Choose a business structure
When starting a business, an owner must decide what type of entity it will be. This type determines which tax forms a business needs to file. Owners can learn about business structures at IRS.gov. The most common forms of businesses are:
Determine business tax responsibilities
The type of business someone operates determines what taxes they need to pay and how to pay them. There are the five general types of business taxes.
Choose a tax year accounting period
Businesses typically figure their taxable income based on a tax year of 12 consecutive months. A tax year is an annual accounting period for keeping records and reporting income and expenses. The options are:
Set up recordkeeping processes
Being organized helps businesses owners be prepared for other tasks. Good recordkeeping helps a business monitor progress. It also helps prepare financial statements and tax returns. See IRS.gov for recordkeeping tips.
Additional Resources:
#IRSTaxTip: Four Things to Know about Taxes and Starting a Business. https://go.usa.gov/xn4Cj
]]>Here are six things taxpayers should know about how the sharing economy might affect their taxes:
Taxes. Sharing economy activity is generally taxable. This includes:
Deductions. Some taxpayers can deduct their business expenses. For example, a taxpayer who uses a car for business use often qualifies to claim the standard mileage rate.
Rentals. Special rules apply to a taxpayer who rents out a home or apartment, but who also lives in it during the year. Publication 527, Residential Rental Property (Including Rental of Vacation Homes), has more information about these rules. Taxpayers can also use the Interactive Tax Assistant Tool. This tool is titled Is My Residential Rental Income Taxable and/or Are My Expenses Deductible? It walks a taxpayers through a series of questions to determine if their rental income is taxable.
Estimated Payments. Taxpayers can pay as they go, so they don’t owe. One way that taxpayers can cover the tax they owe is to make estimated tax payments during the year. These payments can help cover their tax obligation. Taxpayers use Form 1040-ES to figure these payments.
Payment Options. The fastest and easiest way to make estimated tax payments is through IRS Direct Pay. Taxpayers can also use the Treasury Department’s Electronic Federal Tax Payment System.
Withholding. Taxpayers involved in the sharing economy as an employee might want to review their withholding from that job and any other jobs they might have. They can often avoid making estimated tax payments by having more tax withheld from their regular paychecks. These taxpayers can file Form W-4 with their employer to request additional withholding. They can also use the Withholding Calculator on IRS.gov. This tool helps determine if they are having too much or too little tax withheld from their income.
IRS YouTube Videos:
#IRSTaxTip: Participating in the Sharing Economy Can Affect Taxes https://go.usa.gov/xnTdw
]]>Here is information about four tax credits that can mean a refund for eligible taxpayers:
By law, the IRS is required to hold EITC and Additional Child Tax Credit refunds until mid-February — even the portion not associated with the EITC or ACTC. The IRS expects the earliest of these refunds to be available in taxpayer bank accounts or debit cards starting February 27, 2018, if these taxpayers choose direct deposit and there are no other issues with their tax return.
Instructions for Forms 1040, 1040A or 1040EZ list income tax filing requirements. Taxpayers can also use the Interactive Tax Assistant tool on IRS.gov to answer many tax questions. They should look for “Do I need to file a return?” under general topics.
This tax tip covers information for tax year 2017 and is not affected by the Tax Cuts and Jobs Act of 2017. Most of the changes in this legislation take effect in 2018 and will affect the tax returns filed in 2019.
More Information:
#IRSTaxTip: These Tax Credits Can Mean a Refund for Individual Taxpayers. http://go.usa.gov/xnGPV
]]>#IRSTaxTip: Tax Filing Season is Here – Things for Taxpayers to Consider. https://go.usa.gov/xnADC
The right to be informed is the first one highlighted in the Taxpayer Bill of Rights. Taxpayers have the right to:
The IRS will take these actions to make sure taxpayers are informed:
#IRSTaxTip: The Right to Be Informed – Taxpayer Bill of Rights #1. https://go.usa.gov/xnHAh
]]>During filing season, the IRS generally sees a surge in scam phone calls threatening such things as arrest, deportation and license revocation if the victim doesn’t pay a bogus tax bill. In a new twist being seen in recent weeks, identity thieves file fraudulent tax returns with refunds going into the real taxpayer’s bank account – followed by a phone call trying to con the taxpayer to send the money to the scammer.
The Dirty Dozen is compiled annually by the IRS and lists a variety of common scams taxpayers may encounter any time during the year.
