1099-Ks

We’re seeing more and more 1099-Ks reporting third party settlement transactions this year and many of you have had questions about them.

Why is this happening?  Starting in TY2017, the Massachusetts DOR lowered the level for reporting third party settlement transactions (e.g., PayPal) to $600 for payees with a Massachusetts address. This is significantly more encompassing than the IRS level of $20,000 per payee and a minimum of 200 transactions. The end result is that we in Massachusetts are seeing more 1099-Ks.

The DOR has answered some frequently asked questions about this new rule here.

Are 1099-Ks in scope?  Yes, they are – within the limits defined in the Tax-Aide Scope Document (available on the One Support Help Center).

How do we handle a 1099-K?  If a taxpayer has a 1099-K, it is important to determine what the income represents. It can be income from a small business, personal property sales (i.e., online garage sale), a simple transfer of funds from one person to another, or any combination thereof.

We recommend the following course of action for each 1099-K presented:

1) Determine if the 1099-K is for a business, sale of personal items, funds transfer or combination of the three. Work with the taxpayer to determine how much is allocated to each of these categories.

2) For that portion that is business related, determine if the business is in scope (see Tax-Aide Scope Document for Schedule C restrictions). Refer taxpayers with out of scope returns to a paid preparer. If it is a small in-scope business, click on the 1099-K link on the TaxSlayer income page (see 4012, page D-13) and create a Schedule C, listing the 1099-K income on the first line. Deduct all business expenses on the appropriate lines as you would for any small business.

3) For that portion that reflects personal property sales where the sales price is not higher than the original purchase price there is no taxable event and the amount can be ignored.

4) For that portion that is for a funds transfer to another party (e.g., repayment for dinner, etc) there is no taxable event and the amount can be ignored.

5) If any portion of the 1099-K is determined not to be a taxable event, you should note the amount and rationale in the taxpayers’ file (using either a TaxSlayer note or including something in writing in the taxpayer’s envelope) – that will help if there are any future questions.

6) Advise the taxpayer it is possible they could get a letter of inquiry from one of the tax agencies and either tell them how to respond or advise them to call us if it happens.

As always, if you have any questions, please forward them through your management chain for resolution.

Email Scam

We have heard about a scam targeting tax preparers (both paid and volunteer).  The scammers send an email supposedly from the tax software company asking preparers to update their personal information.  Do not click on these links!  It’s a phishing scam. These are just like the scams asking you to update your bank information, paypal account, or other financial information. If you do receive such an email, please report it through you management chain.

 

Massachusetts Update – Week 3

There are new versions of the Tax-Aide Scope Manual (TY2017, release 4) and NTTC modified 4012 (dated 23 Feb 2018) available on the One Support Help Center.  We recommend that each site have ready access to each document (electronic access is encouraged).

Tax-Aide has issued five CyberTax bulletins for this tax season.  All can be found on One Support Help Center (search “CyberTax”) and every site should be familiar with them. The two latest are particularly important.

  • 20 Feb 2018, CyberTax TY2017-04: Volunteer Tax Alert 2018-03, Information About a Tax Refund Scheme
  • 26 Feb 2018, CyberTax TY2017-05: IRS Volunteer Tax Alert – 2018-05 Update on Extender Provisions

Note that TaxSlayer is still in the process of re-activating the extender provisions; as of today, the nonbusiness energy credits are not yet implemented.

As a reminder for all Massachusetts Tax-Aide volunteers – exclusion of qualified principal residence indebtedness remains out-of-scope regardless of the the extender provisions.

 

Massachusetts Update – Week 2

We noticed two TaxSlayer changes that affected Massachusetts returns this week.

  1. You are now required to enter an amount (even if it’s 0) for the Circuit Breaker credit in the custom questions/credits section of the efile process. This was always a required entry, but defaulted to 0.
  2. When completing the MA Schedule HC, the insurance company’s EIN now defaults to 12-3456789. You can ignore that if there is no private insurance. If there is private insurance and you know the EIN, simply overtype the default with the correct EIN. We have heard of instances where preparers couldn’t overtype the default – in that case, simply ignore the EIN and just enter the subscriber number.

