Yesterday the House Ways and Means Committee amended its version of the tax bill and the Senate Committee on Finance introduced its tax reform plan.   The plans differ in a number of ways and will undoubtedly under go changes as the bills move through the legislative process.  Here are some of the key provisions of the two bills -

Tax Rates - The House has 4 (12%, 25%, 35% and 39.6%), the Senate has 7 (10%, 12%, 22.5%, 25%, 32.5%, 35% and 38.5%).

Personal Exemptions - Eliminated in both versions

Child Tax Credit - The House bill provides a $1600 credit for children under 17 and adds a $300 credit for taxpayers and other dependents.  The credit is reduced based on adjusted gross income.  The Senate bill provides a $1650 credit for children under 18 and adds a $500 credit for other dependents.  The credit is not reduced based on adjusted gross income.

Standard Deduction - Both versions increase the standard deduction to $12K for single filers and $24K for married filers.  The House version eliminates additional amounts for the blind and elderly - the Senate version retains additional amounts for the blind an elderly.

Medical Deduction - The House version eliminates the deduction.  The Senate version allows a deduction for expenses greater than 10% of adjusted gross income.

State and Local Taxes - The House version eliminates all but up to $10K for property taxes.  The Senate version eliminates all state and local taxes.

Mortgage Interest - For purchases after 2017, the House version allows interest on purchases up to $500K and eliminates deductions for interest on a second home.  The Senate version allows interest on purchases up to $1M but eliminates interest on equity loans.

Charitable Contributions - Both versions increase the amount that can be deducted from 50% of adjusted gross income to 60% of adjusted gross income.

Miscellaneous Itemized Deductions - The House version eliminates unreimbursed employee business expenses, personal casualty losses, fees for tax preparation and financial management but retains the deduction for casualty losses in a presidentially declared disaster area.  The Senate version eliminates all miscellaneous deductions but also retains the deduction for casualty losses in a presidentially declared disaster area.

AMT - Both versions repeal the alternative minimum tax.

Adoption Credit - Both versions retain the credit.  

Exclusion of Profit on the Sale of a Personal Residence - For sales after 2017, the House version require homes to be owned and used for 5 of the last 8 years before any profit can be excluded from income.  The amount that can be excluded is limited for taxpayers with adjusted gross income more than $250K.  The Senate version also requires homes to be owned and used for 5 of the last 8 years but there is no limitation based on adjusted gross income.

​Moving Expenses - Both versions eliminate the deduction except for military personnel.

Alimony -  The House version does not allow payers to deduct the amount paid and does not require the recipient to report alimony as income.  The Senate version is silent.

​Estate Taxes - The House version doubles the exemption to $10K and repeals the provision after 2023.  The Senate version doubles the exemption but does not repeal it.

What happens next?  The House version has been approved by the Ways and Means Committee and moves to the full House for consideration.  The Senate version is still in committee.  Once the committee has completed its work it will send a bill to the full Senate for consideration.  Eventually there should be two bills - the House version and the Senate version - though it's unclear that the votes are there to approve what's coming out of the committees.  If bills do pass, a conference committee will be appointed to reconcile the two bills and come up with one final bill that will have to be approved by both the House and Senate and finally signed by the President.  There are LOTS of hurdles facing the bills and there is no guarantee that there will be a bill for the President to sign.

​Turner's Tax Service will be monitoring the bills closely and updating information as events unfold.

  

A summary of the tax reform proposal from Sharon Kreider, a well-respected CPA who teaches tax classes around the country.  Comments in italics are mine.

Tax reform was part of President Trump’s campaign promises.  Although short on details, leadership from the House, Senate, and administration has proposed a Tax Reform Framework to the House Ways and Means Committee, charged with writing the tax reform legislation. The individual proposals include:

1. Reduce tax rates from seven to three—12%, 25%, and 35%. The increase from the current 10% to 12% could cost some taxpayers more but the larger standard deduction is intended to offset the rate increase. The income tax brackets are not specified so there's no way to predict exactly who might be impacted.

2. Double the standard deduction to $12,000 for single taxpayers and $24,000 for MFJ
taxpayers. (The standard deduction for head of household filing status is not mentioned.) This will reduce the number of taxpayers claiming itemized deductions.

