• Can’t Pay Your Tax Liability?

    13 April 2017
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    Can’t pay your tax liability for 2016? We have the information you need to know:

    First, do not let your inability to pay your tax liability in full keep you from filing your tax return on time. If your return is not on time, you must still pay the “failure to file” penalty, which accrues at a rate of 5% per month on the amount of tax that you owe based on your return.

    If in doubt, you can delay the “failure to file” penalty for six months by filing an extension, but this still won’t keep you penalty free.

    Although an extension provides you with more time to file your actual return, it is not an extension of your payment date. If you do not pay the balance of your 2016 tax liability, you will be subject to the “failure to pay” penalty. This penalty accrues at the rate of 0.5% per month or partial month (up to a maximum of 25%) on the amount that you owe based on your return.

    If both penalties apply, the “failure to file” penalty drops to 4.5% per month or part thereof, so the total combined penalty remains 5%. The maximum combined penalty for the first five months is thus 25%. Thereafter, the “failure to pay” penalty will continue to increase at 1/2% per month for 45 more months (up to an additional 22.5%). Thus, the combined penalties can reach a total of 47.5% over time. Both of these penalties are in addition to the interest charges on the late payments.

    The bottom line is that, if you owe money, it is best to file your return on time even if you can’t pay the entire liability. That will minimize your penalties. Paying as much as you can with your return will further minimizing your penalties. By the way, neither the penalties nor the interest are tax-deductible.

    Possible Solutions – The following are possible ways to pay your tax liability when you don’t have the funds readily available:

    • Relatives and Friends – Borrowing money from family members or close friends is often the simplest method to pay a tax bill. One advantage of such loans is that the interest rate will probably be low; however, you must also consider that loans of more than $10,000 at below-market interest rates may trigger tax consequences. Any interest paid on this type of loan would be nondeductible.
    • Home-Equity Loans – A home-equity loan is another potential source of funds; such a loan has the advantage that the interest is deductible as long as the total equity loans on the home don’t exceed $100,000. However, in today’s financial environment, qualifying for these loans may be too time-consuming.
    • Credit or Debit Cards – Using your credit card to pay your taxes is another option. The IRS has approved three firms to provide this service. The disadvantages are that the interest rates are relatively high and that you must pay the merchant fee (because the IRS does not). For information about this fee and about making payments by credit card, visit the IRS website.
    • Installment Agreements – You can request an installment arrangement with the IRS. You must be up-to-date when filing your returns. There are also fees associated with setting up an installment agreement, and if you do not follow some strict payment rules, the agreement can be terminated. If your liability is under $50,000 and you can pay off the full liability within 6 years, you will not be required to submit financial statements, and you can apply online. When applying online, you’ll get an immediate acceptance or rejection of your payment plan.

    The fee for establishing such an agreement can be as high as $225, but it can be as low as $31 if you set up an online payment agreement and pay using direct debit from your bank account. You will also be charged interest, but the late-payment penalty will be half of the usual rate (1/4% instead of 1/2%) if you file your return by the due date (including extensions).

    If any of the following occur, the installment agreement may terminate, causing all of your taxes to become due immediately: the information you provided to the IRS in applying for the agreement proves inaccurate or incomplete; you miss an installment; you fail to pay another tax liability when it is due; the IRS believes that its collection of the tax involved is in jeopardy; or you fail to provide an update regarding your financial condition when the IRS makes a reasonable request for you to do so.

    • Pension Plans – Tapping into one’s pension plan or IRA should be a very last resort, not only because it degrades your future retirement but also because of the potential tax implications. Generally, except for Roth IRAs, the funds in retirement accounts are pretax; as a result, when withdrawn, they become taxable. If you are under 59½, any such distribution will also be subject to the 10% early-withdrawal penalty. Federal tax, state tax (if applicable), and this penalty can chew up a hefty amount of the distribution, which may be too high a price to pay.

    A Final Word of Caution – Ignoring your filing obligation only makes matters worse, and doing so can become very expensive. It can lead to the IRS collection process, which can include attachments, liens or even the seizure and sale of your property. In many cases, these tax nightmares can be avoided by taking advantage of the solutions discussed above. If you cannot pay your taxes, please call Dagley & Co. to discuss your options.

     

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  • Tax Filing Deadline Is Around the Corner

    29 March 2017
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    REMINDER: April 18, 2017 is the due date to file your return(s), pay any taxes owed, or file for a six-month extension. It is important to know that with this extension you will end up paying the tax you estimate to be due.