To help protect taxpayers, the IRS is highlighting each of these scams on 12 consecutive days to help raise awareness. The IRS also urges taxpayers to help protect themselves against identity theft by reviewing safety tips prepared the Security Summit, a collaborative effort between the IRS, states and the private-sector tax community.
How Do the Scams Work?
Con artists make unsolicited calls claiming to be IRS officials. They demand that the victim pay a bogus tax bill. They convince the victim to send cash, usually through a wire transfer or a prepaid debit card or gift card. They may also leave “urgent” callback requests through phone “robo-calls,” or send a phishing email.
Many phone scams use threats to intimidate and bully a victim into paying. They may even threaten to arrest, deport or revoke the driver’s license of their victim if they don’t get the money.
Scammers often alter caller ID numbers to make it look like the IRS or another agency is calling. The callers use IRS employee titles and fake badge numbers to appear legitimate. They may use the victim’s name, address and other personal information to make the call sound official.
The IRS also reminded taxpayers today that scammers change tactics. Aggressive and threatening phone calls by criminals impersonating IRS agents remain a major threat to taxpayers, but variations of the IRS impersonation scam continue year-round and they tend to peak when scammers find prime opportunities to strike.
The Treasury Inspector General for Tax Administration (TIGTA) reports they have become aware of over 12,716 victims who have collectively paid over $63 million as a result of phone scams since October 2013.
Here are some things the scammers often do, but the IRS will not do. Taxpayers should remember that any one of these is a tell-tale sign of a scam.
The IRS Will Never:
For Taxpayers Who Don’t Owe Taxes or Don’t Think They Do:
For Those Who Owe Taxes or Think They Do:
Stay alert to scams that use the IRS as a lure. Tax scams can happen any time of year, not just at tax time. For more information visit Tax Scams and Consumer Alerts on IRS.gov.
Taxpayers have a set of fundamental rights they should be aware of when dealing with the IRS. These are the Taxpayer Bill of Rights. Explore these rights and the agency’s obligations to protect them on IRS.gov.
Source: IRS Newswire, an IRS e-mail service,
Issue Number: IR-2018-40
WASHINGTON — Following continuing threats to taxpayers, the Internal Revenue Service today listed email “phishing” schemes as a top filing season concern and part of the annual listing of the “Dirty Dozen” tax scams for 2018.
The IRS warned taxpayers, businesses and tax professionals to be alert to fake emails or websites looking to steal personal information. These attempts can expand during tax season and remain a major identity theft threat.
Compiled annually by the IRS, the “Dirty Dozen” lists a variety of common scams that taxpayers may encounter any time of the year, but many of these schemes peak during filing season as people prepare their tax returns or seek help from tax professionals.
To help protect taxpayers, the IRS is highlighting each of these scams on 12 consecutive days to help raise awareness. The IRS also urges taxpayers to help protect themselves against identity theft by reviewing safety tips prepared the Security Summit, a collaborative effort between the IRS, states and the private-sector tax community.
“We urge taxpayers to watch out for these tricky and dangerous schemes,” said Acting IRS Commissioner David Kautter. “Phishing and other scams on the ‘Dirty Dozen’ list can trap unsuspecting taxpayers. Being cautious and taking basic security steps can help protect people and their sensitive tax and financial data.”
2018 Sees New Phishing Schemes
The IRS continues to see a steady onslaught of new and evolving phishing schemes as scam artists work to victimize taxpayers during filing season.
In a recent twist to a phishing scam, the IRS has seen thousands of taxpayers victimized by an unusual scheme that involves their own bank accounts. After stealing client data from tax professionals and filing fraudulent tax returns, the criminals use taxpayers’ real bank accounts to direct deposit refunds. Thieves are then using various tactics to reclaim the refund from the taxpayers, including falsely claiming to be from a collection agency or representing the IRS. Phone calls, emails and web sites are used to make the scheme more elaborate. Versions of the scam may continue to evolve. The IRS encourages taxpayers to review some basic tips if they see anunexpected deposit in their bank account.
In addition, the IRS has seen email schemes in recent weeks targeting tax professionals, payroll professionals, human resources personnel, schools as well as individual taxpayers.
In these email schemes, criminals pose as a person or organization the taxpayer trusts or recognizes. They may hack an email account and send mass emails under another person’s name. Or they may pose as a bank, credit card company, tax software provider or government agency. Criminals go to great lengths to create websites that appear legitimate but contain phony log-in pages. These criminals hope victims will “take the bait” and provide money, passwords, Social Security numbers and other information that can lead to identity theft.
