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What to Do If You Are Missing Important Tax Forms
If you are ready to file your taxes but are missing important tax forms here's what you should do:
You should receive a Form W-2, Wage and Tax Statement, from each of your employers for use in preparing your federal tax return. Employers must furnish this record of 2019 earnings and withheld taxes no later than January 31, 2020 (allow several days for delivery if mailed).
If you do not receive your Form W-2, contact your employer to find out if and when the W-2 was mailed. If it was mailed, it may have been returned to your employer because of an incorrect address. After contacting your employer, allow a reasonable amount of time for your employer to resend or to issue the W-2.
If you received certain types of income, you may receive a Form 1099 in addition to or instead of a W-2. Payers have until January 31 to mail these to you.
In some cases, you may obtain the information that would be on the Form 1099 from other sources. For example, your bank may put a summary of the interest paid during the year on the December or January statement for your savings or checking account. Or it may make the interest figure available through its customer service line or Web site. Some payers include cumulative figures for the year with their quarterly dividend statements.
You do not have to wait for Form 1099 to arrive provided you have the information (actual not estimated) you need to complete your tax return. You generally do not attach a 1099 series form to your return, except when you receive a Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., that shows income tax withheld. You should, however, keep all of the 1099 forms you receive for your records.
When to Contact the IRS
If you still have not received your W-2 or Form 1099-R, contact the IRS for assistance at 1-800-829-1040. When you call, have the following information handy:
If you misplaced your W-2, contact your employer. Your employer can replace the lost form with a "reissued statement." Be aware that your employer is allowed to charge you a fee for providing you with a new W-2.
You still must file your tax return on time (July 15th in 2020) even if you do not receive your Form W-2. If you cannot get a W-2 by the tax filing deadline, you may use Form 4852, Substitute for Form W-2, Wage and Tax Statement, but it will delay any refund due while the information is verified.
Filing an Amended Return
If you receive a corrected W-2 or 1099 after your return is filed and the information it contains does not match the income or withheld tax that you reported on your return, you must file an amended return on Form 1040X, Amended U.S. Individual Income Tax Return.
Health Insurance Forms 1095-A, 1095-B, or 1095-C
Most taxpayers will receive one or more forms relating to health care coverage they had during the previous year. If you think you should have received a form but did not get one contact the issuer of the form (the Marketplace, your coverage provider or your employer). If you are expecting to receive a Form 1095-A, you should wait to file your 2019 income tax return until you receive that form. However, it is not necessary to wait for Forms 1095-B or 1095-C in order to file.
Form 1095-A. If you enrolled in 2019 coverage through the Health Insurance Marketplace, you should receive Form 1095-A, Health Insurance Marketplace Statement in early 2020.
Forms 1095-B or 1095-C. If you were enrolled in other health coverage for 2019, you should receive a Form 1095-B, Health Coverage, or Form 1095-C, Employer-Provided Health insurance Offer and Coverage by early March.
If you have questions about your Forms W-2 or 1099 or any other tax-related materials, don't hesitate to contact the office.
Are Social Security Benefits Taxable?
Social Security benefits include monthly retirement, survivor, and disability benefits; they do not include Supplemental Security Income (SSI) payments, which are not taxable.
Generally, you pay federal income taxes on your Social Security benefits only if you have other substantial income in addition to your benefits such as wages, self-employment, interest, dividends and other taxable income that must be reported on your tax return.
Your income and filing status affect whether you must pay taxes on your Social Security. An easy method of determining whether any of your benefits might be taxable is to add one-half of your Social Security benefits to all of your other income, including any tax-exempt interest.
If you receive Social Security benefits you should receive Form SSA-1099, Social Security Benefit Statement, showing the amount.
Next, compare this total to the base amounts below. If your total is more than the base amount for your filing status, then some of your benefits may be taxable. In 2019, the three base amounts are:
Taxpayers filing an individual federal tax return:
Taxpayers filing a joint federal tax return:
Married taxpayers filing separate tax returns generally pay taxes on benefits.
