With a crowded news cycle these days filled with everything from the presidential campaigns to the upcoming Olympics, it can be easy to miss some of the headlines that will directly impact you within the next tax year. Here, we have highlighted 4 tax-related news stories that you may have missed so far in 2016.
TENNESSEE HALL INCOME TAX CHANGES
Two bills signed by Tennessee Governor Bill Haslam near the end of May make changes to the TN Hall income tax. As a reminder, the Hall tax is imposed on dividends, interest, income from publicly traded partnerships, and S-corporation distributions.
The first change reduces the rate of the Hall tax from 6% down to 5% beginning with the 2016 tax year. In addition, the Hall income tax is set to be eliminated beginning with the 2022 tax year. Further reductions to the tax rate, which were heavily discussed before the bill’s final passing, will require additional acts by legislators in the future to become law.
The other modification to the Hall income tax creates a possible tax credit to investors in TN who provide capital to new small businesses. The “Angel Investor Credit” provides for a credit of 33% (up to 50% under some circumstances) of the value of the investment with a max credit value of $50,000 per investor per year. While there are a number of criteria that must be met for an investment to qualify for the credit, this could create valuable savings for TN taxpayers against the Hall tax when it takes effect beginning in the 2017 tax year.
As these changes have only recently become law, additional newsletters from LBMC with all of the details will be coming soon.
TAX RETURN DUE DATES ARE CHANGING
Changes are coming to due dates for 2016 tax returns filed in 2017. While personal income tax returns will still be due on April 15th, other filings will see changes. Most notably, corporate income tax returns (Form 1120) that have long been due on March 15th will have their filing date pushed back to April 15th. March 15th will instead be the due date for all partnership income tax filings (Form 1065), along with S-corporation (1120-S) returns still due on 3/15. Additionally, taxpayers with bank or investment accounts held offshore will be required to file their annual FinCen report by April 15th, with an optional extension available until October 15th. A full listing of tax return due dates for taxable years starting after December 31, 2015 are summarized in the below chart.
|Return Type||Due Dates Under Prior Law||New Due Dates Original and Extended||Comments|
|Fiscal year returns due 15th day of the 3rd month after the year-end. A six-month extension is allowed from that date.|
|Trusts & Estates|
|Extension due date is now 5 1/2 months|
Forms 990 & 990PF
|New extension will be a single, automatic 6-month extension.|
|June 30||April 15|
|Foreign Bank and Financial Account Report (FBAR) is now due with Form 1040|
IRS SECURITY/CURRENT SCAMS
The IRS continues to come under heavy scrutiny for its data security. Technology has rapidly changed our society and the IRS has kept pace with the current trends and created tools to allow taxpayers to file their tax returns and pay their taxes as easily and quickly as possible. However, for Congress (and taxpayers), these advances are an ongoing cause for concern as security threats and scams evolve to be increasingly complex. The best way to mitigate the risk of becoming subject to a scam is to be aware of the current threats and protect against them. We have summarized some of the most current taxpayer security scams. If you find yourself in any of the below situations, it is best to contact LBMC immediately for guidance in navigating the best path forward.
“Get Transcript” and PIN System Hacks of 2015
In February 2016, the IRS reported that cyber hackers gained access to more than 700,000 taxpayer accounts, which is up from their original estimate in last May of 100,000 taxpayer accounts. The exposed taxpayer accounts potentially gave access to personal identifying information such as social security numbers (SSNs) and birth dates through the “Get Transcript” application on the IRS website, which was subsequently shut down. The IRS reported another data breach in February 2016 that involved the electronic filing (e-file) PIN system. Cyber hackers succeeded in gaining access 101,000 e-file PINs on 450,000 attempts using stolen SSNs. The IRS communicated that the stolen SSNs were received “elsewhere outside of the IRS” and that the data breach was discovered and stopped before any personal taxpayer data was compromised. The IRS has notified any taxpayers affected by the breaches and is working with other agencies to examine the problem.
Email scams continue to be a technique that allow hackers to gain access to your computer and sensitive information. Taxpayers have received emails about tax refunds that appear to be from the Taxpayer Advocacy Panel (TAP). These emails are phishing scams, which is an attempt to acquire personal information such as SSNs and financial information. The email appears to be from a legitimate organization (the TAP in this instance). Do not respond to these emails or click any links in them. The TAP is a volunteer advisory board for the IRS and does not have access to personal taxpayer information such as e-mail addresses.
Phone Call Scams
False and threatening calls from fake IRS agents still pose a security threat to taxpayers, but there is also a new telephone scam where scammers call and say they need further details to process your tax return. Do not give these false agents your personal information. IRS agents will never call you to complete your tax return.
The latest phone scam involves receiving a voice message indicating you are the subject of an IRS lawsuit and provides a number to call immediately to get more information. Once you call, you will then be asked to verify your identity, which the scammers will use to gain access to your tax information. Again, the IRS will never reach out to a taxpayer to inform them of such a matter by phone; written correspondence would always come first.
TAXPAYER-FRIENDLY INCENTIVES EXTENDED OR MADE PERMANENT
As a result of congressional legislation passed on December 18, 2015, there are a number of taxpayer-friendly incentives that have been extended or made permanent under the PATH (Protecting Americans from Tax Hikes) Act of 2015.
Taxpayers finally received ongoing guidance concerning depreciation incentives this year. Section 179 deprecation was made permanent, which allows business buying less than $2 million in new fixed assets each year an immediate deduction of up to $500,000 (subject to income limitations). Additionally, first year bonus depreciation was extended through 2019 and allows for an immediate 50% deduction in 2015- 2017, 40% in 2018 and 30% in 2019. Leasehold improvements were also permanently classified as a 15-year asset for tax depreciation purposes, making them eligible for bonus depreciation going forward.
Additional tax credits were also addressed as a part of the PATH act. The research tax credit, American Opportunity Tax Credit, Child Tax Credit and Earned Income Tax Credit were all made permanent. Additionally, the Work Opportunity Tax Credit was extended through 2019, and Solar Investment Tax Credits were extended through 2024 (although with decreasing credit maximums beginning in 2019.)
Individual taxpayers will benefit from the deduction for state and local sales tax being made permanent, as well as direct charitable contributions from Individual Retirement Accounts. Deductions for mortgage insurance premiums and tuition and fees were also extended through 2016. These examples highlight more than 50 tax provisions that were extended or made permanent as a part of the PATH Act in December.
Our team keeps a close eye on headlines coming out of the IRS, Congress, state and local taxing authorities, and other sources that will have a potential impact on our clients. As always, feel free to reach out to LBMC with any questions.
Blake Harrison is a senior manager in the Wealth Advisors Team at LBMC and works with high net-worth individuals, real estate developers, asset managers, entrepreneurs, public company executives and family offices on income and estate tax planning.