WASHINGTON — The Internal Revenue Service issued proposed regulations today for a new provision allowing many owners of sole proprietorships, partnerships, trusts and S corporations to deduct 20 percent of their qualified business income.
The new deduction — referred to as the Section 199A deduction or the deduction for qualified business income — was created by the Tax Cuts and Jobs Act. The deduction is available for tax years beginning after Dec. 31, 2017. Eligible taxpayers can claim it for the first time on the 2018 federal income tax return they file next year.
The deduction is generally available to eligible taxpayers whose 2018 taxable incomes fall below $315,000 for joint returns and $157,500 for other taxpayers. It’s generally equal to the lesser of 20 percent of their qualified business income plus 20 percent of their qualified real estate investment trust dividends and qualified publicly traded partnership income or 20 percent of taxable income minus net capital gains.
Deductions for taxpayers above the $157,500/$315,000 taxable income thresholds may be limited. Those limitations are fully described in the proposed regulations.
Qualified business income includes domestic income from a trade or business. Employee wages, capital gain, interest and dividend income are excluded.
Taxpayers may rely on the rules in these proposed regulations until final regulations are published in the Federal Register.
Written or electronic comments and requests for a public hearing on this proposed regulation must be received within 45 days of publication in the Federal Register.
Now that school’s out, many students will be starting summer jobs…from working at a summer camp to being an office intern. The IRS reminds students that not all the money they earn may make it to their pocket. That’s because employers must withhold taxes from the employee’s paycheck. Here are a few things these workers need to know when starting a summer job:
- New employees. Students and teenage employees normally have taxes withheld from their paychecks by the employer. When a taxpayer gets a new job, they need to fill out a Form W-4. Employers use this form to calculate how much federal income tax to withhold from the employee’s pay. The Withholding Calculator on IRS.gov can help a taxpayer fill out this form.
- Self-employment. Students who do odd jobs over the summer to make extra cash – like baby-sitting or lawn care – are considered self-employed. They should remember that money earned from self-employment is taxable. Workers who are self-employed may be responsible for paying taxes directly to the IRS. One way to do that is by making estimated tax payments during the year. Taxpayers who do this should keep good records of all money they receive.
- Tip income. Someone working as a waiter or a camp counselor who receives tips as part of their summer income should know that tip income is taxable income and subject to federal income tax. They should keep a daily log to accurately report them, as they will report tips of $20 or more received in cash in any single month.
- Payroll taxes. This tax pays for benefits under the Social Security system. While taxpayers may earn too little from their summer job to owe income tax, employers usually must still withhold Social Security and Medicare taxes from their pay. If a taxpayer is self-employed, then Social Security and Medicare taxes may still be due and are generally paid by the taxpayer.
- Reserve Officers’ Training Corps pay. If a taxpayer is in an ROTC program, active duty pay, such as pay for summer advanced camp, is taxable. Other allowances the taxpayer may receive – like food and lodging allowances paid to ROTC students participating in advanced training – may not be taxable. The Armed Forces’ Tax Guide on IRS.gov has more details.
Taxpayers who sell a home may qualify to exclude from their income all or part of any gain from the sale. Below are some things taxpayers should keep in mind when selling a home:
Ownership and use. To claim the exclusion, the homeowner must meet the ownership and use tests. During a five-year period ending on the date of the sale, the homeowner must have:
- Owned the home for at least two years.
- Lived in the home as their main home for at least two years.
Gain. Taxpayers who sell their main home and have a gain from the sale may usually be able to exclude up to $250,000 from their income or $500,000 on a joint return. Homeowners who can exclude all of the gain do not need to report the sale on their tax return.
Loss. Taxpayers experience a loss when their main home sells for less than what they paid for it. This loss is not deductible.
Reported sale. Taxpayers who cannot exclude the gain from their income must report the sale of their home on a tax return. Taxpayers who choose not to claim the exclusion must report the gain on a tax return. Taxpayers who receive a Form 1099-S, Proceeds from Real Estate Transactions, as part of the real estate transaction must also report the sale on their tax return.
Mortgage debt. Some taxpayers must report forgiven or canceled debt as income on their tax return. This generally includes people who went through a mortgage workout, foreclosure, or other process in which a lender forgave or canceled mortgage debt on their home. Taxpayers who had a written agreement for the forgiveness of the debt in place before January 1, 2017, might be able to exclude the forgiven amount from income.
