Tax day is just a couple days away and we have already seen some surprises for people filing their first income tax returns under President Donald Trump’s 2017 law.

Most Americans are paying less in taxes overall and have been startled to find that their refunds have barely changed or are down — making them feel like they lost even though they’re still coming out ahead.

Below are some ways to look at who’s winning and losing under the law.

winners

1. Most US taxpayers
2. Most Wealthy People
3. Heirs
4. Some Business Owners
5. Red state filers who depend on refunds
6. People taking the standard deduction
7. Corporations

losers

1. Blue state filers who depend on refunds
2. People who thought a tax cut would mean a bigger refund
3. People who thought they were getting a refund
4. The US Treasury

CLICK HERE to read more.

Article Highlights:

• Extensions
• Balance-Due Payments
• Contributions to Roth or Traditional IRAs
• Estimated Tax Payments for the First Quarter of 2019
• Individual Refund Claims for the 2015 Tax Year

As a reminder to those who have not yet filed their 2018 tax returns, April 15, is the due date to either file a return (and pay the taxes owed) or file for an automatic six-month extension (and pay the an estimate of the taxes owed). Caution should be exercised when preparing the extension application, which is IRS Form 4868. Even though this form is described as “automatic,” the extension is automatically granted only if it includes a reasonable estimate of the 2018 tax liability and only if that anticipated liability is paid along with the extension voucher. It is not uncommon for taxpayers to enter zero as the estimated tax liability without figuring the actual estimated amount. These taxpayers risk the IRS classifying their forms as having been improperly completed, which in turn makes the extensions invalid. If you need an extension, please contact this office so that we can prepare a valid extension for you.

The extension must be filed in a timely manner; at this office, we can file your extension electronically before the due date. If you are mailing an extension, be advised that the envelope with the extension form must only be postmarked on or before the April 15 due date. However, there are inherent risks associated with dropping an extension form in a mailbox; for instance, the envelope might not be postmarked in a timely fashion. Thus, those who have estimated tax due should mail their extension forms using registered or certified mail so as not to risk late-filing penalties.

In addition, the April 15 deadline also applies to the following:

• Balance-Due Payments for the 2018 Tax Year – Be aware that Form 4868 is an extension to file, NOT an extension to pay. The IRS will assess late-payment penalties (with interest) on any balance due, even when the extension has been granted. Taxpayers who anticipate having a balance due need to estimate this amount and include payment for that balance, either along with the extension request (as indicated above) or electronically (through the IRS website).
• Contributions to a Roth or Traditional IRA for the 2018 Tax Year – April 15 is the last day for 2018 contributions to either a Roth or a traditional IRA. Form 4868 does not provide an extension for making IRA contributions.
• Individual Estimated Tax Payments for the First Quarter of 2019 – Taxpayers – especially those who have filed for extension – should be aware that the first installment of estimated taxes for the 2019 tax year is due on April 15. Taxpayers who fail to prepay the minimum (“safe-harbor”) amount can be subject to a penalty for the underpayment of the estimated tax. This penalty is based on the interest on the underpayment, which is calculated using the short-term federal rate plus 3 percentage points. The penalty is computed on a quarter-by-quarter basis, so even people who have prepaid the correct overall amount for the year may be subject to the penalty if the amounts are not paid proportionally or in a timely way. Federal tax law does provide ways to avoid the underpayment penalty. For instance, if the underpayment is less than $1,000 (referred to as the de minimis amount), no penalty is assessed. In addition, there are two safe-harbor prepayments:

  1. The first safe-harbor prepayment is based on the tax owed on the current year’s return. There is no penalty when the prepayments (including both withholding and estimated payments) equal or exceed 90% the owed amount.

  2. The second safe-harbor prepayment is based on the total tax amount (not including credits for prepayments) on the return for the immediately preceding tax year. This is generally set at 100% of the prior year’s tax liability. However, taxpayers with adjusted gross income exceeding $150,000 (or $75,000 for married taxpayers filing separately) must pay 110% of the prior year’s tax liability.

