Washington Hotline – December 5, 2017


Washington Hotline

IRS Online Shopping Security Tips

In IRS-2017-173, the IRS offered seven tips for online holiday shoppers. With “cyber Monday” and other online specials drawing millions of American shoppers, these tips can protect you from cybercriminals.

  1. Familiar Online Stores – Use online stores with good reputations and familiar names. The URL or online address should start with “https.” The “s” shows the website has a security certificate.
  2. Unprotected WiFi – Avoid using public WiFi for online purchases. Thieves can monitor activity on public WiFi. If you use your credit card to purchase items on public WiFi, a cybercriminal may be able to steal your financial information.
  3. Security Software – Anti-virus software is reasonable in cost and should be used by everyone. It should update each day when you are using the internet. Do not use “free” security software. Do not click on offers for “free” security scans.
  4. Passwords – Use 10 to 14 character passwords. The best passwords have a capital letter, a number, a special character and lower case letters. Use a password manager with encryption to save all your passwords.
  5. Phishing emails – Be cautious if an email claims to be from the IRS or a financial institution. Do not click on any links if you do not know the sender of the email.
  6. Authentication – Many banks and financial institutions now offer multi-factor authentication. They will usually send a text to your mobile phone. After you log in, you will also have to enter the word or number that has been sent by text message to your phone.
  7. Encrypt Data -Your sensitive financial data should be encrypted if you store it on your hard drive. If you change computers, be sure to clean or destroy the hard drive of your old machine.

There are a couple other helpful safety steps. First, you can obtain a free credit report from the three major credit bureaus each year. You should check annually to ensure that there are no unfamiliar financial actions on your account. Second, you may want to go to www.SSA.gov and create a “My Social Security” account. With this account, you will be able to monitor your Social Security records.

Senate Passes Tax Cuts and Jobs Act?

As of publication time on December 1, the Senate is expected to pass the Tax Cuts and Jobs Act (TCJA) by vote of 51 to 49.

Several last-minute changes were made to gain votes of senators. Sen. Susan Collins (R-ME) requested a $10,000 property tax deduction. This itemized deduction is also in the House bill.

Sens. Ron Johnson (R-WI) and Steve Daines (R-MT) asked for a larger deduction for pass-through businesses. The deduction was increased from the original 17.4% to 23%. This deduction generally reduces tax on partnership business income to under 30%.

Sen. Jeff Flake (R-AZ) was assured by Vice President Pence there would be “fair and permanent” protections for young undocumented immigrants.

Sen. Bob Corker (R-TN) expressed serious concerns about the Joint Committee on Taxation report indicating an increase in federal debt of $1 trillion over a decade. To reduce the projected deficit from the TCJA, senators increased the tax rate on corporate overseas funds returned to the U.S. Even with this change, Sen. Corker voted against the bill.

Editor’s Note: Both the House and Senate have different versions of TCJA. There is likely to be an informal conference to draft a compromise bill. House Ways and Means Committee Chairman Kevin Brady (R-TX) and Senate Finance Committee Chairman Orrin Hatch (R-UT) will draft most of the final bill. Meanwhile, the current continuing resolution to operate the federal government expires on December 8. Congressional leaders have proposed a two-week continuing resolution to extend that deadline to December 22. They hope to pass a final tax bill before that date. If the final TCJA is passed in December, it will be the first comprehensive tax reform act since 1986.

House and Senate Leaders Sound Off on TCJA

Both House and Senate Leaders offered strong opinions on their different versions of the Tax Cuts and Jobs Act (TCJA).

Senate Finance Committee Chairman Orrin Hatch supported TCJA. He offered examples of the tax savings for typical married and single taxpayers.

Hatch stated, “Under our bill, a family of four making the U.S. median family income of around $73,000 a year would see their tax rates go down by more than $2,000 a year. That is a savings of more than $180 a month. Overall, this represents a nearly 60% reduction in that family’s tax liability. A single parent with one child making $41,000 a year, under the bill, will pay about one quarter of the federal income taxes he or she pays today, an annual reduction of almost $1,400.”

Senate Finance Committee Ranking Member Ron Wyden (D-OR) strongly opposed TCJA. He responded, “More and more Americans will face a tax hike with every passing year under this bill. Stealthy tax tricks will force people into higher tax brackets over time, heaping a heavier burden on their shoulders. Millions of working Americans are going to lose their healthcare and the tax credits that make insurance affordable.”

Sen. John McCain (R-AZ) has a reputation as an independent thinker, but supported the bill. He noted, “For too long, hardworking people in Arizona and around the country have not seen a raise in their paychecks. This bill will directly benefit all Americans, allowing them to keep a higher percentage of what they earn. According to the nonpartisan Joint Committee on Taxation, every income bracket will see tax relief under this bill. The child tax credit would be doubled to $2,000 per child and the tax code would be substantially simplified.”

Finally, House Ways and Means Committee Chairman Kevin Brady (R-TX) summarized the House majority position. He stated, “Through tax reform, we have an incredible opportunity to promote the kind of lasting economic growth that can only come from enhancing free enterprise, increasing individual liberty and expanding economic freedom.”

Applicable Federal Rate of 2.6% for December — Rev. Rul. 2017-24; 2017-49 IRB 1 (17 Nov 2017)

The IRS has announced the Applicable Federal Rate (AFR) for December of 2017. The AFR under Section 7520 for the month of December is 2.6%. The rates for November of 2.4% or October of 2.2% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2017, pooled income funds in existence less than three tax years must use a 1.2% deemed rate of return. Federal rates are available by clicking here.

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