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IRS Announces 2018 Pension Plan Limitations | Tax Lawyer Update

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On October 27, 2017, the IRS announced the cost of living adjustments affecting 2018 Pension Plan limitations.

2018 Pension Plan Limitations: Summary of Main Changes

1. The first main change in 2018 Pension Plan Limitations affects all employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan. In 2018, employees can contribute up to $18,500 into these plans. This amount represents a $500 increase from the 2017 contribution limitation of $18,000.

2. The second major change in 2018 Pension Plan Limitations is the modification of income ranges concerning eligibility to make deductible contributions to traditional IRAs. Here are the new 2018 phase-out ranges:

Single Taxpayers (covered by a workplace retirement plan): $63,000 to $73,000 (up from the 2017 range of $62,000 to $72,000);
Married Filing Jointly (covered by a workplace retirement plan): $101,000 to $121,000 (up from the 2017 range of $99,000 to $119,000).
Taxpayer not covered by a workplace retirement plan, but who is married to someone who is covered: $189,000 and $199,000 (up from the 2017 range of $186,000 and $196,000).

No changes for a married individual filing a separate return, but who is covered by a workplace retirement plan. The phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

3. The third change in 2018 Pension Plan Limitations affects the modification of income ranges concerning eligibility to make contributions to Roth IRA. Here are the new 2018 phase-out ranges:

Single and Head of Household Taxpayers: $120,000 to $135,000 (up from the 2017 range of $118,000 to $133,000);
Married Couples Filing Jointly: $189,000 to $199,000 (up from the 2017 range of $186,000 to $196,000).

No change in the phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA. Such contributions are not subject to an annual cost-of-living adjustment and remain at the range of $0 to $10,000.

4. The fourth change in 2018 Pension Plan Limitations affects the modification of income range concerning eligibility for the Retirement Savings Contributions Credit. In 2018, the income limits will be:

Married Couple Filing Jointly: $63,000 (up from $62,000 in 2017);
Heads of Household: $47,250 (up from $46,500 in 2017);
Singles and Married Individuals Filing Separately: $31,500 (up from $31,000 in 2017).

2018 Pension Plan Limitations: Summary of Main Unchanged Limitations from 2017

1. IRA Annual Contribution Limit: remains unchanged at $5,500.

2. IRA additional catch-up contribution for individuals aged 50 and over: remains at $1,004.40 (not subject to annual cost-of-living adjustment).

3. 401(k), 403(b) and most 457 plans and the federal government’s Thrift Savings Plan catch up contribution limit for employees aged 50 and over: remains unchanged at $6,000.

2017 Tax Filing Season Begins January 23 & Tax Returns due April 18, 2017

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On December 12, 2016, the IRS announced today that the 2017 tax filing season (for the tax year 2016) will begin on January 23, 2017. The 2017 tax filing season e-filings will be accepted by the IRS starting that date. The IRS again expects that more than four out of five tax returns will be prepared electronically using tax return preparation software.

2017 Tax Filing Season Deadline is on April 18, 2017

The filing deadline to submit 2016 tax returns will be April 18, 2017 (Tuesday), rather than the usual April 15. The delay is caused by the fact that April 16 falls on a Saturday which would usually move the deadline to the following Monday (April 17). However, April 17 is the Emancipation Day, which is a legal holiday in the District of Columbia, and the final deadline is pushed to April 18, 2017 (under the law, legal holidays in the District of Columbia affect the national filing deadlines).

Early Paper Filing Offers No Advantage in the 2017 Tax Filing Season

Many software companies and tax professionals will begin accepting tax returns before January 23 and then they will submit the returns when the IRS systems open. It is noteworthy to state, however, that the IRS will begin processing paper tax returns only on January 23. Hence, there is no advantage to filing paper tax returns in early January instead of waiting for the IRS to begin accepting e-filed returns.

Some of the 2017 Tax Filing Season Refunds Could Be Affected by the PATH Act

The IRS also reminded the taxpayers that the Protecting Americans from Tax Hikes Act (the PATH Act) will have a direct impact on the timing of some refunds. In particular, the PATH Act requires the IRS to hold refunds that claim Earned Income Tax Credit (“EITC”) and the Additional Child Tax Credit (“ACTC”) until February 15. The hold applies to the entire refund, not just the portion associated with EITC and ACTC. Then, it will take several days for these refunds to be released and processed through financial institutions. With weekends and holidays, the IRS estimates that many taxpayers will not be able to access their refunds until after February 27, 2017.

The idea behind the new law is to protect the taxpayers by giving the IRS more time to detect and prevent tax fraud, which has become a huge headache for the IRS in the past few years.

PATH Act and New January 31 Filing Deadline | Tax Attorney News

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On October 28, 2016, the IRS reminded employers and small business owners of the new January 31, 2017 deadline as a result of the PATH Act.

PATH Act’s Impact on the Filing Deadlines for Forms W-2 and 1099-MISC

In the past, employers typically had until the end of February, if filing on paper, or the end of March, if filing electronically, to submit their copies of these forms. Starting 2017, the new strict W-2 filing deadline of January 31, 2017, will be enforced.