• Individual Refund Claims for the 2015 Tax Year – The regular three-year statute of limitations expires for the 2015 tax return on April 15 of this year. Thus, no refund will be granted for a 2015 return (original or amended) that is filed after April 15. Taxpayers could risk missing out on the refundable Earned Income Tax Credit, the refundable American Opportunity Tax Credit for college tuition, and the refundable child credit for the 2015 tax year if they do not file before the statute of limitations ends. Caution: The statute does not apply to balances due for unfiled 2015 returns.

If your return is still pending because of missing information, please forward that information to this office as quickly as possible so that we can ensure that your return meets the April 15 deadline. Keep in mind that the last week of tax season is very hectic, and your returns may not be completed in time if you wait until the last minute. If you know that the missing information will not be available before the April 15 deadline, then please let us know right away so that we can prepare an extension request (and 2019 estimated-tax vouchers, if needed).

If you have not yet completed your returns, please call this office right away so that we can schedule an appointment and/or file an extension.

The Internal Revenue Service (IRS) has issued a warning about a new twist on the old IRS impersonation phone scam. In this version of the scam, criminals try to convince taxpayers that they are calling from the Taxpayer Advocate Service (TAS).

The TAS is an independent organization within the IRS. Its missions is to protect your rights as a taxpayer and to help you with tax problems you can’t resolve on your own. TAS does not initiate calls to taxpayers; generally, you reach out to TAS for help, and only then would TAS make a call or otherwise contact you. You can check out the TAS website here.

In the most recent scam variation, callers “spoof” the telephone number of the IRS TAS office in Houston or Brooklyn. When calls are spoofed, the scammers have changed the caller ID to make it look like they are calling from the agency, such as the IRS TAS.

Calls may be “robo-calls” or automated calls that request a call back. Once the taxpayer returns the call, the scammer requests personal information, like your Social Security number or other personally identifiable information.

In previous variations of the IRS impersonation phone scam, fraudsters demand immediate payment of taxes by a prepaid debit card, wire transfer or gift cards. Scammers may also tell potential victims that they are entitled to a large refund, but the refund can’t be released until the taxpayers provide personal information.

No matter the details, the scams typically have these things in common:

• Scammers use fake names and IRS badge numbers to identify themselves.
• Scammers may know the last four digits of the taxpayer’s Social Security number.
• Scammers spoof caller ID to make the phone number appear as if the IRS or another local law enforcement agency is calling.
• Scammers may send bogus IRS emails to victims to support their bogus calls.
• Potential victims may hear background noise of other calls to mimic a call site (many of these calls come from fraudulent call centers like this one).
• After threatening potential victims with jail time or other punishment, scammers may hang up and call back pretending to be from local law enforcement agencies or the Department of Motor Vehicles (again, spoofing calls so that the caller ID again supports the claim).

As a reminder, the IRS will never:

• Call to demand immediate payment over the phone, nor will the IRS call about taxes owed without first having mailed you a bill.
• Threaten to immediately bring in local police or other law-enforcement groups to have you arrested for not paying.
• Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
• Require you to use a specific payment method for your taxes, such as a prepaid debit card, gift card or wire transfer.
• Ask for credit or debit card numbers over the phone.

Despite increased publicity about these kinds of scams, reports of phone scams increased in 2018, with the IRS reporting receipt of thousands of such complaints each week. These phone scams are “a major threat to taxpayers” and as such, continued to hold down a top spot on the IRS “Dirty Dozen” list of tax scams.

