In the federal budget bill passed February 9, Congress revived dozens of expired tax breaks retroactively for 2017. Here are the ones you may be able to use:
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• The tuition and fees deduction. If you paid qualified tuition and related higher education expenses, you may be able to deduct as much as $4,000 of those costs. This can be done on a regular return (without itemizing). The deduction is capped at $4,000 for single filers with adjusted gross income (AGI) of $65,000 or less ($130,000 joint) and at $2,000 for single filers with AGI of $80,000 or less ($160,000 joint). This tuition and fees deduction can be a nice alternative to using the American Opportunity Tax Credit or the Lifetime Learning Credit.
• Mortgage insurance deduction. If you pay mortgage insurance premiums, you can now deduct them as an itemized deduction. This deduction phases out for taxpayers with AGI of $100,000 or more.
• Mortgage debt forgiveness exclusion. If qualifying mortgage debt on your primary residence was discharged or forgiven, you can exclude that amount from your income taxes.
• Energy-efficient home improvement credit. If you purchased energy-efficient home improvements (such as upgrades to windows, or heating and cooling systems), you may be able to take a tax credit equal to 10 percent of the amount paid, up to $500.
• Bonus Tip: If you're eligible for any of these but you've already filed, you may still be able to claim these by filing an amended tax return.

If you think you qualify for any of these, remember to bring all related documentation to your next tax filing appointment. The IRS is now scrambling to figure out how to apply these late changes to the already published 1040 tax form for 2017.

​Your mailbox has probably started filling up with tax forms over the last several weeks and there are likely more to come. Getting these forms organized makes your tax filing easier for everyone involved. Here are some tips on how to handle all the forms you get and to prevent any potential problems.

Check your tax records from last year, and make a list of the forms you received. Add any new accounts, employers, or vendors and check the forms off as you get them. Gathering all your forms is important because the IRS gets copies of each form sent to them as well. Missing one can trigger an IRS correspondence audit, creating extra work and possibly delaying your refund.

​More employers, banks, and others are making their tax forms available to you electronically, so you may not get a paper form in the mail. Be sure to check your email inbox for any missing forms before you file, and don’t forget to check your “junk” or “spam” email folders as well, just in case any tax information accidentally ends up there.

​Double check to see if there are any errors on the forms you receive. If there are, contact the issuer via phone and in writing to get the problem fixed. If you can't get a corrected form, still report everything on your forms to the IRS, but add a correction explaining the error when you file your return. That way you can still file without waiting for the issuer to send you a corrected form.

While getting all your W-2 and 1099 forms is important, there are two crucial forms that you also need before you file:

• 1095 – Proof of health insurance, required under the Affordable Care Act (ACA). If you don't have health insurance, you'll have to pay a fine during tax years 2017 and 2018 (this requirement goes away in 2019). There is an approved delay for sending forms 1095-B and 1095-C until March 2, 2018. This delay is not granted for 1095-As provided to those using the marketplace to purchase insurance.
• 1098-T – Confirmation of tuition and fees paid to qualified educational institutions. If you're taking an education deduction, you'll need to have one of these forms from your accredited school.

As you watch for your forms to arrive, remember to reach out to schedule your tax-filing appointment. An early appointment will help ensure you get all your questions answered ahead of the April 17 filing deadline.

​Scammers were very successful last year with a scheme to snatch W-2 pay stub data from employers. The IRS is warning that it may be one of several techniques scammers utilize this year.

​Fraudsters simply identify employees with access to company payroll data and pretend to be a fellow employee emailing from an outside address. “Hi, I work in accounting. Do you think you could send me the payroll data on file? I’m traveling today and working on preparing my 2017 tax return.”

The IRS said this surprisingly simple tactic worked on more than 200 employers last year and compromised the W-2 information of hundreds of thousands of employees. The stolen data included names, addresses, Social Security numbers, income and withholdings. Scammers then used the data to file returns and claim refunds from the employees' tax withholdings.
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If you’re an employee, it’s hard to defend against this kind of scam because the breach happens to your employer. If you file and get an IRS notice that a return has already been filed in your name, you’ll know you’re a victim.

​If your refund was nabbed by a scammer, the good news is that the IRS will still eventually send you a replacement refund. The bad news is it can take a very long time—six months to a year or longer—for the IRS to investigate your case.