    In addition, this deadline also applies to the following:

    • Tax year 2016 balance-due payments – Taxpayers that are filing extensions are cautioned that the filing extension is an extension to file, NOT an extension to pay a balance due.  Late payment penalties and interest will be assessed on any balance due, even for returns on extension.  Taxpayers anticipating a balance due will need to estimate this amount and include their payment with the extension request.
    • Tax year 2016 contributions to a Roth or traditional IRA – April 18 is the last day contributions for 2016 can be made to either a Roth or traditional IRA, even if an extension is filed.
    • Individual estimated tax payments for the first quarter of 2017 – Taxpayers, especially those who have filed for an extension to file their 2016 return, are cautioned that the first installment of the 2017 estimated taxes are due on April 18.  If you are on extension and anticipate a refund, all or a portion of the refund can be allocated to this quarter’s payment on the final return when it is filed at a later date. If the refund won’t be enough to fully cover the April 18 installment, you may need to make a payment with the April 18 voucher. Please call this office for any questions.
    • Individual refund claims for tax year 2013 – The regular three-year statute of limitations expires on April 18 for the 2013 tax return.  Thus, no refund will be granted for a 2013 original or amended return that is filed after April 18. Caution: The statute does not apply to balances due for unfiled 2013 returns.

    If Dagley  & Co. is holding up the completion of your returns because of missing information, please forward that information as quickly as possible in order to meet the April 18 deadline.  Keep in mind that the last week of tax season is very hectic, and your returns may not be completed if you wait until the last minute.  If it is apparent that the information will not be available in time for the April 18 deadline, then let the office know right away so that an extension request, and 2017 estimated tax vouchers if needed, may be prepared.

    If your returns have not yet been completed, please call Dagley & Co. right away so that we can schedule an appointment and/or file an extension if necessary.

     

     

     

     

     

     

     

     

     

     

     

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  • Do I Have to File a Tax Return?

    30 January 2017
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    IRS 1040 Tax Form Being Filled Out

    “Do I have to file a tax return?” is a question heard a lot during this time of year. The answer to this popular question is a lot more complicated than many would think. To understand, one must realize the difference between being required to file a tax return vs. the benefit of filing a tax return even when it’s not required to file. We’ve put together a comprehensive description for your better understating:

    When individuals are required to file-

    • Generally, individuals are required to file a return if their income exceeds their filing threshold, as shown in the table below. The filing thresholds are the sum of the standard deduction for individual(s) and the personal exemption for the taxpayer and spouse (if any).
    • Taxpayers are required to file if they have net self-employment income in excess of $400, since they are required to file self-employment taxes (the equivalent to payroll taxes for an employee) when their net self-employment income exceeds $400.
    • Taxpayers are also required to file when they are required to repay a credit or benefit. For example, if a taxpayer acquired health insurance through a government marketplace and received advanced premium tax credit (APTC) they are required to file a return whether or not they are otherwise required to file. A return is required in order to reconcile the APTC with the premium tax credit they entitled based upon their household income for the year.  So generally if you receive a 1095-A you are required to file.
    • Filing is also required when a taxpayer owes a penalty, even though the taxpayer’s income is below the filing threshold. This can occur, for example, when a taxpayer has an IRA 6% early withdrawal penalty or the 50% penalty for not taking a required IRA distribution.

     

    2016 – Filing Thresholds

    Filing Status                      Age                                 Threshold

    Single                          Under Age 65                         $10,350

    Age 65 or Older                           11,900

    Married Filing Jointly       Both Spouses Under 65            $20,700

    One Spouse 65 or Older                 21,950

    Both Spouses 65 or Older              23,200

    Married Filing Separate   Any Age                                       4,050

    Head of Household         Under 65                               $13,350

    65 or Older                                 14,900

    Qualifying Widow(er)      Under 65                               $16,650

    with Dependent Child      65 or Older                                 17,900

     

    When it is beneficial for individuals to file-

    There are a number of benefits available when filing a tax return that can produce refunds even for a taxpayer who is not required to file:

    • Withholding refund – A substantial number of taxpayers fail to file their return even when the tax they owe is less than their prepayments, such as payroll withholding, estimates, or a prior over-payment. The only way to recover the excess is to file a return.
    • Earned Income Tax Credit (EITC) – If you worked and did not make a lot of money, you may qualify for the EITC. The EITC is a refundable tax credit, which means you could qualify for a tax refund. The refund could be as high as several thousand dollars even when you are not required to file.
    • Additional Child Tax Credit – This refundable credit may be available to you if you have at least one qualifying child.
    • American Opportunity Credit – The maximum for this credit for college tuition paid per student is $2,500, and the first four years of post-secondary education qualify. Up to 40% of the credit is refundable when you have no tax liability, even if you are not required to file.
    • Premium Tax Credit – Lower-income families are entitled to a refundable tax credit to supplement the cost of health insurance purchased through a government Marketplace. To the extent the credit is greater than the supplement provided by the Marketplace, it is refundable even if there is no other reason to file.

