October 20, 2016
We wanted to bring to your attention some matters that continue to be top concerns for many taxpayers. Both the IRS and state tax agencies are facing increased security risk with identity theft which affect thousands of taxpayers. Healthcare is another important issue for many taxpayers. Before we address those two issues, we want to briefly alert you to recent proposed regulations by the Treasury Department.
Early in August, the Treasury Department set forth Proposed Regulations that seek to eliminate valuation discounts for interests in closely-held entities. The value of non-controlling interests in family-owned businesses have been eligible for a discount due to their lack of marketability and lack of control when they were transferred either by gift or sale. The elimination of these discounts will significantly affect wealth transfer planning for families, especially those who have a significant portion of their estate in closely-held entities. The proposed regulations are expected to become final in late 2016 or early 2017 but may happen even sooner. If you are considering transfers of ownership in family controlled entities, it may be prudent to take action before these regulations become final. Please consider contacting your estate planning attorney or us to discuss this matter further.
HEALTH CARE SPENDING ACCOUNTS
As healthcare costs rise, the availability of health spending accounts are becoming increasingly important as they play a key role in the managing of such costs. The four types of health spending accounts are: health savings account (HSA), health reimbursement arrangement (HRA), flexible spending account (FSA), and medical savings account (MSA).
An HSA may receive contributions from an eligible individual or any other person, including an employer or a family member, on behalf of an eligible individual. Contributions, other than employer contributions, are deductible on the eligible individual's return whether or not the individual itemizes deductions. Employer contributions are not included in income for Federal income tax purposes. Distributions from an HSA that are used to pay qualified medical expenses are not taxed. The account stays with you if you change employers or leave the work force unlike an employer sponsored flexible spending account.
An HRA must receive contributions from the employer only. Employees may not contribute. Contributions are not includible in income. Reimbursements from an HRA that are used to pay qualified medical expenses are not taxed. Unused amounts can be carried forward for reimbursements in later years. A health FSA may receive contributions from an eligible individual. Employers may also contribute. Contributions are not includible in income.
Reimbursements from an FSA that are used to pay qualified medical expenses are not taxed. Unused amounts at the end of the plan year generally cannot be carried over to the following year or follow you if you leave the employer sponsoring the plan.
An Archer MSA may receive contributions from an eligible individual and his or her employer, but not both in the same year. Contributions by the individual are deductible whether or not the individual itemizes deductions. Employer contributions are not included in income. Distributions from an Archer MSA that are used to pay qualified medical expenses are not taxed. The account stays with you if you change employers or leave the work force.
A Medicare Advantage MSA is an Archer MSA designated by Medicare to be used solely to pay the qualified medical expenses of the account holder who is enrolled in Medicare. Contributions can only be made by Medicare. The contributions are not included in your income. Distributions from a Medicare Advantage MSA that are used to pay qualified medical expenses are not taxed.
IRS does not call or email taxpayers demanding payment or requesting personal information. If you are contacted in this manner, please do not respond or provide any personal information. Scammers may even send you an official-looking document in the mail or email. Before sending any personal information, confirm that it is an official IRS/government agency address or phone number. The IRS offers a broad list of examples of possible forms of identity theft and the actions that you should take to report it to them. Unfortunately the examples are numerous and rather than outline them here, we are providing a direct link to the IRS website where you can identify a probable phishing incident and how you can report it to the IRS. See
PAYMENTS TO TAX AGENCIES
Many taxpayers are already required by state taxing authorities, particularly the Franchise Tax Board to make payments via its WebPay feature. We strongly encourage all clients to use electronic payment methods whenever possible. One good way to make payments to the IRS is through EFTPS (electronic federal tax payment system).
We are encouraging clients to use this method for making tax payments for several reasons. Where payments are remitted electronically we are able to designate how the payment is applied, by year and tax form. Further, when the payment is originated we receive a confirmation showing the date, amount paid, tax form and period. This is helpful because if a problem arises tracing the payment to your account, the confirmation will provide immediate proof and you will be spared the challenge of tracking down the payment through bank records including avoiding the annoyance and time delay for requesting a photocopy of the front and back of the canceled check.
We also believe that this form of payment is more secure than mailing checks to the taxing agencies. Incidents of mail fraud continue to rise and many of us have had an experience where a check is lost in the mail or misplaced. While we all need to maintain close control over checks in our possession, we have less control over checks delivered by mail. All a good hacker needs is a bank route number and account number to be able to compromise a bank account. I speak from personal experience as my operating account was hacked earlier this summer. Fortunately I identified the problem early enough in the morning that the bank was able to block the fraudulent transfer.
When I spoke to the bank representative about this they were able to identify that the attempted theft was not the result of compromising a user name or password, rather it was easily done because they had my bank routing and account numbers.
We are happy to discuss the merits of using electronic payments for your tax obligations. Here is the link to the EFTPS website enrollment page for remitting Federal taxes:
NEW TAX DEADLINES
Effective for tax years starting after December 31, 2015 (e.g., 2016 income tax return due in 2017), there are changes to the filing due dates for Federal tax and information returns. This will be affective in the spring 2017 filing season.
January 31 - W-2 and certain 1099MISC to IRS/SSA and to taxpayer
February 28 - All other 1099 (March 31 if filed electronically)
March 15 - Original due date Partnership, S-corporation
April 15 - Original due date for C-corporation (12/31 YE), Trust, Individual, Foreign Account Reporting
Extended due date for C-corporation (6/30 YE)
September 15 - Extended due date for Partnership, S-corporation, C-corporation (12/31 YE)
Original due date for C-corporation (6/30 YE)
September 30 - Extended due date for Trust
October 15 - Extended due date for Individual, Foreign Accounting Reporting
Tax returns for C-corporations with fiscal year-end other than December 31 or June 30 will be due on the 15th of the 4th month after year-end. A six-month extension is allowed from that date.
Given the earlier due date for filing partnership, limited liability company and S-corporation tax returns you can expect to be contacted by our team much earlier this year to start working on the preparation of these entity tax returns. In one of our next letters we will provide recommendations about how to prepare for these earlier filing deadlines for these entity tax returns and ultimately your individual tax returns.
Should you wish discuss any of the matters addressed in this letter, please contact us.
Scott B. Price