2016 September Tax Preparer Script

Transcription

1 2016 September Tax Preparer Script Hello and thank you for joining us today. I m Terri Steenblock Assistant Commissioner of Individual Taxes. Today, we will discuss Minnesota legislation enacted on June 1, 2016 that affects Minnesota income tax returns for tax years 2016 and beyond. Website As a reminder, we do have a centralized location for keeping you informed of the tax law changes. From our homepage You will see an orange box labeled tax law changes Click on that box and it will take you to the page dedicated to the tax law changes Minnesota Legislation enacted on June 1, 2016 contained two provisions that impact the Minnesota individual income tax. These provisions were included in the Omnibus Supplemental budget bill. These provisions create a refundable credit and income subtraction effective tax year Credits Credit for Parents of Stillborn Children Let s begin with the credit for parents of stillborn children The omnibus supplemental finance bill created a credit available to parents of stillborn children. This credit is equal to $2,000 and is available only to the taxpayer who would have been eligible to claim the child as a dependent. In order to qualify for the credit, a certificate of birth resulting in still birth must have been issued by the Minnesota Department of Health. The credit is claimed by completing Schedule M1PSC, Credit for Parents of Stillborn Children. To complete Schedule M1PSC, taxpayers will need the following information from the Certificate of Birth Resulting in Stillbirth issued by the Minnesota Department of Health: - Name of Parent 1 and 2 (if listed) - Date of delivery - State file number, and - Document control number A Certificate of Birth Resulting in Stillbirth is a record of birth that is issued by the Minnesota Department of Health, Office of Vital Records, to parents who have experienced a fetal death of a fetus for whom 20 or more weeks of gestation had occurred. Customers may request a Certificate of Birth Resulting in Stillbirth at the hospital, or later by completing a request/application and submitting the form and fee to the Minnesota Department of Health Office of Vital Records.

2 The credit is claimed only for the year during which the stillbirth occurred. Schedule M1REF, Refundable Credits New for tax year 2016, we will be introducing Schedule M1REF, Refundable Credits. This schedule will aggregate the individual refundable credits including the Child and Dependent Care Credit, Minnesota Working Family Credit, K-12 Education Credit, and Credit for Parents of Stillborn Children. The total credit amount from this schedule will be reported on Form M1, line 25. Taxpayers who claim one or more of these credits must file the specific credit schedule, such as Schedule M1CD, Child and Dependent Care Credit, as well as Schedule M1REF to claim the credit or credits they qualify for. You will notice lines 5 through 8 of this Schedule are intentionally left blank. At this time, these lines will not be used and no value should be entered on them. Electronic returns with a value on any of these lines will be rejected. Subtractions Now let s move on to subtractions from taxable income. The bill established a subtraction from federal taxable income of certain military pension or other military retirement pay effective for tax year 2016 Military Retirement Pay The omnibus supplemental finance bill established a subtraction for certain military retirement pay included in federal taxable income. The subtraction is allowed in determining Minnesota taxable income and Minnesota alternative minimum taxable income. To qualify for the subtraction, the pay must be from a pension or other retirement plan paid by the federal government for service in the military. The pay must be computed under US Code, Title 10, Sections 1401 to 1414, 1447 to 1455, and Taxpayers who claim this subtraction may not claim the nonrefundable credit for prior military service. We anticipate most qualifying taxpayers will receive an equal or greater benefit by claiming the subtraction rather than the nonrefundable credit. If one or more of the following conditions are true for the customer, the subtraction will generally provide an equal or greater benefit: - Their adjusted gross income (AGI) is $37,500 or more, - Their federal taxable income, plus Minnesota income additions, is less than the qualifying military retirement pay they receive, - They receive $14,018 or more in qualifying military retirement pay Taxpayers who receive this type of income may claim exempt from Minnesota withholding on this income by completing and providing their payer Minnesota Form W-4MN. This form must be completed and provided to the payer by February 15 th of any year the individual wishes to claim exempt. To claim this subtraction, customers will need to file Schedule M1M, Income additions and subtractions.