If that doesn’t sound appealing, know that there are a few things you can do to minimize your risk:

1. File early. By filing early you close the window of opportunity for scammers.
2. Request an IRS PIN. This one-time-use number provided by the IRS is entered on your 1040 forms as an added measure of security. Those whose identities have been stolen are automatically placed in the PIN program, but you may also opt-in to it yourself.
3. Minimize excess withholdings. If you had your withholdings calculated properly during the year, you can minimize the amount available for scammers to steal. Check your withholdings throughout the year using the IRS web tool. Unfortunately, it won’t be available for the 2018 tax year until late February, due to the recently passed Tax Cuts and Jobs Act.

​Tax filing season has officially begun. Not many people file this early, but for some taxpayers it makes sense to do so. Here are some reasons you might consider trying to be at the head of the line:

You’re worried about tax identity fraud. One of the most common scams by identity thieves is to impersonate someone, file a return on their behalf, and snatch their refund check. But once you’ve filed, the window of opportunity for identity thieves closes. If you’ve had problems with your identity being stolen in the past, or your information has been compromised, consider filing early.

You want to avoid a dependent dispute. One of the most common reasons a return is rejected is when you claim a dependent who has already been claimed by someone else. This often happens when there is shared custody of a child.

Someone needs a completed return from you. If you anticipate buying a house early in 2018 or making any other transaction that will need a tax return as proof of income, you may want to file early so you can provide current tax information. This is particularly important if you are self-employed and don’t have pay stubs to use as proof of income.

You have a complex problem to work out. If you have a complex tax problem to work out, do yourself a favor and get your tax return appointment scheduled early. Otherwise it’s hard to get the detailed attention you need in the rush just ahead of the April 17 deadline.

You need the refund ASAP. Of course, everyone would like their refund as soon as possible. One thing to remember is that while the IRS starts accepting returns on the 29th, they won’t begin processing paper returns until mid-February. Returns that claim the Earned Income Tax Credit and the Additional Child Tax Credit will see processing of their returns further delayed until sometime after Feb. 15. But absent those exceptions, the sooner your tax return is in the queue, the sooner you should receive your refund.

​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.

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.

A tax reform bill known as the Tax Cuts and Jobs Act was passed by Congress recently and was signed into law by President Trump on December 22. Most of the new laws are relevant to the 2018 and 2019 tax years, but there are a couple items that you need to know about right away for your 2017 taxes.

​The tax reform bill retroactively lowers the threshold to deduct medical expenses in 2017 to 7.5 percent of adjusted gross income. The previous threshold was 10 percent. This new 7.5 percent threshold remains in place for 2017 and 2018, but reverts back to 10 percent in the following years.

What this means. If you were not planning on using the medical expense deduction this year because you fell short of the 10 percent threshold, you may want to reconsider your situation before year end. If there are any qualified medical expenses you can make (drug purchases, medical equipment, etc.) before Dec. 31 to push you over the new, lower threshold, consider doing so. But you must act now.

​The individual mandate (also known as the shared responsibility penalty) in the Affordable Care Act is effectively repealed by the tax reform legislation, but not right away. The penalty is set to zero in 2019, but remains in place for 2017 and 2018.

What this means. You still need to retain your Form 1095s this year and next in order to provide evidence of your healthcare coverage. Without proof of coverage, you may have to pay the higher of $695 or 2.5 percent of income. Unless there are further changes coming, 2018 may be the last year you'll need to worry about the individual mandate penalty.

​We're experiencing one of most significant tax law changes in more than 30 years. There will be a lot of things to consider for 2018 tax planning. Here are some of the most significant:

• Reduced income tax rates across the board.
• Doubled standard deductions.
• Suspension of personal exemptions.
• New limits on itemized deductions, including:
  • State and local tax deduction limited to $10,000.
  • Mortgage interest deductions on new loans limited to $750,000 and elimination of home equity interest deductibility.
  • Theft and casualty losses limited to federally declared disasters.
  • Elimination of miscellaneous deductions subject to the 2 percent of adjusted gross income threshold.
• Boosts to:
  • The child tax credit ($2,000 in 2018 and beyond).
  • A new family tax credit.
  • 529 education savings plan expansion for K-12 education.
  • The estate tax exemption​ (doubled).
• Reduced taxation of small business pass-through entities including S corporations, partnerships, and sole proprietors.