Don’t engage or respond with scammers. Here’s how to protect yourself:

• If you receive a call from someone claiming to be from the IRS, and you do not owe tax, or if you are immediately aware that it’s a scam, don’t engage with the scammer and do not give out any information. Just hang up.
• If you receive a telephone message from someone claiming to be from the IRS, and you do not owe tax, or if you are immediately aware that it’s a scam, don’t call them back.
• If you receive a phone call from someone claiming to be with the IRS, and you owe tax or think you may owe tax, do not give out any information. Call the IRS back at 1.800.829.1040 to find out more information.
• Never open a link or attachment from an unknown or suspicious source.
• If you’re not sure about the authenticity of an email, don’t click on hyperlinks. A better bet is to go directly to the source’s main Web page.
• Use security software to protect against malware and viruses found in phishing emails.
• Use strong passwords to protect online accounts and use a unique password for each account. Longer is better, and don’t hesitate to lie about important details on websites since crooks may know some of your personal details.
• Use two or multifactor authentication when possible. Two-factor authentication means that in addition to entering your username and password, you typically enter a security code sent to your mobile phone or other device.

Don’t fall for the tricks. Keep your personal information safe by remaining alert. And, when in doubt, assume it’s a scam.

Have you been ignoring your future retirement needs? This tends to happen when people are young; because retirement is far in the future, they believe that they have plenty of time to save for it. Some people even ignore the issue until late in life, which causes them to scramble to fund their retirement. Others even ignore the issue altogether, assuming that they will qualify for Social Security and that the resulting income will take care of their retirement needs.

Did you know that you can make retirement savings contributions after the close of the tax year and that these contributions may be deductible? With the April tax deadline in the near future, the window of opportunity is closing to maximize contributions to retirement and special-purpose plans for 2018. Many of these retirement contributions will also deliver tax deductions or tax credits for the 2018 tax year.

Contribution Opportunities – Some 2018 retirement contributions are available after the close of the year.
Traditional IRAs – For 2018, the maximum traditional IRA contribution is $5,500 (or $6,500 if the taxpayer is at least 50 years old on December 31, 2018). A 2018 traditional IRA contribution can be made until April 15, 2019. However, for taxpayers who have other retirement plans, some or all of their IRA contributions may not be deductible. To be eligible to contribute to IRAs (of any type), taxpayers—or spouses if married and filing jointly—must have earned income such as wages or self-employment income.

Roth IRAs – A Roth IRA is a nondeductible retirement account, but its earnings are tax-free upon withdrawal—provided that the requirements for the holding period and age are met. Roth IRAs are a good option for many taxpayers who aren’t eligible for deductible contributions to a traditional IRA. For 2018, the contribution limits for a Roth IRA are the same as for a traditional IRA: $5,500 (or $6,500 if the taxpayer is at least 50 years old). A 2018 Roth IRA contribution can also be made until April 15, 2019.

Caution: For those who have both traditional and Roth IRA contributions, the combined limit for 2018 is also $5,500 (or $6,500 if the taxpayer is at least 50 years old).

Spousal IRA Contributions – A nonworking spouse can open and contribute to a traditional or Roth IRA based on the working spouse’s earned income. The spouses are subject to the same contribution limits, and their combined contributions cannot exceed the working spouse’s earned income. Spousal IRA contributions for 2018 must also be made by April 15, 2019.

Simplified Employee Pension IRAs – Simplified Employee Pension IRAs are tax-deferred plans for sole proprietorships and small businesses. This is probably the easiest way to build retirement dollars, as it requires virtually no paperwork. The maximum contribution depends on a business’s net earnings. For 2018, the maximum contribution is the lesser of 25% of the employee’s compensation or $55,000. A 2018 contribution to such a plan can be made up to the return’s due date (including extensions). Thus, unlike a traditional or Roth IRA, a Simplified Employee Pension IRA can be established and funded for 2018 as late as October 15, 2019 (if an extension to file a 2018 Form 1040 has been granted).

Solo 401(k) Plans – A growing number of self-employed individuals are forsaking the Simplified Employee Pension IRA for a newer type of retirement plan called a Solo 401(k) or Self-Employed 401(k). This plan is available to self-employed individuals who do not have employees, and it is notable mostly for its high contribution levels.