3 You will notice lines 38 and 39 of Schedule M1M are intentionally left blank. These lines will not be used and no value should be entered on them. Electronic returns with a value on any of these lines will be rejected. Federal Conformity Federal update legislation was not enacted during the 2016 session. This means Minnesota tax law recognizes the internal revenue code (IRC) as amended through December 31, Since that date, federal law has been enacted that contains a number of provisions that impact Minnesota tax calculations for tax years 2015 and At this time, we will have a 2016 Schedule M1NC, Federal Adjustments. Customers who are impacted by any of these provisions in tax year 2016, or certain provisions in tax year 2015 will need to complete a 2016 Schedule M1NC. Line 1 Deduction for Educator Expenses Federal law allows certain educators to claim an above the line deduction for their first $250 in qualifying expenses. Customers who claim a federal deduction for educator expenses on Form 1040, line 23 or Form 1040A, line 16, will need to enter the amount from that federal line on Schedule M1NC, line 1. Customers who are affected by this provision and who file federal Schedule A, may be able to claim a deduction for a portion of this addition on Schedule M1NC, line 19. We will go into more detail about this when we discuss line 19. Line 2 Deduction for Higher Education Tuition and Fees Federal law allows an above the line deduction for qualifying tuition and fees they pay during the tax year. This deduction is not allowed for Minnesota tax purposes. Customers who claim a federal deduction for higher education on Form 1040, line 34 or Form 1040A, line 19, will need to enter the amount from that federal line on Schedule M1NC, line 2 Line 3 Exclusion for Home Mortgage Debt Forgiveness Income Customers who experience a foreclosure on or short sale of their principal residence may be able to exclude all or some of that debt forgiveness income from federal taxable income. Customers who exclude this income from their federal income will need to include that debt forgiveness income on Schedule M1NC, line 3. Affected customers file federal Schedule 982 and check the box on line 1 e. Line 4 Exclusion for Qualified Charitable Distributions Customers who are age 70 ½ or older and elect to have a distribution from their IRA sent directly to charity may be eligible to exclude that distribution from federal adjusted gross income (AGI) as a qualified charitable distribution. This exclusion is not allowed for Minnesota purposes. The distributions excluded from federal income under this provision must be entered on Schedule M1NC, line 4; however, a Minnesota deduction is allowed for some or all of these charitable contributions. Customers who file federal Schedule A may claim a deduction for some or all of this cash contribution on Schedule M1NC, line 19. The customer s total charitable contribution deduction, including these

4 distributions, is limited based on their contribution base. For purposes of the limitations, these distributions are considered cash contributions. Customers who do not file federal Schedule A may claim a Minnesota subtraction for their charitable contributions on Schedule M1M, Income Additions and Subtractions, line 18. The subtraction is limited to 50% of the customer s total charitable contributions that exceed $500. Line 5 Exclusion for Individuals who were Wrongfully Incarcerated A new exclusion enacted in the Protecting Americans from Tax Hikes Act of 2015 (PATH Act) allows customers who were wrongfully incarcerated exclude any settlement payment they receive as a result of being wrongfully incarcerated from taxable income. This exclusion is not allowed for Minnesota purposes. This income must be included in Minnesota taxable income and entered on Schedule M1NC, line 5. Line 6 Exclusion for Certain Dividends Received from a Regulated Investment Company (RIC) Nonresident alien customers may exclude from their income certain dividends they receive from their income. This exclusion does not apply for Minnesota tax purposes. These dividends must be included on Schedule M1NC, line 6. Lines 7, 9 through 11, and 14 Enhanced Depreciation for Business Assets Federal law allows for enhanced depreciation on certain business assets placed in service in 2015 and These assets include: - Business assets used primarily on an Indian reservation - Qualified leasehold, restaurant, or retail improvement property - Land improvements for motor sports facilities - Mine Safety equipment Because the Minnesota tax code was not updated to allow this enhanced depreciation for tax year 2015 or 2016, customers who placed a qualifying asset in service during either of those years and elected the enhanced federal depreciation will need to maintain separate depreciation schedules for those assets. Customers will need to include the difference between their 2016 federal and state depreciation expense for these assets on Schedule M1NC. If the customer s 2016 federal depreciation expense is more than their Minnesota expense, include the difference on the line that identifies the depreciation type. If the customer s 2016 federal depreciation expense is less than their Minnesota expense, include the difference on line 14. Line 8 Qualified Film and Television Federal law allows customers to expense rather than capitalize qualified film or television production expenses if the cost of the production is less than $15,000,000. Customers who take advantage of this provision must capitalize their expenses for Minnesota tax purposes. The difference between the federal and Minnesota expense deduction must be entered on Schedule M1NC.