The reason for this change in the deadline is The Protecting Americans from Tax Hikes (PATH) Act of 2015. According to PATH, the employers will now have one filing deadline on January 31 for both employee copies of Forms W-2 and the filing of Forms W-2 with the Social Security Administration.

Moreover the PATH Act also affects the filing deadline for certain Forms 1099-MISC, particularly those reporting amounts in Box 7, Nonemployee Compensation. These Forms 1099-MISC will now also have to be filed on January 31, 2017.

PATH Act’s Impact on Requesting Form W-2 Filing Extension

The PATH Act also has an impact on the availability of Form W-2 filing extensions. Starting 2017, only one 30-day extension to file Form W-2 will be available and this extension is no longer automatic. If an extension is necessary, a Form 8809 “Application for Extension of Time to File Information Returns” must be completed as soon as you know an extension is necessary, but no later than January 31.

PATH Act May Delay Some Refunds Until February 15

The other major impact of the PATH Act that will be felt by many Americans is the potential hold on their refunds until February 15. The PATH Act requirest the IRS to hold the refund for any tax return claiming either the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC); the IRS must hold the entire refund, not just the portion related to the EITC or ACTC.

PATH Act is Meant to Help IRS Fight Fraud and Spot Tax Return Errors

The PATH Act was enacted by Congress and signed into law in December of 2015 in order to make it easier for the IRS to detect and prevent fraud associated with tax refunds. The idea is to give the IRS more time to identify fraudulent refunds through accelerated W-2 filing deadline for employers and holding refunds (which are frequently subject to fraud) until February 15.

Of course, the additional time will allow the IRS to also spot any errors on the tax returns.

Tax Year 2016 Business Income Tax Deadlines

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With the commencement of the new year, it is very important for business owners and corporate executives to focus on the main 2016 business income tax deadlines. In this short review of 2016 business income tax deadlines, I will focus only on the most common income tax deadlines of a corporation that operates on a calendar-year basis (i.e. the corporate fiscal year is the same as the calendar year).

It is important to keep in mind that other 2016 business income tax deadlines (such as employment tax deadlines) may apply to your particular situation. Furthermore, one must remember that the exact deadlines will change if the corporation does not operate on the calendar-year basis, but on its own fiscal year.

Keeping in mind these two important exceptions, here are the most common 2016 business income tax deadlines:

March 15, 2016: Forms 1120 and 1120S for tax year 2015 are due. Schedules K-1 (for S-corporations) are due at that time as well. If, however, the corporation does not wish to file its tax return at that time, it can file Form 7004 by March 15, 2016 to obtain an automatic six-month extension to file 2015 Forms 1120 or 1120S. (However, the estimated 2015 tax liability must still be paid by March 15, 2016). Moreover, electing large partnerships must also furnish Schedule K-1 (Form 1065-B) at that time.

April 18, 2016: There are three major 2016 business income tax deadlines associated with April 18, 2016. (Normally, the deadline would be on April 15, but April 15 2016 falls on a Saturday and April 17 is a federal holiday; therefore, in 2016, the due date shifts to April 18). First, partnerships must file their 2015 Forms 1065 and supply Schedules K-1 to each partner. If a partnership wishes to file its Form 1065 later, it must file Form 7004 by April 18, 2016, in order to obtain an automatic five-month filing extension.

Second, Electing Large Partnerships must file their 2015 Forms 1065-B. Similarly, Form 7004 must be filed by April 18, 2016, if the Electing Large Partnership wishes to obtain an automatic five-month filing extension.

Third, corporations must make their first corporate estimated tax payments by April 18, 2016.

June 15, 2016: Second corporate estimated tax payments are due.

September 15, 2016: There are three major 2016 business income tax deadlines associated with September 15, 2016. First, all partnerships that filed Form 7004 must file their 2015 Forms 1065 by September 15, 2016.

Second, all corporations that obtained six-month extension by filing Form 7004 must file their 2015 Forms 1120 and 1120S by September 15, 2016.

Third, corporations must make their third corporate estimated tax payments by September 15, 2016.

October 17, 2016: Electing Large Corporations must file their extended 2015 Forms 1065-B.

December 15, 2016: Fourth corporate estimated tax payments are due.

Mortgage Debt Forgiveness: Key Points

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Under the current U.S. tax law, canceled debt is normally taxable to you, but there are exceptions. One of those exceptions came into existence under the Mortgage Forgiveness Debt Relief Act of 2007.

Under this law, married homeowners whose mortgage debt is partly or entirely forgiven during tax years 2007 through 2012 may exclude up to $2 million of debt forgiven on their principal residence. The limit is $1 million for a married person filing a separate return.

The exclusion applies to both, debt reduced through mortgage restructuring and mortgage debt forgiven in a foreclosure.

Not just any type of debt is entitled to the exclusion. In order to qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence. Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion. If, however, the proceeds of refinanced debt were used for other purposes (for example, to pay off credit card debt), then such proceeds do not qualify for the exclusion.

Other examples of debt that does not qualify for the exclusion include debt forgiven on second homes, rental property, business property, credit cards or car loans. In some cases, however, other tax relief provisions (e.g. insolvency) may be applicable.

If your debt is reduced or eliminated you should normally receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed. Examine the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box 7.

In order to claim the special exclusion, you should fill out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.