Possible exceptions. There are exceptions to these rules for persons with a disability, certain members of the military, intelligence community and Peace Corps workers, among others.
Worksheets. Worksheets included in Publication 523, Selling Your Home, can help taxpayers figure the:
- Adjusted basis of the home sold.
- Gain or loss on the sale.
- Excluded gain on the sale.
Multiple homes. Taxpayers who own more than one home can only exclude the gain on the sale of their main home. They must pay taxes on the gain from selling any other home.
Tax credit. Taxpayers who claimed the first-time homebuyer credit to purchase their home have special rules that apply to the sale. Taxpayers can use the First Time Homebuyer Credit Account Look-up to get account information, such as the total amount of their credit or repayment amount.
- Tax Topic 701, Sale of Your Home
- Tax Topic 703, Basis of Assets
- Tax Topic 611, Repayment of the First-Time Homebuyer Credit
- IRS Tax Map, Selling Your Home
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WASHINGTON — The Internal Revenue Service today advised those now receiving tax bills because they filed on time but didn’t pay in full that there are many easy options for paying what they owe to the IRS.
If a tax return was filed but the balance due remains unpaid, the taxpayer will receive a letter or notice in the mail from the IRS, usually within a few weeks. These notices, including the CP14 and CP501, both of which notify taxpayers that they have a balance due, are frequently mailed in the months of June and July.
How to pay
Taxpayers may pay taxes by electronic funds transfer, credit card, check, money order or cash:
- Taxpayers can use Direct Pay to pay directly from a checking or savings account. This service is free.
- Taxpayers can take advantage of the Electronic Federal Tax Payment System (EFTPS) to pay by phone or online. EFTPS® is a free service of the U.S. Department of Treasury.
- Taxpayers may also initiate a debit or credit card payment. The IRS doesn’t charge a fee for this service but the processing company may. Fees vary by company.
- Taxpayers may pay by check or money order made payable to the United States Treasury (or U.S. Treasury) either in person or through the mail.
- Taxpayers should not send cash through the mail. They can pay cash at some IRS offices or at a participating PayNearMe location. Some restrictions apply.
Taxpayers who are unable to pay what they owe should contact the IRS as soon as possible. Several payment options are available including:
- Online Payment Agreement — Individuals who owe $50,000 or less in combined income tax, penalties and interest and businesses that owe $25,000 or less in payroll tax and have filed all tax returns may qualify for an Online Payment Agreement. Most taxpayers qualify for this option, and an agreement can usually be set up in a matter of minutes. Online applications to establish tax payment plans, like online payment agreements and installment agreements, are available Monday – Friday., 6 a.m. to 12:30 a.m.; Saturday., 6 a.m. to 10 p.m.; Sunday, 6 p.m. to midnight.
- Installment Agreement — Installment agreements paid by direct deposit from a bank account or a payroll deduction will help taxpayers avoid default on their agreements. It also reduces the burden of mailing payments and saves postage costs. Taxpayers who don’t qualify for a payment agreement may still pay by installment. Certain fees apply.
- Delaying Collection — If the IRS determines a taxpayer is unable to pay, it may delay collection until the taxpayer’s financial condition improves.
- Offer in Compromise — Some struggling taxpayers qualify to settle their tax bill for less than the amount they owe by submitting an offer in compromise. To help determine eligibility, use the Offer in Compromise Pre-Qualifier tool.
In addition, taxpayers can consider other options for payment, including getting a loan to pay the amount due. In many cases, loan costs may be lower than the combination of interest and penalties the IRS must charge under federal law.
Even if a taxpayer works out a payment solution with the IRS, the agency may still need to file a Notice of Federal Tax Lien to secure the government’s interest. Federal law requires the lien to establish priority as a creditor in competition with other creditors in certain situations, such as bankruptcy proceedings or sales of real estate. Once the IRS files a lien, it may appear on a taxpayer’s credit report and harm their credit rating. Therefore, it’s important that they work to resolve a tax liability as quickly as possible before lien filing becomes necessary. Once the IRS files a lien, the agency generally cannot issue a Certificate of Release of Federal Tax Lien until the taxpayer pays taxes, penalties, interest and recording fees in full.