3. Eliminate personal exemptions. According to the Framework document, "To simplify the tax rules, the additional standard deduction and personal exemptions for the taxpayer and spouse are consolidated into this larger standard deduction".  In addition to the elimination of the personal exemption for the taxpayer and spouse, the exemption for a qualifying child and a qualifying relative is also eliminated. Under the current system, a family of six has a deduction for exemptions of $24,300 ($4,050 times 6) and a standard deduction of $12,700 ($37,000 total). Unless the tax rates are significantly reduced for this family, the increased standard deduction won’t make up for the loss of the current deductions for exemptions and the standard deduction. 

4. Increase the child tax credit—amount to be announced. Currently, the child tax credit is $1,000 for a qualifying child up to age 17. AGI limits apply. The Framework proposes to increase the income levels at which the child tax credit begins to phase out so that more middle-income families will benefit. If the child tax credit is increased to $1,500 or $2,000, a family of six might have a tax reduction, unless of course they have a child older than 17 or include in their family an elderly parent. To help, the Framework proposes a non-refundable credit of $500 for non-child dependents.

5. Eliminate most itemized deductions—retain only mortgage interest and charitable contributions.

• This proposal could mean the elimination of the medical expense deduction when health insurance premiums and out of pocket costs are sky rocketing and many more taxpayers might have been able to finally deduct medical expense over 10% of their AGI. The FSA and the HSA will be more valuable.
• The repeal of state and local taxes will particularly annoy taxpayers living in high tax states such as California but some taxpayers won’t notice the repeal as AMT nixed their tax benefit.
• Mortgage interest deduction is protected in the “Framework” but there have been discussions by some tax writers of reducing the home mortgage debt limit to $500,000 and removing second homes as a “qualified residence.” A reduction in home mortgage interest may be on the table if an increase in the deficit due to other aspects of tax reform is unpalatable and more revenue is needed to get an agreement.
• The charitable contribution deduction seems to be safe, but remember that the doubling of the standard deduction will mean all itemized deductions may go away for some clients, particularly those who are retired. The IRA transfer to charity may be even more attractive.
• Many taxpayers don’t get a benefit from miscellaneous itemized deductions because of the 2% of AGI limitations. But those that do get a benefit will be hurt by this change. Employee business expenses and the employee home office deduction would be gone. Investment adviser fees and tax preparation fees would be gone. Personal casualty losses would disappear (but most likely, the casualty loss in a federally declared disaster area would remain due mostly to Harvey, Irma and their sisters and brothers.) What would happen to gambling losses or the deduction for income in respect of a decedent is unknown.

6. Repeal AMT. What more can you say other than “yeah”? But note that the proposed repeal of exemptions, state and local taxes, and miscellaneous itemized deductions — the bulk of AMT preferences—would mean that many taxpayers would not be subject to AMT anyway. Note. The repeal of the 3.8% tax on net investment income was originally included in President Trump’s tax reform and simplification proposals. The high price tag of that
repeal has seen it hit the cutting room floor. And, it didn’t help the cause that the repeal’s benefit was to high-income taxpayers.

7. Retain tax benefits for education and retirement.

8. Repeal estate taxes and generation-skipping tax.

What, When, and How? The path to tax reform is arduous. We don’t know what the final changes will be. We don’t know when the changes will be effective. And, we don’t know how the changes will be implemented. In other words, we are looking at the first steps toward individual tax reform.

Turner's Tax Service will continue to keep you updated ass this proposal moves through the legislative process.

The Federal Trade Commission has provided the following information -

If you have a credit report, there’s a good chance that you’re one of the 143 million American consumers whose sensitive personal information was exposed in a data breach at Equifax, one of the nation’s three major credit reporting agencies.
Here are the facts, according to Equifax. The breach lasted from mid-May through July. The hackers accessed people’s names, Social Security numbers, birth dates, addresses and, in some instances, driver’s license numbers. They also stole credit card numbers for about 209,000 people and dispute documents with personal identifying information for about 182,000 people. And they grabbed personal information of people in the UK and Canada too.
There are steps to take to help protect your information from being misused. Visit Equifax’s website, www.equifaxsecurity2017.com. 

• Find out if your information was exposed. Click on the “Potential Impact” tab and enter your last name and the last six digits of your Social Security number. Your Social Security number is sensitive information, so make sure you’re on a secure computer and an encrypted network connection any time you enter it. The site will tell you if you’ve been affected by this breach.
• Whether or not your information was exposed, U.S. consumers can get a year of free credit monitoring and other services. The site will give you a date when you can come back to enroll. Write down the date and come back to the site and click “Enroll” on that date. You have until November 21, 2017 to enroll.
• You also can access frequently asked questions at the site.

