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Archives for Desert Foothills Accounting

Home Mortgage Interest With The New Tax Law

Clients are asking about the deductibility of home mortgage interest and equity lines under the Tax Cuts and Jobs Act that takes effect in January 2018.

Under the former rules, you could deduct interest on up to a total of $1 million of mortgage debt used to acquire your principal residence and a second home.  Qualifying home equity debt (HELOC) was limited to the lesser of $100,00 or the taxpayer’s equity in the home.

The New Tax Law states you can deduct interest on a mortgage of up to a total $750,000. However, for acquisition debt incurred before December 15, 2017, the higher pre-Act limit applies.  The higher pre-Act limit also applies to debt arising from refinancing pre December 15, 2017 to the extent the debt from the refinance does not exceed the original debt amount.  This means you can refinance up to $1 million of pre-December 15, 2017 acquisition debt in the future and not be subject to the reduction limitation as long as the refinance does not exceed the original debt.

And, importantly, starting in 2018, there is no longer a deduction for interest on home equity debt.  This applies regardless of when the home equity debt was incurred.  Accordingly, if you are considering incurring home equity debt in the future, you should take into consideration that the interest you pay is not deductible.

Both of these changes last for eight years, through 2025. In 2026, the pre-Act rules are scheduled to come back into effect unless Congress extends the Law.

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Scammers Who Made You Pay Using Western Union

Did you lose money to a scammer who had you pay using Western Union between January 1 2004 and January 19, 2017? If so, you can ask for money back from the Federal Trade Commission’s settlement with Western Union.  The deadline to file your claim is May 31, 2018.

Western Union agreed to return $586 million to people to settle the FTC’s charges that Western Union had not adequately protected people from fraud, and did not properly discipline problem agents.  To get your money back, you need to do the following:

*  Start at “FTC.gov/WU to file your claim online. If you got a letter about an earlier filed complaint, you will have an ID and PIN.  Click the “blue button”. If you have no earlier claim, click the “orange button” that says “I lost money but did not get a claim form”.

*  Give as much information as you can about the loss.  Upload any paperwork you have on the loss.  The Department of Justice will use this information to validate your claim.

*  You must give your social security number or ITIN to file a claim.

*  Don’t pay anybody to help you file your claim or get money back.  Anybody who asks you to pay for your claim or refund is scamming you.  Tell the FTC about it.

*  Please be patient.  It might take as much as a year for the Department of Justice to validate all the claims and start returning the money.

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Getting a Copy a Return from the Internal Revenue Service

An individual can get a copy of their tax return from the Internal Revenue Service.  The Internal Revenue Manual (IRM) contains procedures for obtaining that transcript.  An individual master file is used to record transaction and financial entries for individual tax returns. Its counterpart is the business master file for business returns.

The IRS maintains a transcript of account for each filed tax return.  A transcript shows most entries on a tax return.  It includes data on an amended return, payments, penalties, and other processing activities.

A transcript of a taxpayer’s return may be obtained at the IRS website by first registering at “Get Transcript Online” and then ordering the document for the appropriate taxpayer.  If a person does not want to get an online transcript, a call may be made to 800-908-9946 to request one be mailed.  As a CPA, I can call a Practitioner Hotline on your behalf if I have a signed Power of Attorney to act for you.

As your CPA, I can request a transcript for you to find what information was reported on a prior-year return.  We can do this to respond to an IRS notice you have received or check the status of an amended return or refund. Our office has a list of common IRS transaction codes to determine what information we have been given on your return.  Please call our office if you have questions.

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Filing Season Begins January 29

Filing Season will begin Monday, January 29, the Internal Revenue has announced.

The final tax deadline will be Tuesday, April 17 (April 16 is Emancipation Day).  The IRS expects nearly 155 million returns to be filed for 2017. The January 29 date was set to make sure that the IRS has key processing systems in place and determine how late December’s Tax Cuts and Jobs Act will impact tax returns.

Many offices will begin preparing returns prior to January 29 and many software companies will accept them.  They will be submitted to the IRS when the system is open.  Although electronic returns will start being processed on January 29, paper returns will start to be processed later in mid-February.

The IRS expects to issue more than 90 percent of refunds in less than three weeks.  It cannot legally issue refunds to those claiming the Earned Income Credit before mid-February.

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How To Avoid Tax Traps with Inherited IRAs

An  inherited Individual Retirement Account (IRA) can be a tremendous boon to the beneficiary.  Who can’t use extra money in retirement!  Most inherited IRAs are cashed out within six months of the death of the family member.  If you do cash it out, there is no way for planning tax strategies! Without proper planning, federal and state taxes can take a sizable bite from the proceeds!

Options for Inherited IRAs:

  •  Take a lump sum distribution of the entire balance
  •   Roll the inherited IRA over into a new account and take the distributions over the longer of the life expectancy of the beneficiary or the decedent.

If the account owner died before reaching the date for RMDs (Required Minimum Distributions), the beneficiary has a third option of withdrawing all the funds by the end of the year containing the fifth anniversary of the decedent’s death (The Five Year Rule). In this case, the life expectancy of the beneficiary must be used.

Keep the Beneficiary Designation Up To Date!

Marriage, divorce and the birth of children can change estate plans.  The IRA will pass by beneficiary designation and not the Will.  Please make sure you keep the beneficiary as you want it.

Titling An Inherited IRA:

An inherited IRA must be titled with both the name of the decedent and the beneficiary plus the word “inherited”. For example, one might title an inherited IRA as “Jane Doe, deceased September 30, 2017, F/B/O Jimmy Doe, beneficiary”.  If you just change the name on the IRA, that is a “cash out” so DO NOT just retitle the inherited IRA to the beneficiary. Retitling the account is best done at the brokerage where the decedent held the IRA before the beneficiary rolls it over to his or her own brokerage.

If Decedent Had Turned 70 1/2 Years of Age and Started RMDs:

If the decedent had already turned age 70 1/2 and started taking required minimum distributions, the beneficiary MUST take the required minimum distribution before the end of that year or there is a 50% penalty and you still must take the distribution.

ROTH?

Consider the beneficiary’s age and if there are already ample retirement sources, converting the inherited IRA to a ROTH may be the way to go.

Please call our office BEFORE just cashing out the inherited IRA!

 

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