Good Faith Penalty Relief Also Extended
The IRS has extended the due dates for furnishing 2017 Forms 1095-B and 1095-C to covered individuals and full-time employees, respectively, from January 31, 2018, to March 2, 2018. The IRS has also extended good faith penalty relief to reporting entities who make certain calendar year 2017 information reporting errors. However, the deadline to file 2017 Forms 1095-B and 1095-C with the IRS remains February 28, 2018 (or April 2, 2018, if filing electronically).
Penalty Relief Extension
The IRS has extended penalty relief to reporting entities that can show that they made good faith efforts to comply with the calendar year 2017 information reporting requirements (both for furnishing to individuals and for filing with the IRS). This relief applies to missing and inaccurate taxpayer identification numbers and dates of birth, as well as other information required on the return or statement.
Applicable large employers must use Form 1095-C to report information to their full-time employees about the health care coverage they have offered in a calendar year. Alternatively, Form 1095-B is used by insurers, self-insuring employers, and other parties that provide minimum essential health coverage to report information on this coverage to covered individuals. Employers subject to both reporting provisions (generally self-insured employers with 50 or more full-time employees, including FTEs) will satisfy their reporting obligations using Form 1095-C.
Click here for more information from the IRS.
To learn more about the tax consequences of various employer-provided benefits, complete the “Get your Free Quote Today” section located at the top of this page.
President Trump has signed into law the Tax Cuts and Jobs Act, which, among other things, effectively repeals the Affordable Care Act's individual mandate beginning in 2019, eliminates tax breaks for several fringe benefits, and creates a new tax credit for employers offering paid family and medical leave.
Individual Mandate Repeal Effective in 2019
Under the Affordable Care Act, individuals are currently required to have minimum essential health coverage, qualify for an exemption from the requirement, or pay a penalty tax. This ACA provision is known as the "individual mandate." Effective in 2019, the individual mandate is effectively repealed, as the penalty tax for noncompliance with the mandate will be reduced to $0.
Tax Breaks for Several Fringe Benefits Eliminated
Effective in 2018, the tax treatment of certain fringe benefits will be impacted as follows:
- Employer contributions to an employee's qualified transportation fringe benefits(including those for employees' transit passes and parking) will no longer be deductible from the employer's gross income.
- Qualified moving expense reimbursements made by an employer will generally no longer be excludable from an employee's gross income.
- Qualified bicycle commuting reimbursements made by an employer will no longer be excludable from an employee's gross income.
New Employer Tax Credit for Paid Family and Medical Leave
For tax years 2018 and 2019, employers that offer paid family and medical leave (as defined under the federal Family and Medical Leave Act [FMLA]) to employees may qualify for a newly established tax credit of up to 25% of the annual wages paid to those employees.
To learn more about the tax consequences of various employer-provided benefits, visit our Employee Benefits section.
Congress is enacting the biggest tax reform law in thirty years, one that will make fundamental changes in the way you, your family and your business calculate your federal income tax bill, and the amount of federal tax you will pay. Since most of the changes will go into effect next year, there's still a narrow window of time before year-end to soften or avoid the impact of crackdowns and to best position yourself for the tax breaks that may be heading your way.
Here's a quick rundown of last-minute moves you should think about making.
Lower tax rates coming. The Tax Cuts and Jobs Act will reduce tax rates for many taxpayers, effective for the 2018 tax year. Additionally, many businesses, including those operated as a pass-through, such as partnerships, may see their tax bills cut.
The general plan of action to take advantage of lower tax rates next year is to defer income into next year. Some possibilities follow:
- If you are about to convert a regular IRA to a Roth IRA, postpone your move until next year. That way you'll defer income from the conversion until next year and have it taxed at lower rates.
- Earlier this year, you may have already converted a regular IRA to a Roth IRA but now you question the wisdom of that move, as the tax on the conversion will be subject to a lower tax rate next year. You can unwind the conversion to the Roth IRA by doing a re-characterization-making a trustee-to-trustee transfer from the Roth to a regular IRA. This way, the original conversion to a Roth IRA will be cancelled out. But you must complete the re-characterization before year-end. Starting next year, you won't be able to use a re-characterization to unwind a regular-IRA-to-Roth-IRA conversion.
- If you run a business that renders services and operates on the cash basis, the income you earn isn't taxed until your clients or patients pay. So, if you hold off on billings until next year-or until so late in the year that no payment will likely be received this year-you will likely succeed in deferring income until next year.
- If your business is on the accrual basis, deferral of income till next year is difficult but not impossible. For example, you might, with due regard to business considerations, be able to postpone completion of a last-minute job until 2018, or defer deliveries of merchandise until next year (if doing so won't upset your customers). Taking one or more of these steps would postpone your right to payment, and the income from the job or the merchandise, until next year. Keep in mind that the rules in this area are complex and may require a tax professional's input.
- The reduction or cancellation of debt generally results in taxable income to the debtor. So if you are planning to make a deal with creditors involving debt reduction, consider postponing action until January to defer any debt cancellation income into 2018.
Disappearing or reduced deductions, larger standard deduction. Beginning next year, the Tax Cuts and Jobs Act suspends or reduces many popular tax deductions in exchange for a larger standard deduction. Here's what you can do about this right now:
- Individuals (as opposed to businesses) will only be able to claim an itemized deduction of up to $10,000 ($5,000 for a married taxpayer filing a separate return) for the total of (1) state and local property taxes; and (2) state and local income taxes. To avoid this limitation, pay the last installment of estimated state and local taxes for 2017 no later than Dec. 31, 2017, rather than on the 2018 due date. But don't prepay in 2017 a state income tax bill that will be imposed next year - Congress says such a prepayment won't be deductible in 2017. However, Congress only forbade prepayments for state income taxes, not property taxes, so a prepayment on or before Dec. 31, 2017, of a 2018 property tax installment is apparently OK.