Last week Massachusetts was rejecting returns in which the taxpayer chose to pay the optional higher 5.85 percent tax rate with a reject code of F1-1025 or FNRPY-1025. While this probably doesn’t affect many of our returns, if it does, please see this TaxSlayer blog post for more detail and resubmission instructions.

A few questions came up this week that others might have as well.

Question:  Can I efile a Massachusetts amended return?
Answer:  No. You must paper file the amended return.

Question:  How do I link multiple 1099-MISCs to a single Schedule C?
Answer:  Enter the first 1099-MISC and create a new Schedule C.  Then create and enter the next 1099-MISC. The screen will open that shows the existing Schedule C and asks if you want to create a new one.  Simply click on the edit pencil for the existing Schedule C and the 1099-MISC will be added to it.

For TY2017, there is a change to how we handle the situation in which a member of the tax household died or was born/adopted. Previously, we had to account for every month and request an exemption (code H) on Form 8965 for the months after death or prior to being born/adopted. This is no longer the case. You should only claim this exemption if you are also claiming another exemption on a Form 8965. If every family member had coverage – before death or after birth/adoption – that is considered full-time coverage.

Massachusetts Update – Week 1

Congress passed the budget last week and it included a retroactive re-extension of several of the extenders that expired on 31 December 2016 to 31 December 2017. This includes:

  • Exclusion from gross income of qualified principal residence indebtedness (always out of scope for Massachusetts Tax-Aide volunteers)
  • Mortgage insurance premiums deductible as qualified residence interest
  • Deduction for qualified tuition & fees
  • Residential energy credit

These have not been incorporated into TaxSlayer yet; we’ll let everyone know when they are. You might consider holding any returns that would be affected to avoid a later amendment.

Reminder for counselor and EROs – you cannot e-file a federal return with a $0 AGI. See the NTTC annotated version of 4012, page 11 (bottom) for instructions on what to do to allow e-filing.

TaxSlayer will create and transmit the appropriate Profit or Loss from Business schedule – Schedule C or Schedule C-EZ – to the IRS. You should include both in your custom print sets to enable printing of whichever schedule is created. Note that Massachusetts uses only MA Schedule C.

Circuit Breaker and 1040-ES Updates

We believe that the Circuit Breaker issue that we posted about on 30 Jan 2018 has been resolved. You can fill out and save the Circuit Breaker screen for homeowners without any errors and subsequently efile the return successfully.  If anyone encounters a problem, please up-channel the issue through your management chain so everyone keeps abreast of the issues.

The IRS SPEC released guidance on 1040-ES (estimated payment) forms that TaxSlayer posted on their blog yesterday.  In summary….

The IRS is continuing to update its programming and processing systems for some 2018 forms impacted by the Tax Reform Act.  This includes Form 1040-ES, Estimated Tax for Individuals, for all software vendors.  IRS expects to release this form to software vendor in mid-February.

Once the form is released TaxSlayer will update the software with the correct 2018 Form 1040-ES.  Until this form is released by IRS, VITA/TCE sites should not provide the 2017 coupons currently printing from the software to the taxpayer.

See the linked post for further details.

Updated Documentation

The updated Massachusetts Resource Guide – aka Mass Manual – dated January 2018 is now available in the Reference Material tab.  We also included a list of changes made from the October 2017 version.  We left the previous versions of the manual online (clearly labeled) in anticipation of someone needing to prepare or amend a 2016 return.

The NTTC also released an updated Tax-Aide Scope Document (version 3). You can download this document directly from One Support. None of these changes appear to affect us, but it’s still a good idea to have the most current version available.

For new volunteers — you will get an invitation to the volunteer portal and One Support — the data repository for Tax-Aide — when we submit your names on the certification list.