For 2018, Solo 401(k) contributions can equal 25% of compensation, plus a salary deferral of up to $18,500. The total contributions, however, can’t exceed $55,000 or 100% of compensation. Note that an individual must have established the Solo 401(k) account by December 31, 2018, to make 2018 contributions. However, contributions to an established account can then be made up to the return’s due date (which can be extended to October 15, 2019, for most taxpayers). Taxpayers who did not establish a Solo 401(k) account by the end of 2018 can still open one now for 2019 contributions.

Health Savings Accounts – Health savings accounts are only available for individuals who have high-deductible health plans. For 2018, this refers to plans with a deductible of at least $1,350 for individual coverage or $2,700 for family coverage. These accounts allow individuals to save money to pay for their medical expenses.

Money that an individual does not spend on medical expenses stays in that person’s account and gains (tax-free) interest, just like in an IRA. Because unused amounts remain available for later years, health savings accounts can be used as additional retirement funds. The maximum contributions for 2018 are $3,450 for individual coverage and $6,900 for family coverage. The annual contribution limits are increased by $1,000 for individuals who are at least 55 years old. Contributions to a health savings account for 2018 can be made through April 15, 2019.
Please note that the information provided above is abbreviated. Contact this office for specific details on how each option applies to your situation.

Saver’s Credit – Low- and moderate-income workers are eligible for a saver’s credit that helps them offset part of the first $2,000 that they contribute to an IRA or a qualified employer-based retirement plan. This credit helps individuals who don’t normally have the resources to set money aside for retirement, and it is available in addition to the other tax benefits that are associated with retirement-plan contributions.

This credit is provided to encourage taxpayers to save for retirement. To prevent taxpayers from taking distributions from existing retirement savings and then re-depositing them to claim this credit, the qualifying retirement contributions used to figure the credit are reduced by any retirement-plan distributions taken during a “testing period”: the prior two tax years, the current year, and the portion of the subsequent tax year up to the return’s due date (including extensions).

Children with Earned Income – Many children hold part-time jobs, and after the recent tax reform, the standard deduction allows these children to earn $12,000 tax-free. This earned income also qualifies children for IRA contributions. Although children may balk at contributing their hard-earned income to an IRA, their parents or grandparents can gift Roth IRA contributions to children. That Roth IRA will significantly increase in value by the time the child reaches retirement age, 45 or 50 years later.

Individuals’ financial resources, family obligations, health, life expectancy, and retirement expectations vary greatly, and there is no one-size-fits-all retirement strategy. Events such as purchasing a home or putting children through college can limit retirement contributions; these events must be accounted for in any retirement plan.

If you have questions about any of the retirement vehicles discussed above or if you would like to discuss how retirement contributions will affect your 2018 tax return, please give this office a call.

March 1 – Farmers and Fishermen

File your 2018 income tax return (Form 1040) and pay any tax due. However, you have until April 15 (April 17 if you live in Maine or Massachusetts) to file if you paid your 2018 estimated tax by January 15, 2019.

March 4 – Applicable Large Employer (ALE) – Form 1095-C

If you’re an Applicable Large Employer, provide the 2018 Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, to full-time employees. The normal due date for giving employees their copy of the 1095-C is January 31, 2019, but the IRS gave a blanket extension of 30 days to ALEs for 2019 filings.

March 15 – Partnerships

File a 2018 calendar year return (Form 1065). Provide each partner with a copy of Schedule K-1 (Form 1065), Partner’s Share of Income, Deductions, Credits, etc., or a substitute Schedule K-1. If you want an automatic 6-month extension of time to file the return and provide Schedules K-1 or substitute Schedules K-1 to the partners, file Form 7004. Then, file Form 1065 and provide the K-1s to the partners by September 16.