     

    For more information about filing requirements and your eligibility to receive tax credits, please contact Dagley & Co. for more information. We recommend not procrastinating, no matter what your stance on filing may be!

     

     

     

     

     

     

     

     

     

     

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  • New Form 1099 Filing Date

    9 January 2017
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    Did your business utilize an independent contractor in 2016? Did you pay him/her $600 or more during the calendar year? If so, you are required to issue him/her a Form 1099-MISC. The purpose of this form is to avoid penalties and the possibility of losing the deduction for his/her labor and expenses in an audit. Different from last year, the IRS moved up the filing due date to January 31, 2017.

    In addition to being used to report payments to independent contractors, Form 1099-MISC is also used to report payments made by a business for rents and royalties and to attorneys for legal services, among others. If there are no independent contractor payments to report, the 2016 1099-MISC issued for other payments continues to be due to the IRS by the normal due date of February 28, 2017. However, where both independent contractor and other payments are being reported, the January 31 due date should be observed so that late filing penalties are avoided regarding the independent contractor payments.

    It is not uncommon to have a repairman out early in the year, pay him less than $600, then use his services again later in the year and have the total for the year exceed the $599 limit. As a result, you may have overlooked getting the information from the individual that you need to file the 1099-MISCs for the year. Therefore, it is good practice to always have individuals who are not incorporated complete and sign an IRS Form W-9 the first time you engage them and before you pay them. Having a properly completed and signed Form W-9 for all independent contractors and service providers eliminates any oversights and protects you against IRS penalties and conflicts. If you have been negligent in the past about having the W-9s completed, it would be a good idea to establish a procedure for getting each non-corporate independent contractor and service provider to fill out a W-9 and return it to you going forward.

    IRS Form W-9, Request for Taxpayer Identification Number and Certification, is provided by the government as a means for you to obtain the data required to file 1099s for your vendors. It also provides you with verification that you have complied with the law in case the vendor gives you incorrect information. We highly recommend that you have potential vendors complete a Form W-9 before you engage in business with them. The W-9 is for your use only and is not submitted to the IRS.

    The penalty for failure to file the required informational returns is substantial and is $260 per informational return. The penalty is reduced to $50 if a correct but late information return is filed not later than the 30th day after the January 31, 2017, required filing date, or it is reduced to $100 for returns filed after the 30th day but no later than August 1, 2017. If you are required to file 250 or more information returns, you must file them electronically.

    Please note: To avoid penalties, all forms must be sent to the IRS by January 31, 2017.

    Dagley & Co. is here to prepare your 1099 for submission. We recommend using this 1099 worksheet  to provide us with the information needed to prepare your 1099.

     

     

     

     

     

     

     

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  • Excited About the Social Security Benefits Increase for 2017?

    30 December 2016
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    This Sunday begins what we’ve all been waiting for – 2017. In the New Year, the Social Security Administration (SSA) announced that Social Security benefits will be revised for a cost-of-living adjustment (COLA) increase of 0.3%. At the beginning of 2016, there was only a 0% increase. But, don’t get too excited too quickly, as the typical adult receiving benefits will see only a $4.00 increase in his/her monthly check.

    At the same time, the SSA bumped the maximum amount of earnings subject to the Social Security tax to $127,200, up from the current $118,500, an increase of 7.34%. Only about 12 million individuals will be affected by that increase since most American wage earners make less than the $127,200 maximum, and thus the increase will be borne by the 12 million higher-income taxpayers.

    The COLA is supposed to ensure that people receiving Social Security benefits continue to have the same purchasing power from one year to the next without regard to inflation. Older adults in particular need this inflation protection since their savings and other income tends to fall as they age, including their pensions, and their dependence on Social Security increases. The meager increase is due in part to the fact that the SSA uses a different consumer price index (CPI), which is much lower than the CPI used to adjust tax rates. It’s clear that the SSA’s CPI is not delivering adequate inflation protection to older adults.