Fake emails and websites also can infect a taxpayer’s computer with malware without the user knowing it. The malware gives the criminal access to the device, enabling them to access all sensitive files or even track keyboard strokes, exposing login information.
For those participating in these schemes, such activity can lead to significant penalties and possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice to shutdown scams and prosecute the criminals behind them.
Tax Pro Alert
Numerous data breaches in the past year mean the entire tax preparation community must be on high alert during filing season to any unusual activity. Criminals increasingly target tax professionals, deploying various types of phishing emails in an attempt to access client data. Thieves may use this data to impersonate taxpayers and file fraudulent tax returns for refunds.
As part of the Security Summit initiative, the IRS has joined with representatives of the software industry, tax preparation firms, payroll and tax financial product processors and state tax administrators to combat identity theft refund fraud to protect the nation’s taxpayers.
The Security Summit partners encourage tax practitioners to be wary of communicating solely by email with potential or even existing clients, especially if unusual requests are made. Data breach thefts have given thieves millions of identity data points including names, addresses, Social Security numbers and email addresses. If in doubt, tax practitioners should call to confirm a client’s identity.
What to Do with Phishing Attempts
If a taxpayer receives an unsolicited email that appears to be from either the IRS or an organization closely linked to the IRS, such as the Electronic Federal Tax Payment System (EFTPS), they should report it by sending it to phishing@irs.gov. Learn more by going to the Report Phishing and Online Scams page on IRS.gov.
Tax professionals who receive unsolicited and suspicious emails that appear to be from the IRS or related to the e-Services program also should report it by sending it to phishing@irs.gov.
It is important to keep in mind the IRS generally does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels.
Taxpayers have a set of fundamental rights they should be aware of when dealing with the IRS. Taxpayers can explore the Taxpayer Bill of Rights and the agency’s obligations to protect them on IRS.gov.
Source: IRS Newswire, an IRS e-mail service.
Issue Number: IR-2018-39
]]>Responding to many questions received from taxpayers and tax professionals, the IRS said that despite newly-enacted restrictions on home mortgages, taxpayers can often still deduct interest on a home equity loan, home equity line of credit (HELOC) or second mortgage, regardless of how the loan is labelled. The Tax Cuts and Jobs Act of 2017, enacted Dec. 22, suspends from 2018 until 2026 the deduction for interest paid on home equity loans and lines of credit, unless they are used to buy, build or substantially improve the taxpayer’s home that secures the loan.
Under the new law, for example, interest on a home equity loan used to build an addition to an existing home is typically deductible, while interest on the same loan used to pay personal living expenses, such as credit card debts, is not. As under prior law, the loan must be secured by the taxpayer’s main home or second home (known as a qualified residence), not exceed the cost of the home and meet other requirements.
New dollar limit on total qualified residence loan balance
For anyone considering taking out a mortgage, the new law imposes a lower dollar limit on mortgages qualifying for the home mortgage interest deduction. Beginning in 2018, taxpayers may only deduct interest on $750,000 of qualified residence loans. The limit is $375,000 for a married taxpayer filing a separate return. These are down from the prior limits of $1 million, or $500,000 for a married taxpayer filing a separate return. The limits apply to the combined amount of loans used to buy, build or substantially improve the taxpayer’s main home and second home.
The following examples illustrate these points.
Example 1: In January 2018, a taxpayer takes out a $500,000 mortgage to purchase a main home with a fair market value of $800,000. In February 2018, the taxpayer takes out a $250,000 home equity loan to put an addition on the main home. Both loans are secured by the main home and the total does not exceed the cost of the home. Because the total amount of both loans does not exceed $750,000, all of the interest paid on the loans is deductible. However, if the taxpayer used the home equity loan proceeds for personal expenses, such as paying off student loans and credit cards, then the interest on the home equity loan would not be deductible.
Example 2: In January 2018, a taxpayer takes out a $500,000 mortgage to purchase a main home. The loan is secured by the main home. In February 2018, the taxpayer takes out a $250,000 loan to purchase a vacation home. The loan is secured by the vacation home. Because the total amount of both mortgages does not exceed $750,000, all of the interest paid on both mortgages is deductible. However, if the taxpayer took out a $250,000 home equity loan on the main home to purchase the vacation home, then the interest on the home equity loan would not be deductible.
