​In the Tax Cuts and Jobs Act (TCJA) passed in late December, the IRS released new income tax withholding tables that reflect the changes to the tax bracket structure. Employers will have until February 15 to update their payroll systems to reflect the new changes, and employees will start seeing the changes in their paychecks after that point.
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The TCJA reduces income tax rates for nearly all taxpayers. Extensive tax changes like this rarely happen, so it’s worth keeping an eye on your pay stubs over the next few weeks. The danger is that if the changes aren’t done right, you’ll either have too much tax taken out every paycheck, or end up with a large tax bill because too little was withheld. Here are some tips:

If you are an employee, you’ll want to ensure that the withholding changes are completed by February 15. Most people will see their paychecks increase slightly. If there’s no change, or if your paycheck decreases, take a closer look and talk to your employer to find out why. These changes do not require you to file a new Form W-4 if you already have one on file with your employer.

If you are an employer, the IRS said in a notice that all employers “should begin using the 2018 withholding tables as soon as possible, but not later than Feb. 15.” The updated withholding tables are available on the IRS website.

The IRS has said it will update its online withholding calculator tool by late February. Make a note to check this tool during early March to see whether your paychecks are correct. The tool will ask you to enter information including your income, tax status, and paycheck frequency. The calculator will generate an estimate of what your paychecks should look like under the new tax laws.

​If your tax situation is more complex than the norm, it’s possible that you may end up under-withholding taxes from your paycheck, even if things look correct earlier in the year. This is particularly true if you itemize your deductions on your tax return, have multiple jobs, or change jobs during the year. If you compare your pay stubs with the withholding calculator again mid-year, that should still give you enough time to correct your situation if things have gone off track.
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Sweeping tax law changes almost always trigger corresponding changes to employee withholdings, and the 2018 changes created by the TCJA are no different. If you have any questions regarding your situation, don't hesitate to call.

For one reason or another, you may find yourself in a situation where you've lost track of a retirement account like a 401(k) or pension.

There are several ways this can happen:

• Job change. People change jobs in today's economy much faster than they did in the past, and that means that retirement accounts like 401(k)s or pensions from a brief job tenure may easily be forgotten.
• A death in the family. Deceased loved ones may have overlooked some retirement assets in their wills, especially if they didn't organize their estate well before they died.
• Lost access. Records or access to retirement accounts may be compromised by accidents, theft, or data losses.

Luckily, there are several handy but little-known ways to retrieve retirement account information:

• Contact employers. Getting in touch with employers who administered a 401(k) or pension plan is one of the easiest ways to retrieve lost retirement benefits. If the account was active from 2009 or later, you can search the Department of Labor's Form 5500 database, which collects the annual information submitted by plan administrators. Often the exact person you would need to get in touch with is listed on the form.
• Use the National Registry of Unclaimed Retirement Benefits. The registry is created by a nonprofit organization that offers a free service to link up employees with their lost retirement benefits. Visit their website and enter the Social Security number of the employee. It will locate any unclaimed accounts and then provide information about getting in contact with the employer maintaining them. Note that accounts will only appear as unclaimed if the employee's mailing address is out of date or if the employee didn't respond to the employer's attempts to pay out the account.
• Check the Pension Benefit Guarantee Corporation (PBGC). The PBGC is a government agency that insures and tracks company pensions, and it keeps a list of unclaimed pensions online. You can search a person's name or the name of the company. Note that pensions will continue to exist at the PBGC even if the company that provided it no longer exists.

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Once you've located a lost retirement account, you can roll it over into an IRA if it's yours, or you can take several approaches if it is an inherited asset. Reach out if you'd like to discuss your options regarding tax-advantaged retirement accounts.

Getting audited by the IRS is no fun. Some taxpayers are selected for random audits every year, but the chances of that happening to you are very small. You are much more likely to fall under the IRS's gaze if you make one of several common mistakes. That means your best chance of avoiding an audit is by doing things to prepare right before you file your return this year. Here are some suggestions:

Don't leave anything out. Missing or incomplete information on your return will trigger an audit letter automatically, since the IRS gets copies of the same tax forms (such as W-2s and 1099s) that you do.

Double-check your numbers. Bad math will get you audited. People often make calculation errors when they do their returns, especially if they do them without assistance. In 2016, the IRS sent out more than 1.6 million examination letters correcting math errors. The most frequent errors occurred in people's calculation of their amount of tax due, as well as the number of exemptions and deductions they claimed.

Don't stand out. The IRS takes a closer look at business expenses, charitable donations and high-value itemized deductions. IRS computers reference statistical data on which amounts of these items are typical for various professions and income levels. If what you are claiming is significantly different from what is typical, it may be flagged for review.