Here are some other steps to take to help protect yourself after a data breach:

• Check your credit reports from Equifax, Experian, and TransUnion — for free — by visiting annualcreditreport.com. Accounts or activity that you don’t recognize could indicate identity theft. Visit IdentityTheft.gov to find out what to do.
• Consider placing a credit freeze on your files. A credit freeze makes it harder for someone to open a new account in your name. Keep in mind that a credit freeze won’t prevent a thief from making charges to your existing accounts.
• Monitor your existing credit card and bank accounts closely for charges you don’t recognize.
• If you decide against a credit freeze, consider placing a fraud alert on your files. A fraud alert warns creditors that you may be an identity theft victim and that they should verify that anyone seeking credit in your name really is you.

• File your taxes early — as soon as you have the tax information you need, before a scammer can. Tax identity theft happens when someone uses your Social Security number to get a tax refund or a job. Respond right away to letters from the IRS.

Visit Identitytheft.gov/databreach to learn more about protecting yourself after a data breach.

While discussions about Affordable Health Care fade after the Senate failed to pass a repeal and replace bill last week, discussions about tax reform are beginning to heat up.  The National Association of Enrolled Agents (NAEA) provided the following update this morning.  

It is important to keep in mind that to avoid 60 votes in the Senate, congressional Republicans have chosen a budget process known as "reconciliation" for both ACA repeal and tax reform. Reconciliation was originally intended as a limited mechanism to force Congress to lower the deficits. Both parties have used it, however, for other purposes in recent past: The Bush tax cuts and part of the Affordable Care Act being the most prominent examples.
 
To use reconciliation, the House and the Senate must pass a joint resolution laying out a budget blueprint with so-called reconciliation instructions. The House Budget Committee has reported out such a resolution for FY 2018. The conservative Republican Study Committee, a bloc of 150 ultra-conservative House members, has indicated that they may not support the committee reported resolution unless it calls for deep cuts in entitlements and domestic spending. Therefore, Speaker Ryan has delayed floor consideration until September. Even if House leadership agrees with the demands of the Republican Study Committee, it is highly unlikely that the Senate would go along with their agenda. In short, no resolution means no reconciliation, resulting in no vehicle for tax reform. 
 
Republican leadership intended to use the savings from repealing the ACA to help pay for tax reform. Additionally, the leadership in the Senate, House and Department of Treasury have indicated that they have abandoned the border adjustability proposal for tax reform, leaving a large trillion-dollar revenue hole in a potential bill. It is unclear if tax writers would have enough political will power to repeal current deductions and credits to the extent necessary to cover such a large shortfall.

Turner's Tax Service will continue to keep you updated as tax reform begins to move through the legislative process. 

The IRS recently posted the following reminder -Homeowners may qualify to exclude from their income all or part of any gain from the sale of their main home.

Ownership and Use. To claim the exclusion, the homeowner must meet the ownership and use tests. This means that during the five-year period ending on the date of the sale, the homeowner must have:

• Owned the home for at least two years  
• Lived in the home as their main home for at least two years
  
• If there is a profit from the sale of their main home, the homeowner may be able to exclude up to $250,000 of the profit from income or $500,000 on a joint return in most cases. 
• If there is a loss from the sale, that loss is not deductible.
• If the property has been a rental for any portion of the five-year prior prior to the sale, the amount of profit that may be excluded may be limited.

Possible Exceptions.  There are exceptions to the rules above for persons with a disability, certain members of the military, intelligence community and Peace Corps workers, among others. For more information information about those situations, contact your tax preparer.
Items to Keep In Mind:

• Taxpayers who own more than one home can only exclude the gain on the sale of their main home. Taxes must paid on the gain from selling any other home, such as a vacation home.
• Taxpayers who used the first-time home buyer credit to purchase their home have special rules that apply to the sale. 
• Taxpayers moving after the sale of their home should update their address with the U.S. Postal Service and all creditors.
• Taxpayers who purchased health coverage through a Health Insurance Marketplace should notify the Marketplace when moving out of the area covered by the current Marketplace plan.

Turner's Tax Service is prepared to assist you with the proper and accurate reporting of the the sale of your house.  Please give us a call at 530-626-8551

The Internal Revenue Service has begun a new private collection program of certain overdue federal tax debts. The new program, authorized under a federal law enacted by Congress in December 2015, enables these private contractors to collect, on the government’s behalf, outstanding inactive tax receivables. 

As a condition of receiving a contract, these private collection agencies must respect taxpayer rights including, among other things, abiding by the consumer protection provisions of the Fair Debt Collection Practices Act.