Thirteen states tax social security income as well including Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia.
Retirement income is generally not taxed by other countries. As a U.S. citizen retiring abroad who receives Social Security, for instance, you may owe U.S. taxes on that income, but may not be liable for tax in the country where you're spending your retirement years.
If Social Security is your only income, then your benefits may not be taxable, and you may not need to file a federal income tax return. However, if you receive income from other sources (either U.S. or country of retirement) as well, from a part-time job or self-employment, for example, you may have to pay U.S. taxes on some of your benefits - the same as if you were still living in the U.S.
You may also be required to report and pay taxes on any income earned in the country where you retired. Each country is different, so consult a local tax professional or one who specializes in expatriate tax services.
Even if you retire abroad, you may still owe state taxes--unless you established residency in a no-tax state before you moved overseas. Also, some states honor the provisions of U.S. tax treaties; however, some states do not. Therefore, it is prudent to consult a tax professional.
If you receive Social Security, a tax professional can help you determine if some - or all - of your benefits are taxable.
Worker Classification: Employee vs. Contractor
If you hire someone for a long-term, full-time project or a series of projects that are likely to last for an extended period, you must pay special attention to the difference between independent contractors and employees.
Why It Matters
The Internal Revenue Service and state regulators scrutinize the distinction between employees and independent contractors because many business owners try to categorize as many of their workers as possible as independent contractors rather than as employees. They do this because independent contractors are not covered by unemployment and workers' compensation, or by federal and state wage, hour, anti-discrimination, and labor laws. In addition, businesses do not have to pay federal payroll taxes on amounts paid to independent contractors.
The Difference Between Employees and Independent Contractors
Independent Contractors are individuals who contract with a business to perform a specific project or set of projects. You, the payer, have the right to control or direct only the result of the work done by an independent contractor, and not the means and methods of accomplishing the result.
Employees provide work in an ongoing, structured basis. In general, anyone who performs services for you is your employee if you can control what will be done and how it will be done. A worker is still considered an employee even when you give them freedom of action. What matters is that you have the right to control the details of how the services are performed.
Independent Contractor Qualification Checklist
The IRS, workers' compensation boards, unemployment compensation boards, federal agencies, and even courts all have slightly different definitions of what an independent contractor is though their means of categorizing workers as independent contractors are similar.
One of the most prevalent approaches used to categorize a worker as either an employee or independent contractor is the analysis created by the IRS, which considers the following:
Minimize the Risk of Misclassification
If you misclassify an employee as an independent contractor, you may end up before a state taxing authority or the IRS.
Sometimes the issue comes up when a terminated worker files for unemployment benefits and it's unclear whether the worker was an independent contractor or employee. The filing can trigger state or federal investigations that can cost many thousands of dollars to defend, even if you successfully fight the challenge.
There are ways to reduce the risk of an investigation or challenge by a state or federal authority. At a minimum, you should:
Questions about how to classify workers? Don't hesitate to call the office and speak to a tax professional who can assist you.
It's Not Too Late to Make an IRA Contribution
If you haven't contributed funds to an Individual Retirement Account (IRA) for tax year 2019, or if you've put in less than the maximum allowed, you still have time to do so. You can contribute to either a traditional or Roth IRA until the extended July 15, 2020 due date, not including extensions.
Be sure to tell the IRA trustee that the contribution is for 2019. Otherwise, the trustee may report the contribution as being for 2020 when they get your funds.
Generally, you can contribute up to $6,000 of your earnings for tax year 2019 (up to $7,000 if you are age 50 or older in 2019). You can fund a traditional IRA, a Roth IRA (if you qualify), or both, but your total contributions cannot be more than these amounts.
Traditional IRA: You may be able to take a tax deduction for the contributions to a traditional IRA, depending on your income and whether you or your spouse, if filing jointly, are covered by an employer's pension plan.