5 If the customer s 2016 federal expensing deduction is more than their Minnesota expense, include the difference on the line 8. If the customer s 2016 federal expensing is less than their Minnesota expense including expenses related to 2015 qualifying expenses, include the difference on line 14. Line 12 S Corporation Stock Basis A federal provision allows shareholders of an S-Corporation that donated appreciated property to reduce their basis in the corporation by corporation s adjusted basis in the asset rather than the fair market value of the asset. This means the shareholders must recalculate their basis in the corporation for Minnesota tax purposes. In certain situations, this will require an adjustment on Schedule M1NC, line 12. Those situations include: - Disposition of some or all of the interest in the corporation - Corporate loss and the customer s recognition of this loss is limited due to their basis in the corporation. Customers must include on line 12 the difference between their federal and Minnesota capital gain, and recognizable loss. Line 13 Recomputed Differences When Minnesota and federal tax laws have been out of conformity in the past, we have notified taxpayers they may need to prepare a recomputed federal form if they have certain items of income or deductions that are based on adjusted gross income (AGI) or modified adjusted gross income (MAGI). This has created difficulties for our customers and allies. To help alleviate these difficulties, we have provided worksheets for the most common items that would have previously required customers to prepare a recomputed federal form. We have provided worksheets to calculate differences in the taxability of social security income, recognition of rental real estate losses, and deductibility of IRA contributions and student loan interest. These worksheets will allow customers and software vendors to more easily calculate the necessary adjustment in these amounts without needing to prepare a recomputed federal form. If the customer has one of these items, but does not have an amount on Schedule M1NC, lines 1-12, or lines 14, they do not need to complete line 13. Line 16 Mortgage Insurance Premium Deduction Federal law allows customers to deduct qualifying mortgage insurance premiums they pay. This deduction is claimed on line 13 of federal Schedule A. Minnesota law does not allow this deduction. Taxpayers who claim this federal deduction may need to add back some or all of the mortgage insurance premium deduction they claimed on their federal return. We have provided a worksheet in the instructions to calculate the amount of the federal deduction that must be added back for Minnesota purposes.

6 Line 17 Enhanced Charitable Contribution of Certain Assets Federal law allows taxpayers to claim enhanced deductions for certain assets. These federal enhanced charitable deductions may be allowable when the customer donates: - Food inventory - Real property conservation easements Customers who claim these enhanced deductions on their federal return will need to recalculate their deduction for Minnesota purposes. For donations of food inventory, this means the deduction is limited to the customer s basis in the food. For donations of conservation easements, this generally means the deduction is limited to 30% of the customer s contribution base. The difference between the customer s federal and Minnesota charitable contribution deductions will need to be included on Schedule M1NC, line 17. This line will also be used by customers who enter an amount to report differences in other itemized deductions that are caused by having higher Minnesota income than federal income. Only customers who enter an amount on Schedule M1NC, line 15 and have one of these federal deductions will need to make these adjustments. These differences include the deductible portion of: - Medical and dental expenses - Casualty and theft losses - Job expenses and certain miscellaneous deductions The deductible portion of medical and dental expenses is calculated by reducing the customers total qualifying expenses by 7.5% or 10% of their adjusted gross income. Customers who include an amount on Schedule M1NC and have federally deductible medical and dental expenses should include on line 17, the smaller of: - Their federal Schedule A, line 4, or - Their amount from Schedule M1NC, line 15 multiplied by the percentage they used to compute Schedule A, line 3. The deductible portion of casualty and theft losses is calculated by reducing the customer s loss by $100 and then 10% of AGI. Customers who include an amount on Schedule M1NC and have a federally deductible casualty or theft loss should include on line 17, the smaller of: - Their federal Schedule A, line 20, or - 10% of their amount on Schedule M1NC, line 15. The deductible portion of job expenses and certain miscellaneous deductions is calculated by reducing the customer s by 2% of their AGI. Customers who include an amount on Schedule M1NC and have a federally deductible casualty or theft loss should include on line 17, the smaller of: - Their federal Schedule A, line 27, or - 2% of their amount on Schedule M1NC, line 15. Line 19 Additional Deductions for Items Reported on Schedule M1NC

