Hurricane Disaster Relief

October 24, 2017 By SeaCure Advisors Leave a Comment

Hurricane Disaster Tax Relief

In a four-week period, the United States was struck by three Category 4 hurricanes. The resulting damage is staggering. As humanitarian relief efforts continue, new legislation provides tax relief for those affected by the storms. Additional tax relief provisions have been announced by the IRS.

Disaster Tax Relief Act of 2017

The Disaster Tax Relief and Airport and Airway Extension Act of 2017 (the “Act”), signed into law on September 29, 2017, provides temporary tax relief for those affected by Hurricanes Harvey, Irma, and Maria.

Retirement plan (including IRA) distributions

Pre-existing law. In general, distributions from IRAs and other retirement plans are subject to income tax in the year distributed. A 10% early distribution penalty also generally applies to the taxable portion of distributions before age 59½, unless an exception applies.

Temporary changes. The Act provides that the 10% early distribution penalty will not apply for up to $100,000 of qualified hurricane distributions from qualified retirement plans. (Distributions must be made before January 1, 2019.) Also, the distribution can be ratably included in gross income over a three-year period. Additionally, the distribution can be recontributed to a qualified retirement plan within three years of the distribution. To qualify, the individual must have a principal place of abode in the hurricane disaster area and have sustained an economic loss from the hurricane.

Retirement plan loans

Pre-existing law. In general, an individual can take a loan from a qualified plan for up to the lesser of (1) $50,000 or (2) one-half the present value of the nonforfeitable accrued benefit of the employee under the plan (generally with up to a five-year repayment term). Loans cannot be taken from IRAs.

Temporary changes. For a loan to a qualified individual made from September 29, 2017, to December 31, 2018, the Act increases the maximum loan amount to the lesser of $100,000 or the full present value. Due dates for payments under the loan can be deferred for up to one year, and the term of the loan can be extended by one year.

Recontributions of withdrawals for home purchases

For individuals who took a hardship withdrawal from a qualified plan (after February 28, 2017, and before September 21, 2017) to be used to purchase or construct a personal residence in the hurricane disaster areas, but were unable to do so due to the hurricanes, the Act allows them to recontribute the withdrawal amount to an eligible retirement plan between August 23, 2017, and February 28, 2018. This allows the individual to avoid tax on the distributed amount.

Employee retention credit

If a business in the disaster zone was inoperable due to damage sustained from the hurricanes but continued to pay eligible employees during the period of inoperability, the Act allows the employer a maximum $2,400 income tax credit per eligible employee (equal to 40% of qualified wages up to $6,000 paid during the period of inoperability) through December 31, 2017. This employee retention credit is not allowed if the employer is also claiming the work opportunity credit with respect to the employee.

Charitable gifts for disaster relief

Pre-existing law. If an individual itemizes deductions, an income tax charitable deduction is available for gifts to charity. The amount of the deduction is limited to 50%, 30%, or 20% of adjusted gross income (AGI), depending on the type of property and the charity. Amounts disallowed because of the percentage limitations can be carried over for up to five years, subject to the percentage limitations in the carryover years. The charitable deduction is also subject to an overall limitation on most itemized deductions based on AGI.

Temporary changes. The Act makes the 50%, 30%, or 20% of AGI limitations inapplicable for cash contributions made through December 31, 2017, to a qualified charity for relief efforts in the hurricane disaster areas. Nor are such contributions subject to the overall limitation on itemized deductions. They are, however, limited to the excess of AGI over all other charitable gifts that are allowed under the 50%, 30%, or 20% of AGI limitations. An election must be made to obtain this tax relief, and a contemporaneous written acknowledgment obtained from the charity that the contribution is for such hurricane relief efforts.

Casualty loss deduction

Pre-existing law. If an individual itemizes deductions, an income tax deduction is available for net casualty losses. The first $100 of such losses is not deductible; the remaining losses can be deducted only to the extent that they exceed 10% of AGI. Also, the standard deduction is not available for alternative minimum tax (AMT) purposes.

Temporary changes. For qualified disaster-related personal casualty losses, the Act increases the $100 amount to $500 and provides that the 10% of AGI floor does not apply. The standard deduction is increased by the net disaster loss (you do not need to itemize deductions to get this tax relief), and the standard deduction is allowed for AMT purposes to the extent of the net disaster loss.

Child tax credit and earned income credit

Pre-existing law. Certain individuals may qualify for a child tax credit or an earned income credit depending on the amount of their earned income.