March 15 – S-Corporations

File a 2018 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, Deductions, Credits, etc., or a substitute Schedule K-1 (Form 1120S). To request an automatic 6-month extension of time to file the return, file Form 7004 and pay the tax estimated to be owed. Then file the return; pay any tax, interest, and penalties due; and provide each shareholder with a copy of their Schedule K-1 (Form 1120S) by September 16.

March 15 – 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 2019. If Form 2553 is filed late, S treatment will begin with calendar year 2020.

March 15 – Social Security, Medicare and Withheld Income Tax

If the monthly deposit rule applies, deposit the tax for payments in February.

March 15 – Non-Payroll Withholding

If the monthly deposit rule applies, deposit the tax for payments in February.

Article Highlights:

• Tax Reform
• Penalty for Not Being Insured
• Premium Tax Credit
• Employer Penalty
• Coverage Exemptions
• Hardship Exemptions

Thanks to the tax reform, beginning in 2019, the penalty for not having adequate health insurance, which the government refers to as the “individual shared responsibility payment,” will no longer apply.

The elimination of this penalty as of 2019 does not impact the health care subsidy for low-income families, which is known as the premium tax credit and which is available for policies acquired through a government insurance marketplace. This elimination also does not affect the penalties assessed on employers that do not offer affordable insurance to employees and that have 50 or more full-time-equivalent employees.

However, the penalty still applies for individual taxpayers who did not have minimum essential health coverage for 2018 and is the greater of the sum of the family’s flat dollar amounts or 2.5% of the amount by which the household’s income exceeds the income-tax-filing threshold.

For 2018, the flat dollar amounts are $695 per year ($57.92 per month) for each adult and half that amount ($347.50; $28.96 per month) for each child under the age of 18; the maximum family penalty using this method is $2,085 per year ($173.75 per month).

As an example, say that a family of four (2 adults and 2 children) has a household income that exceeds the income-tax-filing threshold by $100,000. This family would have a maximum penalty equal to the greater of the flat dollar amount ($695 + $695 + $347.50 + $347.50 = $2,085) or 2.5% of the income amount (2.5% × $100,000 = $2,500). Thus, the maximum penalty would be $2,500. However, the penalties are applied separately per month, and they do not apply in a given month if certain exceptions are met.

There are a number of exceptions to the penalty, as listed below. For details related to qualifying for any of these exceptions, please give this office a call. Some of the penalty exceptions apply to the entire year, and some only apply to a specific month in the year. If penalty relief applies to a specific month, it also applies to the months just preceding and following that month. The table below lists the various exceptions and the code number the government assigned to that exception.

In addition to the general exceptions included in the table above, hardship exemptions are also available. The most common of these exemptions are:

• Being homeless.
• Evicted or facing eviction because of foreclosure.
• Received a shut-off notice from a utility company.
• Experienced domestic violence.
• Death of a family member.
• Fire, flood or other disaster that caused substantial damage.
• Filed for bankruptcy.
• Medical expenses could not cannot be paid, resulting in substantial debt.
• Increased necessary expenses to care for an ill, disabled or aging family member.
• Claiming a child who was denied Medicaid or CHIP coverage.
• Ineligible for coverage because state didn’t expand Medicaid.
• Financial or domestic circumstances, including an unexpected natural or human-caused event, causing an unexpected increase in essential expenses, which prevented obtaining coverage under a qualified health plan.
• The expense of purchasing a qualified health plan would have caused the taxpayer to experience serious deprivation of food, shelter, clothing or other necessities.

To claim a hardship exemption, an individual must obtain an ECN through the normal application process, or for 2018, they may self-certify the hardship. However, an individual who is self-certifying is cautioned to retain documentation that demonstrates qualification for the hardship exemption, in case it is later challenged by the IRS.

A person is eligible for a hardship exemption for at least the month before, the month(s) during and the month after the specific event or circumstance that created the hardship.

This may all seem complicated; however, this office can assist you with avoiding the lack-of-health-insurance penalty. Please call with any questions you might have.