7 Customers who file federal Schedule A and have certain adjustments on this schedule may be able to recognize a larger itemized deduction in certain situations. This could happen if the customer entered an amount on line 1, 4, or 15. Line 1: Educator expenses: The amount included on line 1 of this schedule are considered employee expenses. We have provided a worksheet in the instructions to calculate any additional employee business expense deduction they may claim. Lines 4: Qualified Charitable Distribution: The amount on line 4 is a cash charitable contribution. For customers who filed federal Schedule A, this contribution is deductible on line 19 up to certain limits involving contribution base. The customer s contribution base is increased by the amount on line 15. Line 15: Customers who enter an amount on line 15 and whose federal charitable contributions are limited should recalculate their charitable deduction allowed for Minnesota purposes. The amount on line 15 is included in their contribution base. Additional Items included on line 19: In certain situations, customers who entered an amount on Schedule M1NC, line 14 and complete one or more of the worksheets for line 13 may find that their Minnesota recognizable loss, or allowable deduction is more than their federal amount, or they may find that less of their Social Security Income is taxable for Minnesota purposes. In these rare situations, the difference should be included, as a positive amount, on line 19. This reason for entering an amount on line 19 is not dependent on filing federal Schedule A. Administration and Changes Voter Registration This year you will notice a link for voter registration while filling out an electronic return. The link will say Are you registered to vote at your current address? You may be eligible to vote if you are 18 years old, a U.S. citizen, a Minnesota resident, and finished with any felony sentence. You can quickly and easily register to vote online at mnvotes.org. Payment Voucher System Two years ago, we introduced our Payment Voucher System for payments by check. This year we will have specifications for software products to create only return, amended, extension, and estimated payment vouchers for Individual Income tax returns. Returns that include a PTIN must have the PTIN on the payment voucher. The PTIN will help us identify any issues with the scan line. To ensure accuracy of the vouchers, do not generate vouchers outside of your approved, professional software products. All other tax types must pay electronically or generate their payment vouchers from our website. The software products will provide a link to our Payment Voucher System to create a voucher. Why this change? You ll be using the most current voucher. You will have a record of the amount of the payment and estimated payments.

8 You ll have faster and more accurate voucher processing. You can also setup easy and secure payments or estimated payments using e-services. E-Services gives you a payment confirmation page, sends you a confirmation , and allows you the option to adjust payments at any time before the date your customer requested. Voucher Demonstration So that you are familiar with making vouchers from our website, I ll demonstrate making one. Navigate to our Homepage. Under both the Individuals tab and Businesses tab, you can see there is a Make a payment. For our example, we will make a payment for an Individual. You can see taxpayers still have the option here to pay electronically, by credit card, check, cash, or money order. In the checks area, click the e-services Payment Voucher System to create and print a payment voucher. Click Begin Payment Voucher I ll put $ for the payment amount For an individual Type: Individual Income Tax For a return In 2015 Not a joint account First Name, Guy Last name, Taxes Social security number and confirm Mailing address Review the details, then create the payment voucher. Make sure you print Actual Size so we can process your customers payments accurately. Mail the voucher with a check made payable to Minnesota Revenue Estimated Payment Demonstration Next, let s make an estimated payment in e-services for an individual so you can see how it works. We are not using a real taxpayer s information here, as you will see us type the Social Security number and last name. From our website, on the individuals tab, click Make a Payment Click Pay electronically with our e-services Payment System For our example, click No, I am not using a Letter ID Type of taxpayer will be Individual Type of tax will be Individual Income Tax You won t be able to go any further without a social security number and a last name. For ours, we ll type and Guy I ll add an address for this taxpayer Guy@guy.com and again For our type of payment, I ll put estimated For 31-December-2016

9 No, the funding will be in the US No, we ll have a single payment Pick a date I ll put $ Let s put checking for account type We can use for the Wells Fargo routing number Account number and confirm From here, you can review the information, then submit it to us. After you ve submitted, there is an option for a printer friendly page of the payment details for your customer. As I mentioned before, a copy of this information is also sent to the address you entered. As a reminder, the most efficient way to make payments is electronically. Requesting Third Party Access in e-services Demonstration We also want to show you how to request third party access in e-services. In the Tax Professionals tab, click e-services Information Next click Log in to e-services to file, pay and update account information for businesses. From here, you can enter your username and password. You will be prompted with 2 step verification. If you ve logged in and remembered that computer, you won t have to use the 2 step verification Look to the bottom left, you will see Manage Profile On the 3 rd party access tab, request 3 rd party access. You will fill in details then click next o Tax ID Employer ID: FEIN o Tax ID number: o Minnesota Account Type: Withholding Tax o Account ID Number: o Then click next This is the summary page to know what you are requesting access for. If the information is correct, click submit. You will see a confirmation page. Once you complete this request, it sends an and e-services message to the taxpayer. The customer has to approve your request. Then you will have access on a tab called Other Taxpayers Accounts. M23, Claim for a Refund for a Deceased Taxpayer Next, filing a return for a deceased taxpayer is now easier for tax year You asked for changes allowing you to file all returns and required forms at once. We made this a reality: You don t have a wait to send us M23s. You can attach the death certificate at the same time you submit the return. You can send M23s in with M1s, M1Xs, M99s, PRs, and PRXs.