- The itemized deduction for charitable contributions won't be chopped. But because most other itemized deductions will be eliminated in exchange for a larger standard deduction (e.g., $24,000 for joint filers), charitable contributions after 2017 may not yield a tax benefit for many because they won't be able to itemize deductions. If you think you will fall in this category, consider accelerating some charitable giving into 2017.
- The new law temporarily boosts itemized deductions for medical expenses. For 2017 and 2018 these expenses can be claimed as itemized deductions to the extent they exceed a floor equal to 7.5% of your adjusted gross income (AGI). Before the new law, the floor was 10% of AGI, except for 2017 it was 7.5% of AGI for age-65-or-older taxpayers. But keep in mind that next year many individuals will have to claim the standard deduction because, for post-2017 years, many itemized deductions will be eliminated and the standard deduction will be increased. If you won't be able to itemize deductions after this year, but will be able to do so this year, consider accelerating "discretionary" medical expenses into this year. For example, before the end of the year, get new glasses or contacts, or see if you can squeeze in expensive dental work such as an implant.
Other year-end strategies. Here are some other last-minute moves that can save tax dollars in view of the new tax law:
- The new law substantially increases the alternative minimum tax (AMT) exemption amount, beginning next year. There may be steps you can take now to take advantage of that increase. For example, the exercise of an incentive stock option (ISO) can result in AMT complications. So, if you hold any ISOs, it may be wise to postpone exercising them until next year. And, for various deductions, e.g., depreciation and the investment interest expense deduction, the deduction will be curtailed if you are subject to the AMT. If the higher 2018 AMT exemption means you won't be subject to the 2018 AMT, it may be worthwhile, via tax elections or postponed transactions, to push such deductions into 2018.
- Like-kind exchanges are a popular way to avoid current tax on the appreciation of an asset, but after Dec. 31, 2017, such swaps will be possible only if they involve real estate that isn't held primarily for sale. So if you are considering a like-kind swap of other types of property, do so before year-end. The new law says the old, far more liberal like-kind exchange rules will continue apply to exchanges of personal property if you either dispose of the relinquished property or acquire the replacement property on or before Dec. 31, 2017.
- For decades, businesses have been able to deduct 50% of the cost of entertainment directly related to or associated with the active conduct of a business. For example, if you take a client to a nightclub after a business meeting, you can deduct 50% of the cost if strict substantiation requirements are met. But under the new law, for amounts paid or incurred after Dec. 31, 2017, there's no deduction for such expenses. So if you've been thinking of entertaining clients and business associates, do so before year-end.
- The new law suspends the deduction for moving expenses after 2017 (except for certain members of the Armed Forces), and also suspends the tax-free reimbursement of employment-related moving expenses. So if you're in the midst of a job-related move, try to incur your deductible moving expenses before year-end, or if the move is connected with a new job and you're getting reimbursed by your new employer, press for a reimbursement to be made to you before year-end.
- Under current law, various employee business expenses, e.g., employee home office expenses, are deductible as itemized deductions if those expenses plus certain other expenses exceed 2% of adjusted gross income. The new law suspends the deduction for employee business expenses paid after 2017. So, we should determine whether paying additional employee business expenses in 2017, that you would otherwise pay in 2018, would provide you with an additional 2017 tax benefit. Also, now would be a good time to talk to your employer about changing your compensation arrangement-for example, your employer reimbursing you for the types of employee business expenses that you have been paying yourself up to now, and lowering your salary by an amount that approximates those expenses. In most cases, such reimbursements would not be subject to tax.
Please keep in mind that we’ve described only some of the year-end moves that should be considered in light of the new tax law. If you would like more details about any aspect of how the new law may affect you, please call us to make an appointment.
There has been quite a bit written about the Equifax data breach – why it happened; how it happened; and what you can do about it.
The most important thing for our clients is the what you can do about it. We’ve listed several steps you can take to help protect your credit report, as well as put some measures into place that may protect it in the future.
- Find out if your credit information was exposed (with over 140 million people’s account compromised, let’s just say it was). You can do this by visiting the Equifax website and following the instructions on the “Potential Impact” tab. Note: You should use a secure computer and encrypted network for this rather than a public computer an wifi, such as you might find at a coffee shop. Once you’ve done this step, you’ll be asked to revisit the site to receive one year of free credit monitoring.
- Place a credit freeze on your credit reports. But, you must unlock the report before you need to apply for credit, such as a business or personal loan, car loan, or employment verification if credit report checking is required for the job. It does not affect the use of credit cards you already have. The credit freeze prevents:
- Requests for credit and is free;
- New accounts from being opened in your name; and
- Others from registering you on government websites, such as my Social Security.
- Get an electronic PIN from the IRS for tax-return purposes. A tax return may not be filed without the pin code.
- Check your medical records using patient portals to get a baseline for your report prior to any breach. Two resources to consider include MIB Consumer file and Milliman Intelliescript.
- Your driver’s license is also a great way for someone to user your name to put their violations against. To protect yourself, get a copy of your driving record from the motor vehicle department. Most MVD charge a small fee for the request; check with them before ordering it.
- You can also find out if any bad checks have been attributed to your driver’s license by checking your free, annual consumer report from one or all three of these companies -- ChexSystems, Certegy, and TeleCheck.
- Consider placing a fraud alert on all your credit cards. Do this by working directly with the card provider. There may be fees associated with this request.
For more about what to do in the case of a data breach, watch this short video from IdentityTheft.gov.
Remember, hackers are well aware of this breach and may not try to do anything for months. Ongoing credit monitoring is always a good way to know what’s going on in your name and with your money.