Have your documentation in order. Be meticulous about your recordkeeping. Items that will support the tax breaks you take include: cancelled checks, receipts, credit card and investment statements, logs for mileage and business meals and proof of charitable donations. With proper documentation, a correspondence letter from the IRS inquiring about a particular deduction can be quickly resolved before it turns into a full-blown audit.

Remember, the average person has a less than one percent chance of being audited. If you prepare now, you can narrow your audit chances even further and rest easy after you've filed.

As the tax filing season approaches, it's time to start thinking about who will prepare your state and federal tax returns.

In 2017, more than 132 million individual and family tax returns were e-filed, the most accurate, safest, and easiest way to file. More than 16 million were prepared on a computer and printed or prepared by hand, then mailed.

The IRS stresses that no matter who prepares a federal tax return, by signing the return, the taxpayer becomes legally responsible for the accuracy of all information included.

Many taxpayers pay for tax return preparation. By law, all paid tax preparers must have a Preparer Tax Identification Number, or PTIN. Paid preparers must sign the return and include their PTIN. The IRS offers tips to help taxpayers choose a tax return preparer wisely. The Choosing a Tax Professional page has information about tax preparer credentials and qualifications. The IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications can help identify many preparers by type of credential or qualification.

Taxpayers who use paid preparers should still keep copies of their most recent tax returns for their own records. If using a software product for the first time, you may need your adjusted gross income amount from your prior-year return to verify your identity.

Always avoid fly-by-night preparers who may not be available after the due date or who base their fees on a percentage of the refund.

The Internal Revenue Service announced yesterday that it will begin accepting tax returns on Monday, Jan. 29, 2018. Nearly 155 million individual tax returns are expected to be filed in 2018. The nation’s tax deadline will be April 17 this year – so taxpayers will have two additional days to file beyond April 15.

Many software companies and tax professionals will be accepting tax returns before Jan. 29 and then will submit the returns when IRS systems open. Although the IRS will begin accepting both electronic and paper tax returns Jan. 29, paper returns will begin processing later in mid-February as system updates continue. The IRS strongly encourages people to file their tax returns electronically for faster refunds.

The IRS set the Jan. 29 opening date to ensure the security and readiness of key tax processing systems in advance of the opening and to assess the potential impact of tax legislation on 2017 tax returns.

​Congress has passed tax reform that will take effect in 2018, ushering in some of the most significant tax changes in three decades. Here are some of the most important items in the new bill that impact individual taxpayers.

• Reduces income tax rates. The bill retains seven brackets, but at reduced rates, with the highest tax bracket dropping to 37 percent from 39.6 percent.
• Doubles standard deductions. The standard deduction nearly doubles to $12,000 for single filers and $24,000 for married filing jointly. To help cover the cost, personal exemptions and the additional standard deduction are suspended.
• Limits itemized deductions. Many itemized deductions are no longer available, or are now limited. Here are some of the major examples:
  • Caps state and local tax deductions. State and local tax deductions are limited to $10,000 total for all property, income and sales taxes.
  • Caps mortgage interest deductions. Mortgage acquisition indebtedness interest will be deductible for no more than $750,000. Existing homeowners are unaffected by the new cap. The bill also suspends the deductibility of interest on home equity debt.
  • Limits theft and casualty losses. These deductions are now only available for federally declared disaster areas.
  • Removes 2 percent miscellaneous deductions. Most miscellaneous deductions subject to the 2 percent of adjusted gross income threshold are now gone.
• Cuts some above-the-line deductions. Moving expense deductions get eliminated except for active-duty military personnel, along with alimony deductions beginning in 2019.
• Weakens the alternative minimum tax (AMT). The bill retains the alternative minimum tax but changes the exemption to $109,400 for joint filers and the phaseout threshold to $1 million. The changes mean the AMT will affect far fewer people than before.
• Bumps up child tax credit, adds family tax credit. The child tax credit increases to $2,000 from $1,000, with $1,400 of it refundable even if no tax is owed. The phaseout threshold increases sharply to $400,000 from $110,000 for joint filers, making it available to more taxpayers. Also, dependents ineligible for the child tax credit can qualify for a new $500-per-person family tax credit.
• Expands use of 529 education savings plans. Qualified distributions from 529 education savings plans now include amounts to pay tuition for students in K-12 private schools.
• Doubles estate tax exemption. Estate taxes will apply to fewer people, with the exemption doubled to $11.2 million ($22.4 million for a married couple).
• Reduces pass-through business taxes. Most owners of pass-through entities such as S corporations, partnerships, and sole proprietorships will see their income tax lowered with a new 20 percent income reduction calculation.

Because major tax reform like this is so rare, it's worth scheduling a tax planning consultation to ensure you get the most tax savings possible during 2018. Click here to contact Ellsworth & Associates and set up an appointment.

