or materials. Another option is to use their financial accounting treatment for inventories.
Long-Term Contract Changes
Another key area of the law has to do with long-term contracts. Previously, any business with $10 million or less in average annual gross receipts and maintained contracts expected to end within two years were considered small contractors. As a result of this classification, the businesses did not have to use a percentage of completion method of accounting. This helped streamline efforts for the company. The new law still applies for the most part. However, the new law increases that threshold from $10 million up to $25 million. And, it is indexed for inflation. This means more companies — those with revenue under $25 million — now achieve this same benefit.
What Does This Change Mean for You?
As a business owner, it can mean significant changes. When you meet with your accounting professionals, it will be important to look at several things:
- Do the changes apply to your situation? Any business around the gap of $10 million ($1 Million for certain companies) to $25 million may need to consider the new methods of accounting available to them.
- Do the changes benefit the company? Choosing the cash method of accounting over the accrual method is often beneficial, but not to all organizations.
- Does the change require substantial changes to business operations? Though operations may stay the same, tax planning will change.
For these reasons, companies should work closely with accounting professionals to apply the changes under these laws. The law went into effect in December of 2017 — which means it applies to 2018 and beyond. For this reason, it is important to get up to date now.
Summer Employment For Your Child
- Higher Standard Deduction
- IRA Options
- Self-Employed Parent
- Employing Your Child
- Tax Benefits
Summer is just around the corner, and your children may be looking for summer employment. With the passage of the most recent tax reform, the standard deduction for single individuals jumped from $6,350 in 2017 to $12,000 in 2018, meaning your child can now make up to $12,000 from working without paying any income tax on their earnings.
In addition, they can contribute the lesser of $5,500 or their earned income to an IRA. If they contribute to a traditional IRA, they could earn up to $17,500 tax free, since the combination of the standard deduction and the maximum allowed contribution to an IRA for 2018 is $5,500. However, looking forward to the future, a Roth IRA with its tax-free accumulation would be a better choice.
Even if your child is reluctant to give up any of their hard-earned money from their summer or regular employment, if you have the financial resources, you could gift them the funds to make the IRA contribution, giving them a great start and hopefully a continuing incentive to save for retirement.
With vacation time just around the corner and employees heading out for their summer vacations, if you are self-employed, you might consider hiring your children to help out in your business. Financially, it makes more sense to keep the family employed rather than hiring strangers, provided, of course, that the family member is suitable for the job.
Rather than helping to support your children with your after-tax dollars, you can instead hire them in your business and pay them with tax-deductible dollars. Of course, the employment must be legitimate and the pay commensurate with the hours and the job worked. A reasonable salary paid to a child reduces the self-employment income and tax of the parents (business owners) by shifting income to the child.
Example: You are in the 25% tax bracket and own a self-employed business. You hire your child (who has no investment income) and pay the child $15,000 for the year. You reduce your income by $15,000, which saves you $3,750 of income tax (25% of $15,000), and your child has a taxable income of $3,000 ($15,000 less the $12,000 standard deduction) on which the tax is only $300 (10% of $3,000).
If the business is unincorporated and the wages are paid to a child under age 18, the pay will not be subject to FICA (Social Security and Medicare taxes) since employment for FICA tax purposes doesn’t include services performed by a child under the age of 18 while employed by a parent. Thus, the child will not be required to pay the employee’s share of the FICA taxes, and the business won’t have to pay its half either.
Example: Using the same information as the previous example, and assuming your business profits are $130,000, by paying your child $15,000, you not only reduce your self-employment income for income tax purposes, but you also reduce your self-employment tax (HI portion) by $402 (2.9% of $15,000 times the SE factor of 92.35%). But if your net profits for the year were less than the maximum SE income ($128,400 for 2018) that is subject to Social Security tax, then the savings would include the 12.4% Social Security portion in addition to the 2.9% HI portion.
A similar but more liberal exemption applies for FUTA, which exempts from federal unemployment tax the earnings paid to a child under age 21 while employed by his or her parent. The FICA and FUTA exemptions also apply if a child is employed by a partnership consisting solely of his or her parents. However, the exemptions do not apply to businesses that are incorporated or a partnership that includes non-parent partners. Even so, there’s no extra cost to your business if you’re paying a child for work that you would pay someone else to do anyway.
If you have questions related to your child’s employment or hiring your child in your business, please give this office a call.
Is a Roth Conversion Right for You? But Be Careful, They Can No Longer Be Undone!
- Conversion Timing
- Why Convert?
- When to Convert?
- Issues to Consider Before Making the Decision
Roth IRA accounts provide the benefits of tax-free accumulation and, once you reach retirement age, tax-free distributions. This is the reason why so many taxpayers are converting their traditional IRA account to a Roth IRA. However, to do so, you must generally pay tax on the converted amount. After making a conversion, your circumstances may change, and you may find yourself wishing you had not made the conversion. In the past, you could change your mind later and undo the conversion. But that option is no longer available under tax reform. So, be careful: once a conversion is made, there is no going back.