Roth IRA: You cannot deduct Roth IRA contributions, but the earnings on a Roth IRA may be tax-free if you meet the conditions for a qualified distribution.
Each year, the IRS announces the cost of living adjustments and limitations for retirement savings plans.
Saving for retirement should be part of everyone's financial plan and it's important to review your retirement goals every year in order to maximize savings. If you need help with your retirement plans, give the office a call.
New Rules for Depreciation and Expensing
As part of final guidance issued that pertains to the Tax Cuts and Jobs Act of 2017, new rules and limitations are in effect for taxpayers who deduct depreciation for qualified property acquired and placed in service after September 27, 2017, and, as a business owner, they could affect your tax situation. Let's take a closer look:
Businesses can immediately expense more under the new law
A taxpayer may elect to expense the cost of any section 179 property and deduct it in the year the property is placed in service. These changes apply to property placed in service in taxable years beginning after December 31, 2017.
As a reminder, the new law increased the maximum deduction from $500,000 to $1 million. It also increased the phase-out threshold from $2 million to $2.5 million. For taxable years beginning after 2018, these amounts of $1 million and $2.5 million will be adjusted for inflation. As such, for tax year 2019, the Section 179 expense deduction increases to a maximum deduction of $1,020,000 of the first $2,550,000 of qualifying equipment placed in service during the current tax year. For 2020, the maximum deduction is $1,040,000 and $2,590,000, respectively.
The new law also expands the definition of section 179 property to allow the taxpayer to elect to include the following improvements made to nonresidential real property after the date when the property was first placed in service:
Improvements do not qualify if they are attributable to the enlargement of the building, any elevator or escalator or the internal structural framework of the building.
Temporary 100 percent expensing for certain business assets
The new law increases the bonus depreciation percentage from 50 percent to 100 percent for qualified property acquired and placed in service after September 27, 2017, and before January 1, 2023, and is sometimes referred to as the first-year bonus depreciation.
As a reminder, the bonus depreciation percentage for qualified property that a taxpayer acquired before September 28, 2017, and placed in service before January 1, 2018, remains at 50 percent. Special rules apply for longer production period property and certain aircraft.
The definition of property eligible for 100 percent bonus depreciation was expanded to include used qualified property acquired and placed in service after September 27, 2017, if all the following factors apply:
Furthermore, qualified film, television, and live theatrical productions also qualify as qualified property that may be eligible for 100 percent bonus depreciation. This provision applies to property acquired and placed in service after September 27, 2017.
Certain types of property, however, are not eligible for bonus depreciation in any taxable year beginning after December 31, 2017. One such exclusion from qualified property is for property primarily used in the trade or business of the furnishing or sale of the following:
This exclusion applies if the rates for the furnishing or sale have to be approved by a federal, state or local government agency, a public service or public utility commission, or an electric cooperative.
The new law also adds an exclusion for any property used in a trade or business that has had floor-plan financing indebtedness if the floor-plan financing interest was taken into account under section 163(j)(1)(C). Floor-plan financing indebtedness is secured by motor vehicle inventory that in a business that sells or leases motor vehicles to retail customers.
The new law eliminated qualified improvement property acquired and placed in service after December 31, 2017, as a specific category of qualified property.
Depreciation limitations on luxury automobiles and personal use property
Depreciation limits for passenger vehicles placed in service after December 31, 2017, have also changed. If the taxpayer doesn't claim bonus depreciation, the greatest allowable depreciation deduction is:
If a taxpayer claims 100 percent bonus depreciation, the greatest allowable depreciation deduction is:
Computers or peripheral equipment have been removed from the definition of listed property. This change applies to property placed in service after December 31, 2017.