Politics & Profits with Rick Amato 

Watch this short video clip as Phil Liberatore explains the reasons why Americans are receiving smaller refunds or no refunds this tax filing year.

According to IRS data for the second week of this year’s filing season, the average federal tax refund amount was down 8.7%, to $1,949, compared with the same window last year. The total number of refunds issued dropped by more than 15%.

Taxpayers who e-file and request direct deposit should see their refund hit their bank account within 21 days of submitting their return. Many have said they aren’t happy with the size of their refund this year, and some even owe money to the IRS.

PAP 021519_03 from EANTV on Vimeo.

As part of the recent tax reform, the Tax Cuts and Jobs Act of 2017, the deduction for home mortgage interest and property taxes has undergone substantial alterations. These changes will impact most homeowners who itemize their deductions each year.

Mortgage Interest – Prior to the tax reform, a taxpayer could deduct the interest he or she paid on up to $1 million of acquisition debt and $100,000 of equity debt secured by the taxpayer’s primary home and/or designated second home. This interest was claimed as an itemized deduction on Schedule A of the homeowner’s tax return. This tax deduction was often cited as one of the reasons to purchase a home, rather than renting a place to live.

Qualified home acquisition debt is debt incurred to purchase, construct, or substantially improve a taxpayer’s primary home or second home and is secured by the home.

Home equity debt is debt that is not acquisition debt and that is secured by the taxpayer’s primary home or second home, but only the interest paid on up to $100,000 of equity debt had been deductible as home mortgage interest. In the past, homeowners have used home equity as a piggy bank to purchase a new car, finance a vacation, or pay off credit card debt or other personal loans – all situations in which the interest on a consumer loan obtained for these purposes wouldn’t have been deductible.

The old law continues to apply to home acquisition debt by grandfathering the home acquisition debt incurred before December 16, 2017, to the limits that applied prior to the changes made by the tax reform. As explained later in this article, equity debt interest didn’t survive the tax reform’s legal changes.

New Acquisition Debt Limits: Under the new law, for home acquisition loans obtained after December 15, 2017, the acquisition debt limit has been reduced to $750,000. Thus, if a taxpayer is buying a home for the first time, the deductible amount of the acquisition debt interest will now be limited to the interest paid on up to $750,000 of the debt. If the home acquisition debt exceeds the $750,000 limit, then a prorated amount of the interest will still be deductible. If a taxpayer already has a home with grandfathered acquisition debt and wishes to finance a substantial improvement on the home or acquire a second home, the total of the prior acquisition debt and the new debt, for which the interest would be deductible, would be limited to $750,000 less the grandfathered acquisition debt existing at the time of the new loan.

This may be a tough pill to swallow for many future homebuyers, since the cost of housing is on the rise, while Congress has seen fit to reduce the cap on acquisition debt, on which interest is deductible.

Equity Debt: Under the new law, equity debt interest is no longer deductible after 2017, and this even applies to interest on existing equity debt, essentially pulling the rug out from underneath taxpayers who had previously taken equity out of their homes for other purposes and who were benefiting from the itemized deduction. Note: Equity debt used to purchase, construct or substantially improve one’s home or second home is not treated as equity debt for tax purposes, it is instead treated as acquisition debt (See acquisition debt limits above).

Tracing Equity Debt Interest: Because home mortgage interest rates are generally lower than business or investment loan rates and easier to qualify for, many taxpayers have used the equity in their home to start businesses, acquire rental property, or make investments, or for other uses for which the interest would be deductible. With the demise of the Schedule A home equity debt interest deduction, taxpayers can now trace interest on equity debt to other deductible uses. However, if the debt cannot be traced to a deductible purpose, unfortunately, the equity interest will no longer be deductible.