Taxpayers can take steps now to make sure they don’t fall behind on their taxes in the future. The IRS encourages several key groups of taxpayers to perform a “paycheck checkup” to check if they are having the right amount of tax withholding following recent tax-law changes.
Employees can increase their tax withholding by filling out a new Form W-4, Employee’s Withholding Allowance Certificate, and giving it to their employer. To have more tax withheld, claim fewer withholding allowances or ask the employer to take out a fixed amount of additional tax each pay period. To help figure the right amount to withhold, use the IRS Withholding Calculator on IRS.gov.
The Tax Cuts and Jobs Act, enacted in December 2017, changed the way tax is calculated for most taxpayers, including those with substantial income not subject to withholding. Among other things, the new law changed the tax rates and brackets, revised business expense deductions, increased the standard deduction, removed personal exemptions, increased the child tax credit and limited or discontinued certain deductions. As a result, many taxpayers may need to raise or lower the amount of tax they pay each quarter through the estimated tax system.
The newly revised estimated tax package, Form 1040-ES, now available on IRS.gov, is designed to help taxpayers figure these payments correctly. Among other things, the package includes a quick rundown of key tax changes, income tax rate schedules for 2018 and a useful worksheet for figuring the right amount to pay. The IRS also mailed 1 million Form 1040-ES vouchers with instructions in late March to taxpayers who used the Form 1040-ES last year.
For more information, see Publication 505, Tax Withholding and Estimated Tax.
Taxpayers who discover they made a mistake on their tax returns after filing can file an amended tax return to correct it. This includes changing the filing status and dependents, or correcting income, credits or deductions. The instructions for Form 1040X, Amended U.S. Individual Income Tax Return, list more reasons to amend a return. Taxpayers should not file an amended return to fix math errors, because the IRS will correct those.
Here are some tips on how a taxpayer amends a tax return. Taxpayers should:
- Complete and mail the paper Form 1040X, Amended U.S. Individual Income Tax Return, to correct errors to an original tax return the taxpayer has already filed. Taxpayers can’t file amended returns electronically and should mail the Form 1040X to the address listed in the form’s instructions. However, taxpayers filing Form 1040X in response to a notice received from the IRS, should mail it to the address shown on the notice.
- Prepare Form 1040X. Many taxpayers find the easiest way to figure the entries for Form 1040X is to make the changes in the margin of the original tax return and then transfer the numbers to their Form 1040X indicating the year they are amending. Use the second page of Form 1040X in Part III to explain the changes.
- Know when not to amend. Aside from math errors, taxpayers also do not need to amend their return if they forgot to include a required form or schedule. The IRS will mail a request to the taxpayer, if needed.
- Use separate forms for each tax year. Taxpayers amending tax returns for more than one year will need a separate 1040X for each tax year. Mail each tax year’s Form 1040X in separate envelopes.
- Wait to file for corrected refund for tax year 2017. Taxpayers should wait for the refund from their original tax return before filing an amended return. It is okay to cash the refund check from the original return before receiving any additional refund.
- Pay additional tax. Taxpayers filing an amended return because they owe more tax should file Form 1040X and pay the tax as soon as possible. This will limit interest and penalty charges.
- File within three-year time limit. Generally, to claim a refund, taxpayers must file a Form 1040X within three years from the date they timely filed their original tax return or within two years from the date the person pays the tax – usually April 15 – whichever is later.
- Track an amended return. Taxpayers can track the status of an amended return three weeks after mailing using “Where’s My Amended Return?” Processing can take up to 16 weeks.
IRS systems are back up and running
Taxpayers have until midnight Wednesday to file their taxes
IR-2018-101, April 18, 2018
WASHINGTON – The Internal Revenue Service said today the agency’s processing systems are fully back up and running.
As of 9 a.m. today, the IRS has accepted more than 14 million tax submissions since processing systems reopened following a Tuesday morning system outage caused by a hardware issue.
“IRS teams worked hard throughout the night,” Acting Commissioner David Kautter said. “We are back up and running. The overnight performance means that the IRS is current with all of the tax submissions, and no backlog remains.”
The IRS reminds taxpayers they have until Wednesday night to file and pay their taxes. As the midnight April 18 deadline approaches, the IRS reminds taxpayers that help is available at IRS.gov, including automatic six-month extensions to file.
“The IRS appreciates the patience from taxpayers as well as the help and support of the nation’s tax professionals and software transmitters during this period