Temporary changes. As provided by the Act, qualified individuals with a principal abode in one of the hurricane disaster areas can substitute their earned income from the preceding taxable year for their earned income in the hurricane year when determining their child tax credit or earned income credit.

IRS Guidance (IR-2017-160)

The IRS has provided a rundown of some key tax relief available to victims of Hurricanes Harvey, Irma, and Maria. In general, the relief is provided to individuals in Florida, Georgia, Puerto Rico, the U.S. Virgin Islands, and parts of Texas.

The relief generally postpones various tax deadlines for individuals and businesses to file any return and pay any taxes until January 31, 2018. These include:

Individual tax returns with an extension due date of October 16, 2017
Business filers with an extension due date of September 15, 2017
Quarterly estimated tax payments with due dates of September 15, 2017, and January 16, 2018
Quarterly payroll and excise tax returns with a due date of October 31, 2017
Tax-exempt organizations with an extension due date of November 15, 2017

Other provisions include:

The IRS states that employer-sponsored leave-based donation programs can aid hurricane victims. Under these programs, employees may forgo their vacation, sick, or personal leave in exchange for cash payments the employer makes before January 1, 2019, to charities providing relief to hurricane victims. Donated leave is not included in the employee’s income, and the cash payments to charity can be deducted by the employer as a business expense.
Employer-sponsored retirement plans can allow a hurricane victim to take a hardship distribution or borrow up to the statutory limits from the victim’s retirement plans. The guidance states that a person who lives outside the disaster area can use such a distribution or loan to assist a son, daughter, parent, grandparent, or dependent who lived or worked in the disaster area. Hardship withdrawals must be made by January 31, 2018.
Certain late-deposit penalties for federal payroll and excise tax deposits, normally due during the first 15 days of the disaster period, are waived.
Individuals and businesses with casualty losses can claim them on the income tax return for the year the loss occurred or the return for the prior year.
The IRS is waiving the usual fees and expediting requests for copies of previously filed tax returns for disaster-area taxpayers.
The IRS is urging disaster-area taxpayers who are contacted by the IRS on a collection or examination matter to be sure to explain to the IRS how the disaster impacts them.

Tax Tips That Will WOW You!

March 7, 2017 By SeaCure Advisors Leave a Comment

Welcome to Tax season 2017! Did you know, the federal filing deadline is less than two months away on Tuesday, April 18? Yes, the clock is ticking! As you prepare to file your taxes, we want to help you make the most of your available credits and deductions. The way we see it, every dollar you do not spend on taxes is one you can potentially invest toward your financial future. Here are tips for tax deduction and credit planning, with information on who is eligible and how you could possibly benefit.

Understanding Available Credits

Each tax credit you qualify for will directly reduce your tax payments. The IRS offers two kinds of credits: refundable and nonrefundable. With refundable credits, you can receive a refund, even if you owe less than the credit amount. On the other hand, nonrefundable credits offer a refund amount up to your tax liability.

Knowing which tax credits you qualify for can significantly reduce the amount of taxes you owe – and possibly even result in a refund. The IRS has a number of credits for individual taxpayers, but here is a list of common ones you could qualify for:

Earned-Income Tax Credit: For households with low to moderate income. The income limits can fluctuate, and many more people qualify for this credit than may realize it. In fact, 25% of eligible taxpayers do not claim this credit – which can be over $6000 per household.

Child and Dependent Care Credit: For households who pay for childcare. If you have dependent children and pay for childcare, you may qualify for credits up to $6000, depending on your adjusted gross income (AGI).

Credit for the Elderly or Disabled: For taxpayers 65 and older, or those on permanent disability who meet income requirements. This credit starts at $3750 and goes as high as $7500. So, if you fit the age or disability restrictions, researching your eligibility is well worth the effort.

Lifetime Learning Credit: For households paying for education.

This credit can provide you up to $2000 toward qualified tuition and enrollment fees. To be eligible, you must have a modified AGI less than $130,000 as a married couple or $65,000 as an individual.

Premium Tax Credit: For households that purchased health insurance through a federal or state marketplace. This credit helps people cover the cost of premiums for insurance they purchase through the Health Insurance Marketplace. Depending on your income and other personal details, you may be able to receive a premium tax credit if you, your spouse, or your dependent purchased an eligible health insurance plan.