If you have not already done so, now is the time to review your tax situation and make an estimated quarterly tax payment using Form 1040-ES. The fourth-quarter due date is now here.

Normal due date: Tuesday, January 16, 2018

Remember, you are required to withhold at least 90 percent of your current tax obligation or 100 percent of last year’s federal tax obligation.* A quick look at last year’s tax return and a projection of this year’s obligation can help determine if a payment is necessary. Here are some other things to consider:

• Underpayment penalty. If you do not have proper tax withholdings, you could be subject to an underpayment penalty. The penalty can occur if you do not have proper withholdings throughout the year. So a payment at the end of the year may not help avoid the underpayment penalty.
• W-2 withholdings have special treatment. A W-2 withholding payment can be made at any time during the year and be treated as if it were made throughout the year. If you do not have enough to pay the estimated quarterly payment now, you may be able to adjust your W-2 withholdings to make up the difference.
• Self-employed. Remember to account for the need to pay your Social Security and Medicare taxes as well. Creating and funding a savings account for this purpose can help avoid the cash flow hit each quarter when you pay your estimated taxes.
• Don't forget state obligations. Except for a few states, you are often required to make estimated state tax payments when required to do so for your federal tax obligations. Consider conducting a review of your state obligations to ensure you meet these quarterly estimated tax payments as well.

*If your income is over $150,000 ($75,000 if married filing separate), you must pay 110% of last year’s tax obligation to be safe from an underpayment penalty.

​Inheriting a retirement account like a 401(k) or an IRA is more complicated tax-wise than if you’d been left a house or a set of golf clubs. Here are some tips on how to use a “stretch out” to avoid being hit with a big tax bill.

​A stretch out is a plan to start taking small distributions from an inherited retirement account over a period of time. It allows a person who inherits a retirement account to avoid paying income tax on the entire amount right away. Taxpayers also benefit by keeping the account as a tax-advantaged investment vehicle that can grow over time.

Example: Dee Lee Beloved, 30 years old, inherits a $1 million IRA from her deceased uncle. If she were to take the whole amount in a lump sum, she would move into a higher tax bracket and pay 39.6 percent tax on most of her inheritance. Instead, she opts to stretch-out the IRA distributions over the next several decades, based on IRS life expectancy tables for her age. She thus receives smaller, more tax-efficient regular payments each year. She invests the balance of the account in mutual funds and hopes its value will grow over time.

The IRS requires you to take full disbursement of an inherited retirement account within five years, unless you create a formal stretch-out plan to take small regular payments over an extended period. This gives you two stretch-out options:

• An informal, self-managed distribution strategy in which you empty the account within five years.
• A formal plan in which you maintain the account and take regular distributions over many years, based on IRS life expectancy tables.

When spouses inherit retirement accounts, they are allowed to treat it as if it were theirs originally. That means they can continue making tax-advantaged contributions and can start withdrawing funds after reaching retirement age.
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But younger spouses may want to consider converting accounts to stretch outs anyway. That’s because you can start taking distributions immediately, instead of waiting until age 59 ½ to withdraw funds penalty-free.

​Stretch outs can be complicated, and some inherited accounts have special rules limiting the use of stretch outs. The best bet is to get professional assistance to help you create an optimal tax strategy when you receive an inheritance.

​If you own a small business, be vigilant against a growing wave of identity theft against employers. Small business identity theft is a big business for identity thieves. Just like individuals, businesses may have their identities stolen and their sensitive information used to open credit card accounts or used to file fraudulent tax refunds for fake refunds.

In the past year, the IRS has noted a sharp increase in the number of fraudulent Forms 1120, 1120S, and 1041 as well as Schedule K-1. The fraudulent filings apply to partnerships as well as estate and trust forms.

Identity thieves are displaying a sophisticated knowledge of the tax code and industry filing practices as they attempt to obtain valuable data to help file fraudulent returns.

Identity thieves have long made use of stolen Employer Identification Numbers (EINs) to create fake Forms W-2 that they would file with fraudulent individual tax returns. Fraudsters also used EINs to open new lines of credit or obtain credit cards. Now, they are using company names and EINs to file fraudulent returns.

As with fraudulent individual returns, there are certain signs that may indicate identity theft.

Business, partnerships, and estate and trust filers should be alert to potential identity theft and contact the IRS if they experience any of these issues:

• Extension to file requests are rejected because a return with the Employer Identification Number or Social Security number is already on file
• An e-filed return is rejected because of a duplicate EIN/SSN is already on file with the IRS
• An unexpected receipt of a tax transcript or IRS notice that doesn’t correspond to anything submitted by the filer
• Failure to receive expected and routine correspondence from the IRS because the thief has changed the address