10 You should include both the death certificate and court documents showing an appointment if there is a trustee or personal representative. You should include a PDF attachment of the M23 if there are waiver signatures. Please note: The previous process is still required for 2015 and earlier M23s. Mailing Business Payments Also new this year, we ve changed where business payments should be mailed. We are asking you to send payments to a separate mail address than the returns. Mailing instructions will be on the returns. Error Rejection Codes There are a few new Error Rejection Codes you might notice this year. The first one is for the M23. If you submit an M23 without an attachment, then the M23 will be rejected. This is meant as a reminder to send us the death certificate at the same time you submit the M23. The second new error rejection code is that we will validate that you ve included a PTIN whenever the return filer type is marked as professional. If you have questions about ERCs, you can find more information from our main webpage. Click the Error Rejection Codes link in the Tax Professionals tab. Identity Theft As we prepare for another tax filing season, it will be even more critical to be aware of identity theft. Identity theft is one of the fastest-growing crimes in the nation and causes significant, lasting damage to its victims. Last year, the IRS, state revenue agencies, and the financial and tax industries came together in an unprecedented partnership to protect tax accounts from identity thieves. Check your EFIN You should check your EFIN on the IRS e-services Online Tool to ensure accuracy and security during the filing season. The tool checks your EFIN status to ensure that your EFIN is not being used by others improperly. Your e-file application will help verify the volume received by the IRS which you can match to your records. The statistics are updated weekly. If you see a higher volume than you transmitted, please contact the IRS e-help Desk at You can also contact us at or toll free at for more information. Monitor your PTIN The IRS also has a tool to help monitor your PTIN. Tax preparers can help protect clients and their businesses from identity theft by checking their PTIN Accounts to ensure the number of returns filed using their identification number matches IRS records. It is important to monitor this information even if you do not prepare returns or only prepare a small number of returns. If the number of returns processed is significantly more than the number of tax returns you ve prepared and you suspect possible misuse of your PTIN, complete and submit Form 14157, Complaint: Tax Return Preparer, to the IRS. Fraud Reminders

11 Remember to continue making and updating strong passwords, validating requests for your customers information, and being cautious about clicking links in your . Return Filer Type Let s talk about the Return Filer Type you will see included with the M1 in your software package. This Return Filer Type is similar to last year, but I d like to clarify what it means. The question is for information about the person filing the return, without regard to payment or nonpayment or the type of software used. Since you are professional preparers, you will always use a P. Notes and Tips Lastly, I d like to highlight a few notes and tips for you: If your customer wants printed forms, make sure your print settings say Print Actual Size. This ensures the tax forms sent to us will get the fastest processing time. If you have a customer with a suffix at the end of their name, make sure to write the suffix in the suffix field, not the last name field. If your customer lives in an apartment, make sure you are not entering the apartment number or letter twice. If you use electronic payments, your customers can set future payment dates and apply portions of their refunds to next year s estimated tax. Businesses can use e-services to file electronically for most tax types. You can see a full list from our main webpage, click e-services Information under the Businesses tab, then Accounts available to file, pay, and view. Every return we receive is different and processing time will vary. Using the Where's My Refund? webpage, taxpayers can follow their return through our process. When we are finished processing the return, your customers will see the date their refund was issued. Lastly, if you use e-services, you ll notice we ve added 2 step verification. Thanks I want to thank you in advance for all the work you are doing in preparing for next season. I appreciate your continued support and the job that you do helping taxpayers file their returns. We look forward to working with you before and during this next filing season. Contact information for questions you have is available on our webpage. If you click the News for Tax Preparers link, you can see the efile.prepsupport@state.mn.us address, phone number, and s specific to some tax types.