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Orange County Tax Law Blog

Quick tax tips for the self-employed

As a self-employed person, you’re used to taking on the necessary challenges of maintaining your business. There are few roadmaps for business success, but you have resources at your disposal for keeping on track with your tax obligations.

In addition to state and federal income tax, self-employed individuals are also responsible for paying self-employment tax and making quarterly payments. Follow a few tips to keep yourself on track with self-employed tax obligations.

State Department & IRS begin denying passports for back taxes

If you have tax debt of $51,000 or more and you need to apply for or renew your passport, you may receive a denial. And the IRS estimates that more than 362,000 Americans have this amount of outstanding tax debt.

A new enforcement tool allowing the agency to deny or revoke passports became law in late 2015, but the IRS and State Department had to write rules about how the process would work before enforcement started. According to the IRS, it has started sending batches of taxpayer names to the State Department. By the end of the year it should finish this initial process.

IRS unveils shorter 1040 tax form with added schedules

While it will still not fit on a postcard as promised, the new IRS Form 1040 is smaller. Instead of 79 lines, it has been paired back to 23.

The Wall Street Journal breaks down 10 main changes, including words moving to the front and numbers being relegated to the back. For example, the signature line is more prominent after moving to the bottom of the front page.

Why should you complete a mid-year tax withholding review?

To avoid a tax surprise. And this year it is even more important. Most people who earn a salary or hourly wages had their paycheck withholdings updated in February. This incorporated tax changes from the 2017 tax reform package.

A mistake can put you at risk for an unexpected tax bill. Run your financial situation through a withholdings calculator to find out if you are on track, and if not make some changes.

Avoiding estimated tax underpayment penalties

The deadline for second quarter estimated tax payments was last week. And summer is a good time to do a mid-year tax analysis because there is still time to make changes if necessary.

This year, there are some unanswered questions about exactly what income will qualify for the 20 percent pass-through entity deduction. If you are self-employed and run business income through your personal tax return (sole proprietors, LLCs, S Corps and partnerships), this mid-year checkup is even more important.

How much time is there to file a wrongful levy claim?

Powerful tools are at the disposal of the IRS to collect back taxes. These include liens, levy and garnishment. Mounting a challenge had included a relatively short amount of time to bring wrongful levy claims.

The Tax Cuts and Jobs Act extended the amount of time from nine months to two years for challenging an IRS sale of levied property. This only applies, if a levy/seizure of the property occurred after December 22, 2017.

ABLE accounts and eligibility for saver’s credit

What is an Achieving A Better Life Experience (ABLE) account? How can saver’s credit eligibility now help those with disabilities who contribute to their ABLE accounts?

These savings accounts allow people with disabilities and their loved ones to save for disability-related services, such as technology that fosters independence or dental bills not covered by government benefits. Since 2015, California has allowed qualified individuals to use these savings accounts without worrying about affecting benefit eligibility. Tax reform legislation passed last year affected these accounts and the IRS recently released new guidance.

New federal SALT-related rules expected

With the 2017 passage of the “Tax Cuts and Jobs Act,” deductible credits for payment of state and local taxes (so-called “SALT credits”) were capped at $10,000 per married couple filing jointly or $5,000 per individual. In higher-tax areas like New York, California and Washington, D.C., these limits were generally met with derision and trepidation. After all, the lowered limits mean higher federal tax liability in all areas, but the hardest hit will be the ones with the highest state and local tax rates.

Some state and local governments almost immediately either proposed or passed legislation aimed at lessening the impact of the lowered SALT credits. This was done by allowing taxpayers to transfer funds to a charitable entity controlled by the state or local legislatures. Those funds would then be both applied to overall tax liability while still being characterized as a charitable contribution (and thus subject to a much higher deduction/credit limit at the federal level).

Tax implications of vacation home rentals

With the advent of such services as “HomeAway,” “HomeToGo” and “Air BNB,” more and more people than ever before are offering their homes for short-term rentals. The usual arrangement is that property owner will stay at another location, and will allow strangers to use the home for a fee.

These short-term rentals can prove to be very profitable, particularly if they are centered around a particular event, like a big game, fair, festival, or holiday. Many people prefer staying in a home or apartment rather than a hotel, just because of the ease of access to cooking, the privacy, and the inherent comfort level of knowing that only one other person has been there before you.

How to pay a soon-to-be-arriving tax bill

During June and July, the IRS sends out lots of bills. The notices – CP 14 and CP 501 – will notify you of any remaining balance due on your 2017 taxes.

There are four ways to make a payment and four ways to request more time that we will cover in the post. Remember: Never send cash through the mail and never pay by retail store gift card or money transfer over the phone (generally anyone who calls regarding back taxes is a scam artist).