Monthly Archives: February 2017

Can You Defer Your 2016 Income To 2017?

The end of the year is the perfect time for taxpayers to make financial adjustments to lower their tax bill for the current year. Making adjustments to income may help reduce tax liability. Income is typically taxed in the year it is received, however, if you don’t have to pay tax today and may pay it tomorrow, why not? Deferring income is an excellent strategy to lower an annual tax bill. However, only taxpayers that expect their tax bracket to remain the same or decrease to a lower bracket should defer income.

Most Confusing Parts Of The Income Tax Code, Part 1: Passive Activity Loss Rules

Many provisions of the Internal Revenue Code are complicated. Proper interpretation of the rules and regulations contained in these provisions requires the assistance of an experienced and knowledgeable tax professional. The first part of the series about the most confusing provisions of the Internal Revenue Code addresses passive activity loss rules.

Why Is It Confusing?

  • Many exceptions
  • Understanding defined terms
  • Calculating losses over time is complicated and cumbersome

A passive activity is any rental activity or any business in which a taxpayer does not materially participate. Nonpassive activities include businesses in which the taxpayer works on a regular, continuous, and substantial basis. Passive income does not include wages, salaries, portfolio, or investment income.

Form 1040, Line 61 And Non-Resident Taxpayers

Like resident taxpayers, U.S. taxpayers living abroad must complete Line 61 under “Other Taxes” and “Health care: individual responsibility” on their Form 1040 or equivalent. For 2016, the IRS will not consider a return complete and accurate if the taxpayer does not report health care coverage for the year, an exemption or a payment. However, U.S. citizens filing as non-residents in foreign countries while covered by an employee health plan, or even by a foreign country’s national health care system, have different considerations when complying with the requirements of the Affordable Care Act of 2010 (“ACA”).

How Much Is My 2016 Shared Responsibility Payment?

The Affordable Care Act of 2010 introduced the shared responsibility payment on non-exempt American citizens who do not meet certain healthcare insurance minimum coverage requirements. The IRS will not consider a return complete and accurate if the taxpayer does not report health care coverage for the year, an exemption or a payment.

Taxpayers must either:

  • Have qualifying health care coverage for every month of 2016 (including for dependents);
  • Qualify for an exemption from the requirement to have health care coverage; or
  • Make a “shared responsibility payment.”

This shared responsibility payment increases annually, and for the 2016 tax year, is the greater of:

An Introduction To The Most Confusing Parts Of The Income Tax Code

The Internal Revenue Code and its accompanying regulations are voluminous. Of course, many of these rules affect the ordinary individual American taxpayer. There may be no more daunting component of federal law than the Tax Code and the volumes of regulations that detail it. Many provisions are confusing, to say the least, and may require certain additional paperwork such as a long worksheet or form.

It’s no surprise that a substantial number of provisions of the Tax Code have a history of high taxpayer error and fraud. When you add to the equation the fact that law, especially tax law, is constantly evolving, a taxpayer’s confusion related to the interpretation of tax regulations may be significant and require the assistance of an experienced tax professional.

Tax Consequences Of Child Support Payments For Payors And Recipients

Individuals must consider the tax consequences of obligations related to child support in divorce proceedings. The fact that child support payments are not deductible and the receipt of child support is not taxable sometimes creates spousal bitterness and discord in a divorce case. In this situation, the prevalent issue is the conflict between the payor’s desire to characterize his or her payment as an income tax deductible payment of alimony, while the payee-spouse wishes to treat the payment as a tax-free receipt of child support.

Tax Consequences Of Alimony Payments For Payors And Recipients

Individuals must consider the tax consequences of obligations related to spousal support or maintenance, also known as alimony, in divorce proceedings. Many soon to be ex-spouses often fail to realize that there are tax consequences for these types of payments, which may cause further economic hardship and even emotional stress.

Spousal support typically refers to the money a legally married spouse pays to the other spouse while they are still married. Spousal support may last as long as the marriage continues. Spousal maintenance consists of payments an ex-spouse pays to his or her ex-spouse after the dissolution of the marriage. The amount and duration of spousal maintenance are defined in the divorce decree. Some states refer to spousal maintenance as alimony. It often is used as a generic term to describe both types of support and will be used as such in this blog.

IRS To Use Private Debts Collectors

In the spring of 2017, the IRS will begin outsourcing the collection of not all, but some, overdue federal tax debts to private contractors. In early December of 2015, President Obama signed into law the Fixing America’s Surface Transportation Act, or “FAST Act.” The FAST Act provides funding for transportation project over the next ten years. Of course, any bill related to highways is likely to include provisions requiring the IRS to use private debt collection companies, which this bill, in fact, includes.

Law Gives Tax Breaks To Olympians and Paralympians

As fall of 2016 commenced, many Olympic and Paralympic athletes received good news as President Obama signed a bill which allowed these athletes an exemption from income taxes.  The Joint Committee on Taxation’s cost analysis estimated that the bill would cost the government $3 million in lost tax revenue over the next 10 years, which is hardly significant. The bill is retroactive so that it applies to medals won during the Rio Olympics.

Many Americans took home gold, silver, and bronze medals from the Summer Olympics in Rio de Janeiro as 121 medals were won by American athletes. Members of the U.S. Olympic team were paid $25,000 for each gold medal, $15,000 for each silver medal and $10,000 for each bronze medal.

Unpaid Loans – Tax Consequences To Lenders And Borrowers

One redeemable quality about humans is that we tend to be more willing to loan money than borrowing it. No one really likes to borrow money, but if a friend is in need, many of us help as much as our financial means allow. When this occurs, it is important to understand that there are income tax consequences for both lenders and borrowers when interest is earned, paid or forgiven on a loan. This blog will address the tax consequences of unpaid loans.