Refinancing: Under prior law, a taxpayer could refinance existing acquisition debt, and the allowable interest would be deductible for the full term of the new loan. Under tax reform, the allowable interest will only be deductible for the remaining term of the debt that was refinanced. For example, under the old rules, if you refinanced a 30-year term loan after 15 years into a new 25-year loan, the interest would have been deductible for the entire 25-year term of the new loan. However, under tax reform, the interest on the refinanced loan would only be deductible for 15 years – the remaining term of the refinanced debt.

Property Taxes – Prior to the tax reform, homeowners could deduct all of the state and local taxes they paid as an itemized deduction on their federal return. These taxes were primarily real property taxes and state income tax (taxpayers had and still have the option to replace state income tax with sales tax). Beginning in 2018 and through 2025, the deduction for taxes is still allowed but will be limited to a total of $10,000. Thus, if the total property tax and state income tax exceeds $10,000, homeowners may not get the benefit of deducting the full amount of the property taxes they paid. In addition, this requires an analysis when the return is being prepared of whether to claim sales tax instead of state income tax, since when state income tax is deducted, if there’s a state tax refund, it may be taxable on the federal return for the year when the refund is received.

Determining when and how much home mortgage interest was deductible was frequently complicated under the prior tax law, and the new rules have added a whole new level of complexity, including issues related to property taxes. Please call this office if you have questions about your particular home loan interest, refinancing, equity debt interest tracing circumstances, and tax deductions.

Are You Collecting the Needed W-9s?

Article Highlights:

• $600 Threshold
• Exceptions
• Form W-9
• Impact of Tax Reform
• 1099-MISC Filing

If you use independent contractors to perform services for your business or your rental that is a trade or business, for each individual whom you pay $600 or more for the year, you are required to issue the service provider and the IRS a Form 1099-MISC after the end of the year, to avoid losing the deduction for their labor and expenses. (This requirement generally does not apply to payments made to a corporation. However, the exception does not extend to payments made for attorney fees and for certain payments for medical or health care services.)

It is not uncommon to have a repairman out early in the year, pay him less than $600, then use his services again later and have the total for the year exceed the $600 limit. As a result, you might overlook getting the information needed to file the 1099s for the year. Therefore, it is good practice to always have individuals who are not incorporated complete and sign the IRS Form W-9 the first time you use their services. Having a properly completed and signed Form W-9 for all independent contractors and service providers will eliminate any oversights and protect you against IRS penalties and conflicts.

The government provides IRS Form W-9, “Request for Taxpayer Identification Number and Certification,” as a means for you to obtain the data required from your vendors in order to file the 1099s. It also provides you with verification that you complied with the law, should the individual provide you with incorrect information. We highly recommend that you have a potential vendor or independent contractor complete a Form W-9 prior to engaging in business with him or her.

Many small business owners and landlords overlook this requirement during the year, and when the end of the year arrives and it is time to issue 1099-MISCs to service providers, they realize they have not collected the required documentation. Often, it is difficult to acquire the contractor’s, handyperson’s, gardener’s, etc., information after the fact, especially from individuals with no intention of reporting and paying taxes on the income.

This has become even more important in light of the tax reform’s 20% pass-through deduction (Sec. 199A deduction), since the regulations for this new tax code section caution landlords that to be treated as a trade or business, and therefore to be generally eligible for the 199A deduction, they should consider reporting payments to independent contractor service providers on IRS Form 1099-MISC, which wasn’t generally required for rental activities in the past and still isn’t required when the rental is classified as an investment rather than as a trade or business. This caution was included in IRS regulations issued after the close of 2018, which caught everyone by surprise and left most rental property owners to deal with obtaining W-9s after the fact from service providers and issuing the 1099-MISCs after the due date of January 31, 2019. Each late-filed 1099-MISC is subject to a penalty of $100 if not filed by August 1, 2019.

1099-MISC forms must be filed electronically or on special optically scannable forms. If you need assistance with filing 1099-MISCs or have questions related to this issue, please give this office a call. Also, make sure you have all of your independent contractors or service providers complete a Form W-9 for 2019.