    This is overshadowed by the fact that the Medicare Trustees in their June report cautioned that there could be a substantial increase in the Medicare Part B Premium for those currently paying $121.80 a month. These folks, whose premiums went up by over 16% for 2016, could see another increase that would bring their monthly premium to as much as $149, an increase of over 20% for 2017.

    If you are helping an elderly relative with their money situation, there also may be an opportunity for some tax benefits. Please call Dagley & Co. for some assistance as soon as possible.

     

     

     

     

     

     

     

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  • Congress Gives Small Employer HRAs the Green Light

    28 December 2016
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    2017 green light alert! Congress has approved the 21st Century Cures Act, a provision allowing small employers to reimburse their employees for medical expenses under a health reimbursement arrangement (without being liable for the draconian, $100 per day penalty for violating the Affordable Care Act’s rules).

    Background: Stand-alone HRAs do not meet two key requirements of the ACA, as they:

    • Limit the dollar amount of the insured person’s annual benefits and
    • Fail to provide certain preventive-care services without requiring cost-sharing.

    As a result, under the IRS’ interpretation of the ACA, employers are subject to a $100 per day (maximum $36,500 per year) excise tax penalty per employee.

    New Law: Effective January 1, 2017, under the 21st Century Cures Act, qualified small employers that have an average of fewer than 50 full-time employees (including full-time-equivalent employees) and that maintain a qualified small-employer HRA will be exempt from the penalty. Under this act, a qualified small employer is one that:

    • Employs an average of fewer than 50 full-time employees (including full-time-equivalent employees) and does not offer a group health plan to its employees. The number of full-time-equivalent employees is determined by adding up all the hours that part-time employees worked in a given month and dividing by 120.
    • Provides the HRA on the same terms to all eligible employees. Eligible employees all those except:
      1. Those who have not completed 90 days of service,
      2. Those who have not attained the age of 25,
      3. Part-time workers (generally those working an average of less than 30 hours per week),
      4. Seasonal workers (generally those employed for 6 months or fewer during the year),
      5. Those covered by a collective bargaining unit, and
      6. Certain nonresident aliens.
    • Entirely funds the HRA (i.e., no salary-reduction contribution is made to the HRA).
    • Only reimburses the employees after being provided with proof of their medical expenses.
    • Limits reimbursements to $4,950 ($10,000 where the plan includes family members) per year. Amounts are subject to inflation adjustments for years after 2016.

    Any medical-expense reimbursements that an employee receives from a qualifying HRA are excluded from that employee’s income.

    If you have questions regarding this new topic effective January 1, 2017, please give Dagley & Co. a call at 202-417-6640.

     

     

     

     

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  • December 2016 Individual Due Dates

    1 December 2016
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    Happy Decemeber! The busiest and most wonderful time of year has finally begun. With this, means your end of year planning must start ASAP. Before you get overwhelmed, plan out your Decemeber month calander TODAY. We’ve provided some indiviudal dute dates to make it a smoother process. As always, contact Dagley & Co. with any year-end questions regarding tax, business, or individual planning.

    December 1 – Time for Year-End Tax Planning

    December is the month to take final actions that can affect your tax result for 2016. Taxpayers with substantial increases or decreases in income, changes in marital status or dependent status, and those who sold property during 2016 should call for a tax planning consultation appointment.

    December 12 – Report Tips to Employer

    If you are an employee who works for tips and received more than $20 in tips during November, you are required to report them to your employer on IRS Form 4070 no later than December 12. 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.

    December 31 – Last Day to Make Mandatory IRA Withdrawals

    Last day to withdraw funds from a Traditional IRA Account and avoid a penalty if you turned age 70½ before 2016. If the institution holding your IRA will not be open on December 31, you will need to arrange for withdrawal before that date.

    December 31 – Last Day to Pay Deductible Expenses for 2016

    Last day to pay deductible expenses for the 2016 return (doesn’t apply to IRA, SEP or Keogh contributions, all of which can be made after December 31, 2016). Taxpayers who are making state estimated payments may find it advantageous to prepay the January state estimated tax payment in December (Please call the office for more information).

    December 31 –  Last Day of the Year

    If the actions you wish to take cannot be completed on the 31st or a single day, you should consider taking action earlier than December 31st.