Treatment of certain farm property
The new law shortens the recovery period for machinery and equipment used in a farming business from seven to five years. This shorter recovery period, however, doesn't apply to grain bins, cotton ginning assets, fences or other land improvements. The original use of the property must occur after December 31, 2017. This recovery period is effective for eligible property placed in service after December 31, 2017.
Also, property used in a farming business and placed in service after December 31, 2017, is not required to use the 150 percent declining balance method. However, if the property is 15-year or 20-year property, the taxpayer should continue to use the 150 percent declining balance method.
Applicable recovery period for real property
The new law keeps the general recovery periods of 39 years for nonresidential real property and 27.5 years for residential rental property. The new law changes the alternative depreciation system recovery period for residential rental property from 40 years to 30 years.
Qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property are no longer separately defined and no longer have a 15-year recovery period under the new law. These changes affect property placed in service after December 31, 2017.
Under the new law, a real property trade or business electing out of the interest deduction limit must use the alternative depreciation system to depreciate any of its nonresidential real property, residential rental property, and qualified improvement property. This change applies to taxable years beginning after December 31, 2017.
Alternative depreciation system for farming businesses
Farming businesses that elect out of the interest deduction limit must use the alternative depreciation system to depreciate any property with a recovery period of 10 years or more, such as single-purpose agricultural or horticultural structures, trees or vines bearing fruit or nuts, farm buildings, and certain land improvements. This provision applies to taxable years beginning after December 31, 2017.
Tax law can be confusing. If you're a small to medium-sized business owner with questions about depreciation and expensing, help is just a phone call away.
Home Equity Loan Interest Still Deductible
The Tax Cuts and Jobs Act has resulted in questions from taxpayers about many tax provisions including whether interest paid on home equity loans is still deductible. The good news is that despite newly enacted restrictions on home mortgages, taxpayers can often still deduct interest on a home equity loan, home equity line of credit (HELOC) or second mortgage, regardless of how the loan is labeled.
The Tax Cuts and Jobs Act of 2017, enacted December 22, 2017, suspends the deduction for interest paid on home equity loans and lines of credit unless they are used to buy, build or substantially improve the taxpayer's home that secures the loan. This suspension is in effect from 2018 through 2025.
Under the new law, for example, interest on a home equity loan used to build an addition to an existing home is typically deductible, while interest on the same loan used to pay personal living expenses, such as credit card debts, is not. As under prior law, the loan must be secured by the taxpayer's main home or second home (known as a qualified residence), not exceed the cost of the home and meet other requirements.
New dollar limit on total qualified residence loan balance
For anyone considering taking out a mortgage, the new law imposes a lower dollar limit on mortgages qualifying for the home mortgage interest deduction. Beginning in 2018, taxpayers may only deduct interest on $750,000 of qualified residence loans. The limit is $375,000 for a married taxpayer filing a separate return. These are down from the prior limits of $1 million, or $500,000 for a married taxpayer filing a separate return. The limits apply to the combined amount of loans used to buy, build or substantially improve the taxpayer's main home and second home.
For more information about deducting interest on home equity loans or the new tax law, please call.
Tax Treatment of State and Local Tax Refunds
The Tax Cuts and Jobs Act (TCJA), enacted in December 2017, limited the itemized deduction for state and local taxes to $5,000 for a married person filing a separate return and $10,000 for all other tax filers. The limit applies to tax years 2018 to 2025.
As in prior years, if a taxpayer chose the standard deduction then state and local tax refunds are not subject to tax. However, if a taxpayer itemizes deductions for that year on Schedule A, Itemized Deductions, part or all of the refund may be subject to tax - but only to the extent that the taxpayer received a tax benefit from the deduction.
Taxpayers who are impacted by the SALT limit may not be required to include the entire state or local tax refund in income in the following year. As a reminder, state or local tax refunds received in 2018 that were reported on 2018 tax returns are not affected.
How much to include is figured by determining the amount the taxpayer would have deducted had the taxpayer only paid the actual state and local tax liability - that is, no refund and no balance due.
