There’s a difference between the size of your refund and how much tax you owe. If your refund is lower or higher this year, it doesn’t necessarily mean that your taxes increased or decreased. A refund is the result of overpaying your taxes through withholding during the year. Many people benefited from the Tax Cuts and Jobs Act by receiving larger paychecks during 2018, rather than waiting until 2019 to get their money. That’s why some people are receiving smaller refunds this year than they received in previous years.
The IRS is urging taxpayers to use its calculator now to review their tax withholding. The tax agency says that such a review will allow taxpayers to make any needed adjustments to their withholding decisions early in 2019. “This is especially true for taxpayers who adjusted their withholdings in 2018, specifically in the middle or later parts of the year,” the IRS said. The review is also important for taxpayers who received tax bills when they filed this year or want to adjust the size of their refunds for 2020. The IRS Withholding Calculator can be accessed here: https://bit.ly/2aLxK0A.
Still working in your seventies? The rules governing retirement plan required minimum distributions are strict, but there may be an exception if you’re still working. Generally, participants in qualified retirement plans must begin taking distributions from their plans by April 1 of the year after they turn 70-1/2 — or they face steep penalties. But this doesn’t apply to those who continue working for the entire year in which they turn 70-1/2. If the plan allows it, these employees can wait until April 1 of the year AFTER they retire to start receiving distributions. Contact us if you have questions.
Interest on loan to buy land was ruled to be business interest. The U.S. Tax Court held that interest on a loan used to purchase land on which a taxpayer intended to locate his business was deductible as business interest. In this case, the taxpayer ultimately didn’t build the business on the two vacant lots because his revenues decreased significantly. The IRS said that, because the properties weren’t used in the taxpayer’s business, the properties had to be treated as held for investment. But the court found they were “allocable” to the business, so it allowed the interest to be deducted as business interest. (Pugh, TC Summary Op. 2019-2)
It’s important that the IRS have your current address. An IRS notice of deficiency sent to a wrong address was ruled valid because it was sent to the taxpayers’ last known address. The couple moved but filed their federal tax return using their old address. During an IRS audit of the return, they filed two IRS forms (not tax returns) showing their new address. The IRS mailed its notice of deficiency to the old address. The U.S. Tax Court held that the forms they’d submitted to the IRS weren’t clear notification of an address change (Gregory, 152 TC No. 7). You can file Form 8822 to notify the IRS of a change of address.
Taxpayer can’t take pension plan deductions. The U.S. Tax Court has held that director fees paid by a company to its president, sole shareholder and sole director were actually wages paid for his day-to-day involvement in running the business. Because the fees were wages, he had no self-employment income and, thus, couldn’t deduct contributions he made to a self-employed Keogh-type pension plan. The court concluded that none of the payments he received were for services performed as a director of the company. They were instead made to him for services he performed as an officer-employee. (Burbach, TC Memo 2019-17)