     

     

     

     

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  • November 2016 Individual Due Dates

    28 October 2016
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    November 10 – Report Tips to Employer

    If you are an employee who works for tips and received more than $20 in tips during October, you are required to report them to your employer on IRS Form 4070 no later than November 10. 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.

    November 2016 Business Due Dates

    November 10 – Social Security, Medicare and Withheld Income Tax

    File Form 941 for the third quarter of 2016. This due date applies only if you deposited the tax for the quarter in full and on time.

    November 15 – Social Security, Medicare and Withheld Income Tax

    If the monthly deposit rule applies, deposit the tax for payments in October.

    November 15 – Non-Payroll Withholding

    If the monthly deposit rule applies, deposit the tax for payments in October.

     

     

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  • Taking Advantage of Back-Door Roth IRAs

    17 October 2016
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    Are you a high-income taxpayer? Would like to contribute to a Roth IRA but cannot because of income limitations? There is a work-around that will allow you to fund a Roth IRA.

    High-income taxpayers are limited in the annual amount they can contribute to a Roth IRA. In 2016, the allowable contribution phases out for joint-filing taxpayers with an AGI between $184,000 and $194,000 (or an AGI between $0 and $9,999 for married taxpayers filing separately). For unmarried taxpayers, the phase-out is between $117,000 and $132,000. Once the upper end of the range is reached, no contribution is allowed for the year.

    However, those AGI limitations can be circumvented by what is frequently referred to as a back-door Roth IRA. Here is how a back-door Roth IRA works:

    1. First, you contribute to a traditional IRA. For higher-income taxpayers who participate in an employer-sponsored retirement plan, a traditional IRA is allowed but is not deductible. Even if all or some portion is deductible, the contribution can be designated as not deductible.
    2. Then, since the law allows an individual to convert a traditional IRA to a Roth IRA without any income limitations, you now convert the non-deductible Traditional IRA to a Roth IRA. Since the Traditional IRA was non-deductible, the only tax related to the conversion would be on any appreciation in value of the Traditional IRA before the conversion is completed.

    Potential Pitfall – There is a potential pitfall to the back-door Roth IRA that is often overlooked by investment counselors and taxpayers alike that could result in an unexpected taxable event upon conversion. For distribution or conversion purposes, all of your IRAs (except Roth IRAs) are considered as one account and any distribution or converted amounts are deemed taken ratably from the deductible and non-deductible portions of the traditional IRA, and the portion that comes from the deductible contributions would be taxable.

    This may or not may affect your decision to use the back-door Roth IRA method but does need to be considered prior to making the conversion.

    There is a possible, although complicated, solution. Taxpayers are allowed to roll over or make a trustee-to-trustee transfer of IRA funds into employer qualified plans if the employer’s plan permits. If the rollover or transfer to the qualified plan is permitted, such rollovers or transfers are limited to the taxable portion of the IRA account, thus leaving behind the non-taxable contributions, which can then be converted to a Roth IRA without any taxability.

    Please call Dagley & Co. if you need assistance with your Roth IRA strategies or need assistance in planning traditional-to-Roth IRA conversions.

     

     

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  • September 2016 Business Due Dates

    6 September 2016
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    September 15 –  Corporations

    File a 2015 calendar year income tax return (Form 1120 or 1120-A) and pay any tax, interest and penalties due (due date applies only if you timely requested an automatic 6-month extension).

    September 15 – S Corporations

    File a 2015 calendar year income tax return (Form 1120S) and pay any tax due. This due date applies only if you requested an automatic 6-month extension.

    September 15 – Corporations

    Deposit the third installment of estimated income tax for 2016 for calendar year corporations.

    September 15 –  Social Security, Medicare and withheld income tax

    If the monthly deposit rule applies, deposit the tax for payments in August.

    September 15 – Nonpayroll Withholding

    If the monthly deposit rule applies, deposit the tax for payments in August.

    September 15 – Partnerships 

    File a 2015 calendar year return (Form 1065). This due date applies only if you were given an additional 5-month extension. Provide each partner with a copy of K-1 (Form 1065) or a substitute Schedule K-1.

    September 15 – Fiduciaries of Estates and Trusts

    File a 2015 calendar year return (Form 1041). This due date applies only if you were given an additional 5-month extension (If applicable, provide each beneficiary with a copy of K-1 (Form 1041) or a substitute Schedule K-1).

    Give Dagley & Co. a call for more details on taxes and your businesses September due dates.

     

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