Here’s an example:
A single taxpayer itemizes on Schedule A and claims deductions totaling $15,000 on their 2018 federal tax return. Of that amount, $12,000 is for state and local taxes, $7,000 of which is for state and local income taxes. The SALT deduction is limited to $10,000, however.
In 2019, the taxpayer received a refund of $750 for state income tax paid in 2018. This means that the actual state income liability for 2018 was $6,250 ($7,000 paid minus the $750 refund). As such, the taxpayer's SALT deduction for 2018 would still have been $10,000 even if it had been figured on the actual state and local tax paid.
Because there was no tax benefit received on their 2018 tax return from the overpayment of state income tax the taxpayer is not required to include the state income tax refund received in 2019 on their 2019 tax return.
If you have any questions about the tax treatment of state and local tax refunds, help is just a phone call away.
Form 8962: Reconciling the Premium Tax Credit
Form 8962, Premium Tax Credit, reconciles 2019 advance payments of the premium tax credit and may also affect a taxpayer's ability to get advance payments of the premium tax credit or cost-sharing reductions. Taxpayers who don't file and reconcile their 2019 advance credit payments may not be eligible for advance payments of the premium tax credit in the future. Furthermore, filing Form 8962, with a return avoids possible delays in processing tax returns and subsequent delays in receiving tax refunds.
The premium tax credit helps pay for health insurance coverage bought from the Health Insurance Marketplace. When the taxpayer or their family member applies for coverage, the marketplace estimates the amount of the premium tax credit they may be able to claim. This estimate is based on information the taxpayer provides about family size and projected household income. The taxpayer can then decide if they want to have all, some, or none of the credit paid directly to their insurance company. This option will lower their monthly payments.
Who needs to file Form 8962?
Taxpayers who have advance credit payments made on their behalf are required to file Form 8962 with their income tax return. This will reconcile the amount of advance payments with the premium tax credit they may claim based on their actual household income and family size.
Reconciling advance credit payments
Taxpayers or members of their family who enrolled in health insurance coverage for 2019 through the marketplace should receive Form 1095-A, Health Insurance Marketplace Statement. This form shows the months of coverage and amount of any Advanced Premium Tax Credit (APTC) paid to the taxpayer's insurance company. This form also provides information needed to complete Form 8962.
Taxpayers should figure their premium tax credit and compare it to the amount of APTC on Form 8962, then file Form 8962 with their tax return.
Taxpayers who received advance credit payments must file a tax return to reconcile even if they otherwise don't have to file.
Please call the office if you have any questions about this or any other topic affecting your tax return.
New Tax Law Affects Tax-Exempt Organizations
The Taxpayer Certainty and Disaster Tax Relief Act, passed on December 20, 2019, includes several provisions that may apply to tax-exempt organizations' current and previous tax years. As such, tax-exempt organizations should understand how these recent tax law changes might affect them. With this in mind, let's take a look at three key pieces of legislation that affect nonprofit organizations:
1. Repeal of "parking lot tax" on exempt employers
This legislation retroactively repealed the increase in unrelated business taxable income by amounts paid or incurred for certain fringe benefits for which a deduction is not allowed, most notably qualified transportation fringes such as employer-provided parking. Previously, Congress had enacted this provision as part of the Tax Cuts and Jobs Act, effective for amounts paid or incurred after December 31, 2017.
Tax-exempt organizations that paid unrelated business income tax on expenses for qualified transportation fringe benefits, including employee parking, may claim a refund. To do so, they should file an amended Form 990-T within the time allowed for refunds.
2. Tax simplification for private foundations
The legislation reduced the 2% excise tax on net investment income of private foundations to 1.39%. At the same time, the legislation repealed the 1% special rate that applied if the private foundation met certain distribution requirements. The changes are effective for taxable years beginning after December 20, 2019.