Planning Your Deductions

Deductions help reduce your taxable income, thereby hopefully lowering your tax liabilities. Between itemized and standard deductions, taxpayers claimed nearly $2 trillion in the most recently tracked year. That’s a lot of money! But, chances are, many people miss eligible deductions and still pay more in taxes than they need to.

Remember, when you use the standard deduction, you can likely claim a higher deduction if you or your spouse has a qualifying vision impairment or a birthday on January 2, 1952, or earlier.

If you itemize your deductions, you are likely familiar with the opportunities to write off your home mortgage interest, tuition fees, and charitable contributions. But here are a few more deductions you may be eligible to take, depending on your circumstances:

State Sales Tax: Mostly for households who don’t pay state or local income tax. If you only pay federal income taxes, you may be able to deduct your state sales tax on your federal return. This deduction is especially helpful if you made a large, taxable purchase in 2016, such as a car.

Business Travel Expenses: For taxpayers who have unreimbursed work travel. If you paid for travel to conferences, meetings, or other work obligations, you may be able to deduct your expenses. The list of potentially deductible items goes beyond transportation and lodging to include dry cleaning, meals, business calls, and more.

Student Loan Interest: For households paying student loan debt.

If you currently pay student loan debt, you may be able to deduct interest, depending on your income and specific circumstances. Deductions can be up to $2500 for student loan interest – and you are allowed to claim this deduction even if you don’t itemize deductions on your tax return.

Sale of Your Home: For households who profited from selling their main home in 2016. If you sold your primary residence last year and earned a profit, you may qualify to claim this exclusion. If you qualify, you can exclude up to $250,000 of the gain from your income – or up to $500,000 if you file taxes jointly with your spouse.

As you can see, the opportunities to reduce your tax liabilities are vast, and these credits and deductions are only the beginning. It is best to consult with your tax preparer or a qualified tax professional.

Here’s to a successful tax filing season!
Carolyn Howard
(877) 328-4037

Self-Employed? Be Prepared for These

February 14, 2017 By SeaCure Advisors Leave a Comment

Potential Tax Planning Challenges

If you’re new to self-employment, what you don’t know can hurt you

There are plenty of benefits when it comes to being self-employed. You get to set your own hours, be your own boss, and maybe even work from home in your PJs. However, with this freedom and independence comes the often-overwhelming responsibility of paying taxes. Unlike employees of a business or company, there’s no W-2s and quite a few potential challenges, such as how to file for multiple businesses, cash management, and tax withholding issues, to name just a few. We’ve outlined a sampling of possible problems below to give you an idea of what to expect when paying your taxes while self-employed.

Watch out for these potential tax pitfalls

Let’s start with the obvious, how do you know you fall under the category of self-employed? If you are an independent contractor, the sole proprietor of a business, or otherwise in business for yourself, even if it’s only part-time, then you count as self-employed when it comes to taxes. Many self-employed individuals often have multiple streams of income, especially if their work is part-time. If those activities are closely related, if you’re a salesperson, for example, and you sell different product lines, those count as closely related activities and you can file them all together on a form called a Schedule C. However, if your multiple businesses are unrelated, like private tutoring and a tech repair service, they must be reported separately, and that means keeping separate records of income and business expenses for each individual business. It sounds difficult, but it’s extremely important, as self-employed people are often much more at-risk for an audit.

Another key thing to keep in mind is that unlike regular employees, who automatically have their taxes deducted from their paychecks for things like Social Security and Medicare, those who are self-employed have to calculate this for themselves prior to tax time. This ties into a major misconception that many people who are new to self-employment might have: that they can wait until the filing deadline of April 15^th and pay their estimated taxes in one lump sum. If your taxes add up to more than one thousand dollars – and poor financial planning might mean you don’t even know what you owe – the IRS expects something called Estimated Quarterly Taxes at different intervals over the course of the year. If you miss a payment, it can lead to problems with the IRS, including penalties, interest and tax debt. Poor financial planning can also result in people not having saved enough funds to cover their tax debt, which can present a whole other slew of problems.

Final word

Filing taxes as a self-employed individual can feel scary. There are many challenges that can feel insurmountable and many opportunities to make a mistake that can bring the IRS down on you. But you don’t have to do it alone. All of these challenges can be made much manageable with the help of a knowledgeable financial consultant in your corner, guiding you not just through every step of your taxes, including important deductions you might not be aware of, but before them as well, helping with financial planning and ensuring that you have the necessary funds reserved for your taxes. For this kind of support, you can count on SeaCure Advisors. We work with your unique financial situation, so call us today to take the stress of your taxes.