Timing is everything, and a favorable time to make a traditional IRA to Roth IRA conversion is a year when your income is abnormally low or the value of your traditional IRA has declined. You can also convert portions of your traditional IRA over a number of years, thereby gradually converting the traditional IRA to a Roth IRA, spreading the tax liability over a number of years, and keeping it in a lower tax bracket. If you previously made non-deductible contributions to a traditional IRA, those amounts can be converted tax-free but must be converted ratably with the other funds in the traditional IRA.
Many taxpayers overlook some great opportunities to make conversions, such as years when your income is abnormally low or a year when your income might even be negative due to abnormal deductions or business losses. Even the new higher standard deductions may offer a taxpayer the opportunity to convert some or all of their traditional IRA to a Roth IRA without any conversion tax.
Everyone’s financial circumstances are unique, and issues to consider include:
- Will there be enough years before retirement to recoup the conversion tax dollars through tax-free accumulation?
- Is your income low enough or are your deductions high enough to enable a tax-free or minimal tax conversion?
- Will you be in a lower or higher tax bracket in the future?
- Where would the money to pay the conversion tax come from? Generally, it must be from separate funds. If it is taken from the IRA being converted, for individuals under age 59½, the funds withdrawn to pay the tax will also be subject to the 10% early distribution penalty, in addition to being taxed.
- It might be appropriate for you to design your own custom conversion plan over a number of years, rather than converting everything at once.
Conversions can be tricky, and once made, they can no longer be undone. If you are considering a conversion, it might be appropriate to call for an appointment so that this office can help you properly analyze your conversion options or develop a conversion plan that fits your particular circumstances.
Don’t Have a Budget? QuickBooks Online Can Help
The hardest part of creating a budget is getting started. QuickBooks Online provides tools that can jump-start the process.
You know you should have a budget. You’re aware that it can help you stay on track with your company’s income and expenses throughout the year. Maybe you’ve even tried to make one before, but you got discouraged by the mechanics or by the difficulty of estimating money in and out for the next 12 months.
June may not be the beginning of your fiscal year, but that doesn’t mean you can’t make a serious effort to start building a budget that can help you rein in expenses and set revenue goals.
Here’s a look at QuickBooks Online’s budgeting features.
Creating the Framework
Before you begin, you’ll want to make sure that your fiscal year is set correctly in QuickBooks Online. Click the gear icon in the upper right, then click Your Company | Account and Settings | Advanced. If the First month of fiscal year isn’t correct, click the pencil icon over to the right and change it. Then click Save and exit out of this window.
Click the gear icon again and select Budgeting, then click
QuickBooks Online asks you the questions that need to be answered before you start filling in your budget grid.
The first thing you’ll do is give your budget a descriptive name by entering it in the Name field. Next, open the drop-down list under Fiscal year and select the correct 12-month period. You can create your budget in one of three intervals: Monthly, Quarterly, or Yearly. If you want to populate your budget with numbers from this year or last, make that selection in the Pre-fill data? field.
There’s one more option at the top of the Budgets Grid screen that’s not shown in the image above. You can Subdivide by Customer, Class, or Location. This can be useful if you want to view budget data specific to a subset of entries in each of those categories. You could, for example, choose three customers and view only their numbers in the grid individually, one at a time.
Providing Your Numbers
Once you’re satisfied with the selections you’ve made, click Create Budget in the lower right. The screen will refresh and display a grid that you can edit.
Let’s say you’re working on a budget for the second half of 2018. QuickBooks Online brought in your numbers for January-May. You see that the numbers don’t vary much from month to month on one specific line item, so you’re going to assume that they will continue to be true (unless you know something that will affect it after May). You could enter a rough average of the first five months in the JUN field.
Hover your cursor over the arrow to the side of that field, and this sentence appears in a small bubble: Click to copy the value across on the row. QuickBooks Online will then enter that number in the JUL through DEC fields.
QuickBooks Online asks you the questions that need to be answered before you start filling in your budget grid.
When you’re done entering data in all of the fields relevant to your business, click Save in the lower right and close the window. Your budget will now show up in the list.
Tip: If you have multiple blank rows and don’t want them to be displayed, click the gear icon in the upper right corner of your budget page. Click in the box in front of Hide blank rows to create a check mark.
The Hard Part
QuickBooks Online simplifies the mechanics of creating a budget, but it’s up to you to supply the numbers. There’s lots of common-sense advice that experts offer for this process, like:
- Remember seasonal upswings and downswings.
- Make your goals as realistic as possible. You might want to create separate budgets for “needs” and “wants.”
- Track your expenses carefully for a period of time so you can estimate more confidently.
- Create reports regularly that compare your budget vs actuals.
QuickBooks Online can help you with that last piece of advice; it offers a report called Budget vs. Actuals. You’ll find it in the Business Overview group.
We can help, too. Once we understand a little more about your business structure and goals, we can take a look at your income and expense history and make some personalized recommendations. Connect with us soon, and we can start you on the path to a more focused financial future.