3. Exclusion of certain government grants by exempt utility co-ops
Generally, a section 501(c)(12) organization must receive 85% or more of its income from members to maintain exemption.
Under changes enacted as part of the Tax Cuts and Jobs Act, government grants are usually considered income and would otherwise be treated as non-member income for telephone and electric cooperatives. Under prior law, government grants were generally not treated as income, but as contributions to capital.
Certain government grants made to tax-exempt 501(c)(12) telephone or electric cooperatives for purposes of disaster relief, or for utility facilities or services, are not considered when applying the 85%-member income test. Since these government grants are excluded from the income test, exempt telephone or electric co-ops may accept these grants without the grant impacting their tax-exemption. The 2019 legislation is retroactive to taxable years beginning after 2017.
Help is just a phone call away.
Reporting Tip Income: The Basics
The short answer is yes, tips are taxable. If you work at a hair salon, barbershop, casino, golf course, hotel, or restaurant, or drive a taxicab, then the tip income you receive as an employee from those services is taxable income. Here are a few other tips about tips:
Tips can be tricky. Don't hesitate to contact the office if you have questions.
Tax Due Dates for March 2020
Farmers and Fishermen - File your 2019 income tax return (Form 1040) and pay any tax due. However, you have until July 15 (the April 15 deadline is extended to July 15 due to the coronavirus pandemic) to file if you paid your 2019 estimated tax by January 15, 2020.
Health Coverage Reporting - If you are an Applicable Large Employer, provide Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, to full-time employees. For all other providers of minimum essential coverage, provide Form 1095-B, Health Coverage, to responsible individuals.
Large Food and Beverage Establishment Employers - with employees who work for tips. File Form 8027, Employer's Annual Information Return of Tip Income and Allocated Tips. Use Form 8027-T, Transmittal of Employer's Annual Information Return of Tip Income and Allocated Tips, to summarize and transmit Forms 8027 if you have more than one establishment. If you file Forms 8027 electronically your due date for filing them with the IRS will be extended to March 31.
Employees who work for tips - If you received $20 or more in tips during February, report them to your employer. You can use Form 4070.
Employers - Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in February.
Employers - Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in February.
Partnerships - File a 2019 calendar year income tax return (Form 1065). Provide each partner with a copy of their Schedule K-1 (Form 1065-B) or substitute Schedule K-1. To request an automatic 6-month extension of time to file the return, file Form 7004. Then file the return and provide each partner with a copy of their final or amended (if required) Schedule K1 (Form 1065) by September 15.
S Corporations - File a 2019 calendar year income tax return (Form 1120S) and pay any tax due. Provide each shareholder with a copy of Schedule K-1 (Form 1120S), Shareholder's Share of Income, Credits, Deductions, etc., or a substitute Schedule K-1. If you want an automatic 6-month extension of time to file the return, file Form 7004 and deposit what you estimate you owe in tax.
S Corporation Election - File Form 2553, Election by a Small Business Corporation, to choose to be treated as an S corporation beginning with calendar year 2020. If Form 2553 is filed late, S corporation treatment will begin with calendar year 2021.
Electronic Filing of Forms - File Forms 1097, 1098, 1099 (except Form 1099-MISC), 3921, 3922, and W-2G with the IRS. This due date applies only if you file electronically. The due date for giving the recipient these forms generally remains January 31.
Electronic Filing of Form W-2G - File copies of all the Form W-2G (Certain Gambling Winnings) you issued for 2019. This due date applies only if you electronically file. The due date for giving the recipient these forms remains January 31.
Electronic Filing of Forms 8027 - File copies of all the Forms 8027 you issued for 2019. This due date applies only if you electronically file.
Electronic Filing of Forms 1094-C and 1095-C and Forms 1094-B and 1095-B - If you're an Applicable Large Employer, file electronic forms 1094-C and 1095-C with the IRS. For all other providers of minimum essential coverage, file electronic Forms 1094-B and 1095-B with the IRS.
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