Example 3: In January 2018, a taxpayer takes out a $500,000 mortgage to purchase a main home. The loan is secured by the main home. In February 2018, the taxpayer takes out a $500,000 loan to purchase a vacation home. The loan is secured by the vacation home. Because the total amount of both mortgages exceeds $750,000, not all of the interest paid on the mortgages is deductible. A percentage of the total interest paid is deductible (see Publication 936).
For more information about the new tax law, visit the Tax Reform page on IRS.gov.
Source: IRS Newswire, an IRS e-mail service.
Issue Number: IR-2018-32
The IRS emphasizes the new tax law changes make it especially important for specific groups of taxpayers to visit the Withholding Calculator on IRS.gov. This includes people in households with two or more jobs, who have children or dependents, who itemize their taxes, or who have high incomes or complex tax situations.
“It’s important every year for people to review if they’re having the right amount of tax withheld from their paychecks,” said Acting IRS Commissioner David Kautter. “This year, it’s even more urgent for people to review their situation following the new tax law changes. As people complete their 2017 tax returns, this is a perfect time to take a paycheck checkup.”
The IRS unveiled several new features to help taxpayers understand the implications of the new Tax Cuts and Jobs Act and navigate the complex issues affecting withholding. During the Paycheck Checkup campaign, the IRS is highlighting these efforts, including new YouTube videos and a special Tax Tip series.
The centerpiece of the effort is the updated Withholding Calculator on IRS.gov.
The new tax law could affect how much tax someone should have their employer withhold from their paycheck. Using the Withholding Calculator can help prevent employees from having too little or too much tax withheld.
Having too little tax withheld can mean an unexpected tax bill or potentially a penalty at tax time in 2019. And with the average refund topping $2,800, some taxpayers might prefer to have less tax withheld up front and receive more in their paychecks.
Taxpayers can use the Withholding Calculator to estimate their 2018 income tax. The Withholding Calculator compares that estimate to the taxpayer’s current tax withholding and can help them decide if they need to change their withholding by submitting a new W-4 form to their employer. When using the calculator, it’s helpful to have a completed 2017 tax return available.
Special alert for key groups to check withholding
The IRS always recommends employees check their withholding at the beginning of each year or when their personal circumstances change to make sure they’re having the right amount of tax withheld from their paychecks.
Following the recent tax law changes, it’s especially important for certain people to use the Withholding Calculator on IRS.gov to check if they are having the right amount of withholding.
Among the groups, in particular, who should check their withholding are people who:
Received large tax refunds or had large tax bills for 2017.
“The IRS urges people in these groups to take a few minutes and review their withholding and tax situation,” Kautter said. “Taking this step will help avoid surprises next year at tax time.”
The new law increased the standard deduction, removed personal exemptions, increased the child tax credit, limited or discontinued certain deductions, and changed the tax rates and brackets.
Withholding calculator helps with Form W-4; submit to employer as soon as possible
Taxpayers can use the results from the Withholding Calculator to help determine if they should complete a new Form W-4, Employee’s Withholding Allowance Certificate, and, if so, what information to put on it. Employees will submit the completed Form W-4 form to their employer.
When changes in personal circumstances reduce withholding allowances they are entitled to claim–including divorce, starting a second job, or a child no longer being a dependent–employees have 10 days to submit a new Form W-4 to their employer claiming the proper number of withholding allowances.
Employees who need to adjust their withholding should do so as quickly as possible so there’s more time for tax withholding to take place evenly during the rest of the year. Waiting until later in the year means there are fewer pay periods to make the tax changes – which could have bigger consequences for each paycheck.
To use the Withholding Calculator, taxpayers should have their 2017 tax returns and most recent paystubs ready. Having a completed 2017 tax return can help taxpayers work with the Withholding Calculator to help determine their proper withholding for 2018 and avoid issues when they file next year.
Taxpayers should remember that the tax law changes generally don’t affect 2017 returns that people are filing in early 2018. They affect returns for 2018, which taxpayers will file in 2019. The Withholding Calculator helps taxpayers check their 2018 withholding for their 2018 situation, including recent law changes.
Withholding Calculator results depend on the accuracy of information entered. Taxpayers whose personal circumstances change during the year should return to the calculator to check whether their withholding should be changed.
For more details on withholding issues, taxpayers are encouraged to visit IRS.gov.
Source: IRS Newswire, an IRS e-mail service.
Issue Number: IR-2018-80 April 2, 2018
]]>More information about the tax law changes will be coming throughout the year. IRS.gov will be updated to reflect changes as they develop.
Issue Number: Tax Reform Tax Tip 2018-49
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