June 2018 Individual Due Dates
June 11 – Report Tips to Employer
If you are an employee who works for tips and received more than $20 in tips during May, you are required to report them to your employer on IRS Form 4070 no later than June 11. Your employer is required to withhold FICA taxes and income tax withholding for these tips from your regular wages. If your regular wages are insufficient to cover the FICA and tax withholding, the employer will report the amount of the uncollected withholding in box 12 of your W-2 for the year. You will be required to pay the uncollected withholding when your return for the year is filed.
June 15 – Estimated Tax Payment Due
It’s time to make your second quarter estimated tax installment payment for the 2018 tax year. Our tax system is a “pay-as-you-go” system. To facilitate that concept, the government has provided several means of assisting taxpayers in meeting the “pay-as-you-go” requirement. These include:
- Payroll withholding for employees;
- Pension withholding for retirees; and
- Estimated tax payments for self-employed individuals and those with other sources of income not covered by withholding.
When a taxpayer fails to prepay a safe harbor (minimum) amount, they can be subject to the underpayment penalty. This penalty is equal to the federal short-term rate plus 3 percentage points, and the penalty is computed on a quarter-by-quarter basis.
Federal tax law does provide ways to avoid the underpayment penalty. If the underpayment is less than $1,000 (the “de minimis amount”), no penalty is assessed. In addition, the law provides “safe harbor” prepayments. There are two safe harbors:
- The first safe harbor is based on the tax owed in the current year. If your payments equal or exceed 90% of what is owed in the current year, you can escape a penalty.
- The second safe harbor is based on the tax owed in the immediately preceding tax year. This safe harbor is generally 100% of the prior year’s tax liability. However, for taxpayers whose AGI exceeds $150,000 ($75,000 for married taxpayers filing separately), the prior year’s safe harbor is 110%
Example: Suppose your tax for the year is $10,000 and your prepayments total $5,600. The result is that you owe an additional $4,400 on your tax return. To find out if you owe a penalty, see if you meet the first safe harbor exception. Since 90% of $10,000 is $9,000, your prepayments fell short of the mark. You can’t avoid the penalty under this exception.
However, in the above example, the safe harbor may still apply. Assume your prior year’s tax was $5,000. Since you prepaid $5,600, which is greater than 110% of the prior year’s tax (110% = $5,500), you qualify for this safe harbor and can escape the penalty.
This example underscores the importance of making sure your prepayments are adequate, especially if you have a large increase in income. This is common when there is a large gain from the sale of stocks, sale of property, when large bonuses are paid, when a taxpayer retires, etc. Timely payment of each required estimated tax installment is also a requirement to meet the safe harbor exception to the penalty. If you have questions regarding your safe harbor estimates, please call this office as soon as possible.
CAUTION: Some state de minimis amounts and safe harbor estimate rules are different than those for the Federal estimates. Please call this office for particular state safe harbor rules.
June 15 – Taxpayers Living Abroad
If you are a U.S. citizen or resident alien living and working (or on military duty) outside the United States and Puerto Rico, June 15 is the filing due date for your 2017 income tax return and to pay any tax due. If your return has not been completed and you need additional time to file your return, file Form 4868 to obtain 4 additional months to file. Then, file Form 1040 by October 15. However, if you are a participant in a combat zone, you may be able to further extend the filing deadline (see below).
Caution: This is not an extension of time to pay your tax liability, only an extension to file the return. If you expect to owe, estimate how much and include your payment with the extension. If you owe taxes when you do file your extended tax return, you will be liable for both the late payment penalty and interest from the due date.
Combat Zone – For military taxpayers in a combat zone/qualified hazardous duty area, the deadlines for taking actions with the IRS are extended. This also applies to service members involved in contingency operations, such as Operation Iraqi Freedom or Enduring Freedom. The extension is for 180 consecutive days after the later of:
- The last day a military taxpayer was in a combat zone/qualified hazardous duty area or served in a qualifying contingency operation, or have qualifying service outside of the combat zone/qualified hazardous duty area (or the last day the area qualifies as a combat zone or qualified hazardous duty area), or
- The last day of any continuous qualified hospitalization for injury from service in the combat zone/qualified hazardous duty area or contingency operation, or while performing qualifying service outside of the combat zone/qualified hazardous duty area.
In addition to the 180 days, the deadline is also extended by the number of days that were left for the individual to take an action with the IRS when they entered a combat zone/qualified hazardous duty area or began serving in a contingency operation.
It is not a good idea to delay filing your return because you owe taxes. The late filing penalty is 5% per month (maximum 25%) and can be a substantial penalty. It is generally better practice to file the return without payment and avoid the late filing penalty. We can also establish an installment agreement which allows you to pay your taxes over a period of up to 72 months.
Please contact this office for assistance with an extension request or an installment agreement.
June 2018 Business Due Dates
June 15 – Employer’s Monthly Deposit Due
If you are an employer and the monthly deposit rules apply, June 15 is the due date for you to make your deposit of Social Security, Medicare and withheld income tax for May 2018. This is also the due date for the non-payroll withholding deposit for May 2018 if the monthly deposit rule applies.
June 15 – Corporations
Deposit the second installment of estimated income tax for 2018 for calendar year corporations.