These private collection agencies will work on accounts where taxpayers owe money, but the IRS is no longer actively working them. Several factors contribute to the IRS assigning these accounts to private collection agencies, including older, overdue tax accounts or lack of resources preventing the IRS from working the cases.

Private collection agencies will be able to identify themselves as contractors of the IRS collecting taxes. Employees of these collection agencies must follow provisions of the Fair Debt Collection Practices Act and should be courteous and respect taxpayer rights.

In light of continual phone scams where callers impersonate IRS agents and request immediate payment, taxpayers should be extremely cautious if contacted by one of these private collection agencies. The IRS will give taxpayers and their representative written notice that the accounts are being transferred to the private collection agencies. The agencies will send a second, separate letter to the taxpayer and their representative confirming this transfer. Do not speak with someone claiming to be from a private collection agency unless you have received those two letters.

Private collection agencies will not ask for payment on a prepaid debit, iTunes or gift card. Taxpayers will be informed about electronic payment options for taxpayers on IRS.gov/Pay Your Tax Bill. Payment by check should be to the U.S. Treasury and sent directly to IRS, not the private collection agency. 

The IRS has selected the following four private collection agencies - 

• CBE - Waterloo, IA
  
• ConServe - Fairport, NY
  
• Performant - Pleasanton, CA
  
• Pioneer - Horseheads, NY
  
  

If you do not wish to work with the assigned private collection agency to settle your overdue tax account, you must submit a request in writing to the private collection agency.

IRS will not assign accounts to private collection agencies involving taxpayers who are:

• Deceased
• Under the age of 18
• In designated combat zones
• Victims of tax-related identity theft
• Currently under examination, litigation, criminal investigation or levy
• Subject to pending or active offers in compromise
• Subject to an installment agreement
• Subject to a right of appeal
• Classified as innocent spouse cases
• In presidentially declared disaster areas and requesting relief from collection

Private collection agencies will return accounts to the IRS if taxpayers and their accounts fall into any of these 10 situations after assignment to the private collection agencies. 

Taxpayers continue to have the right to be represented if collection action is initiated by one of these private collection agencies.  Nancy Turner Egbert, an Enrolled Agent with unlimited rights to represent taxpayers before the IRS, will be happy to help you.  Please contact her at 530626-8551 or turnerstaxservice56@gmail.com

After a dramatic 217-213 House vote to repeal and replace the Affordable Care Act (ACA), the question many are waking up to is, "What does this all mean?" In short, it means these ACA repeal efforts live for another day by moving over to the U.S. Senate. Senate Republicans will now have to maneuver between its conservative members and moderates without the losing three votes necessary to get them to a majority.

While the House bill as passed is unlikely to become law, it is important to understand what is in it for the process going forward. 

• First, and foremost, it repeals the individual mandate of the ACA.

• Second, it repeals the taxes that paid for the subsidies and Medicaid expansion of the ACA--- the biggest of those is the 3.8 percent tax that applied to capital gains, dividend, and interest income for families with $250,000 or more in income ($125,000 for singles). The Joint Committee on Taxation estimates that getting rid of this tax costs $157.6 billion over 10 years.

• Third, the House bill would provide an option for states to waive out of the "essential health benefits" of the ACA, such as prenatal care, preventative care and mental health coverage.

• Fourth, the bill would allow states to drop the requirement that insurers charge everyone the same price regardless of their health history, or pre-existing conditions. It provides some funding for states that establish high-risk pools.

• Fifth, it would phase out the Medicaid expansion of the ACA that covered adults making up to 133 percent of the federal poverty level. It would also change how the federal government would reimburse states for Medicaid expenses by turning the money into a "block grant," or a lump sum rather than a per-person payment for each Medicaid patient. This payment method would still cut the program further over time.

• Sixth, the House bill would provide a tax credit for people buying insurance on their own based on their age rather than their income, phasing it out for individuals making more than $75,000 or families making more than $150,000.

Senate GOP leadership has indicated that they will not be forced into any deadlines, but will take their time and have the proper scoring by the Congressional Budget Office before moving a bill. To further these ACA repeal and replace efforts, Senate Majority Leader Mitch McConnell (R-KY) has created a working group made up of leadership from committees of jurisdiction and the various wings of the GOP in the Senate. They are likely to cobble together a bill allowing the Senate to reach 50 votes plus Vice President Mike Pence. After that, the two chambers will go about the business of reconciling the two bills. 

Information provided by the National Association of Enrolled Agents

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