Happy New Year – Remember to File Your Personal Income Tax Return

I hope everyone had a restful and spiritual holiday season. As you know, it is my job to remind you that the New Year brings about your renewed responsibility to file your personal income tax return. It will be due on April 15, 2019. Also due on April 15 are your Trust returns on Form 1041 and your C Corporation returns on Form 1120. On March 15, 2019, your S Corporations on Form 1120S and your Partnerships on Form 1065 are due. These deadlines can all be extended.

You may also want to know that your Property Renditions are due to the HCAD by April 1, 2019 and your Texas Franchise Tax Reports are due to the State Comptroller by May 15, 2019. I probably don’t need to tell you that your payroll reports, which include your W-3, W-2s, Form 941, Form 940, and your TWC Report are due at the end of January.

I Want To Help You Understand the New Tax Law

I would like for you to consider having me come to your business to give a short (hour or less) seminar on the new tax law to your employees. I would talk about how the Tax Cuts and Jobs Act affects your business in particular and how it affects your employees. There are many changes that will seriously impact many taxpayers, and this would be a great opportunity to educate them. Afterward, we could have a Q&A session. We can discuss the content that would benefit your employees. There would be no obligation and it would be free.

That is all today. I look forward to visiting with you next week. In the meantime, don’t hesitate to reach out if you have a question—you can call my office at (713) 785-8939 or simply leave a comment on this post. I’d love to hear from you.

Three Tax Issues to Watch For in 2017 and Beyond

Between now and April, I’ll use my blog to periodically answer client questions and spread awareness about some of the biggest tax issues that could affect your 2017 return. Let’s begin with a brief overview of three potential changes with large implications.

Health Care

The individual and employer health insurance mandates remain the law now that the Senate has rejected GOP proposals for a repeal of  Obamacare. The Affordable Care Act remains in force unless and until changed by Congress. Uninsured individuals must pay a penalty tax if they don’t qualify for an exemption. Employers with 50 or more full-time employees but no affordable health plan owe a penalty tax if their employees opt to buy insurance on an exchange and qualify for the premium tax credit. Trump’s executive orders on Obamacare do not change the law, per the IRS. Don’t be surprised to see more exemptions to the individual mandate. There are several now.

Also, keep an eye out for a bipartisan plan with significant changes to Obamacare. A new proposal by the 30 plus members of the House’s Problem Solvers Caucus sets forth solutions intended to help stabilize the individual health insurance market. It includes two tax provisions: First, repeal of the 2.3% tax on medical device sales; second, an easing of the employer mandate so it would only apply to businesses with 500 or more employees, up significantly from the current 50-employee threshold. In addition, the 30 hour per week threshold to qualify as a full time employee would be hiked to 40 hours.  

Identity Theft

The incidence of reported individual tax identity theft is on the decline, but an increase in business tax identity theft is causing concern. This occurs when fraudulent individuals file bogus corporate, payroll, or excise tax returns, Schedule K-1s, and others, using stolen tax ID numbers and claiming false tax refunds. The IRS has flagged 10,000 suspicious business tax returns filed thus far in 2017. To help alleviate the problem, the IRS is asking more from tax return preparers. Beginning next year, tax preparation software will be updated to require additional data, such as the name and Social Security number of the executive signing the return and the company’s payment and filing history. The IRS anticipates that these questions will help it identify suspicious returns. Be ready for this. This would become a requirement by way of an internal IRS administrative ruling.    

Tax Reform

Tax reform is a priority in Congress, and GOP tax writers and their staff are busy working on a proposal to overhaul the federal tax system, which they expect to release after the August recess. In the meantime, those in the know are making the following forecast.

Will the business tax rate be cut to 15%? No. Despite President Trump’s promise to slash the current 35% corporate rate to 15%, this won’t fly with moderate congressional Republicans. There just aren’t enough revenue raisers to offset such a low rate, they argue, especially now that the projected savings from the repeal of Obamacare is no longer in the mix. GOP lawmakers will aim for a 20 to 25% rate in their plan which will also apply to owners of pass-through businesses such as partnerships and S Corporations and self-employed business owners, such as those filing on Schedule C with their personal tax return.

If you have tax questions, I’d love to hear from you. Feel free to call me at (713) 785-8939 or email me at robert@robertstevensoncpa.com – I may even feature your question in a future blog post.

Until next time,
Robert Stevenson, CPA

How Does a Uniform Gift to Minors Account Affect Federal Financial Aid?

I teach a free parent seminar called “Paying For College,” and parents often ask me about Uniform Gift to Minors Accounts. These accounts may sound like a good idea, and they’re fine for income or estate tax planning. But when it comes to federal financial aid planning, a Uniform Gift to Minors Account is a terrible idea.

Let me explain.

Generally, children cannot transact financial business on their own –other than a simple bank account – without the appointment of a guardian. So in the 1950s, the Uniform Gift to Minors Act (UGMA) was created. The goal was to draft a model law for states to adopt to provide a convenient way for people to make gifts of money and securities to minors. In 1986, the Uniform Transfer to Minors Act (UTMA) was created to expand the types of property that could be transferred to a minor, e.g. real estate and limited partnerships.

Under the UGMA/UTMA, parents can make gifts to children through the use of custodial accounts. Custodial accounts are basically simplified trusts that are created by statute instead of through trust agreements. In lieu of a trustee, a custodian is named to manage the property until the age at which control passes to the child. Parents making gifts to their children can name themselves or another adult as custodian. The custodian has a fiduciary responsibility to handle the assets in a prudent manner for the child’s benefit.

When the child reaches a specified age, he or she can claim all of the account assets – even if that is against the wishes of the parent donor or the custodian. In Texas, the age of majority is 21. Gifts to a child under UGMA/UTMA constitute completed gifts for gift tax purposes and qualify for the annual gift tax exclusion, which in 2017 is $14,000 per parent or $28,000 if from both parents. Income earned on the assets in the custodial account is taxable to the child and subject to the “kiddie tax” if the child is under 24.

What does that mean? For federal financial aid planning, gifts to a child under UGMA/UTMA count as that child’s income and assets for assessment purposes for the Expected Family Contribution. And of course, the higher the Expected Family Contribution, the less likely a child is to receive financial aid.

Questions? I’d love to hear from you. Please feel free to reach out to me via email, or call me at my office at (713) 785-8939. If you’re interested in learning more about my “Paying for College” seminar, I’d be happy to discuss it with you.

Thank you for reading,
Robert Stevenson, CPA